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May 5, 2000

Part II

Department of
Health and Human
Health Care Financing Administration
42 CFR Parts 412, 413, and 485
Medicare Program; Changes to the
Hospital Inpatient Prospective Payment
Systems and Fiscal Year 2001 Rates;
Proposed Rule

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26282 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

DEPARTMENT OF HEALTH AND If you prefer, you may deliver by Documents, or enclose your Visa or
HUMAN SERVICES courier your written comments (an Master Card number and expiration
original and three copies) to one of the date. Credit card orders can also be
Health Care Financing Administration following addresses: placed by calling the order desk at (202)
Room 443–G, Hubert H. Humphrey 512–1800 or by faxing to (202) 512–
42 CFR Parts 412, 413, and 485 Building, 200 Independence Avenue, 2250. The cost for each copy is $8.00.
[HCFA–1118–P] SW, Washington, DC 20201, or As an alternative, you can view and
Room C5–14–03, Central Building, 7500 photocopy the Federal Register
RIN 0938–AK09 Security Boulevard, Baltimore, MD document at most libraries designated
21244–1850. as Federal Depository Libraries and at
Medicare Program; Changes to the many other public and academic
Hospital Inpatient Prospective Comments mailed to those addresses
may be delayed and could be libraries throughout the country that
Payment Systems and Fiscal Year 2001 receive the Federal Register.
Rates considered late.
Because of staffing and resource This Federal Register document is
AGENCY: Health Care Financing limitations, we cannot accept comments also available from the Federal Register
Administration (HCFA), HHS. by facsimile (FAX) transmission. In online database through GPO Access, a
ACTION: Proposed rule. commenting, please refer to file code service of the U.S. Government Printing
HCFA–1118–P. Office. Free public access is available on
SUMMARY: We are proposing to revise the Comments received timely will be a Wide Area Information Server (WAIS)
Medicare hospital inpatient prospective available for public inspection as they through the Internet and via
payment system for operating costs to: are received, generally beginning asynchronous dial-in. Internet users can
implement applicable statutory approximately 3 weeks after publication access the database by using the World
requirements, including a number of of a document, in Room 443–G of the Wide Web; the Superintendent of
provisions of the Medicare, Medicaid, Department’s offices at 200 Documents home page address is http:/
and State Children’s Health Insurance Independence Avenue, SW, /, by
Program Balanced Budget Refinement Washington, DC, on Monday through using local WAIS client software, or by
Act of 1999 (Public Law 106–113); and Friday of each week from 8:30 a.m. to telnet to, then
implement changes arising from our 5 p.m. (phone: (202) 690–7890). login as guest (no password required).
continuing experience with the system. For comments that relate to Dial-in users should use
In addition, in the Addendum to this information collection requirements, communications software and modem
proposed rule, we are describing mail a copy of comments to the to call (202) 512–1661; type swais, then
proposed changes to the amounts and following addresses: login as guest (no password required).
factors used to determine the rates for Health Care Financing Administration, I. Background
Medicare hospital inpatient services for Office of Information Services,
operating costs and capital-related costs. Security and Standards Group, A. Summary
These changes would be applicable to Division of HCFA Enterprise Section 1886(d) of the Social Security
discharges occurring on or after October Standards, Room N2–14–26, 7500 Act (the Act) sets forth a system of
1, 2000. We also are setting forth Security Boulevard, Baltimore, payment for the operating costs of acute
proposed rate-of-increase limits as well Maryland 21244–1850. Attn: John care hospital inpatient stays under
as proposed policy changes for hospitals Burke HCFA–1118–P; and Medicare Part A (Hospital Insurance)
and hospital units excluded from the Office of Information and Regulatory based on prospectively set rates. Section
prospective payment systems. Affairs, Office of Management and 1886(g) of the Act requires the Secretary
We are proposing changes to the Budget, Room 3001, New Executive to pay for the capital-related costs of
policies governing payments to Office Building, Washington, DC hospital inpatient stays under a
hospitals for the direct costs of graduate 20503, Attn: Allison Herron Eydt, prospective payment system. Under
medical education and payments to HCFA Desk Officer. these prospective payment systems,
disproportionate share hospitals, sole FOR FURTHER INFORMATION CONTACT: Medicare payment for hospital inpatient
community hospitals, and critical access Steve Phillips, (410) 786–4531, operating and capital-related costs is
hospitals to implement changes made Operating Prospective Payment, DRG, made at predetermined, specific rates
by Public Law 106–113. Wage Index, Reclassifications, and for each hospital discharge. Discharges
Finally, we are proposing a new Sole Community Hospital Issues. are classified according to a list of
condition of participation on organ, Tzvi Hefter, (410) 786–4487, Capital diagnosis-related groups (DRGs).
tissue, and eye procurement for critical Prospective Payment, Excluded Certain specialty hospitals are
access hospitals that parallels the Hospitals, Graduate Medical excluded from the prospective payment
condition of participation that we Education and Critical Access systems. Under section 1886(d)(1)(B) of
previously published for all other Hospital Issues. the Act, the following hospitals and
Medicare-participating hospitals. hospital units are excluded from the
DATES: Comments will be considered if prospective payment systems:
received at the appropriate address, as Availability of Copies and Electronic psychiatric hospitals and units,
provided below, no later than 5 p.m. on Access rehabilitation hospitals and units,
July 5, 2000. Copies: To order copies of the Federal children’s hospitals, long-term care
ADDRESSES: Mail written comments (an Register containing this document, send hospitals, and cancer hospitals. For
original and three copies) to the your request to: New Orders, these hospitals and units, Medicare
following address only: Health Care Superintendent of Documents, P.O. Box payment for operating costs is based on
Financing Administration, Department 371954, Pittsburgh, PA 15250–7954. reasonable costs subject to a hospital-
of Health and Human Services, Specify the date of the issue requested specific annual limit.
Attention: HCFA–1118–P, P.O. Box and enclose a check or money order Under sections 1820 and 1834(g) of
8010, Baltimore, MD 21244–1850. payable to the Superintendent of the Act, payments are made to critical

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Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules 26283

access hospitals (CAHs) (that is, rural the interim final rule are summarized in • The FY 2001 wage index update,
nonprofit hospitals or facilities that section I.C. of this preamble. using FY 1997 wage data.
meet certain statutory requirements) for Public Law 106–113 also amended • The transition to excluding from the
outpatient services on a reasonable cost section 1886(j) of the Act, which was wage index Part A physician wage costs
basis. Reasonable cost is determined added by section 4421 of the Balanced that are teaching-related, as well as
under the provisions of section Budget Act of 1997 (Public Law 105– resident and Part A certified registered
1861(v)(1)(A) of the Act and existing 33). Section 1886(j) of the Act provides nurse anesthetist (CRNA) costs.
regulations under parts 413 and 415. for a fully implemented prospective • Revisions to the wage index based
Under section 1886(a)(4) of the Act, payment system for inpatient on hospital redesignations and
costs of approved educational activities rehabilitation hospitals and reclassifications.
are excluded from the operating costs of rehabilitation units, effective for cost 3. Other Decisions and Proposed
inpatient hospital services. Hospitals reporting periods beginning on or after Changes to the Prospective Payment
with approved graduate medical October 1, 2002, with provisions for System for Inpatient Operating and
education (GME) programs are paid for payments during a transitional period of Graduate Medical Education Costs
the direct costs of GME in accordance October 1, 2000 to October 1, 2002,
with section 1886(h) of the Act; the In section IV. of this preamble, we
based on target amounts specified in
amount of payment for direct GME costs discuss several provisions of the
section 1886(b) of the Act. In section VI
for a cost reporting period is based on regulations in 42 CFR Parts 412 and 413
of this preamble, we describe the impact
the hospital’s number of residents in and set forth certain proposed changes
of this provision on the proposed
that period and the hospital’s costs per concerning the following:
changes applicable to excluded
resident in a base year. • Postacute care transfers.
hospitals and units in this proposed • Sole community hospitals.
The regulations governing the rule. We are issuing a separate notice of
hospital inpatient prospective payment • Rural referral centers.
system are located in 42 CFR part 412.
proposed rulemaking to implement the • Changes relating to the indirect
prospective payment system for medical education adjustment.
The regulations governing excluded
hospitals and hospital units are located
inpatient rehabilitation hospitals and • Changes relating to the DSH
units. adjustment and collection of data on
in parts 412 and 413, and the GME
regulations are located in part 413. B. Major Contents of This Proposed Rule uncompensated costs for services
On July 30, 1999, we published a final furnished in hospitals under the
rule in the Federal Register (64 FR In this proposed rule, we are setting prospective payment system.
41490) that implemented both statutory forth proposed changes to the Medicare • Medicare Geographic Classification
requirements and other changes to the hospital inpatient prospective payment Review Board (MGCRB) classifications.
Medicare hospital inpatient prospective system for operating costs. We are not • Payment for the direct costs of
payment systems for both operating proposing any policy changes relating to GME.
costs and capital-related costs, as well payments for capital-related costs under
4. Last Year of Transition Period for the
as changes addressing payment for the hospital inpatient prospective
Prospective Payment System for Capital-
excluded hospitals and payments for payment system in FY 2001. Our
Related Costs
GME costs. Generally, these changes proposed changes relating to capital-
related costs include only changes to the In section V. of this preamble, we
were effective for discharges occurring
amounts and factors for determining the discuss FY 2001 as the last year of a 10-
on or after October 1, 1999. Correction
rates for capital-related costs for FY year transition period established to
notices for the July 30, 1999 final rule
2001. We also are proposing changes phase-in the prospective payment
relating to the wage index and
relating to payments for GME costs and system for capital-related costs for
geographic adjustment factor were
payments to excluded hospitals and inpatient hospital services.
issued in the Federal Register on
January 12, 2000 (65 FR 1817) and units, DSHs, SCHs, and CAHs. This 5. Proposed Changes for Hospitals and
February 7, 2000 (65 FR 5933). proposed rule would be effective for Hospital Units Excluded from the
On November 29, 1999, the Medicare, discharges occurring on or after October Prospective Payment Systems
Medicaid, and State Children’s Health 1, 2000.
In section VI. of this preamble, we
Insurance Program (SCHIP) Balanced The following is a summary of the
discuss the following proposals
Budget Refinement Act of 1999, Public major changes that we are proposing to
concerning excluded hospital and
Law 106–113, was enacted. Public Law make:
hospital units and CAHs:
106–113 made a number of changes to 1. Proposed Changes to the DRG • Limits on and adjustments to the
the Act relating to prospective payments Reclassifications and Recalibrations of proposed target amounts for FY 2001.
to hospitals for inpatient services and Relative Weights • Development of prospective
payments to excluded hospitals. This payment system for inpatient
proposed rule would implement As required by section 1886(d)(4)(C) rehabilitation hospitals and units.
amendments enacted by Public Law of the Act, we adjust the DRG • Continuous improvement bonus
106–113 relating to FY 2001 payments classifications and relative weights payments.
for GME costs and FY 2001 payments to annually. Our proposed changes for FY • Clarification that the 5-percent
disproportionate share hospitals (DSHs), 2001 are set forth in section II. of this threshold used in calculating an
sole community hospitals (SCHs), and preamble. excluded hospital’s cost per discharge is
CAHs. These changes are addressed in 2. Proposed Changes to the Hospital based only on Medicare inpatients
sections IV. and VI. of this preamble. Wage Index discharged from the hospital-within-a-
Other provisions of Public Law 106– hospital.
113 that relate to Medicare payments to In section III. of this preamble, we • All-inclusive payment rate option
hospitals effective prior to October 1, discuss proposed revisions to the wage for CAHs.
2000, will be addressed in a separate index and the annual update of the • Condition of participation for CAHs
interim final rule with comment period. wage data. Specific issues addressed in relating to organ, tissue, and eye
The provisions that will be included in this section include the following: procurement.

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6. Determining Prospective Payment submit a report to Congress, not later residency period for child neurology is
Operating and Capital Rates and Rate-of- than March 1 of each year, that reviews the period of board eligibility for
Increase Limits and makes recommendations on pediatrics plus 2 years. This provision
In the Addendum to this proposed Medicare payment policies. This annual applies on and after July 1, 2000, to
rule, we set forth proposed changes to report makes recommendations residency programs that began before,
the amounts and factors for determining concerning hospital inpatient payment on, or after November 29, 1999.
the FY 2001 prospective payment rates policies. In section VII. of this preamble, • Section 401(a), which amended
for operating costs and capital-related we discuss the MedPAC section 1886(d)(8) of the Act to direct
costs. We also address update factors for recommendations and any actions we the Secretary to treat certain hospitals
determining the rate-of-increase limits are proposing to take with regard to located in urban areas as being located
for cost reporting periods beginning in them (when an action is recommended). in rural areas of their State if the
FY 2001 for hospitals and hospital units For further information relating hospital meets statutory criteria and
excluded from the prospective payment specifically to the MedPAC March 1 files an application with HCFA. This
report or to obtain a copy of the report, provision is effective on January 1,
contact MedPAC at (202) 653–7220. 2000.
7. Impact Analysis • Section 401(b), which contains
C. Provisions of Public Law 106–113 To
In Appendix A, we set forth an Be Included in Interim Final Rule With conforming changes to incorporate the
analysis of the impact that the proposed Comment Period reclassifications under the amendments
changes described in this proposed rule made by section 401(a) of Public Law
As we have indicated under section 106–113 to outpatient hospital services
would have on affected entities.
I.A. of this preamble, we are planning to (section 1833(t) of the Act) and the CAH
8. Capital Acquisition Model publish an interim final rule with statute (section 1820(c)(2)(B)(i) of the
Appendix B contains the technical comment period to address provisions Act). This provision is effective on
appendix on the proposed FY 2001 of Public Law 106–113 that are effective
January 1, 2000.
prior to October 1, 2000. This interim
capital cost model. • Section 403(a), which amended
final rule with comment period will be
9. Report to Congress on the Update section 1820(c)(2)(B)(iii) of the Act to
issued prior to the publication of the
Factor for Hospitals under the delete the 96-hour length of stay
hospital inpatient prospective payment
Prospective Payment System and restriction on inpatient care in a CAH
system final rule by August 1. A
Hospitals and Units Excluded from the and to authorize a period of stay that
summary of the provisions of Public
Prospective Payment System Law 106–113 that will be addressed in does not exceed, on an annual basis, 96
the interim final rule with comment hours per patient. This provision is
Section 1886(e)(3) of the Act requires effective on November 29, 1999.
the Secretary to report to Congress on period follows:
• Section 111(b), which provides for • Section 403(b), which amended
our initial estimate of a recommended section 1820(c)(2)(B)(i) of the Act to
update factor for FY 2001 for payments an additional payment to teaching
hospitals equal to the additional amount allow for-profit hospitals to qualify for
to hospitals included in the prospective CAH status. This provision is effective
payment systems, and hospitals the hospital would have been paid for
FY 2000 if the IME adjustment formula on November 29, 1999.
excluded from the prospective payment • Section 403(c), which amended
systems. This report is included as under section 1886(d)(5)(B) of the Act
(which reflects the higher indirect section 1820(c) of the Act to allow
Appendix C to this proposed rule. hospitals that have closed within 10
operating costs associated with GME)
10. Proposed Recommendation of for FY 2000 had remained the same as years prior to November 29, 1999, or
Update Factor for Hospital Inpatient for FY 1999. (Section 111(a) also hospitals that downsized to a health
Operating Costs changed the IME adjustment formula for clinic or health center, to be designated
As required by sections 1886(e)(4) and discharges occurring during FY 2001 as CAHs if they meet the established
(e)(5) of the Act, Appendix D provides and for discharges occurring on or after criteria for designation.
our recommendation of the appropriate October 1, 2001, which is addressed in • Section 403(e), which amended
percentage change for FY 2001 for the section IV.D. of this preamble.) sections 1833(a)(1)(D)(i) and
following: • Section 121, which amended 1833(a)(2)(D)(i) the Act to eliminate the
• Large urban area and other area section 1886(b)(3)(H) of the Act to Medicare Part B deductible and
average standardized amounts (and provide for an appropriate wage coinsurance for clinical diagnostic
hospital-specific rates applicable to sole adjustment to the cap on the target laboratory tests furnished by a CAH on
community and Medicare-dependent, amounts for psychiatric hospitals and an outpatient basis. This provision is
small rural hospitals) for hospital units, rehabilitation hospitals and units, effective with respect to services
inpatient services paid for under the and long-term care hospitals, effective furnished on or after November 29,
prospective payment system for for cost reporting periods beginning on 1999.
operating costs. or after October 1, 1999, through • Section 403(f), which amended
• Target rate-of-increase limits to the September 30, 2002. We will address section 1883 of the Act to reinstate the
allowable operating costs of hospital the wage adjustment to the FY 2000 right of CAHs that meet applicable
inpatient services furnished by hospitals caps in the interim final rule. (The wage requirements to enter into ‘‘swing-bed’’
and hospital units excluded from the adjustment to the FY 2001 caps is agreements.
prospective payment system. discussed in section VI. of this • Section 404, which amended
preamble.) section 1886(d)(5)(G) of the Act to
11. Discussion of Medicare Payment • Section 312, which amended extend the Medicare-dependent, small
Advisory Commission section 1886(h)(5) of the Act to provide rural hospital program for 5 years, from
Recommendations that, effective July 1, 2000, in FY 2001 through FY 2005. Section 404
Under section 1805(b) of the Act, the determining the cap on the number of also amended section 1886(b)(3)(D) of
Medicare Payment Advisory residents for GME and IME costs, the the Act as a conforming change to make
Commission (MedPAC) is required to period of board eligibility and the initial the 5-year extension applicable to the

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Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules 26285

target amounts for Medicare-dependent, facility. In this scenario, the non- to six procedures performed during the
small rural hospitals. Veterans Affairs hospital may receive a stay, as well as age, sex, and discharge
• Section 407(a)(1), which amended temporary adjustment to its 1996 FTE status of the patient. The diagnosis and
section 1886(h)(4)(F) of the Act to direct cap to include in its FTE count those procedure information is reported by
the Secretary, for purposes of residents who were transferred from the the hospital using codes from the
determining a hospital’s FTE cap for Veterans Affairs hospital. This provision International Classification of Diseases,
direct GME payments, to count an applies as if it was included in the Ninth Revision, Clinical Modification
individual to the extent that the enactment of Public Law 105–33, that is, (ICD–9–CM). Medicare fiscal
individual would have been counted as for GME with cost reporting periods intermediaries enter the information
a primary care resident for purposes of beginning on or after October 1, 1997, into their claims processing systems and
the FTE cap but for the fact that the and for IME, discharges occurring on or subject it to a series of automated
individual was on maternity or after October 1, 1997. If a hospital is screens called the Medicare Code Editor
disability leave or a similar approved owed payments as a result of this (MCE). These screens are designed to
leave of absence. Section 407(a)(2) made provision, payments must be made identify cases that require further
a corresponding amendment to section immediately. review before classification into a DRG.
1886(d)(5)(B)(v) of the Act relating to • Section 541, which amended After screening through the MCE and
the IME adjustment. The provision section 1886 of the Act to provide an any further development of the claims,
relating to direct GME is effective with additional payment to hospitals that cases are classified into the appropriate
cost reporting periods beginning on or receive payments under section 1861(v) DRG by the Medicare GROUPER
after November 29, 1999. The provision of the Act for approved nursing and software program. The GROUPER
relating to the IME adjustment applies allied health education programs to program was developed as a means of
to discharges occurring in cost reporting reflect utilization of Medicare+Choice classifying each case into a DRG on the
periods beginning on or after November enrollees. This provision is effective for basis of the diagnosis and procedure
29, 1999. portions of cost reporting periods in a codes and demographic information
• Section 407(b)(1), which amended year beginning with calendar year 2000. (that is, sex, age, and discharge status).
section 1886(h)(4)(F)(i) of the Act to It is used both to classify past cases in
provide that a rural hospital’s direct II. Proposed Changes to DRG
order to measure relative hospital
FTE count for direct GME may not Classifications and Relative Weights
resource consumption to establish the
exceed 130 percent of the number of A. Background DRG weights and to classify current
unweighted residents that the rural Under the prospective payment cases for purposes of determining
hospital counted in its most recent cost system, we pay for inpatient hospital payment. The records for all Medicare
reporting period ending on or before services on a rate per discharge basis hospital inpatient discharges are
December 31, 1996. Section 407(b)(2) maintained in the Medicare Provider
that varies according to the DRG to
made a similar change to section Analysis and Review (MedPAR) file.
which a beneficiary’s stay is assigned.
1886(d)(5)(B)(v) of the Act relating to The data in this file are used to evaluate
The formula used to calculate payment
the IME adjustment. The provision possible DRG classification changes and
for a specific case takes an individual
relating to direct GME applies to cost to recalibrate the DRG weights.
hospital’s payment rate per case and
reporting periods beginning on or after In the July 30, 1999 final rule (64 FR
multiplies it by the weight of the DRG
April 1, 2000. The provision relating to 41500), we discussed a process for
to which the case is assigned. Each DRG
the IME adjustment applies to considering non-MedPAR data in the
weight represents the average resources
discharges occurring on or after April 1, recalibration process. In order for the
required to care for cases in that
2000. use of particular data to be feasible, we
• Section 407(c), which amended particular DRG relative to the average must have sufficient time to evaluate
sections 1886(h)(4)(H) and resources used to treat cases in all and test the data. The time necessary to
1886(d)(5)(B)(v) of the Act to allow a DRGs. do so depends upon the nature and
non-rural hospital that establishes Congress recognized that it would be
quality of the data submitted. Generally,
separately accredited approved medical necessary to recalculate the DRG
however, a significant sample of the
residency training programs (or rural relative weights periodically to account
data should be submitted by August 1,
training tracks) in a rural area or has an for changes in resource consumption.
approximately 8 months prior to the
accredited training program with an Accordingly, section 1886(d)(4)(C) of publication of the proposed rule, so that
integrated rural track, to receive an FTE the Act requires that the Secretary we can test the data and make a
cap adjustment for purposes of direct adjust the DRG classifications and preliminary assessment as to the
GME and IME. The provision is effective relative weights at least annually. These feasibility of using the data.
with cost reporting periods beginning adjustments are made to reflect changes Subsequently, a complete database
on or after April 1, 2000 for direct GME, in treatment patterns, technology, and should be submitted no later than
and with discharges occurring on or any other factors that may change the December 1 for consideration in
after April 1, 2000 for IME. relative use of hospital resources. The conjunction with the next year’s
• Section 407(d) addresses the proposed changes to the DRG proposed rule.
situation where residents were training classification system, and the proposed Currently, cases are assigned to one of
in a residency training program at a recalibration of the DRG weights for 501 DRGs (including one DRG for a
Veterans Affairs hospital and then were discharges occurring on or after October diagnosis that is invalid as a discharge
transferred on or after January 1, 1997 1, 2000, are discussed below. diagnosis and one DRG for ungroupable
and on or before July 30, 1998, to a non- B. DRG Reclassification diagnoses) in 25 major diagnostic
Veterans Affairs hospital because the categories (MDCs). Most MDCs are
program in which the residents were 1. General based on a particular organ system of
training would lose its accreditation by Cases are classified into DRGs for the body (for example, MDC 6 (Diseases
the Accreditation Council on Graduate payment under the prospective payment and Disorders of the Digestive System));
Medical Education (ACGME) if the system based on the principal diagnosis, however, some MDCs are not
residents continued to train at the up to eight additional diagnoses, and up constructed on this basis since they

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26286 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

involve multiple organ systems (for a. Heart Transplant (DRG 103) implantable, pulsatile heart assist
example, MDC 22 (Burns)). As previously stated, cases are system), were adopted for use for
In general, cases are assigned to an generally assigned to an MDC based on discharges occurring on or after October
MDC based on the principal diagnosis, principal diagnosis and subsequently 1, 1995. However, code 37.66 was
before assignment to a DRG. However, assigned to surgical or medical DRGs deemed investigational and was not
there are five DRGs to which cases are included in that MDC. However, cases considered a covered procedure.
directly assigned on the basis of involving liver, bone marrow, and lung Effective May 5, 1997, we revised
procedure codes. These are the DRGs for transplants (DRGs 480, 481, and 495, Medicare coverage of heart assist
liver, bone marrow, and lung respectively) and the two DRGs for devices to allow coverage of a
transplants (DRGs 480, 481, and 495, tracheostomies (DRGs 482 and 483) are ventricular assist device (code 37.66)
directly assigned on the basis of used for support of blood circulation
respectively) and the two DRGs for
procedure codes. Cases assigned to postcardiotomy if certain conditions
tracheostomies (DRGs 482 and 483).
these DRGs before classification to an were met.
Cases are assigned to these DRGs before
classification to an MDC. MDC are referred to as pre-MDC. Due to some residual
However, cases involving heart misunderstanding regarding this
Within most MDCs, cases are then coverage policy, we would like to
divided into surgical DRGs (based on a transplants are currently assigned first
to MDC 5 and then to DRG 103. emphasize that this device was and will
surgical hierarchy that orders individual continue to be listed as a noncovered
Currently, when a bone marrow
procedures or groups of procedures by procedure in the Medicare Code Editor
transplant and a heart transplant are
resource intensity) and medical DRGs. (MCE), the front-end software product
performed during the same admission,
Medical DRGs generally are in the GROUPER program that detects
the case is assigned to DRG 481 (Bone
differentiated on the basis of diagnosis and reports errors in the coding of
Marrow Transplant). Because bone
and age. Some surgical and medical claims data. The reason that this device
marrow transplant cases are first
DRGs are further differentiated based on is listed in the MCE, in spite of the fact
classified to pre-MDC, while heart
the presence or absence of transplants are first assigned to MDC 5, that its implantation is covered, is
complications or comorbidities (CC). the bone marrow transplant assumes because of the stringent conditions that
Generally, the GROUPER does not precedence in the assignment of the must be met by hospitals in order to
consider other procedures; that is, case to a DRG. However, payment for receive payment.
nonsurgical procedures or minor DRG 481 is substantially less than DRG In the August 29, 1997 final rule (62
surgical procedures generally not 103. For FY 2000, the relative weight for FR 45973), we moved procedure code
performed in an operating room are not DRG 103 is 19.5100, while the relative 37.66 from DRGs 110 and 111 1 (Major
listed as operating room (OR) weight for DRG 481 is 8.7285. Cardiovascular Procedures with and
procedures in the GROUPER decision We reviewed the FY 1999 MedPAR without CCs, respectively) to DRG 108
tables. However, there are a few non-OR file containing bills through December (Other Cardiothoracic Procedures). As
procedures that do affect DRG 31, 1999 and found no cases in which stated in the July 31, 1998 final rule (63
assignment for certain principal a bone marrow transplant and a heart FR 40956), we moved procedure code
diagnoses, such as extracorporeal shock transplant were performed in the same 37.66 to DRGs 104 and 105 (Cardiac
wave lithotripsy for patients with a admission. However, to ensure Valve and Other Major Cardiothoracic
principal diagnosis of urinary stones. appropriate DRG assignment of these Procedures with and without CCs,
cases, we are proposing that the heart respectively) for FY 1999.
The changes we are proposing to
make to the DRG classification system transplant DRG, which encompasses In the July 30, 1999 final rule (64 FR
for FY 2001 and other issues concerning combined heart-lung transplantation 41498), we responded to a comment
DRGs are set forth below. Unless (ICD–9–CM procedure code 33.6) and suggesting that heart assist devices be
otherwise noted, our DRG analysis is heart transplantation (ICD–9–CM assigned to DRG 103. In further
based on the full (100 percent) FY 1999 procedure code 37.5) be assigned to pre- consideration of this issue, we have
MedPAR file (bills received through MDC. In this way, cases involving a reviewed the 100 percent FY 1999
December 31, 1999 for discharges in FY bone marrow transplant and a heart MedPAR file containing bills through
1999). transplant would be assigned to DRG December 31, 1999, and found that there
103 (DRG 103 would be reordered were a total of 47 implantable heart
2. MDC 5 (Diseases and Disorders of the higher in the pre-MDC surgical assist system procedures performed on
Circulatory System) hierarchy, as discussed in section II.B.5. Medicare beneficiaries. Of these cases,
of this preamble). 13 (approximately 28 percent) were
In the August 29, 1997 final rule with assigned to DRG 103 (Heart Transplant)
comment period (62 FR 45974), we b. Heart Assist Devices
and four (approximately 9 percent) were
noted that, because of the many recent We continue to review data in MDC assigned to DRG 483 (Tracheostomy
changes in heart surgery, we were 5 (Diseases and Disorders of the Except for Face, Mouth and Neck
considering conducting a Circulatory System) to determine if Diagnoses), and, therefore, were paid at
comprehensive review of the MDC 5 cases are being assigned to the most significantly higher rates than the
surgical DRGs. In the July 31, 1998 final appropriate DRG based on clinical remaining 30 cases. All of the procedure
rule with comment period (63 FR coherence and similar resource code 37.66 cases have extremely high
40956), we did adopt some changes to consumption. At the December 1, 1994 charges, which is consistent with past
the MDC 5 surgical DRGs. Since that ICD–9–CM Coordination and
time, we have received inquiries on a Maintenance Committee meeting, we 1 A single title combined with two DRG numbers

continuing basis regarding these DRGs. recommended creation of new codes to is used to signify pairs. Generally, the first DRG is
We have continued to review Medicare capture single and bi-ventricular heart for cases with CC and the second DRG is for cases
without CC. If a third number is included, it
claims data and, based on our analysis, assist systems. These codes, 37.65 represents cases with patients who are age 0–17.
we are proposing the following DRG (Implant of an external, pulsatile heart Occasionally, a pair of DRGs is split between age
changes in MDC 5: assist system) and 37.66 (Implant of an ≥17 and age 0–17.

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analysis, and all of these cases are designated as a non-OR procedure that DRG 116. The average standardized
subject to payment as cost outliers. does not affect DRG assignment (platelet charges for these cases are
Our data analysis indicates that the inhibitors are administered either approximately $26,683, compared to
most cases in any one hospital is 5, through intravenous injection or approximately $25,251 for DRG 116
while 17 hospitals performed only one infusion). overall. In DRG 112, there were 4,310
heart assist system implant each. We For the past 2 years, a manufacturer platelet inhibitor cases (12 percent of all
reiterate that only heart transplant cases of platelet inhibitors has submitted data platelet inhibitor cases) assigned. The
can be properly assigned to the to support its position that cases average standardized charge for these
transplant DRG (August 29, 1997 final involving platelet inhibitor therapy cases is approximately $22,786,
rule (62 FR 45974)). Since heart assist receiving angioplasty should be compared to approximately $20,224 for
devices are used across DRGs, many not reclassified from DRG 112 DRG 112 overall. Although the platelet
involving a transplant, we are not (Percutaneous Cardiovascular inhibitor therapy cases that are
proposing to assign procedure code Procedures) to DRG 116 (Other classified to DRG 112 do have somewhat
37.66 to DRG 103. Permanent Cardiac Pacemaker Implant higher charges than the average case
In addition to the review of 37.66, we or PTCA with Coronary Artery Stent assigned to this DRG (11 percent, or
also looked at procedure codes 37.62 Implant). In the July 30, 1999 final rule $2,563), we found several procedures in
(Implant of other heart assist system), (64 FR 41503), we noted that we had DRG 112 with average standardized
37.63 (Replacement and repair of heart received a new set of data from the charges higher than the platelet
assist system), and 37.65 (Implant of an platelet inhibitor manufacturer inhibitor cases. For example, there were
external, pulsatile heart assist system). containing 27,673 cases from 164 1,560 cases in which a single vessel
These cases are currently assigned to hospitals in which Medicare patients PTCA or coronary atherectomy with
DRGs 110 and 111 (Major underwent an angioplasty. thrombolytic agent (procedure code
Cardiovascular Procedures). We believe Included with the data were tables 36.02) was performed with an average
that these procedures are similar both summarizing the results of the standardized charge of approximately
clinically and in terms of resource commenter’s analysis of the data, $25,181, and there were 4,951 cases in
utilization to procedure code 37.66, showing that angioplasty cases receiving which a multiple vessel PTCA or
which is already assigned to DRGs 104 platelet inhibitor therapy are more coronary atherectomy was performed,
and 105. Therefore, we propose to move expensive than those not receiving with or without a thrombolytic agent
codes 37.62, 37.63, and 37.65 from platelet inhibitors. According to the (procedure code 36.05) with an average
DRGs 110 and 111 to DRGs 104 and 105. commenter, the approximate average standardized charge of approximately
c. Platelet Inhibitors standardized charges for the different $23,608.
classes of patients are as follows:
Effective October 1, 1998, procedure • No drug, no stent: $19,877. We also noted that there are several
code 99.20 (Injection or infusion of • No drug, with stent: $22,968. procedures assigned to DRG 112 that
platelet inhibitor) was created. The use • Drug, no stent: $26,389. have average standardized charges
of platelet inhibitors have been shown • Drug, stent: $30,139. lower than the average charges for all
to significantly decrease the rate of Using the 100 percent FY 1999 cases in the DRG. For example, average
acute vessel closure, as well as the rate MedPAR file that contains discharges charges for cases with procedure code
of cardiac complications and death. through September 30, 1999, we 37.34 (Catheter ablation of lesion or
Platelet inhibitors are frequently performed analysis of the cases for tissues of heart) were $18,429. The
administered to patients undergoing which procedure code 99.20 was following chart illustrates the variation
percutaneous transluminal coronary reported. There were a total of 37,222 among the average charges for DRG 112.
angioplasty (PTCA). In addition, cases spread across 123 DRGs. This chart shows that the average
patients admitted with unstable angina The majority of the platelet inhibitor charges for cases with procedure code
may also benefit from platelet cases, 28,022 (75 percent of all platelet 99.20 are well within the normal
inhibitors. This procedure code is inhibitor cases), are already assigned to variation of other procedures.

Average standard-
DRG 112 Cases ized charges

Catheter ablation of lesion or tissues of heart (code 37.34) ....................................................................... 6,972 $18,429
All cases within DRG 112 ............................................................................................................................ 60,842 20,224
Injection or infusion of platelet inhibitor (code 99.20) ................................................................................. 4,310 22,786
Multiple vessel PTCA or coronary atherectomy with or without mention of thrombolytic agent (code
36.05) ....................................................................................................................................................... 4,951 23,608
Single vessel PTCA or coronary atherectomy with mention of thrombolytic agent (code 36.02) .............. 1,560 25,181

These examples indicate that there is insertion of coronary artery stents with the DRG system is designed to account
always some variation in charges within PTCA. On the other hand, cases for any increases or decreases in costs
a DRG. This difference in variations of assigned to DRG 112 involve less through recalibration. Hospitals
charges is within the normal range of invasive operating room and, in some frequently benefit from this process
charge variations. cases, nonoperating room procedures. while efficiency-enhancing technology
Clinical homogeneity within DRGs The basis for DRG assignment has is being introduced. We believe that the
has always been a fundamental generally been the diagnosis of the update factors established in section
principle considered when assigning patient or the procedures performed. To 1886(b)(3)(B)(i) of the Act, combined
codes to appropriate DRGs. Currently, the extent the use of a particular with the potential for continuing
DRG 116 includes cases involving the technology becomes prevalent in the improvements in hospital productivity,
insertion of a pacemaker as well as the treatment of a particular type of case, and annual recalibration of the DRG

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26288 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

weights, are adequate to finance d. Extracorporeal Membrane since it is possible that secondary
appropriate care of Medicare patients. Oxygenation conditions or complications may arise
We also received a comment from Extracorporeal Membrane during hospitalization that would
another manufacturer of platelet Oxygenation (ECMO) is a require the use of ECMO. The relatively
inhibitors whose therapy is targeted on cardiopulmonary bypass technique that high weight of DRG 468 would be
acute coronary syndrome patients provides long-term cardiopulmonary appropriate for these cases.
without coronary intervention. These support to patients who have reversible
cases are assigned to DRG 124 3. MDC 15 (Newborns and Other
cardiopulmonary insufficiency that has
(Circulatory Disorders Except Acute Neonates With Conditions Originating
not responded to conventional
Myocardial Infarction with Cardiac in the Perinatal Period)
management. It involves passing a
Catheterization and Complex Diagnosis) patient’s blood through an a. V05.8 (Vaccination for Disease, NEC)
or DRG 140 (Angina Pectoris). The extracorporeal membrane oxygenator
manufacturer’s concern is that both which adds oxygen and removes carbon DRG 390 (Neonate with Other
types of cases, those performed in dioxide. The oxygenated blood then is Significant Problems) contains newborn
conjunction with coronary intervention passed through a heat exchanger to or neonate cases with other significant
and those without, be given an equal warm it to body temperature prior to problems, not assigned to DRGs 385
focus in this evaluation. returning it to the patient. The process through 389, DRG 391, or DRG 469. In
Based on our analysis, we found 410 and equipment are similar to those used order to be classified into DRG 391
platelet inhibitor cases (1 percent) in open heart surgery, but are continued (Normal Newborn), the neonate must
assigned to DRG 124. This is a small over prolonged periods of time. ECMO have a principal diagnosis as listed
percentage of cases in comparison to the attempts to provide the patient with under DRG 391 and either no secondary
overall total of 134,759 cases assigned to artificial cardiopulmonary function diagnosis or a secondary diagnosis as
this DRG. The platelet inhibitor cases while his or her own cardiopulmonary listed under DRG 391. Neonates with a
had an average standardized charge of functions are incapable of sustaining secondary diagnosis of V05.8
approximately $17,378 compared to life. (Vaccination for disease, NEC) are
approximately $14,730 for DRG 124 Since ECMO involves the use of a currently classified to DRG 390.
overall. As we have illustrated above, device that sustains cardiopulmonary Although it would seem that healthy
there is always some variation in function while the underlying condition
charges within a DRG and this newborns who receive vaccinations and
is being treated, it is important to have no other problems should be
difference is within normal variation. identify and treat underlying conditions
There were 66 platelet inhibitor cases classified to DRG 391, code V05.8 was
leading to cardiopulmonary failure if
(0.2 percent) assigned to DRG 140. The not included as one of the secondary
the patient is to return to normal
average standardized charge for these diagnoses under DRG 391, and therefore
cardiopulmonary function.
cases is higher than the overall DRG ECMO is assigned to procedure code the case would not be classified as a
charge, approximately $8,992 and 39.65 (Extracorporeal membrane normal newborn (DRG 391). Code V05.8
$5,657, respectively. However, it oxygenation (ECMO)). This code is not is assigned to DRG 390 as a default,
represents a small percentage of the recognized as an OR procedure within since it is not included under another
total (76,913) cases assigned to DRG the DRG system and, therefore, does not complicated neonate DRG or the normal
140. affect payment. To evaluate the newborn DRG.
In summary, currently 75 percent of appropriateness of payment under the Based on inquiries we have received,
cases where code 99.20 is present are current DRG assignment, we have we reviewed the appropriateness of
assigned to DRG 116. The next most reviewed a 10-percent sample of including diagnosis code V05.8 on the
common DRG where these cases are Medicare claims in the FY 1999 list of acceptable secondary diagnoses
assigned is DRG 112 (12 percent). Cases MedPAR file and found only 4 cases in under DRG 390. It was pointed out that
assigned to DRG 116 generally involve which ECMO was used. The charges for by including V05.8 on the acceptable
implantation of a pacemaker or artery these cases ranged from $16,006 to secondary diagnosis list for DRG 390,
stent, while cases assigned to DRG 112 $198,014. Since medical literature newborns who receive vaccinations are
involve percutaneous cardiovascular indicates that ECMO is predominately classified as having significant health
procedures. Our analysis found a $3,897 used on newborns and pediatric cases,
problems. The inquirers believed this
difference between cases involving this low number of claims is not
platelet inhibitor therapy that were incorrectly labels an otherwise healthy
surprising. Only in recent years have
assigned to DRG 116 and cases assigned some hospitals started to use ECMO on newborn as having a significant medical
to DRG 112, indicating a clinical adults. It is reserved for cases facing condition. Providing a vaccination to a
distinction between the cases grouping almost certain mortality. newborn is performed to prevent the
to the two DRGs. Finally, among platelet Because ECMO is a procedure infant from contracting a disease.
inhibitor therapy cases that are assigned clinically similar to a heart assist We agree with the inquirers that,
to DRG 112, our analysis found that the device, we are proposing that procedure absent any evidence of disease, a
average charges are well within the code 39.65 be classified as an OR newborn should not be considered as
normal variation around the overall procedure and be classified in DRGs 104 having a significant problem simply
average charges within the DRG. Based and 105 along with the heart assist because a preventative vaccination was
on these findings, we do not believe it system procedures (as discussed in provided. Therefore, we are proposing
would be appropriate to assign all cases section II.B.2.b. of this preamble). Those that V05.8 be removed from the list of
where procedure code 99.20 is present cases in which ECMO was provided, but acceptable secondary diagnoses under
to DRG 116. Therefore, we are not for which the principal diagnosis is not DRG 390 and assigned as a secondary
proposing to change to our current classified to MDC 5, would then be diagnosis under DRG 39l. In doing so,
policy which specifies that assignment assigned to DRG 468 (Extensive OR
these cases would no longer be
of cases to this code does not affect the Procedure Unrelated to Principal
classified to DRG 390.
DRG assignment. Diagnosis). This would be appropriate

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b. Diagnosis Code 666.02 (Third-stage The physician pointed out that when a assist in immediately addressing the
Postpartum Hemorrhage, Delivered patient with Alport’s Syndrome is issue at hand.
With Postpartum Complication) admitted for a kidney transplant, the (2) A unique ICD–9–CM diagnosis
case is assigned to DRG 390 (Neonate code could be created for Alport’s
Diagnosis code 666.02 is assigned to
with Other Significant Problems). In Syndrome that could then be evaluated
DRG 373 (Vaginal Delivery without
these instances, when the principal for possible assignment within MDC 11.
Complicating Diagnosis). This DRG was
diagnosis is code 759.89, the case is This issue has been referred to the
created for uncomplicated vaginal
classified to MDC 15 even though the National Center for Health Statistics for
deliveries. However, code 666.22
patient may no longer be a newborn. consideration as a future coding
(Delayed and secondary postpartum
The physician believed that these cases modification.
hemorrhage, delivered with postpartum One difficulty with this option is the
should be assigned to DRG 302 (Kidney
complication) is assigned to DRG 372 large number of congenital anomalies
(Vaginal Delivery with Complicating The inquirer suggested moving and the limited number of unused codes
Diagnoses). This means that mothers diagnosis code 759.89 to MDC 11 in this section of ICD–9–CM. Each new
who had a delayed and secondary (Diseases and Disorders of the Kidney code must be carefully evaluated for
postpartum hemorrhage would be and Urinary Tract) so that when a appropriateness.
assigned to DRG 372, while mothers kidney transplant is performed, it will (3) A third option, which was already
who had a third-stage postpartum be assigned to DRG 302. Although this addressed, involves moving diagnosis
hemorrhage would not be considered as seems quite appropriate for patients code 759.89 to MDC 11. The problem
a complicated delivery. with Alport’s Syndrome found in with this approach is that many cases
We believe a third-stage postpartum diagnosis code 759.89, it does not work would then be misassigned to MDC 11
hemorrhage should be considered a well for the wide variety of patients also because the congenital anomaly would
complicating diagnosis and, in order to described by this code. Many others not involve diseases of the kidney and
more appropriately categorize these would be inappropriately classified to urinary tract.
cases, we are proposing that diagnosis MDC 11. (4) A fourth option would be to leave
code 666.02 be removed from DRG 373 Alport’s Syndrome cases with code the coding and DRG assignment as they
and assigned as a complicating 759.89 as a principal diagnosis who currently exist. Since few cases exist,
diagnosis under DRG 372. receive a kidney transplant are assigned the overall impact may be minimal.
c. Diagnosis Code 759.89 (Specified to DRG 468 (Extensive OR Procedure To evaluate the impact of leaving the
Congenital Anomalies, NEC) (Alport’s Unrelated to Principal Diagnosis). This DRG assignment as it currently exists,
Syndrome) DRG has a FY 2000 relative weight of we examined data from a 10-percent
3.6400. Also for FY 2000, DRG 302 sample of Medicare cases in the FY
Alport’s Syndrome (also referred to as (Kidney Transplant) has a relative 1999 MedPAR file. There were 95 cases
hereditary nephritis) is an inherited weight of 3.5669. Therefore, the assigned to a wide range of DRGs with
disorder involving damage to the payment amounts are in fact code 759.89 as a secondary diagnosis.
kidney, blood in the urine, and, in some comparable. There was only one case assigned to
cases, loss of hearing. It may also There are several options for resolving MDC 15 with a principal diagnosis of
include loss of vision. Patients who are this issue: code 759.89.
not treated early enough or who do not (1) If the case is assigned a principal We are recommending that diagnosis
respond to treatment may progress to diagnosis code of renal failure with code 759.89 remain in MDC 15, since it
renal failure. A kidney transplant is one Alport’s Syndrome as a secondary encompasses such a wide variety of
treatment option for these cases. As diagnosis, the case could be assigned to conditions. In addition, we are not
with many of the congenital anomalies, DRG 302. As this option would proposing a change in the DRG
there is no unique ICD–9–CM code for represent a change in the sequencing of assignment because the payment impact
this condition. Alport’s Syndrome, congenital anomaly codes and related would be minimal and the cases few.
along with many other rare and diverse complications, it would have to be We will continue to pursue the
congenital anomalies, is assigned to the evaluated and subsequently approved possibility of modifying the ICD–9–CM
rather nonspecific diagnosis code by the Editorial Advisory Board for code as well as evaluating the coding
759.89 (Specific congenital anomalies, Coding Clinic for ICD–9–CM. This rules.
NEC). Examples include William Editorial Advisory Board contains
Syndrome, Brachio-Oto-Renal representatives from the physician, 4. MDC 17 (Myeloproliferative Diseases
Syndrome, and Costello’s Syndrome. coding, and hospital industry. Final and Disorders and Poorly Differentiated
Each of these is a unique hereditary decisions on coding policy issues are Neoplasm)
disorder affecting a variety of body made by the representatives from the Diagnosis code 273.8 (Disorders of
systems. American Hospital Association, the plasma protein metabolism, NEC) is
Patients can be diagnosed and treated American Health Information assigned to DRG 403 (Lymphoma and
for congenital anomalies throughout Management Association, the National Nonacute Leukemia with CC) and DRG
their lives; treatment is not restricted to Center for Health Statistics, and HCFA. 404 (Lymphoma and Nonacute
the neonatal period. In our GROUPER, Since a change in sequencing of Leukemia without CC). A disorder of
however, each diagnosis code is congenital anomaly codes and their plasma protein metabolism does not
assigned to just one MDC. In this case, manifestations and complications mean one has a lymphoma with
diagnosis code 759.89 is assigned to would require a change of coding nonacute leukemia. An individual can
MDC 15 (Newborns and Other Neonates policy, this issue was brought to the have a disorder of plasma protein
with Conditions Originating in the Editorial Advisory Board, which is metabolism without having a lymphoma
Perinatal Period) even though the currently evaluating it. A final decision or leukemia.
patient may be an adult. on any proposed policy change would We have received an inquiry on the
We have received a request from a not be finalized and published in time appropriateness of including diagnosis
physician concerning renal transplants for either this proposed rule or the final code 273.8 in DRGs 403 and 404. The
for patients with Alport’s Syndrome. rule. Therefore, this option would not inquirer pointed out that disorders of

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26290 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

plasma protein metabolism are not Neoplasm Diagnoses with CC) and DRG cases in the FY 1999 MedPAR file and
lymphomas or leukemia. We agree that 414 (Other Myeloproliferative Disorders found that the average charges for these
diagnosis code 273.8 is not a lymphoma or Poorly Differentiated Neoplasm cases were also more closely related to
or leukemia and is more closely related Diagnoses without CC). DRGs 413 and 414 than to DRGs 403
to DRG 413 (Other Myeloproliferative We examined charge data drawn from and 404, as demonstrated in the
Disorders or Poorly Differentiated cases assigned to diagnosis code 273.8 following chart.
in a 10-percent sample of Medicare

DRGs 403/404 all cases in 10-percent sample DRGs 413/414 all cases in 10-percent sample

Average Average
DRG Count DRG Count
charge charge

403 ............................................................ 2,107 $17,617 413 ........................................................... 387 $12,278
404 ............................................................ 296 8,063 414 ........................................................... 47 5,906

Average Average
Code DRG Count Code DRG Count
charge charge

273.8 403 ................................... 17 $8,573 273.8 404 ................................... 3 $6,644

Therefore, we are proposing to move DRG within the MDC to which the average charge of each DRG by
diagnosis code 273.8 from DRGs 403 principal diagnosis is assigned. frequency (that is, by the number of
and 404 to DRGs 413 and 414. Therefore, it is necessary to have a cases in the DRG) to determine average
Diagnosis code 273.8 is also included decision rule by which these cases are resource consumption for the surgical
in the following surgical DRGs that are assigned to a single DRG. The surgical class. The surgical classes would then
performed on patients with lymphoma hierarchy, an ordering of surgical be ordered from the class with the
or leukemia: classes from most to least resource highest average resource utilization to
• DRG 400 (Lymphoma and Leukemia intensive, performs that function. Its that with the lowest, with the exception
with Major OR Procedure). application ensures that cases involving of ‘‘other OR procedures’’ as discussed
• DRG 401 (Lymphoma and Nonacute multiple surgical procedures are below.
Leukemia with Other OR Procedure assigned to the DRG associated with the This methodology may occasionally
with CC). most resource-intensive surgical class. result in a case involving multiple
• DRG 402 (Lymphoma and Nonacute Because the relative resource intensity procedures being assigned to the lower-
Leukemia with Other OR Procedure of surgical classes can shift as a function weighted DRG (in the highest, most
without CC). of DRG reclassification and resource-intensive surgical class) of the
The same clinical issue would apply
recalibration, we reviewed the surgical available alternatives. However, given
to these surgical DRGS performed on
hierarchy of each MDC, as we have for that the logic underlying the surgical
patients with lymphoma and leukemia.
previous reclassifications, to determine hierarchy provides that the GROUPER
Code 273.8 should be assigned to the
if the ordering of classes coincided with searches for the procedure in the most
surgical DRGs for myeloproliferative
the intensity of resource utilization, as resource-intensive surgical class, this
disorders since the cases are clinically
measured by the same billing data used result is unavoidable.
similar and, as stated before, code 273.8
to compute the DRG relative weights. We note that, notwithstanding the
is not clinically similar to lymphomas
A surgical class can be composed of foregoing discussion, there are a few
and leukemias. Therefore, we are also
one or more DRGs. For example, in instances when a surgical class with a
proposing that code 273.8 be removed
MDC 11, the surgical class ‘‘kidney lower average relative weight is ordered
from the surgical DRGs related to
transplant’’ consists of a single DRG above a surgical class with a higher
lymphoma and leukemia (DRGS 400,
(DRG 302) and the class ‘‘kidney, ureter average relative weight. For example,
401, and 402) and assigned to the
and major bladder procedures’’ consists the ‘‘other OR procedures’’ surgical
following myeloproliferative surgical
of three DRGs (DRGs 303, 304, and 305). class is uniformly ordered last in the
DRGS, based on the procedure
Consequently, in many cases, the surgical hierarchy of each MDC in
• DRG 406 (Myeloproliferative surgical hierarchy has an impact on which it occurs, regardless of the fact
Disorders or Poorly Differentiated more than one DRG. The methodology that the relative weight for the DRG or
Neoplasms with Major OR Procedures for determining the most resource- DRGs in that surgical class may be
with CC). intensive surgical class involves higher than that for other surgical
• DRG 407 (Myeloproliferative weighting each DRG for frequency to classes in the MDC. The ‘‘other OR
Disorders Or Poorly Differentiated determine the average resources for each procedures’’ class is a group of
Neoplasms with Major OR Procedures surgical class. For example, assume procedures that are least likely to be
without CC). surgical class A includes DRGs 1 and 2 related to the diagnoses in the MDC but
• DRG 408 (Myeloproliferative and surgical class B includes DRGs 3, 4, are occasionally performed on patients
Disorders or Poorly Differentiated and 5. Assume also that the average with these diagnoses. Therefore, these
Neoplasms with Other OR Procedures). charge of DRG 1 is higher than that of procedures should only be considered if
DRG 3, but the average charges of DRGs no other procedure more closely related
5. Surgical Hierarchies 4 and 5 are higher than the average to the diagnoses in the MDC has been
Some inpatient stays entail multiple charge of DRG 2. To determine whether performed.
surgical procedures, each one of which, surgical class A should be higher or A second example occurs when the
occurring by itself, could result in lower than surgical class B in the difference between the average weights
assignment of the case to a different surgical hierarchy, we would weight the for two surgical classes is very small.

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We have found that small differences Lower Limb for Endocrine, Nutritional, considered complications or
generally do not warrant reordering of and Metabolic Disorders). comorbidities of another diagnosis. For
the hierarchy since, by virtue of the that reason, and in light of comments
6. Refinement of Complications and
hierarchy change, the relative weights and questions on the CC list, we have
Comorbidities (CC) List
are likely to shift such that the higher- continued to review the remaining CCs
ordered surgical class has a lower In the September 1, 1987 final notice to identify additional exclusions and to
average weight than the class ordered (52 FR 33143) concerning changes to the remove diagnoses from the master list
below it. DRG classification system, we modified that have been shown not to meet the
Based on the preliminary the GROUPER logic so that certain definition of a CC. (See the September
recalibration of the DRGs, we are diagnoses included on the standard list 30, 1988 final rule (53 FR 38485) for the
proposing to modify the surgical of CCs would not be considered a valid revision made for the discharges
hierarchy as set forth below. As we CC in combination with a particular occurring in FY 1989; the September 1,
stated in the September 1, 1989 final principal diagnosis. Thus, we created 1989 final rule (54 FR 36552) for the FY
rule (54 FR 36457), we are unable to test the CC Exclusions List. We made these 1990 revision; the September 4, 1990
the effects of proposed revisions to the changes for the following reasons: (1) To final rule (55 FR 36126) for the FY 1991
surgical hierarchy and to reflect these preclude coding of CCs for closely revision; the August 30, 1991 final rule
changes in the proposed relative related conditions; (2) to preclude (56 FR 43209) for the FY 1992 revision;
weights due to the unavailability of the duplicative coding or inconsistent the September 1, 1992 final rule (57 FR
revised GROUPER software at the time coding from being treated as CCs; and 39753) for the FY 1993 revision; the
the proposed rule is prepared. Rather, (3) to ensure that cases are appropriately September 1, 1993 final rule (58 FR
we simulate most major classification classified between the complicated and 46278) for the FY 1994 revisions; the
changes to approximate the placement uncomplicated DRGs in a pair. We September 1, 1994 final rule (59 FR
of cases under the proposed developed this standard list of 45334) for the FY 1995 revisions; the
reclassification and then determine the diagnoses using physician panels to September 1, 1995 final rule (60 FR
average charge for each DRG. These include those diagnoses that, when 45782) for the FY 1996 revisions; the
average charges then serve as our best present as a secondary condition, would August 30, 1996 final rule (61 FR 46171)
estimate of relative resource use for each be considered a substantial for the FY 1997 revisions; the August
surgical class. We test the proposed complication or comorbidity. In 29, 1997 final rule (62 FR 45966) for the
surgical hierarchy changes after the previous years, we have made changes FY 1998 revisions; and the July 31, 1998
revised GROUPER is received and to the standard list of CCs, either by final rule (63 FR 40954) for the FY 1999
reflect the final changes in the DRG adding new CCs or deleting CCs already revisions. In the July 30, 1999 final rule
relative weights in the final rule. on the list. At this time, we do not (64 FR 41490) we did not modify the CC
Further, as discussed in section II.C of propose to delete any of the diagnosis Exclusions List for FY 2000 because we
this preamble, we anticipate that the codes on the CC list. did not make any changes to the ICD–
final recalibrated weights will be In the May 19, 1987 proposed notice 9–CM codes for FY 2000.
somewhat different from those (52 FR 18877) concerning changes to the We are proposing a limited revision of
proposed, since they will be based on DRG classification system, we explained the CC Exclusions List to take into
more complete data. Consequently, that the excluded secondary diagnoses account the changes that will be made
further revision of the hierarchy, using were established using the following in the ICD–9–CM diagnosis coding
the above principles, may be necessary five principles: system effective October 1, 2000. (See
in the final rule. • Chronic and acute manifestations of section II.B.8. below, for a discussion of
At this time, we are proposing to the same condition should not be ICD–9–CM changes.) These proposed
revise the surgical hierarchy for the pre- considered CCs for one another (as changes are being made in accordance
MDC DRGs, MDC 8 (Diseases and subsequently corrected in the with the principles established when we
Disorders of the Musculoskeletal System September 1, 1987 final notice (52 FR created the CC Exclusions List in 1987.
and Connective Tissue), and MDC 10 33154)). Tables 6F and 6G in section V. of the
(Endocrine, Nutritional, and Metabolic • Specific and nonspecific (that is, Addendum to this proposed rule
Diseases and Disorders) as follows: not otherwise specified (NOS)) contain the proposed revisions to the CC
• In the pre-MDC DRGs, as we stated diagnosis codes for a condition should Exclusions List that would be effective
previously, we are proposing to move not be considered CCs for one another. for discharges occurring on or after
DRG 103 (Heart Transplant) from MDC • Conditions that may not coexist, October 1, 2000. Each table shows the
5 to pre-MDC. We are proposing to such as partial/total, unilateral/bilateral, principal diagnoses with proposed
reorder DRG 103 (Heart Transplant) obstructed/unobstructed, and benign/ changes to the excluded CCs. Each of
above DRG 483 (Tracheostomy Except malignant, should not be considered these principal diagnoses is shown with
for Face, Mouth, and Neck Diagnoses). CCs for one another. an asterisk and the additions or
• In the pre-MDC DRGs, we are • The same condition in anatomically deletions to the CC Exclusions List are
proposing to reorder DRG 481 (Bone proximal sites should not be considered provided in an indented column
Marrow Transplant) above DRG 495 CCs for one another. immediately following the affected
(Lung Transplant). • Closely related conditions should principal diagnosis.
• In MDC 8, we are proposing to not be considered CCs for one another. CCs that are added to the list are in
reorder DRG 230 (Local Excision and The creation of the CC Exclusions List Table 6F—Additions to the CC
Removal of Internal Fixation Devices of was a major project involving hundreds Exclusions List. Beginning with
Hip and Femur) above DRG 226 (Soft of codes. The FY 1988 revisions were discharges on or after October 1, 2000,
Tissue Procedures with CC) and DRG intended only as a first step toward the indented diagnoses will not be
227 (Soft Tissue Procedures without refinement of the CC list in that the recognized by the GROUPER as valid
CC). criteria used for eliminating certain CCs for the asterisked principal
• In MDC 10, we are proposing to diagnoses from consideration as CCs diagnosis.
reorder DRG 288 (OR Procedures for were intended to identify only the most CCs that are deleted from the list are
Obesity) above DRG 285 (Amputation of obvious diagnoses that should not be in Table 6G—Deletions from the CC

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26292 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

Exclusions List. Beginning with change the procedures assigned among volume, by procedure, to see if it would
discharges on or after October 1, 2000, these DRGs. be appropriate to move procedure codes
the indented diagnoses will be DRGs 468, 476, and 477 are reserved out of these DRGs into one of the
recognized by the GROUPER as valid for those cases in which none of the OR surgical DRGs for the MDC into which
CCs for the asterisked principal procedures performed is related to the the principal diagnosis falls. The data
diagnosis. principal diagnosis. These DRGs are are arrayed two ways for comparison
Copies of the original CC Exclusions intended to capture atypical cases, that purposes. We look at a frequency count
List applicable to FY 1988 can be is, those cases not occurring with of each major operative procedure code.
obtained from the National Technical sufficient frequency to represent a We also compare procedures across
Information Service (NTIS) of the distinct, recognizable clinical group. MDCs by volume of procedure codes
Department of Commerce. It is available DRG 476 is assigned to those discharges within each MDC. That is, using
in hard copy for $92.00 plus $6.00 in which one or more of the following procedure code 57.49 (Other
shipping and handling and on prostatic procedures are performed and transurethral excision or destruction of
microfiche for $20.50, plus $4.00 for are unrelated to the principal diagnosis: lesion or tissue of bladder) as an
shipping and handling. A request for the 60.0 Incision of prostate example, we determined that this
FY 1988 CC Exclusions List (which 60.12 Open biopsy of prostate particular code accounted for the
should include the identification 60.15 Biopsy of periprostatic tissue highest number of major operative
accession number (PB) 88–133970) 60.18 Other diagnostic procedures on procedures (162 cases, or 9.8 percent of
should be made to the following prostate and periprostatic tissue all cases) reported in the sample of DRG
address: National Technical Information 60.21 Transurethral prostatectomy 477. In addition, we determined that
Service, United States Department of 60.29 Other transurethral procedure code 57.49 appeared in MDC
Commerce, 5285 Port Royal Road, prostatectomy 4 (Diseases and Disorders of the
Springfield, Virginia 22161; or by 60.61 Local excision of lesion of Respiratory System) 28 times as well as
calling (703) 487–4650. prostate in 9 other MDCs.
60.69 Prostatectomy NEC Using a 10-percent sample of the FY
Users should be aware of the fact that
60.81 Incision of periprostatic tissue 1999 MedPAR file, we determined that
all revisions to the CC Exclusions List
60.82 Excision of periprostatic tissue the quantity of cases in DRG 477 totaled
(FYs 1989, 1990, 1991, 1992, 1993,
60.93 Repair of prostate 1,650. There were 106 instances where
1994, 1995, 1996, 1997, 1998, and 1999)
the major operative procedure appeared
and those in Tables 6F and 6G of this 60.94 Control of (postoperative)
only once (6.4 percent of the time),
document must be incorporated into the hemorrhage of prostate
resulting in assignment to DRG 477.
list purchased from NTIS in order to 60.95 Transurethral balloon dilation of Using the same 10-percent sample of
obtain the CC Exclusions List applicable the prostatic urethra the FY 1999 MedPAR file, we reviewed
for discharges occurring on or after 60.99 Other operations on prostate DRG 468. There were a total of 3,858
October 1, 2000. (Note: There was no CC All remaining OR procedures are cases, with one major operative code
Exclusions List in FY 2000 because we assigned to DRGs 468 and 477, with causing the DRG assignment 311 times
did not make changes to the ICD–9–CM DRG 477 assigned to those discharges in (or 8 percent) and 230 instances where
codes for FY 2000.) which the only procedures performed the major operative procedure appeared
Alternatively, the complete are nonextensive procedures that are only once (or 6 percent of the time).
documentation of the GROUPER logic, unrelated to the principal diagnosis. Our medical consultants then
including the current CC Exclusions The original list of the ICD–9–CM identified those procedures occurring in
List, is available from 3M/Health procedure codes for the procedures we conjunction with certain principal
Information Systems (HIS), which, consider nonextensive procedures, if diagnoses with sufficient frequency to
under contract with HCFA, is performed with an unrelated principal justify adding them to one of the
responsible for updating and diagnosis, was published in Table 6C in surgical DRGs for the MDC in which the
maintaining the GROUPER program. section IV. of the Addendum to the diagnosis falls. Based on this year’s
The current DRG Definitions Manual, September 30, 1988 final rule (53 FR review, we did not identify any
Version 17.0, is available for $225.00, 38591). As part of the final rules necessary changes in procedures under
which includes $15.00 for shipping and published on September 4, 1990 (55 FR either DRG 468 or 477 and, therefore,
handling. Version 18.0 of this manual, 36135), August 30, 1991 (56 FR 43212), are not proposing to move any
which includes the final FY 2001 DRG September 1, 1992 (57 FR 23625), procedures from either DRG 468 or DRG
changes, will be available in October September 1, 1993 (58 FR 46279), 477 to one of the surgical DRGs.
2000 for $225.00. These manuals may be September 1, 1994 (59 FR 45336),
obtained by writing 3M/HIS at the September 1, 1995 (60 FR 45783), b. Reassignment of Procedures Among
following address: 100 Barnes Road, August 30, 1996 (61 FR 46173), and DRGs 468, 476, and 477
Wallingford, Connecticut 06492; or by August 29, 1997 (62 FR 45981), we We also annually review the list of
calling (203) 949–0303. Please specify moved several other procedures from ICD–9–CM procedures that, when in
the revision or revisions requested. DRG 468 to 477, and some procedures combination with their principal
from DRG 477 to 468. No procedures diagnosis code, result in assignment to
7. Review of Procedure Codes in DRGs
were moved in FY 1999, as noted in the DRGs 468, 476, and 477, to ascertain if
468, 476, and 477
July 31, 1998 final rule (63 FR 40962), any of those procedures should be
Each year, we review cases assigned or in FY 2000, as noted in the July 30, moved from one of these DRGs to
to DRG 468 (Extensive OR Procedure 1999 final rule (64 FR 41496). another of these DRGs based on average
Unrelated to Principal Diagnosis), DRG charges and length of stay. We look at
476 (Prostatic OR Procedure Unrelated a. Moving Procedure Codes From DRGs the data for trends such as shifts in
to Principal Diagnosis), and DRG 477 468 or 477 to MDCs treatment practice or reporting practice
(Nonextensive OR Procedure Unrelated We annually conduct a review of that would make the resulting DRG
to Principal Diagnosis) to determine procedures producing assignment to assignment illogical. If our medical
whether it would be appropriate to DRG 468 or DRG 477 on the basis of consultants were to find these shifts, we

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would propose moving cases to keep the procedures and technologies and newly comments received at the meetings and
DRGs clinically similar or to provide identified diseases. The Committee is in writing by January 7, 2000.
payment for the cases in a similar also responsible for promoting the use Copies of the Coordination and
manner. Generally, we move only those of Federal and non-Federal educational Maintenance Committee minutes of the
procedures for which we have an programs and other communication 1999 meetings can be obtained from the
adequate number of discharges to techniques with a view toward HCFA Home Page by typing http://
analyze the data. Based on our review standardizing coding applications and
this year, we are not proposing to move upgrading the quality of the Paper copies of these minutes are no
any procedures from DRG 468 to DRGs classification system. longer available and the mailing list has
476 or 477, from DRG 476 to DRGs 468 The NCHS has lead responsibility for been discontinued. We encourage
or 477, or from DRG 477 to DRGs 468 the ICD–9–CM diagnosis codes included commenters to address suggestions on
or 476. in the Tabular List and Alphabetic coding issues involving diagnosis codes
Index for Diseases, while HCFA has lead to: Donna Pickett, Co-Chairperson; ICD–
c. Adding Diagnosis Codes to MDCs 9–CM Coordination and Maintenance
responsibility for the ICD–9–CM
It has been brought to our attention procedure codes included in the Committee; NCHS; Room 1100; 6525
that an ICD–9–CM diagnosis code Tabular List and Alphabetic Index for Belcrest Road; Hyattsville, Maryland
should be added to DRG 482 Procedures. 20782. Comments may be sent by E-mail
(Tracheostomy for Face, Mouth and The Committee encourages to:
Neck Diagnoses) to preserve clinical participation in the above process by Questions and comments concerning
coherence and homogeneity of the the procedure codes should be
health-related organizations. In this
system. In the case of a patient who has addressed to: Patricia E. Brooks, Co-
regard, the Committee holds public
a facial infection (diagnosis code 682.0 Chairperson; ICD–9–CM Coordination
meetings for discussion of educational
(Other cellulitis and abscess, Face)), the and Maintenance Committee; HCFA,
issues and proposed coding changes.
face may become extremely swollen and Center for Health Plans and Providers,
These meetings provide an opportunity
the patient’s ability to breathe might be Purchasing Policy Group, Division of
for representatives of recognized
impaired. It might be deemed medically Acute Care; C4–07–07; 7500 Security
organizations in the coding field, such
necessary to perform a temporary Boulevard; Baltimore, Maryland 21244–
as the American Health Information
tracheostomy (procedure code 31.1) on 1850. Comments may be sent by E-mail
Management Association (AHIMA)
the patient until the swelling subsides to:
enough for the patient to once again (formerly American Medical Record The ICD–9–CM code changes that
breathe on his or her own. Association (AMRA)), the American have been approved will become
The combination of diagnosis code Hospital Association (AHA), and effective October 1, 2000. The new ICD–
682.0 and procedure code 31.1 results in various physician specialty groups as 9–CM codes are listed, along with their
assignment to DRG 483 (Tracheostomy well as physicians, medical record proposed DRG classifications, in Tables
Except for Face, Mouth and Neck administrators, health information 6A and 6B (New Diagnosis Codes and
Diagnoses). The absence of diagnosis management professionals, and other New Procedure Codes, respectively) in
code 682.0 in DRG 483 forces the members of the public to contribute section VI. of the Addendum to this
GROUPER algorithm to assign the case ideas on coding matters. After proposed rule. As we stated above, the
based solely on the procedure code, considering the opinions expressed at code numbers and their titles were
without taking this diagnosis into the public meetings and in writing, the presented for public comment at the
account. Clearly this was not the intent, Committee formulates ICD–9–CM Coordination and
as diagnosis code 682.0 should be recommendations, which then must be Maintenance Committee meetings. Both
included with other face, mouth and approved by the agencies. oral and written comments were
neck diagnosis. We believe that cases The Committee presented proposals considered before the codes were
such as these would appropriately be for coding changes for FY 2000 at public approved. Therefore, we are soliciting
assigned to DRG 482. Therefore, we are meetings held on June 4, 1998 and comments only on the proposed DRG
proposing to add diagnosis code 682.0 November 2, 1998. Even though the classification of these new codes.
to the list of other face, mouth and neck Committee conducted public meetings Further, the Committee has approved
diagnoses already in the principal and considered approval of coding the expansion of certain ICD–9–CM
diagnosis list in DRG 482. changes for FY 2000 implementation, codes to require an additional digit for
we did not implement any changes to valid code assignment. Diagnosis codes
8. Changes to the ICD–9–CM Coding ICD–9–CM codes for FY 2000 because of that have been replaced by expanded
System our major efforts to ensure that all of the codes or other codes, or have been
As described in section II.B.1 of this Medicare computer systems were deleted are in Table 6C (Invalid
preamble, the ICD–9–CM is a coding compliant with the year 2000. Diagnosis Codes). These invalid
system that is used for the reporting of Therefore, the code proposals presented diagnosis codes will not be recognized
diagnoses and procedures performed on at the public meetings held on June 4, by the GROUPER beginning with
a patient. In September 1985, the ICD– 1998 and November 2, 1998, that (if discharges occurring on or after October
9–CM Coordination and Maintenance approved) ordinarily would have been 1, 2000. For codes that have been
Committee was formed. This is a included as new codes for October 1, replaced by new or expanded codes, the
Federal interdepartmental committee, 1999, were held for consideration for corresponding new or expanded
co-chaired by the National Center for inclusion in this proposed annual diagnosis codes are included in Table
Health Statistics (NCHS) and HCFA, update for FY 2001. 6A (New Diagnosis Codes). There were
charged with maintaining and updating The Committee also presented no procedure codes that were replaced
the ICD–9–CM system. The Committee proposals for coding changes for by expanded codes or other codes, or
is jointly responsible for approving implementation in FY 2001 at public were deleted. Revisions to diagnosis
coding changes, and developing errata, meetings held on May 13, 1999 and code titles are in Table 6D (Revised
addenda, and other modifications to the November 12, 1999, and finalized the Diagnosis Code Titles), which also
ICD–9–CM to reflect newly developed coding changes after consideration of include the proposed DRG assignments

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26294 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

for these revised codes. Revisions to for the increased charges. There were codes. We cited the incorrect codes for
procedure code titles are in Table 6E 123 immunotherapy cases assigned to pancreas transplantation as procedure
(Revised Procedure Codes Titles). DRG 82 (Respiratory Neoplasms) in code 52.80 (Pancreatic transplant, not
MDC 4 (Diseases and Disorders of the otherwise specified) and 52.83
9. Other Issues
Respiratory System). We noted that, in (Heterotransplant of pancreas). The
a. Immunotherapy some cases, in addition to correct procedure codes for pancreas
Effective October 1, 1994, procedure immunotherapy, other procedures were transplantation are 52.80 (Pancreatic
code 99.28 (Injection or infusion of performed, such as insertion of an transplant, not otherwise specified) and
biologic response modifier (BRM) as an intercostal catheter for drainage, 52.82 (Homotransplant of pancreas). We
antineoplastic agent) was created and thoracentesis, or chemotherapy. will revise the Coverage Issues Manual
There were 84 cases assigned to DRG to reflect this correction.
designated as a non-OR procedure that
416 (Septicemia, Age >17) in MDC 18 Pancreas transplantation is generally
does not affect DRG assignment. This
(Infectious and Parasitic Diseases limited to those patients with severe
cancer treatment involving biological
(Systemic or Unspecified Sites)). The secondary complications of diabetes,
response modifiers is also known as
principal diagnosis for this DRG is including kidney failure. However,
BRM therapy or immunotherapy.
septicemia and, in addition to receiving pancreas transplantation is sometimes
In response to a comment on the May
treatment for septicemia, performed on patients with labile
7, 1999 proposed rule, for the FY 2000
immunotherapy was also given. There diabetes and hypoglycemic
final rule we performed analysis of
were 79 cases assigned to DRG 410 unawareness. Pancreas transplantation
cases for which procedure code 99.28
(Chemotherapy without Acute for diabetic patients who have not
was reported using the 100 percent FY
Leukemia as Secondary Diagnosis) in experienced end-stage renal failure
1998 MedPAR file. The commenter
MDC 17. secondary to diabetes is excluded from
requested that we create a new DRG for The cost of immunotherapy is coverage. Medicare also excludes
BRM therapy or assign cases in which averaged into the weight for these DRGS coverage of transplantation of partial
BRM therapy is performed to an existing and, based on our analysis, we do not pancreatic tissue or islet cells.
DRG with a high relative weight. The believe a reclassification of these cases In the July 30, 1999 final rule (64 FR
commenter suggested that DRG 403 is warranted. Due to the limited number 41497), we indicated that we planned to
(Lymphoma and Nonacute Leukemia of cases that were distributed review discharge data to determine
with CC) would be an appropriate DRG. throughout 136 DRGs in 22 MDCs and whether a new DRG should be created,
Based on the commenter’s request, we the variation of charges, we concluded or existing DRGs modified, to further
examined cases only for hospitals that that it would be inappropriate to classify pancreas transplantation in
use the particular drug manufactured by classify these cases into a single DRG. combination with kidney
the commenter. We concluded that due Although there were 141 cases transplantation.
to the variation of charges across the assigned to DRG 403, it would be Under the current DRG classification,
cases and the limited number of cases inappropriate to place all if a kidney transplant and a pancreas
distributed across 19 different DRGs, it immunotherapy cases, regardless of transplant are performed
would be inappropriate to classify these diagnosis, into a DRG that is designated simultaneously on a patient with
cases to a single DRG. For example, it for lymphoma and nonacute leukemia. chronic renal failure secondary to
would be inappropriate to classify these We establish DRGs based on clinical diabetes with renal manifestations
cases into DRG 403 because only a few coherence and resource utilization. Each (diagnosis codes 250.40 through
cases were coded with a principal DRG encompasses a variety of cases, 250.43), the case is assigned to DRG 302
diagnosis assigned to MDC 17 reflecting a range of services and a range (Kidney Transplant) in MDC 11
(Myeloproliferative Diseases and of resources. Generally, then, each DRG (Diseases and Disorders of the Kidney
Disorders, and Poorly Differentiated reflects some higher cost cases and some and Urinary Tract). If a pancreas
Neoplasm), the MDC that includes DRG lower cost cases. To the extent a new transplant is performed following a
403. We stated in the July 30, 1999 final technology is extremely costly relative kidney transplant (that is, during a
rule (64 FR 41497) that we would to the cases reflected in the DRG relative different hospital admission) on a
perform a full analysis of weight, the hospital might qualify for patient with chronic renal failure
immunotherapy cases using the FY 1999 outlier payments, that is, additional secondary to diabetes with renal
MedPAR data to determine if changes payments over and above the standard manifestations, the case is assigned to
are needed. prospective payment rate. We have not DRG 468 (Extensive OR Procedure
Using 100 percent of the data in the received any comments from hospitals Unrelated to Principal Diagnosis). This
FY 1999 MedPAR file, we performed an regarding payment for immunotherapy is because pancreas transplant is not
analysis of all cases for which procedure cases. assigned to MDC 11, the MDC to which
code 99.28 was reported. We identified a principal diagnosis of chronic renal
1,179 cases in 136 DRGs in 22 MDCs. b. Pancreas Transplant failure secondary to diabetes is
No more than 141 cases were assigned Effective July 1, 1999, Medicare assigned.
to any one particular DRG. covers whole organ pancreas Using 100 percent of the data in the
Of the 1,179 cases, 141 cases transplantation if the transplantation is FY 1999 MedPAR file (which contains
(approximately 12 percent) were performed simultaneously with or after hospital bills through December 31,
assigned to DRG 403 in MDC 17. We a kidney transplant (procedure codes 1999), we performed an analysis of the
found approximately one-half of these 55.69, Other kidney transplantation, and cases for which procedure codes 52.80
cases had other procedures performed V42.0, Organ or tissue replaced by and 52.83 were reported. We identified
in addition to receiving transplant, Kidney) (Transmittal No. a total of 79 cases in 8 DRGs, in 3 MDCs,
immunotherapy, such as chemotherapy, 115, April 1999). We note that when we and in 1 pre-MDC. Of the 79 cases
bone marrow biopsy, insertion of totally published the notification of this identified, 49 cases were assigned to
implantable vascular access device, coverage in the July 30, 1999 final rule DRG 302, 14 cases were assigned to DRG
thoracentesis, or percutaneous (64 FR 41497), we inadvertently made 468, and 8 cases were assigned to DRG
abdominal drainage, which may account an error in announcing the covered 191 (Pancreas, Liver and Shunt

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Procedures with CC). The additional 8 and, for hospitals in Alaska and Hawaii, reasonable weight. We propose to use
cases were distributed over 5 other the applicable cost-of-living adjustment. that same case threshold in recalibrating
assorted DRGs, and due to their • The average standardized charge the DRG weights for FY 2001. Using the
disparity, were not considered in our per DRG was calculated by summing the FY 1999 MedPAR data set, there are 40
evaluation. standardized charges for all cases in the DRGs that contain fewer than 10 cases.
We examined our data to determine DRG and dividing that amount by the We computed the weights for these 40
whether we should propose a new number of cases classified in the DRG. low-volume DRGs by adjusting the FY
kidney and pancreas transplant DRG at • We then eliminated statistical 2000 weights of these DRGs by the
this time. We identified 49 such dual outliers, using the same criteria used in percentage change in the average weight
transplant cases in the FY 1999 computing the current weights. That is, of the cases in the other DRGs.
MedPAR file. We do not believe this is all cases that are outside of 3.0 standard The weights developed according to
a sufficient sample size to warrant the deviations from the mean of the log the methodology described above, using
creation of a new DRG. Furthermore, we distribution of both the charges per case the proposed DRG classification
would note that nearly half of these and the charges per day for each DRG changes, result in an average case
cases occurred at a hospital in are eliminated. weight that is different from the average
Maryland, which is not paid under the • The average charge for each DRG case weight before recalibration.
prospective payment system. The rest of was then recomputed (excluding the Therefore, the new weights are
the cases are spread across multiple statistical outliers) and divided by the normalized by an adjustment factor
hospitals, with no single hospital having national average standardized charge (1.45431) so that the average case weight
per case to determine the relative after recalibration is equal to the average
more than 5 cases in the FY 1999
weight. A transfer case is counted as a case weight before recalibration. This
fraction of a case based on the ratio of adjustment is intended to ensure that
C. Recalibration of DRG Weights. its transfer payment under the per diem recalibration by itself neither increases
We are proposing to use the same payment methodology to the full DRG nor decreases total payments under the
payment for nontransfer cases. That is, prospective payment system.
basic methodology for the FY 2001
transfer cases paid under the transfer Section 1886(d)(4)(C)(iii) of the Act
recalibration as we did for FY 2000 (July
methodology equal to half of what the requires that, beginning with FY 1991,
30, 1999 final rule (64 FR 41498)). That
case would receive as a nontransfer reclassification and recalibration
is, we would recalibrate the weights
would be counted as 0.5 of a total case. changes be made in a manner that
based on charge data for Medicare • We established the relative weight
discharges. However, we propose to use assures that the aggregate payments are
for heart and heart-lung, liver, and lung neither greater than nor less than the
the most current charge information transplants (DRGs 103, 480, and 495) in
available, the FY 1999 MedPAR file. aggregate payments that would have
a manner consistent with the
(For the FY 2000 recalibration, we used been made without the changes.
methodology for all other DRGs except
the FY 1998 MedPAR file.) The Although normalization is intended to
that the transplant cases that were used
MedPAR file is based on fully coded achieve this effect, equating the average
to establish the weights were limited to
diagnostic and procedure data for all case weight after recalibration to the
those Medicare-approved heart, heart-
Medicare inpatient hospital bills. average case weight before recalibration
lung, liver, and lung transplant centers
The proposed recalibrated DRG does not necessarily achieve budget
that have cases in the FY 1999 MedPAR
relative weights are constructed from FY neutrality with respect to aggregate
file. (Medicare coverage for heart, heart-
1999 MedPAR data (discharges payments to hospitals because payment
lung, liver, and lung transplants is
occurring between October 1, 1998 and to hospitals is affected by factors other
limited to those facilities that have
September 30, 1999), based on bills than average case weight. Therefore, as
received approval from HCFA as
received by HCFA through December we have done in past years and as
transplant centers.)
31, 1999, from all hospitals subject to • Acquisition costs for kidney, heart, discussed in section II.A.4.b. of the
the prospective payment system and heart-lung, liver, and lung transplants Addendum to this proposed rule, we are
short-term acute care hospitals in continue to be paid on a reasonable cost proposing to make a budget neutrality
waiver States. The FY 1999 MedPAR basis. Unlike other excluded costs, the adjustment to assure that the
file includes data for approximately acquisition costs are concentrated in requirement of section 1886(d)(4)(C)(iii)
11,059,625 Medicare discharges. specific DRGs (DRG 302 (Kidney of the Act is met.
The methodology used to calculate Transplant); DRG 103 (Heart III. Proposed Changes to the Hospital
the proposed DRG relative weights from Transplant); DRG 480 (Liver Wage Index
the FY 1999 MedPAR file is as follows: Transplant); and DRG 495 (Lung
• To the extent possible, all the Transplant)). Because these costs are A. Background
claims were regrouped using the paid separately from the prospective Section 1886(d)(3)(E) of the Act
proposed DRG classification revisions payment rate, it is necessary to make an requires that, as part of the methodology
discussed in section II.B of this adjustment to prevent the relative for determining prospective payments to
preamble. As noted in section II.B.5, weights for these DRGs from including hospitals, the Secretary must adjust the
due to the unavailability of the revised the acquisition costs. Therefore, we standardized amounts ‘‘for area
GROUPER software, we simulated most subtracted the acquisition charges from differences in hospital wage levels by a
major classification changes to the total charges on each transplant bill factor (established by the Secretary)
approximate the placement of cases that showed acquisition charges before reflecting the relative hospital wage
under the proposed reclassification. computing the average charge for the level in the geographic area of the
However, there are some changes that DRG and before eliminating statistical hospital compared to the national
cannot be modeled. outliers. average hospital wage level.’’ In
• Charges were standardized to When we recalibrated the DRG accordance with the broad discretion
remove the effects of differences in area weights for previous years, we set a conferred under the Act, we currently
wage levels, indirect medical education threshold of 10 cases as the minimum define hospital labor market areas based
and disproportionate share payments, number of cases required to compute a on the definitions of Metropolitan

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Statistical Areas (MSAs), Primary MSAs The proposed FY 2001 wage index over a 5-year period, beginning in FY
(PMSAs), and New England County includes the following categories of data 2000. In keeping with the decision to
Metropolitan Areas (NECMAs) issued by associated with costs paid under the phase-out costs related to GME and
the Office of Management and Budget hospital inpatient prospective payment CRNAs, the proposed FY 2001 wage
(OMB). The OMB also designates system (as well as outpatient costs), index is based on a blend of 60 percent
Consolidated MSAs (CMSAs). A CMSA which were also included in the FY of an average hourly wage including
is a metropolitan area with a population 2000 wage index: these costs, and 40 percent of an average
of one million or more, comprising two • Salaries and hours from short-term, hourly wage excluding these costs.
or more PMSAs (identified by their acute care hospitals.
separate economic and social character). • Home office costs and hours. 1. Teaching Physician Costs and Hours
For purposes of the hospital wage index, • Certain contract labor costs and Survey
we use the PMSAs rather than CMSAs hours. As discussed in the July 30, 1999 final
since they allow a more precise • Wage-related costs. rule, because the FY 1996 cost reporting
breakdown of labor costs. If a Consistent with the wage index
data did not separate teaching physician
metropolitan area is not designated as methodology for FY 2000, the proposed
costs from other physician Part A costs,
part of a PMSA, we use the applicable wage index for FY 2001 also continues
we instructed our fiscal intermediaries
MSA. Rural areas are areas outside a to exclude the direct and overhead
to survey teaching hospitals to collect
designated MSA, PMSA, or NECMA. salaries and hours for services not paid
data on teaching physician costs and
For purposes of the wage index, we through the inpatient prospective
hours payable under the per resident
combine all of the rural counties in a payment system such as skilled nursing
amounts (§ 413.86) and reported on
State to calculate a rural wage index for facility services, home health services,
Worksheet A, Line 23 of the hospitals’
that State. or other subprovider components that
cost report.
We note that effective April 1, 1990, are not subject to the prospective
payment system. The FY 1997 cost reports also do not
the term Metropolitan Area (MA) separately report teaching physician
replaced the term MSA (which had been We calculate a separate Puerto Rico-
specific wage index and apply it to the costs. Therefore, we once again
used since June 30, 1983) to describe the conducted a special survey to collect
set of metropolitan areas consisting of Puerto Rico standardized amount. (See
62 FR 45984 and 46041.) This wage data on these costs. (For the FY 1998
MSAs, PMSAs, and CMSAs. The cost reports, we have revised the
terminology was changed by OMB in index is based solely on Puerto Rico’s
data. Finally, section 4410 of Public Worksheet S–3, Part II so that hospitals
the March 30, 1990 Federal Register to can separately report teaching physician
distinguish between the individual Law 105–33 provides that, for
discharges on or after October 1, 1997, Part A costs. Therefore, after this year,
metropolitan areas known as MSAs and it will no longer be necessary for us to
the set of all metropolitan areas (MSAs, the area wage index applicable to any
hospital that is not located in a rural conduct this special survey.)
PMSAs, and CMSAs) (55 FR 12154). For
area may not be less than the area wage The survey data collected as of mid-
purposes of the prospective payment
index applicable to hospitals located in January 2000 were included in the
system, we will continue to refer to
these areas as MSAs. rural areas in that State. preliminary public use data file made
Beginning October 1, 1993, section available on the Internet in February
C. FY 2001 Wage Index Proposal 2000 at HCFA’s home page (http://
1886(d)(3)(E) of the Act requires that we
update the wage index annually. Because it is used to adjust payments At that time, we had
Furthermore, this section provides that to hospitals under the prospective received teaching physician data for 459
the Secretary base the update on a payment system, the hospital wage out of 770 teaching hospitals reporting
survey of wages and wage-related costs index should, to the extent possible, physician Part A costs on their
of short-term, acute care hospitals. The reflect the wage costs associated with Worksheet S–3, Part II. Also, in some
survey should measure, to the extent the areas of the hospital included under cases, intermediaries reported that
feasible, the earnings and paid hours of the hospital inpatient prospective teaching hospitals did not incur
employment by occupational category, payment system. In response to teaching physician costs. In early
and must exclude the wages and wage- concerns within the hospital January 2000, we instructed
related costs incurred in furnishing community related to the removal from intermediaries to review the survey data
skilled nursing services. As discussed the wage index calculation costs related for consistency with the Supplemental
below in section III.F of this preamble, to graduate medical education (GME) Worksheet A–8–2 of the hospitals’ cost
we also take into account the geographic (teaching physicians and residents), and reports. Supplemental Worksheet A–8–
reclassification of hospitals in certified registered nurse anesthetists 2 is used to apply the reasonable
accordance with sections 1886(d)(8)(B) (CRNAs), which are paid by Medicare compensation equivalency limits to the
and 1886(d)(10) of the Act when separately from the prospective costs of provider-based physicians,
calculating the wage index. payment system, the American Hospital itemizing these costs by the
Association (AHA) convened a corresponding line number on
B. FY 2001 Wage Index Update workgroup to develop a consensus Worksheet A.
The proposed FY 2001 wage index recommendation on this issue. The When we notified the hospitals,
values in section VI of the Addendum workgroup recommended that costs through our fiscal intermediaries, that
to this proposed rule (effective for related to GME and CRNAs be phased they could review the survey data on
hospital discharges occurring on or after out of the wage index calculation over the Internet, we also notified hospitals
October 1, 2000 and before October 1, a 5-year period. Based upon our analysis that requests for changes to the teaching
2001) are based on the data collected of hospitals’ FY 1996 wage data, and survey data must be submitted by March
from the Medicare cost reports consistent with the AHA workgroup’s 6, 2000. We instructed fiscal
submitted by hospitals for cost reporting recommendation, we specified in the intermediaries to review the requests for
periods beginning in FY 1997 (the FY July 30, 1999 final rule (64 FR 41505) changes received from hospitals and
2000 wage index was based on FY 1996 that we would phase-out these costs submit necessary data revisions to
wage data). from the calculation of the wage index HCFA by April 3, 2000.

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We removed from the wage data the Part A costs and hours (reported on resulting from the removal of Part B
physician Part A teaching costs and Worksheet S–3, Lines 4, 10, 12, and 18) costs for NPs and CNSs.
hours reported on the survey form for in the FY 2001 wage index calculation
3. Severance and Bonus Pay Costs
every hospital that completed the for those hospitals where the fiscal
survey. These data had been verified by intermediary verifies that the hospital On October 6, 1999, we issued a
the fiscal intermediary before has otherwise unidentified teaching memorandum to hospitals and
submission to HCFA. We have physician costs included in physician intermediaries regarding our policy on
identified 42 teaching hospitals in our Part A costs and hours. treatment of severance and bonus pay
database that reported physician Part A It should be noted that Line 23 of costs in developing the wage index,
costs on Line 4 of their Worksheet S–3 Worksheet A, Column 1, flows directly effective beginning with the FY 2001
and teaching-related costs on Line 23 of into hospitals’ total salaries on wage index. (The hospital cost report
Worksheet A, Column 1, but for which Worksheet S–3, Part II. Line 23 contains instructions also will be amended to
we do not have teaching physician costs GME costs not directly attributable to reflect our policy on these costs.) We
from the survey because the hospitals residents’ salaries or fringe benefits. stated that severance pay costs may be
failed to complete the survey. As we did Therefore, these costs tend to be costs included on Worksheet S–3 as salaries
in the case of such hospitals in associated with teaching physicians. To on Part II, Line 1, only if the associated
calculating the FY 2000 wage index, for the extent a hospital fails to separately hours are included. If the hospital has
purposes of calculating the FY 2001 identify the proportion of its Line 23 no accounting of the hours, or if the
wage index, we propose to subtract the costs are not based on hours, the
Worksheet A costs associated with
costs reported on Line 23 of the severance pay costs may not be
teaching physicians, we believe it is
Worksheet A, Column 1 (GME Other included in the wage index. On the
reasonable to remove all of these costs
Program Costs) from Line 1 of the other hand, bonus pay costs may be
under the presumption that they are all
Worksheet S–3. These costs (from Line included in the cost report on Line 1 of
associated with teaching physicians.
23, Column 1 of Worksheet A) are Worksheet S–3 with no corresponding
Thus, for the proposed wage index, hours. Due to the inquiries we continue
included in Line 1 of the Worksheet we are either using the data submitted
S–3, which is the sum of Column 1, to receive from hospitals regarding the
on the teaching physician survey or, in inclusion of severance pay costs on cost
Worksheet A. They also represent costs the absence of such data, removing the
for which the hospital is paid through reports, we are clarifying our policy in
amount reported on Line 23 of this proposed rule.
the per resident amount under the direct Worksheet A, Column 1 or removing
GME payment. To determine the hours Hospitals vary in their accounting of
100 percent of physician Part A costs severance pay costs. Some hospitals
to be removed, the costs reported on reported on Worksheet S–3.
Line 23 of the Worksheet A, Column 1 base the amounts to be paid on hours,
would be divided by the national 2. Nurse Practitioner and Clinical Nurse for example, 80 hours worth of pay.
average hourly wage for teaching Specialist Costs Others do not; for example, a 15-year
physicians based upon the survey of employee may be offered a $25,000
The current wage index includes buyout package. Some hospitals record
$65.62. salaries and wage-related costs for nurse associated hours; others do not. The
For the FY 2000 wage index, the AHA practitioners (NPs) and clinical nurse Wage Index Workgroup has suggested
workgroup recommended that, if specialists (CNSs) who, similar to that we not include any severance pay
reliable teaching physician data were physician assistants and CRNAs (unless costs in the wage index calculation, that
not available for removing teaching at hospitals under the rural pass- these costs are for terminated
costs from hospitals’ total physician Part through exception for CRNAs), are paid employees, and, therefore, they should
A costs, HCFA should remove 80 under the physician fee schedule. Over be considered an administrative rather
percent of the costs and hours reported the past year, we have received several than a salary expense.
by hospitals attributable to physicians’ inquiries from hospitals and fiscal Severance pay costs can be substantial
Part A services. In calculating the FY intermediaries regarding NP costs and amounts, particularly in periods of
2000 wage index, if we did not receive how they should be handled for downsizing. We believe that, if
survey data for a teaching hospital, we purposes of the hospital wage index. severance pay costs are included with
removed 80 percent of the hospital’s Because Medicare generally pays for NP no associated hours, the wage index,
reported total physician Part A costs and CNS costs under Part B outside the which is a relative measure of wage
and hours from the calculation. For the hospital prospective payment system, costs across labor market areas, would
FY 2001 wage index, we are proposing removing NP and CNS Part B costs from be distorted.
a different approach. In some instances, the wage index calculation would be Severance pay costs are included in
fiscal intermediaries have verified that consistent with our general policy to the proposed FY 2001 wage index as a
teaching hospitals do not have teaching exclude, to the extent possible, costs salary cost to the extent that associated
physician costs; for these hospitals, it is that are not paid through the hospital hours are also reported. However, we
not necessary to adjust the hospitals’ prospective payment system. Because are soliciting public comments on this
physician Part A costs. We are actively NP and CNS costs are not separately issue.
conferring with the fiscal intermediaries reported on the Worksheet S–3 for FYs
to distinguish teaching hospitals that do 1997, 1998, and 1999, the FY 2000 4. Health Insurance and Health-Related
not have teaching physician costs from Worksheet S–3 and cost reporting Costs
teaching hospitals that have not instructions will be revised to allow for In the September 1, 1994 final rule (59
identified the portion of their physician separate reporting of NP and CNS Part FR 45356), we stated that health
Part A costs associated with teaching A and Part B costs. We will exclude the insurance, purchased or self-insurance,
physicians (that is, hospitals that did Part B costs beginning with the FY 2004 is a core wage-related cost. Over the past
not complete the teaching survey and wage index. These services are year, we have received several inquiries
did not report teaching-related costs on pervasive in both rural and urban from hospitals and hospital associations
Worksheet A, Line 23). We propose to settings. As such, we believe there will requesting that we define ‘‘purchased
remove 100 percent of the physician be no significant overall impact health insurance costs.’’ In response, in

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26298 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

this proposed rule, we are clarifying Medicare cost reporting forms for RHCs documentation to verify or revise the
that, for wage index purposes, we define and FQHCs were revised to reflect this data because the hospitals are no longer
‘‘purchased health insurance costs’’ as legislative change, beginning with cost participating in the Medicare program
the premiums and administrative costs reporting periods ending on or after or are in bankruptcy status. Four
a hospital pays on behalf of its September 30, 1998 (the FY 1998 cost hospitals had negative average hourly
employees for health insurance report). Other cost-reimbursed wages after allocating overhead to their
coverage. ‘‘Self-insurance’’ includes the outpatient departments, such as excluded areas and, therefore, were
hospital’s costs (not charges) for covered ambulatory surgical centers, community removed from the calculation. The data
services delivered to its employees, less mental health centers, and from the remaining 13 hospitals also
any amounts paid by the employees, comprehensive outpatient rehabilitation failed the edits and were removed. The
and less the personnel costs for hospital facilities, are presently excluded from data for these hospitals will be included
staff who delivered the services (these the wage index. Therefore, consistent in the final wage index if we receive
costs are already included in the wage with our wage index refinements that corrected data that pass our edits. As a
index). For purchased health insurance exclude, to the extent possible, costs result, the proposed FY 2001 wage
and self-health insurance, the included associated with services not paid under index is calculated based on FY 1997
costs must be for services covered in a the hospital inpatient prospective wage data for 4,926 hospitals.
health insurance plan. payment system, we believe it would be
Also, in the September 1, 1994 final E. Computation of the Proposed FY
appropriate to exclude all salary costs
rule (59 FR 45357), we addressed a 2001 Wage Index
associated with RHCs and FQHCs from
comment about the inclusion of health- the wage index calculation if we had The method used to compute the
related costs in the calculation of the feasible, reliable data for such proposed FY 2001 wage index is as
wage index. Such health-related costs exclusion. follows:
include employee physical Because RHC and FQHC costs are not Step 1—As noted above, we are
examinations, flu shots, and clinic separately reported on the Worksheet S– proposing to base the FY 2001 wage
visits, and other services that are not 3 for FYs 1997, 1998, and 1999, we index on wage data reported on the FY
covered by employees’ health insurance cannot exclude these costs from the FY 1997 Medicare cost reports. We gathered
plans but are provided at no cost or at 2001, FY 2002, or FY 2003 wage data from each of the non-Federal,
discounted rates to employees of the indexes. Therefore, we will revise the short-term, acute care hospitals for
hospital. We are clarifying that the costs FY 2000 Worksheet S–3 to begin which data were reported on the
for these services may be included as an providing for the separate reporting of Worksheet S–3, Parts II and III of the
‘‘other’’ wage-related cost if (among RHC and FQHC salaries, wage-related Medicare cost report for the hospital’s
other criteria), when all such health- costs, and hours. We will evaluate the cost reporting period beginning on or
related costs are combined, the total of wage data for RHCs and FQHCs in after October 1, 1996 and before October
such costs is greater than 1 percent of developing the FY 2004 wage index. 1, 1997. In addition, we included data
the hospital’s total salaries (less from a few hospitals that had cost
D. Verification of Wage Data From the reporting periods beginning in
excluded area salaries). As discussed in
Medicare Cost Report September 1996 and reported a cost
the September 1, 1994 final rule (59 FR
45357), a cost may be allowable as an The data for the proposed FY 2001 reporting period exceeding 52 weeks.
‘‘other wage-related cost’’ if it meets wage index were obtained from These data were included because no
certain criteria. Under one criterion, the Worksheet S–3, Parts II and III of the FY other data from these hospitals would
wage-related cost must be greater than 1 1997 Medicare cost reports. The data be available for the cost reporting period
percent of total salaries (less excluded file used to construct the proposed wage described above, and because particular
area salaries). For purposes of applying index includes FY 1997 data submitted labor market areas might be affected due
this 1-percent test with respect to the to HCFA as of mid-February 2000. As in to the omission of these hospitals.
health-related costs at issue here, we past years, we performed an intensive However, we generally describe these
look at the combined total of the health- review of the wage data, mostly through wage data as FY 1997 data. We note
related costs (not charges) for services the use of edits designed to identify that, if a hospital had more than one
delivered to its employees, less any aberrant data. cost reporting period beginning during
amounts employees paid, and less the We asked our fiscal intermediaries to FY 1997 (for example, a hospital had
personnel costs for hospital staff who revise or verify data elements that two short cost reporting periods
delivered the services (as these costs are resulted in specific edit failures. Some beginning on or after October 1, 1996
already included in the wage index). unresolved data elements are included and before October 1, 1997), we
in the calculation of the proposed FY included wage data from only one of the
5. Elimination of Wage Costs Associated 2001 wage index pending their cost reporting periods, the longest, in
With Rural Health Clinics and Federally resolution before calculation of the final the wage index calculation. If there was
Qualified Health Centers FY 2001 wage index. We have more than one cost reporting period and
The current hospital wage index instructed the intermediaries to the periods were equal in length, we
includes the salaries and wage-related complete their verification of included the wage data from the latest
costs of hospital-based rural health questionable data elements and to period in the wage index calculation.
clinics (RHCs) and federally qualified transmit any changes to the wage data Step 2—Salaries—The method used to
health centers (FQHCs). However, (through HCRIS) no later than April 3, compute a hospital’s average hourly
Medicare pays for these costs outside 2000. We expect that all unresolved data wage is a blend of 60 percent of the
the hospital inpatient prospective elements will be resolved by that date. hospital’s average hourly wage
payment system. Effective January 1, The revised data will be reflected in the including all GME and CRNA costs, and
1998, under section 1833(f) of the Act, final rule. 40 percent of the hospital’s average
as amended by section 4205 of Public Also, as part of our editing process, hourly wage after eliminating all GME
Law 105–33, Medicare pays both we removed data for 19 hospitals that and CRNA costs.
hospital-based and freestanding RHCs failed edits. For two of these hospitals, In calculating a hospital’s average
and FQHCs on a cost-per-visit basis. we were unable to obtain sufficient salaries plus wage-related costs,

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including all GME and CRNA costs, we adjustment, we estimated the percentage (with and without GME and CRNA
subtracted from Line 1 (total salaries) change in the employment cost index costs) for all hospitals in that area to
the Part B salaries reported on Lines 3 (ECI) for compensation for each 30-day determine the total adjusted salaries
and 5, home office salaries reported on increment from October 14, 1996 plus wage-related costs for the labor
Line 7, and excluded salaries reported through April 15, 1998 for private market area.
on Lines 8 and 8.01 (that is, direct industry hospital workers from the Step 7—We divided the total adjusted
salaries attributable to skilled nursing Bureau of Labor Statistics’ salaries plus wage-related costs obtained
facility services, home health services, Compensation and Working Conditions. under both methods in Step 6 by the
and other subprovider components not We use the ECI because it reflects the sum of the corresponding total hours
subject to the prospective payment price increase associated with total (from Step 4) for all hospitals in each
system). We also subtracted from Line 1 compensation (salaries plus fringes) labor market area to determine an
the salaries for which no hours were rather than just the increase in salaries. average hourly wage for the area.
reported on Lines 2, 4, and 6. To In addition, the ECI includes managers Because the proposed FY 2001 wage
determine total salaries plus wage- as well as other hospital workers. This index is based on a blend of average
related costs, we added to the net methodology to compute the monthly hourly wages, we then added 60 percent
hospital salaries the costs of contract update factors uses actual quarterly ECI of the average hourly wage calculated
labor for direct patient care, certain top data and assures that the update factors without removing GME and CRNA
management, and physician Part A match the actual quarterly and annual costs, and 40 percent of the average
services (Lines 9 and 10), home office percent changes. The factors used to hourly wage calculated with these costs
salaries and wage-related costs reported adjust the hospital’s data were based on excluded.
by the hospital on Lines 11 and 12, and the midpoint of the cost reporting Step 8—We added the total adjusted
nonexcluded area wage-related costs period, as indicated below. salaries plus wage-related costs obtained
(Lines 13, 14, 16, 18, and 20). in Step 5 for all hospitals in the nation
We note that contract labor and home MIDPOINT OF COST REPORTING and then divided the sum by the
office salaries for which no national sum of total hours from Step 4
corresponding hours are reported were to arrive at a national average hourly
not included. In addition, wage-related Adjustment wage (using the same blending
costs for specific categories of After Before methodology described in Step 7). Using
employees (Lines 16, 18, and 20) are the data as described above, the national
excluded if no corresponding salaries 10/14/96 ....... 11/15/96 ....... 1.02848 average hourly wage is $21.6988.
are reported for those employees (Lines 11/14/96 ....... 12/15/96 ....... 1.02748 Step 9—For each urban or rural labor
12/14/96 ....... 01/15/97 ....... 1.02641 market area, we calculated the hospital
2, 4, and 6, respectively). 01/14/97 ....... 02/15/97 ....... 1.02521
We then calculated a hospital’s wage index value by dividing the area
02/14/97 ....... 03/15/97 ....... 1.02387
salaries plus wage-related costs by 03/14/97 ....... 04/15/97 ....... 1.02236
average hourly wage obtained in Step 7
subtracting from total salaries the 04/14/97 ....... 05/15/97 ....... 1.02068 by the national average hourly wage
salaries plus wage-related costs for 05/14/97 ....... 06/15/97 ....... 1.01883 computed in Step 8.
teaching physicians, Part A CRNAs 06/14/97 ....... 07/15/97 ....... 1.01695 Step 10—Following the process set
(Lines 2 and 16), and residents (Lines 6 07/14/97 ....... 08/15/97 ....... 1.01520 forth above, we developed a separate
and 20). 08/14/97 ....... 09/15/97 ....... 1.01357 Puerto Rico-specific wage index for
Step 3—Hours—With the exception of 09/14/97 ....... 10/15/97 ....... 1.01182 purposes of adjusting the Puerto Rico
10/14/97 ....... 11/15/97 ....... 1.00966 standardized amounts. (The national
wage-related costs, for which there are
11/14/97 ....... 12/15/97 ....... 1.00712
no associated hours, we computed total 12/14/97 ....... 01/15/98 ....... 1.00451
Puerto Rico standardized amount is
hours using the same methods as 01/14/98 ....... 02/15/98 ....... 1.00213 adjusted by a wage index calculated for
described for salaries in Step 2. 02/14/98 ....... 03/15/98 ....... 1.00000 all Puerto Rico labor market areas based
Step 4—For each hospital reporting 03/14/98 ....... 04/15/98 ....... 0.99798 on the national average hourly wage as
both total overhead salaries and total described above.) We added the total
overhead hours greater than zero, we For example, the midpoint of a cost adjusted salaries plus wage-related costs
then allocated overhead costs. First, we reporting period beginning January 1, (as calculated in Step 5) for all hospitals
determined the ratio of excluded area 1997 and ending December 31, 1997 is in Puerto Rico and divided the sum by
hours (sum of Lines 8 and 8.01 of June 30, 1997. An adjustment factor of the total hours for Puerto Rico (as
Worksheet S–3, Part II) to revised total 1.01695 would be applied to the wages calculated in Step 4) to arrive at an
hours (Line 1 minus the sum of Part II, of a hospital with such a cost reporting overall average hourly wage of $9.9667
Lines 3, 5, and 7 and Part III, Line 13 period. In addition, for the data for any for Puerto Rico. For each labor market
of Worksheet S–3). We then computed cost reporting period that began in FY area in Puerto Rico, we calculated the
the amounts of overhead salaries and 1997 and covers a period of less than Puerto Rico-specific wage index value
hours to be allocated to excluded areas 360 days or more than 370 days, we by dividing the area average hourly
by multiplying the above ratio by the annualized the data to reflect a 1-year wage (as calculated in Step 7) by the
total overhead salaries and hours cost report. Annualization is overall Puerto Rico average hourly
reported on Line 13 of Worksheet S–3, accomplished by dividing the data by wage.
Part III. Finally, we subtracted the the number of days in the cost report Step 11—Section 4410 of Public Law
computed overhead salaries and hours and then multiplying the results by 365. 105–33 provides that, for discharges on
associated with excluded areas from the Step 6—Each hospital was assigned to or after October 1, 1997, the area wage
total salaries and hours derived in Steps its appropriate urban or rural labor index applicable to any hospital that is
2 and 3. market area before any reclassifications located in an urban area may not be less
Step 5—For each hospital, we under section 1886(d)(8)(B) or section than the area wage index applicable to
adjusted the total salaries plus wage- 1886(d)(10) of the Act. Within each hospitals located in rural areas in that
related costs to a common period to urban or rural labor market area, we State. Furthermore, this wage index
determine total adjusted salaries plus added the total adjusted salaries plus floor is to be implemented in such a
wage-related costs. To make the wage wage-related costs obtained in Step 5 manner as to assure that aggregate

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prospective payment system payments in which they are located, are subject to most recent available decennial
are not greater or less than those that all of the normal rules for calculating population data.
would have been made in the year if wage indexes for hospitals affected by We are in the process of working with
this section did not apply. For FY 2001, reclassification decisions by the the Office of Management and Budget to
this change affects 241 hospitals in 41 MGCRB, as described below. identify the hospitals that would be
MSAs. The MSAs affected by this In addition, we would note that the affected by this amendment. We refer
provision are identified in Table 4A by reclassifications enacted by section 152 the reader to the September 30, 1988
a footnote. pertain only to the hospitals located in final rule (53 FR 38499) for a complete
the specified counties, not to hospitals discussion of our approach to identify
F. Revisions to the Wage Index Based on in other counties within the MSA or the outlying counties using the
Hospital Redesignation hospitals reclassified into the MSA by standards published in the January 3,
Under section 1886(d)(8)(B) of the the MGCRB. 1980 Federal Register.
Act, hospitals in certain rural counties Under section 154 of Public Law 106– The methodology for determining the
adjacent to one or more MSAs are 113, the Allentown-Bethlehem-Easton, wage index values for redesignated
considered to be located in one of the Pennsylvania MSA wage index will be hospitals is applied jointly to the
adjacent MSAs if certain standards are calculated including the wage data for hospitals located in those rural counties
met. Under section 1886(d)(10) of the Lehigh Valley Hospital. Section 154 that were deemed urban under section
Act, the Medicare Geographic states that, for FY 2001, 1886(d)(8)(B) of the Act and those
Classification Review Board (MGCRB) ‘‘[n]otwithstanding any other provision hospitals that were reclassified as a
considers applications by hospitals for of section 1886(d) of the Social Security result of the MGCRB decisions under
geographic reclassification for purposes Act (42 U.S.C. 1395ww(d)), in section 1886(d)(10) of the Act. Section
of payment under the prospective calculating and applying the wage 1886(d)(8)(C) of the Act provides that
payment system. indices under that section for discharges the application of the wage index to
Under section 152 of Public Law 106– occurring during fiscal year 2001, redesignated hospitals is dependent on
113, hospitals in certain counties are Lehigh Valley Hospital shall be treated the hypothetical impact that the wage
deemed to be located in specified areas as being classified in the Allentown- data from these hospitals would have on
for purposes of payment under the Bethlehem-Easton Metropolitan the wage index value for the area to
hospital inpatient prospective payment Statistical Area.’’ This statutory which they have been redesignated.
system, for discharges occurring on or language directs us to include Lehigh Therefore, as provided in section
after October 1, 2000. For payment Valley Hospital’s wage data in the wage 1886(d)(8)(C) of the Act, the wage index
purposes, these hospitals are to be index calculation for the Allentown- values were determined by considering
treated as though they were reclassified Bethlehem-Easton MSA for FY 2000 and the following:
for purposes of both the standardized FY 2001, and to apply the Allentown- • If including the wage data for the
amount and the wage index. We are Bethlehem-Easton MSA wage index to redesignated hospitals would reduce the
proposing to calculate FY 2001 wage Lehigh Valley Hospital for discharges wage index value for the area to which
indexes for hospitals in the affected occurring during FY 2001. the hospitals are redesignated by 1
counties as if they were reclassified to Section 1886(d)(8)(B) of the Act percentage point or less, the area wage
the specified area. established that a hospital located in a index value determined exclusive of the
For purposes of making payments rural county adjacent to one or more wage data for the redesignated hospitals
under section 1886(d) of the Act for FY urban areas is treated as being located applies to the redesignated hospitals.
2001, section 152 provides the in the MSA to which the greatest • If including the wage data for the
following: number of workers in the county redesignated hospitals reduces the wage
• Iredell County, North Carolina is commute, if the rural county would index value for the area to which the
deemed to be located in the Charlotte- otherwise be considered part of an MSA hospitals are redesignated by more than
Gastonia-Rock Hill, North Carolina- (or NECMAs), if the commuting rates 1 percentage point, the redesignated
South Carolina MSA; used in determining outlying counties hospitals are subject to that combined
• Orange County, New York is were determined on the basis of the wage index value.
deemed to be located in the New York, aggregate number of resident workers • If including the wage data for the
New York MSA; who commute to (and, if applicable redesignated hospitals increases the
• Lake County, Indiana and Lee under the standards, from) the central wage index value for the area to which
County, Illinois are deemed to be county or counties of all contiguous the hospitals are redesignated, both the
located in the Chicago, Illinois MSA; MSAs. Through FY 2000, hospitals are area and the redesignated hospitals
• Hamilton-Middletown, Ohio is required to use standards published in receive the combined wage index value.
deemed to be located in the Cincinnati, the Federal Register on January 3, 1980, • The wage index value for a
Ohio-Kentucky-Indiana MSA; by the Office of Management and redesignated urban or rural hospital
• Brazoria County, Texas is deemed Budget. For FY 2000, there were 26 cannot be reduced below the wage
to be located in the Houston, Texas hospitals affected by this provision. index value for the rural areas of the
MSA; Section 402 of Public Law 106–113 State in which the hospital is located.
• Chittenden County, Vermont is amended section 1886(d)(8)(B) of the • Rural areas whose wage index
deemed to be located in the Boston- Act to allow hospitals to elect to use the values would be reduced by excluding
Worcester-Lawrence-Lowell-Brockton, standards published in the Federal the wage data for hospitals that have
Massachusetts-New Hampshire MSA. Register on January 3, 1980 (1980 been redesignated to another area
Section 152 also requires that these decennial census data) or March 30, continue to have their wage index
reclassifications be treated for FY 2001 1990 (1990 decennial census data) values calculated as if no redesignation
as though they are reclassification during FY 2001 and FY 2002. As of FY had occurred.
decisions by the MGCRB. Therefore, the 2003, hospitals will be required to use • Rural areas whose wage index
proposed wage indexes for the areas to the standards published in the Federal values increase as a result of excluding
which these hospitals are reclassifying, Register by the Director of the Office of the wage data for the hospitals that have
as well as the wage indexes for the areas Management and Budget based on the been redesignated to another area have

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their wage index values calculated § 412.63(w)(2)). We note that in intermediaries to inform the prospective
exclusive of the wage data of the adjudicating these wage index payment hospitals that they service of
redesignated hospitals. reclassifications the MGCRB will use the availability of the wage data file and
• The wage index value for an urban the average hourly wages for each the process and timeframe for
area is calculated exclusive of the wage hospital and labor market area that are requesting revisions. The wage data file
data for hospitals that have been reflected in the final FY 2001 wage was made available on February 7, 2000
reclassified to another area. However, index. through the Internet at HCFA’s home
geographic reclassification may not At the time this proposed wage index page ( We also
reduce the wage index value for an was constructed, the MGCRB had instructed the intermediaries to advise
urban area below the statewide rural completed its review of FY 2001 hospitals of the availability of these data
wage index value. reclassification requests. The proposed either through their representative
We note that, except for those rural FY 2001 wage index values incorporate hospital organizations or directly from
areas in which redesignation would all 586 hospitals redesignated for HCFA. Additional details on ordering
reduce the rural wage index value, the purposes of the wage index (hospitals this data file are discussed in section
wage index value for each area is redesignated under section IX.A of this preamble, ‘‘Requests for
computed exclusive of the wage data for 1886(d)(8)(B) or 1886(d)(10) of the Act, Data from the Public.’’
hospitals that have been redesignated and section 152 Public Law 106–113) In addition, Table 3C in the
from the area for purposes of their wage for FY 2001. The final number of Addendum to this proposed rule
index. As a result, several urban areas reclassifications may vary because some contains each hospital’s adjusted
listed in Table 4A have no hospitals MGCRB decisions are still under review average hourly wage used to construct
remaining in the area. This is because by the Administrator and because some the proposed wage index values. It
all the hospitals originally in these hospitals may withdraw their requests should be noted that the hospital
urban areas have been reclassified to for reclassification. average hourly wages shown in Table
another area by the MGCRB. These areas Any changes to the wage index that 3C may not reflect any changes made to
with no remaining hospitals receive the result from withdrawals of requests for a hospital’s data after February 7, 2000.
prereclassified wage index value. The reclassification, wage index corrections, Changes approved by a hospital’s fiscal
prereclassified wage index value will appeals, and the Administrator’s review intermediary and forwarded to HCFA by
apply as long as the area remains empty. process will be incorporated into the April 3, 2000 will be reflected on the
The proposed wage index values for wage index values published in the final final public use wage data file
FY 2001 are shown in Tables 4A, 4B, rule following this proposed rule. The scheduled to be made available on May
4C, and 4F in the Addendum to this changes may affect not only the wage 5, 2000.
proposed rule. Hospitals that are index value for specific geographic We believe hospitals have sufficient
redesignated should use the wage index areas, but also the wage index value time to ensure the accuracy of their FY
values shown in Table 4C. Areas in redesignated hospitals receive; that is, 1997 wage data. Moreover, the ultimate
Table 4C may have more than one wage whether they receive the wage index responsibility for accurately completing
index value because the wage index value for the area to which they are the cost report rests with the hospital,
value for a redesignated urban or rural redesignated, or a wage index value that which must attest to the accuracy of the
hospital cannot be reduced below the includes the data for both the hospitals data at the time the cost report is filed.
wage index value for the rural areas of already in the area and the redesignated However, if, after review of the wage
the State in which the hospital is hospitals. Further, the wage index value data file released February 4, 2000, a
located. When the wage index value of for the area from which the hospitals are hospital believed that its FY 1997 wage
the area to which a hospital is redesignated may be affected. data were incorrectly reported, the
redesignated is lower than the wage Under § 412.273, hospitals that have hospital was to submit corrections along
index value for the rural areas of the been reclassified by the MGCRB are with complete, detailed supporting
State in which the hospital is located, permitted to withdraw their documentation to its intermediary by
the redesignated hospital receives the applications within 45 days of the March 6, 2000. Hospitals were notified
higher wage index value; that is, the publication of this proposed rule in the of this deadline, and of all other
wage index value for the rural areas of Federal Register. The request for possible deadlines and requirements,
the State in which it is located, rather withdrawal of an application for through written communications from
than the wage index value otherwise reclassification that would be effective their fiscal intermediaries in late
applicable to the redesignated hospitals. in FY 2001 must be received by the January 2000.
Tables 4D and 4E list the average MGCRB by June 19, 2000. A hospital After reviewing requested changes
hourly wage for each labor market area, that requests to withdraw its application submitted by hospitals, intermediaries
before the redesignation of hospitals, may not later request that the MGCRB transmitted any revised cost reports to
based on the FY 1997 wage data. In decision be reinstated. HCFA and forwarded a copy of the
addition, Table 3C in the Addendum to revised Worksheet S–3, Parts II and III
this proposed rule includes the adjusted G. Requests for Wage Data Corrections to the hospitals. In addition, fiscal
average hourly wage for each hospital To allow hospitals time to evaluate intermediaries were to notify hospitals
based on the preliminary FY 1997 data the wage data used to construct the of the changes or the reasons that
as of February 25, 2000 (reflecting the proposed FY 2001 hospital wage index, changes were not accepted. This
phase-out of GME and CRNA wages as we made available to the public a data procedure ensures that hospitals have
described at section III.C of this file containing the FY 1997 hospital every opportunity to verify the data that
preamble). The MGCRB will use the wage data. As stated in section II.D of will be used to construct their wage
average hourly wage published in the this preamble, the data file used to index values. We believe that fiscal
final rule to evaluate a hospital’s construct the proposed wage index intermediaries are generally in the best
application for reclassification for FY includes FY 1997 data submitted to position to make evaluations regarding
2002 (unless that average hourly wage is HCFA as of mid-February 2000. In a the appropriateness of a particular cost
later revised in accordance with the memorandum dated January 28, 2000, and whether it should be included in
wage data correction policy described in we instructed all Medicare the wage index data. However, if a

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hospital disagrees with the wage data that result from the correction tabulation errors made by the
intermediary’s resolution of a requested process described above (with the intermediary or HCFA before the
change, the hospital may contact HCFA March 6 deadline). Hospitals are development and publication of the FY
in an effort to resolve policy disputes. encouraged to review their hospital 2001 wage index by August 1, 2000 and
We note that the April 3, 2000 deadline wage data promptly after the release of the implementation of the FY 2001 wage
also applies to these requested changes. the final file because data presented at index on October 1, 2000. If hospitals
We will not consider factual this time cannot be used by hospitals to avail themselves of this opportunity, the
determinations at this time, as these initiate new wage data correction wage index implemented on October 1,
should have been resolved earlier in the requests. should be virtually error free.
process. If, after reviewing the final file, a Nevertheless, in the unlikely event that
Any wage data corrections to be hospital believes that its wage data are errors should occur after that date, we
reflected in the final wage index must incorrect due to a fiscal intermediary or retain the right to make midyear
have been reviewed and verified by the HCFA error in the entry or tabulation of changes to the wage index under very
intermediary and transmitted to HCFA the final wage data, it should send a limited circumstances.
on or before April 3, 2000. (The letter to both its fiscal intermediary and Specifically, in accordance with
deadline for hospitals to request HCFA. The letters should outline why § 412.63(w)(2), we may make midyear
changes from their fiscal intermediaries the hospital believes an error exists and corrections to the wage index only in
was March 6, 2000.) These deadlines are provide all supporting information, those limited circumstances in which a
necessary to allow sufficient time to including dates. These requests must be hospital can show (1) that the
review and process the data so that the received by HCFA and the intermediary or HCFA made an error in
final wage index calculation can be intermediaries no later than June 5, tabulating its data; and (2) that the
completed for development of the final 2000. Requests mailed to HCFA should hospital could not have known about
prospective payment rates to be be sent to: Health Care Financing the error, or did not have an opportunity
published by August 1, 2000. Administration; Center for Health Plans to correct the error, before the beginning
We have created the process and Providers; Attention: Wage Index of FY 2001 (that is, by the June 5, 2000
described above to resolve all Team, Division of Acute Care; C4–07– deadline). As indicated earlier, since a
substantive wage data correction 07; 7500 Security Boulevard; Baltimore, hospital will have the opportunity to
disputes before we finalize the wage MD 21244–1850. Each request must also verify its data, and the intermediary will
data for the FY 2001 payment rates. be sent to the hospital’s fiscal notify the hospital of any changes, we
Accordingly, hospitals that do not meet intermediary. The intermediary will do not foresee any specific
the procedural deadlines set forth above review requests upon receipt and circumstances under which midyear
will not be afforded a later opportunity contact HCFA immediately to discuss corrections would be necessary.
to submit wage data corrections or to its findings. However, should a midyear correction
dispute the intermediary’s decision with At this point in the process, changes be necessary, the wage index change for
respect to requested changes. to the hospital wage data will only be the affected area will be effective
The final wage data public use file made in those very limited situations prospectively from the date the
will be released by May 5, 2000. involving an error by the intermediary correction is made.
Hospitals should examine both Table 3C or HCFA that the hospital could not
of this proposed rule and the May 5 have known about before its review of IV. Other Decisions and Proposed
final public use wage data file (which the final wage data file. Specifically, Changes to the Prospective Payment
reflects revisions to the data used to neither the intermediary nor HCFA will System for Inpatient Operating Costs
calculate the values in Table 3C) to accept the following types of requests at and Graduate Medical Education Costs
verify the data HCFA is using to this stage of the process: A. Expanding the Transfer Definition to
calculate the wage index. Hospitals will • Requests for wage data corrections Include Postacute Care Discharges
have until June 5, 2000, to submit that were submitted too late to be
requests to correct errors in the final (§ 412.4)
included in the data transmitted to
wage data due to data entry or HCFA on or before April 3, 2000. In accordance with section
tabulation errors by the intermediary or • Requests for correction of errors 1886(d)(5)(I) of the Act, the prospective
HCFA. The correction requests that will that were not, but could have been, payment system distinguishes between
be considered at that time will be identified during the hospital’s review ‘‘discharges,’’ situations in which a
limited to errors in the entry or of the February 2000 wage data file. patient leaves an acute care (prospective
tabulation of the final wage data that the • Requests to revisit factual payment) hospital after receiving
hospital could not have known about determinations or policy interpretations complete acute care treatment, and
before the release of the final wage data made by the intermediary or HCFA ‘‘transfers,’’ situations in which the
public use file. during the wage data correction process. patient is transferred to another acute
As noted above in section III.C of this Verified corrections to the wage index care hospital for related care. Our
preamble, the final wage data file received timely (that is, by June 5, 2000) policy, as set forth in the regulations at
released on May 5, 2000 will include will be incorporated into the final wage § 412.4, provides that, in a transfer
hospitals’ teaching survey data as well index to be published by August 1, 2000 situation, full payment is made to the
as cost report data. As with the file and effective October 1, 2000. final discharging hospital and each
made available in February 2000, HCFA Again, we believe the wage data transferring hospital is paid a per diem
will make the final wage data file correction process described above rate for each day of the stay, not to
released in May 2000 available to provides hospitals with sufficient exceed the full DRG payment that
hospital associations and the public on opportunity to bring errors in their wage would have been made if the patient
the Internet. However, this file is being data to the intermediary’s attention. had been discharged without being
made available solely for the limited Moreover, because hospitals will have transferred.
purpose of identifying any potential access to the final wage data by early Effective with discharges on or after
errors made by HCFA or the May 2000, they will have the October 1, 1998, section 1886(d)(5)(J) of
intermediary in the entry of the final opportunity to detect any data entry or the Act required the Secretary to define

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and pay as transfers all cases assigned • DRG 211 (Hip and Femur policies for other postacute care settings
to one of 10 DRGs (identified below) Procedures Except Major Joint such as hospital outpatient departments,
selected by the Secretary if the Procedures Age >17 without CC we have limited data to assess whether
individuals are discharged to one of the (Surgical)). additional postacute care settings
following settings: • DRG 236 (Fractures of Hip and should be included. We will continue to
• A hospital or hospital unit that is Pelvis (Medical)). closely monitor this issue as more data
not a subsection 1886(d) hospital. • DRG 263 (Skin Graft and/or become available.
(Section 1886(d)(1)(B) of the Act Debridement for Skin Ulcer or Cellulitis In its analysis, HER relied on HCFA’s
identifies the hospitals and hospital with CC (Surgical)) Standard Analytic Files containing
units that are excluded from the term • DRG 264 (Skin Graft and/or claims submission data through
‘‘subsection(d) hospital’’ as psychiatric Debridement for Skin Ulcer or Cellulitis September 1999. However, the second
hospitals and units, rehabilitation without CC (Surgical)) and third quarter submissions for
hospitals and units, children’s hospitals, • DRG 429 (Organic Disturbances and calendar year 1999 were not complete.
long-term care hospitals, and cancer Mental Retardation (Medical)) It was decided that transfer cases would
hospitals.) • DRG 483 (Tracheostomy Except for be identified by linking acute hospital
• A skilled nursing facility (as Face, Mouth and Neck Diagnoses discharges with postacute records based
defined at section 1819(a) of the Act). (Surgical)). on Medicare beneficiary numbers and
• Home health services provided by a Generally, we pay for transfers based dates of discharge from the acute
home health agency, if the services on a per diem payment, determined by hospital with dates of admission or
relate to the condition or diagnosis for dividing the DRG payment by the provision of service by the postacute
which the individual received inpatient average length of stay for that DRG. The provider. This method was used rather
hospital services, and if the home health transferring hospital receives twice the than selecting cases based on the
services are provided within an per diem rate the first day and the per discharge status code on the claim even
appropriate period (as determined by diem rate for each following day, up to though this code is being used for
the Secretary). the full DRG payment. Of the 10 payment to these cases because we
Therefore, any discharge from a selected DRGs, 7 are paid under this wanted to also assess how accurately
prospective payment hospital from one method. However, three DRGs exhibit a hospitals are coding this status.
of the selected 10 DRGs that is admitted disproportionate share of costs very However, the need to link acute and
to a hospital excluded from the early in the hospital stay. For these postacute episodes further limited the
prospective payment system on the date three DRGs, hospitals receive one-half of analytic data, due to the greater time lag
of discharge from the acute care the DRG payment for the first day of the for collecting postacute records.
hospital, on or after October 1, 1998, stay and one-half of the payment they Therefore, much of HER’s analysis
would be considered a transfer and paid would receive under the current transfer focused on only the first two quarters of
accordingly under the prospective payment method, up to the full DRG FY 1998. The two preceding fiscal years
payment systems (operating and capital) payment. served as a baseline for purposes of
for inpatient hospital services. Section 1886(d)(5)(J)(iv) of the Act comparison.
Similarly, a discharge from an acute requires the Secretary to include in the HER looked at the 10 DRGs included
care inpatient hospital paid under the FY 2001 proposed rule a description of under the transfer payment policy and
prospective payment system to a skilled the effect of the provision to treat as identified a slight decrease in the
nursing facility on the same date would transfers cases that are assigned to one percentage of short-stay postacute
be defined as a transfer and paid as of the 10 selected DRGs and receive transfers. Short-stay transfers were
such. This would include cases postacute care upon their discharge defined as those with a length of stay at
discharged from one of the 10 selected from the hospital. Under contract with least one day below the geometric mean
DRGs to a designated swing bed for HCFA (Contract No. 500–95–0006), length of stay for the DRG. Comparing
skilled nursing care. We consider Health Economics Research, Inc. (HER) the share of short-stay postacute
situations in which home health conducted an analysis of the impact on transfers to total discharges shows that
services related to the condition or hospitals and hospital payments of the during the first two quarters of FY 1998,
diagnosis of the inpatient admission are postacute transfer provision. The the resulting percentage was 34 percent.
received within 3 days after the analysis sought to obtain information on The same comparison during the first
discharge as a transfer. four primary areas: how hospitals two quarters of FY 1999 yielded 33
The statute specifies that the responded in terms of their transfer percent. When HER examined the share
Secretary select 10 DRGs based upon a practices; a comparison of payments of short-stay postacute transfers relative
high volume of discharges to postacute and costs for these cases; whether to all short-stay cases, it found that the
care and a disproportionate use of hospitals are attempting to circumvent percentage fell from 59 percent in FY
postacute care services. We identified the policy by delaying postacute care or 1998 to 58 percent in FY 1999.
the following DRGs with the highest coding the patient’s discharge status as According to HER, ‘‘[t]hese figures
percentage of postacute care: something other than a transfer; and suggest that the policy change resulted
• DRG 14 (Specific Cerebrovascular what the next possible step is for in a moderate decline in the number of
Disorders Except Transient Ischemic expanding the transfer payment policy postacute care transfers paid for under
Attack (Medical)). beyond the current 10 selected DRGs or the lower per diem methodology.’’
• DRG 113 (Amputation for the current postacute destinations. Evidence also suggests that hospitals
Circulatory System Disorders Except Section 1886(d)(5)(J)(iv)(I) authorizes are keeping patients in these 10 DRGs
Upper Limb and Toe (Surgical)). the Secretary to include in the proposed longer prior to transfer. The mean length
• DRG 209 (Major Joint Limb rule for FY 2001 a description of other of stay of short-stay postacute transfers
Reattachment Procedures of Lower post-discharge services that should be remained fairly constant prior to the
Extremity (Surgical)). added to this postacute care transfer change and after the change, declining
• DRG 210 (Hip and Femur provision. Since FY 1999 was the first less than one-half percent. On the other
Procedures Except Major Joint year this policy was effective and hand, the mean length of stay of
Procedures Age >17 with CC (Surgical)). because of pending changes to payment nontransfer short-stay patients fell by

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1.8 percent. By comparison, the mean prospective payment system or to a did not start within 3 days after the date
length of stay of long-stay postacute skilled nursing facility 2 or 3 days of discharge, a condition code 43 must
transfers fell by 3.4 percent, while it fell following the discharge, and the number be entered on the claim. The presence
only 2.1 percent for long-stay and percent of patients who received of either of these condition codes in
nontransfers. The report suggests ‘‘[t]he services from a home health agency 4 or conjunction with discharge destination
relative decline in the length of stay of 5 days after discharge from an acute care code 06 will result in full payment
transfers among all long-stay cases hospital. The percentages are based on rather than the transfer payment
suggests that (prospective payment the share of transferred patients falling amount. We intend to closely monitor
system) hospitals may have responded into the time windows described above the accuracy of hospitals’ discharge
to the policy change by holding such relative to all such transfers. destination coding in this regard and
patients until they exceeded the The analysis identified 699 patients take whatever steps are necessary to
geometric mean minus one day transferred to an excluded hospital or ensure that accurate payment is made
threshold prior to post-discharge unit 2 or 3 days following discharge under this policy.
referral.’’ from an acute care hospital during the Section 1886(d)(5)(J)(iv)(II) of the Act
We believe these marginal reactions first two quarters of FY 1998, and 660 authorized but did not require the
by hospitals to the postacute transfer such cases during the first two quarters Secretary to include as part of this
policy suggest that the increase in the of FY 1999. Similarly, there were 2,219 proposed rule additional DRGs to
rate of postacute transfers over the past transfers to skilled nursing facilities 2 or include under the postacute care
several years has been due to a number 3 days after discharge during the first transfer provision. As part of ‘‘The
of factors, of which Medicare payment two quarters of FY 1998, and 1,759 President’s Plan to Modernize and
policy has been only one. As indicated during the first two quarters of FY 1999. Strengthen Medicare for the 21st
in the Conference report accompanying The percentage of such transfers was Century’’ (July 2, 1999), the
Public Law 105–33 (H.R. Conf. Rept. No. constant for both excluded hospitals Administration committed to not
105–217, 105th Cong., 1st Sess., at 740 and units and for skilled nursing expanding the number of DRGs
(1997)), Congress’ intent was to facilities. The analysis found that home included in the policy until FY 2003.
‘‘continue to provide hospitals with health referral on the 4th or 5th day Therefore, we are not proposing any
strong incentives to treat patients in the following discharge fell from 17.5 change to the postacute care settings or
most effective and efficient manner, percent to 16.5 percent between the two the 10 DRGs.
while at the same time, adjust PPS study periods, from 12,667 cases to HER did undertake an analysis of how
payments in a manner that accounts for 9,745 cases. On the basis of these additional DRGs might be considered
reduced hospital lengths of stay because findings, HER believes ‘‘[t]hese results for inclusion under the policy. The
of a discharge to another setting.’’ The do not support the contention that analysis supports the initial 10 DRGs
preliminary results of HER’s report (prospective payment system) hospitals selected as being consistent with the
suggest that the policy resulting from (would) circumvent the lower per diem nature of the Congressional mandate.
Public Law 105–33 has not had a payments by delaying the date of According to HER, ‘‘[t]he top 10 DRGs
disruptive impact on existing clinical postacute care admission or visit.’’ chosen initially by HCFA exhibit very
practices. The study also examined the large PAC [postacute care] levels and
To assess the adequacy of payments discharge destination codes as reported PAC discharge rates (except for DRG
under the new policy, HER examined on the acute care hospital claims against 264, Skin Graft and/or Debridement for
average profits per case prior to and postacute care transfers identified on Skin Ulcer or Cellulitis without CC,
after the policy change. Prior to the the basis of a postacute care claim which was paired with DRG 263). All 10
policy change, HER found average indicating the patient qualifies as a appear to be excellent choices based on
profits for short-stay transfers in the 10 transfer. This analysis found that in the other criteria as well. Most have
DRGs to be $2,454 per case. Across the 1998, only 74 percent of transfer cases fairly high short-stay PAC rates (except
10 DRGs the average profits ranged from had discharge destination codes on the possibly for Strokes, DRG 14, and
$32,007 per case for DRG 483 to minus acute care hospital claim that were Mental Retardation, DRG 429).’’
$26 per case for DRG 211 (the only one consistent with whether there was a Extending the policy beyond these
of the 10 DRGs with a negative profit postacute care claim for the case initial DRGs, however, may well require
margin prior to implementing the matching the date of discharge. In FY more extensive analysis and grouping of
policy). After the policy change, the 1999, the year the postacute care like-DRGs. One concern raised in the
average profit per case was $1,180 per transfer policy went into effect, this rate analysis relates to single DRGs
case. However, 3 of the 10 DRGs had rose to 79 percent. This indicates that including multiple procedures with
negative average profits after hospitals are improving the accuracy of varying lengths of stay. Because the
implementation of the policy. The coding transfer cases. transfer payment methodology only
average margin for DRG 483 declined to Transfers to hospitals or units considers the DRG overall geometric
$16,672 per case. excluded from the prospective payment mean length of stay for a DRG, certain
The study also attempted to ascertain system must have a discharge procedures with short lengths of stay
whether there was any concerted effort destination code (Patient Status) of 05. relative to other procedures in the same
to circumvent the policy by delaying Transfers to a skilled nursing facility DRG may be more likely to be treated as
transfers to avoid having a case defined must have a discharge destination code transfers. The analysis also considers
as a transfer, or by not coding the case of 03. Transfers to a home health agency pairs of DRGs, such as DRGs 263 and
correctly on the discharge status must have a discharge destination code 264, as well as larger bundles of DRGs
indicator on the bill. To assess whether of 06. If the hospital’s continuing care (grouped by common elements such as
postacute care was being delayed, HER plan for the patient is not related to the trauma, infections, and major organ
considered, for the periods preceding purpose of the inpatient hospital procedures). According to HER, ‘‘[i]n
and subsequent to the policy change, admission, a condition code 42 must be extending the PAC transfer policy, it is
the number and percent of cases entered on the claim. If the continuing necessary to go beyond the flawed
admitted to either a hospital or distinct- care plan is related to the purpose of the concept of a single DRG to discover
part unit of a hospital excluded from the inpatient hospital admission, but care multiple DRGs with a common link that

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exhibit similar PAC statistics. a hospital that, by reason of factors such 1, 1984 (49 FR 23010); and April 20,
Aggregation of this sort provides a as isolated location, weather conditions, 1990 (55 FR 15150).
logical bridge in expanding the PAC travel conditions, or absence of other Since we anticipate that eligible
transfer policy that is easily justified to hospitals (as determined by the hospitals will elect the option to rebase
Congress and that avoids unintended Secretary), is the sole source of inpatient using their FY 1996 cost reporting
inequities in the way DRGs—and hospital services reasonably available to periods, we are instructing our fiscal
potentially hospitals—are treated under Medicare beneficiaries. The regulations intermediaries to identify those SCHs
this policy. Hospitals can be that set forth the criteria a hospital must that were paid for their cost reporting
inadvertently penalized or not under the meet to be classified as an SCH are periods beginning during 1999 on the
current implementation criteria due to located at § 412.92(a). basis of their target amounts. For these
systematic differences in the DRG mix.’’ Currently SCHs are paid based on hospitals, fiscal intermediaries will
Finally, the HER report concludes whichever of the following rates yields calculate the FY 1996 hospital-specific
with a discussion of the issues related the greatest aggregate payment to the rate as described below in this section
to potentially expanding the postacute hospital for the cost reporting period: IV.B. If this rate exceeds a hospital’s
care transfer policy to all DRGs. On the the Federal national rate applicable to current target amount based on the
positive side, HER points to the benefits the hospital; or the hospital’s ‘‘target greater of the FY 1982 or FY 1987
of expanding the policy to include all amount’’;—that is, either the updated hospital-specific rate, the hospital will
DRGs: hospital-specific rate based on FY 1982 receive payment based on the FY 1996
• A simple, uniform formula-driven costs per discharge, or the updated hospital-specific rate (based on the
policy; hospital-specific rate based on FY 1987 blended amounts described at section
• Same policy rationale exists for all costs per discharge. 1886(b)(3)(I)(i) of the Act) unless the
DRGs—the statutory provision requiring Section 405 of Public Law 106–113, hospital notifies its fiscal intermediary
the Secretary to select only 10 DRGs was which amended section 1886(b)(3) of in writing prior to the end of the cost
a political compromise; the Act, provides that an SCH that was reporting period that it does not wish to
• DRGs with little utilization of short- paid for its cost reporting period be paid on the basis of the FY 1996
stay postacute care would not be beginning during 1999 on the basis of hospital-specific rate. Thus, if a hospital
harmed by the policy; either its FY 1982 or FY 1987 target does not notify its fiscal intermediary
• Less confusion in discharge amount (the hospital-specific rate as before the end of the cost reporting
destination coding; and opposed to the Federal rate) may elect
period that it declines the rebasing
• Hospitals that happen to be to receive payment under a
option, we will deem the lack of such
disproportionately treating the current methodology using a third hospital-
notification as an election to have
10 DRGs may be harmed more than specific rate based on the hospital’s FY
section 1886(b)(3)(I) of the Act apply to
hospitals with an aggressive short-stay 1996 costs per discharge. This
the hospital.
postacute care transfer policy for other amendment to the statute means that,
for discharges occurring in FY 2001, An SCH’s decision to decline this
DRGs. option for a cost reporting period will
According to HER, the negative eligible SCHs can elect to use the
allowable FY 1996 operating costs for remain in effect for subsequent periods
implications of expanding the policy to until such time as the hospital notifies
all DRGs include: inpatient hospital services as the basis
its fiscal intermediary otherwise.
• The postacute care transfer policy is for their target amount, rather than
either their FY 1982 or FY 1987 costs. The FY 1996 hospital-specific rate
irrelevant for many DRGs;
• Added burden for the fiscal We are aware that language in the will be based on FY 1996 cost reporting
intermediaries to verify discharge Conference Report accompanying Public periods beginning on or after October 1,
destination codes; Law 106–113 indicates that the House 1995 and before October 1, 1996, that
• Diluted program savings beyond the bill (H.R. 3075) would have permitted are 12 months or longer. If the hospital’s
initial 10 DRGs; SCHs that were being paid the Federal last cost reporting period ending on or
• Difficult to identify ongoing rate to rebase, not SCHs that were paid before September 30, 1996 is less than
postacute care that resumes after on the basis of either their FY 1982 or 12 months, the hospital’s most recent
discharge; and FY 1987 target amount (H.R. Conf. Rep. 12-month or longer cost reporting
• Heterogeneous procedures within No. 106–479, 106th Cong., 1st Sess. at period ending before the short period
single DRGs having varying lengths of 890 (1999)). The language of the section report would be utilized in the
stay. 405 amendment to section 1886(b)(3) computations. If a hospital has no cost
At the time we developed this (which added new subparagraph (I)(ii)) reporting period beginning in FY 1996,
proposed rule, HER’s report was not yet clearly limits the option to substitute it would not have a hospital-specific
in final format. We anticipate that, by the FY 1996 base year to SCHs that were rate based on FY 1996.
the time the final FY 2001 rule is paid for their cost reporting periods For each hospital eligible for FY 1996
published, this report will be available beginning during 1999 on the basis of rebasing, the fiscal intermediary would
in final format. We will announce in the target amount applicable to the calculate a hospital-specific rate based
that rule how to attain copies of the hospital under section 1886(b)(3)(C). on the hospital’s FY 1996 cost report as
complete report. When calculating an eligible SCH’s follows:
FY 1996 hospital-specific rate, we • Determine the hospital’s total
B. Sole Community Hospitals (SCHs) propose to utilize the same basic allowable Medicare inpatient operating
(412.63, 412.73, and 413.75, Proposed methodology used to calculate FY 1982 cost, as stated on the FY 1996 cost
New § 412.77, and § 412.92) and FY 1987 bases. That methodology is report.
Under the hospital inpatient set forth in §§ 412.71 through 412.75 of • Divide the total Medicare operating
prospective payment system, special the regulations and discussed in detail cost by the number of Medicare
payment protections are provided to in several prospective payment system discharges in the cost reporting period
sole community hospitals (SCHs). documents published in the Federal to determine the FY 1996 base period
Section 1886(d)(5)(D)(iii) of the Act Register on September 1, 1983 (48 FR cost per case. For this purpose, transfers
defines an SCH as, among other things, 3977); January 3, 1984 (49 FR 256); June are considered to be discharges.

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26306 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

• In order to take into consideration for full market basket updates to both hospital is at least 3,000 discharges per
the hospital’s individual case-mix, the Federal and hospital-specific year.)
divide the base year cost per case by the payment rates applicable to sole
1. Case-Mix Index
hospital’s case-mix index applicable to community hospitals. We are proposing
the FY 1996 cost reporting period. This to amend § § 412.63, 412.73, and 412.75 Section 412.96(c)(1) provides that
step is necessary to standardize the to incorporate the amendment made by HCFA will establish updated national
hospital’s base period cost for case-mix section 406 of Public Law 106–113. and regional case-mix index values in
and is consistent with our treatment of each year’s annual notice of prospective
C. Rural Referral Centers (§ 412.96) payment rates for purposes of
both FY 1982 and FY 1987 base-period
costs per case. A hospital’s case-mix is Under the authority of section determining rural referral center status.
computed based on its Medicare patient 1886(d)(5)(C)(i) of the Act, the The methodology we use to determine
discharges subject to DRG-based regulations at § 412.96 set forth the the proposed national and regional case-
payment. criteria a hospital must meet in order to mix index values is set forth in
The fiscal intermediary will notify receive special treatment under the regulations at § 412.96(c)(1)(ii). The
eligible hospitals of their FY 1996 prospective payment system as a rural proposed national case-mix index value
hospital-specific rate prior to October 1, referral center. For discharges occurring includes all urban hospitals nationwide,
2000. Consistent with our policies before October 1, 1994, rural referral and the proposed regional values are the
relating to FY 1982 and FY 1987 centers received the benefit of payment median values of urban hospitals within
hospital-specific rates, we propose to based on the other urban amount rather each census region, excluding those
permit hospitals to appeal a fiscal than the rural standardized amount. with approved teaching programs (that
intermediary’s determination of the FY Although the other urban and rural is, those hospitals receiving indirect
1996 hospital-specific rate under the standardized amounts were the same for medical education payments as
procedures set forth in 42 CFR part 405, discharges beginning with that date, provided in § 412.105). These values are
subpart R, which concern provider rural referral centers would continue to based on discharges occurring during
payment determinations and appeals. In receive special treatment under both the FY 1999 (October 1, 1998 through
the event of a modification of base disproportionate share hospital (DSH) September 30, 1999) and include bills
period costs for FY 1996 rebasing due to payment adjustment and the criteria for posted to HCFA’s records through
a final nonappealable court judgment or geographic reclassification. December 1999.
As discussed in 62 FR 45999 and 63 We are proposing that, in addition to
certain administrative actions (as
FR 26317, under section 4202 of Public meeting other criteria, hospitals with
defined in § 412.72(a)(3)(i)), the
Law 105–33, a hospital that was fewer than 275 beds, if they are to
adjustment would be retroactive to the
classified as a rural referral center for qualify for initial rural referral center
time of the intermediary’s initial
FY 1991 is to be classified as a rural status for cost reporting periods
calculation of the base period costs,
referral center for FY 1998 and later beginning on or after October 1, 2000,
consistent with the policy for rates
years so long as that hospital continued must have a case-mix index value for FY
based on FY 1982 and FY 1987 costs.
to be located in a rural area and did not 1999 that is at least—
Section 405 prescribes the following
voluntarily terminate its rural referral • 1.3401; or
formula to determine the payment for
SCHs that elect rebasing:
center status. Otherwise, a hospital • The median case-mix index value
For discharges during FY 2001: seeking rural referral center status must for urban hospitals (excluding hospitals
• 75 percent of the updated FY 1982 satisfy applicable criteria. One of the with approved teaching programs as
or FY 1987 former target (identified in criteria under which a hospital may identified in § 412.105) calculated by
the statute as the ‘‘subparagraph (C) qualify as a rural referral center is to HCFA for the census region in which
target amount’’), plus have 275 or more beds available for use. the hospital is located.
• 25 percent of the updated FY 1996 A rural hospital that does not meet the The median case-mix values by region
amount (identified in the statute as the bed size requirement can qualify as a are set forth in the following table:
‘‘’’rebased target amount’’). rural referral center if the hospital meets
For discharges during FY 2002: two mandatory prerequisites (specifying Region Case-mix
index value
• 50 percent of the updated FY 1982 a minimum case-mix index and a
or FY 1987 former target, plus minimum number of discharges) and at
1. New England (CT, ME, MA,
• 50 percent of the updated FY 1996 least one of three optional criteria NH, RI, VT) ........................... 1.2291
amount. (relating to specialty composition of 2. Middle Atlantic (PA, NJ, NY) 1.2387
For discharges during FY 2003: medical staff, source of inpatients, or 3. South Atlantic (DE, DC, FL,
• 25 percent of the updated FY 1982 referral volume). With respect to the two GA, MD, NC, SC, VA, WV) .. 1.3116
or FY 1987 former target, plus mandatory prerequisites, a hospital may 4. East North Central (IL, IN,
• 75 percent of the updated FY 1996 be classified as a rural referral center if MI, OH, WI) ........................... 1.2602
amount. its— 5. East South Central (AL, KY,
For discharges during FY 2004 or any • Case-mix index is at least equal to MS, TN) ................................. 1.2692
subsequent fiscal year, the hospital- the lower of the median case-mix index 6. West North Central (IA, KS,
for urban hospitals in its census region, MN, MO, NE, ND, SD) .......... 1.1881
specific rate would be determined based
7. West South Central (AR, LA,
on 100 percent of the updated FY 1996 excluding hospitals with approved OK, TX) ................................. 1.2800
amount. teaching programs, or the median case- 8. Mountain (AZ, CO, ID, MT,
We are proposing to add a new mix index for all urban hospitals NV, NM, UT, WY) ................. 1.3302
§ 412.77 and amend § 412.92(d) to nationally; and 9. Pacific (AK, CA, HI, OR,
incorporate the provisions of section • Number of discharges is at least WA) ....................................... 1.3076
1886(b)(3)(I) of the Act, as added by 5,000 per year, or if fewer, the median
section 405 of Public Law 106–113. number of discharges for urban The preceding numbers will be
Section 406 of Public Law 106–113 hospitals in the census region in which revised in the final rule to the extent
amended section 1886(b)(3)(B)(i)(XVI) of the hospital is located. (The number of required to reflect the updated FY 1999
the Act to provide, for fiscal year 2001, discharges criterion for an osteopathic MedPAR file, which will contain data

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Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules 26307

from additional bills received through 5,000 discharges. Therefore, 5,000 that sponsor new residency programs in
March 31, 2000. discharges is the minimum criterion for effect on or after January 1, 1995, and
For the benefit of hospitals seeking to all hospitals. These numbers will be on or before August 5, 1997, that either
qualify as rural referral centers or those revised in the final rule based on the received initial accreditation by the
wishing to know how their case-mix latest FY 1998 cost report data. appropriate accrediting body or
index value compares to the criteria, we We reiterate that an osteopathic temporarily trained residents at another
are publishing each hospital’s FY 1999 hospital, if it is to qualify for rural hospital(s) until the facility was
case-mix index value in Table 3C in referral center status for cost reporting completed, to conform to the provisions
section VI. of the Addendum to this periods beginning on or after October 1, of § 413.86(g)(7).
proposed rule. In keeping with our 2000, must have at least 3,000 • To add a new § 412.105(f)(1)(ix) to
policy on discharges, these case-mix discharges for its cost reporting period specify that a hospital may receive a
index values are computed based on all that began during FY 1999. temporary adjustment to its FTE cap to
Medicare patient discharges subject to take into account residents added
D. Indirect Medical Education (IME)
DRG-based payment. because of another hospital’s closure if
Adjustment (§ 412.105)
the hospital meets the criteria listed
2. Discharges Section 1886(d)(5)(B) of the Act under § 413.86(g)(8).
Section 412.96(c)(2)(i) provides that provides that prospective payment In addition, we are proposing to add
HCFA will set forth the national and hospitals that have residents in an a cross-reference to ‘‘§ 413.86(d)(3)(i)
regional numbers of discharges in each approved graduate medical education through (v)’’ in § 412.105(g), and to
year’s annual notice of prospective (GME) program receive an additional correct the applicable period in both
payment rates for purposes of payment to reflect the higher indirect §§ 412.105(g) and 413.86(d)(3) by
determining rural referral center status. operating costs associated with GME. revising the phrase ‘‘For portions of cost
As specified in section 1886(d)(5)(C)(ii) The regulations regarding the reporting periods beginning on or after
of the Act, the national standard is set calculation of this additional payment, January 1, 1998’’ to read ‘‘For portions
at 5,000 discharges. We are proposing to known as the indirect medical of cost reporting periods occurring on or
update the regional standards based on education (IME) adjustment, are located after January 1, 1998’’.
discharges for urban hospitals’ cost at § 412.105.
Section 111 of Public Law 106–113 E. Payments to Disproportionate Share
reporting periods that began during FY Hospitals (§ 412.106)
1998 (that is, October 1, 1997 through modified the transition for the IME
September 30, 1998). That is the latest adjustment that was established by Effective for discharges beginning on
year for which we have complete Public Law 105–33. We will publish or after May 1, 1986, hospitals that treat
discharge data available. these changes in a separate interim final a disproportionately large number of
Therefore, we are proposing that, in rule with comment period. However, for low-income patients (as defined in
addition to meeting other criteria, a discharges occurring during FY 2001, section 1886(d)(5)(F) of the Act) receive
hospital, if it is to qualify for initial the adjustment formula equation used to additional payments through the DSH
rural referral center status for cost calculate the IME adjustment factor is adjustment. Section 4403(a) of Public
reporting periods beginning on or after 1.54 × [(1 + r) .405 ¥1]. (The variable r Law 105–33 amended section
October 1, 2000, must have as the represents the hospital’s resident-to-bed 1886(d)(5)(F) of the Act to reduce the
number of discharges for its cost ratio.) payment a hospital would otherwise
reporting period that began during FY In the July 30, 1999 final rule (64 FR receive under the current
1999 a figure that is at least— 41517), we set forth certain policies that disproportionate share formula by 1
• 5,000; or affected payment for both direct and percent for FY 1998, 2 percent for FY
• The median number of discharges indirect GME. These policies related to 1999, 3 percent for FY 2000, 4 percent
for urban hospitals in the census region adjustments to full-time equivalent for FY 2001, 5 percent for 2002, and 0
in which the hospital is located, as (FTE) resident caps for new medical percent for FY 2003 and each
indicated in the following table: residency programs affecting both direct subsequent fiscal year. Subsequently,
and indirect GME programs; the section 112 of Public Law 106–113
Number of adjustment to GME caps for certain modified the amount of the reductions
Region discharges hospitals under construction prior to under Public Law 105–33 by changing
August 5, 1997 (the enactment date of the reduction to 3 percent for FY 2001
1. New England (CT, ME, MA, and 4 percent for FY 2002. The
NH, RI, VT) ........................... 6,733
Public Law 105–33) to account for
2. Middle Atlantic (PA, NJ, NY) 8,681 residents in new medical residency
reduction continues to be 0 percent for
3. South Atlantic (DE, DC, FL, training programs; and the temporary FY 2003 and each subsequent fiscal
GA, MD, NC, SC, VA, WV) .. 7,845 adjustment to FTE caps to reflect year. We are proposing to revise
4. East North Central (IL, IN, residents affected by hospital closures. § 412.106(e) to reflect the changes in the
MI, OH, WI) ........................... 7,526 When we amended the regulations statute made by Public Law 106–113.
5. East South Central (AL, KY, under § 413.86 for direct GME, we Section 112 of Public Law 106–113
MS, TN) ................................. 6,852 inadvertently did not make the also directs the Secretary to require
6. West North Central (IA, KS, corresponding changes in § 412.105 for prospective payment system hospitals to
MN, MO, NE, ND, SD) .......... 5,346 submit data on the costs incurred by the
7. West South Central (AR, LA,
IME. We are proposing to make the
hospitals for providing inpatient and
OK, TX) ................................. 5,380 following conforming changes:
8. Mountain (AZ, CO, ID, MT, • To amend § 412.105(f)(1)(vii) to outpatient hospital services for which
NV, NM, UT, WY) ................. 8,026 provide for an adjustment to the FTE the hospitals are not compensated,
9. Pacific (AK, CA, HI, OR, caps for new medical residency including non-Medicare bad debt,
WA) ....................................... 6,160 programs as specified under charity care, and charges for medical
§ 413.86(g)(6). and indigent care to the Secretary as
We note that the number of discharges • To add a new § 412.105(f)(1)(viii) part of hospitals’ cost reports. These
for hospitals in each census region is related to the adjustment to the FTE data are required for cost reporting
greater than the national standard of caps for newly constructed hospitals periods beginning on or after October 1,

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26308 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

2001. We will be revising our section 401) refer to section 1886(d)(10) to hospitals seeking to reclassify either
instructions to hospitals for cost reports of the Act. However, we note that in the to their original MSA or to another
for FY 2002 to capture these data. Conference Report accompanying Public MSA.
Law 106–113, the language discussing Under an alternative approach,
F. Medicare Geographic Classification hospitals reclassifying from urban to
the House bill (H.R. 3075, as passed)
Review Board (§§ 412.256 and 412.276) rural under section 1886(d)(8)(E) of the
indicated that: ‘‘[H]ospitals qualifying
With the creation of the Medicare under this section shall be eligible to Act would be eligible to apply and be
Geographic Classification Review Board qualify for all categories and reclassified by the MGCRB like any
(MGCRB), beginning in FY 1991, under designations available to rural hospitals, other rural hospital (as long as
section 1886(d)(10) of the Act, hospitals including sole community, Medicare applicable regulations governing
could request reclassification from one dependent, critical access, and referral MGCRB are met). This might allow
geographic location to another for the centers. Additionally, qualifying hospitals to effectively pick from an
purpose of using the other area’s hospitals shall be eligible to apply to the array of urban and rural payment
standardized amount for inpatient Medicare Geographic Reclassification policies to maximize their Medicare
operating costs or the wage index value, Review Board for geographic payments. It could be argued that this
or both (September 6, 1990 interim final reclassification to another area’’. would be the policy most consistent
rule with comment period (55 FR We are concerned that section with the Conference Report language
36754), June 4, 1991 final rule with 1886(d)(8)(E) might create an but we believe that it might lead to
comment period (56 FR 25458), and opportunity for some urban hospitals to inappropriate, inconsistent
June 4, 1992 proposed rule (57 FR take advantage of the MGCRB process classifications.
23631)). Implementing regulations in by first seeking to be reclassified as rural We are very concerned that the effect
Subpart L of Part 412 (412.230 et seq.) under section 1886(d)(8)(E) (and of unlimited MGCRB reclassifications
set forth criteria and conditions for receiving the benefits afforded to rural back to the area from which a hospital
redesignations from rural to urban, rural hospitals) and in turn seek was reclassified under section
to rural, or from an urban area to reclassification through the MGCRB 1886(d)(8)(E) of the Act could have
another urban area with special rules for back to the urban area for purposes of implications beyond those envisioned
SCHs and rural referral centers. their standardized amount and wage by Congress when it passed Public Law
index (and thus also receive the higher 106–113. However, in light of the
1. Provisions of Public Law 106–113
payments that might result from being Conference Report language, we are
Section 401 of Public Law 106–113 treated as being located in an urban seeking comments on this issue. In the
amended section 1886(d)(8) of the Act area). That is, we are concerned that final rule, we might adopt one of the
by adding subparagraph (E), which some hospitals might inappropriately approaches discussed above or some
creates a mechanism, separate and apart seek to be treated as being located in a other approach for addressing this issue.
from the MGCRB, permitting an urban rural area for some purposes and as Under section 152 of Public Law 106–
hospital to apply to the Secretary to be being located in an urban area for other 113, certain counties are deemed to be
treated as being located in the rural area purposes. In light of the Conference located in specified areas for purposes
of the State in which the hospital is Report language noted above discussing of payment under the hospital inpatient
located. The statute directs the Secretary the House bill on the one hand, and the prospective payment system, effective
to treat a qualifying hospital as being potential for inappropriately for discharges occurring on or after
located in a rural area for purposes of inconsistent treatment of the same October 1, 2000. For payment purposes,
provisions under section 1886(d) of the hospital on the other hand, we are these hospitals are to be treated as
Act. In addition, section 401 of Public seeking public comment on this issue, though they were reclassified for
Law 106–113 went on to incorporate the and indicating our position that we may purposes of both the standardized
effects of such reclassifications from impose a limitation on such MGCRB amount and the wage index. These
urban to rural for purposes of Medicare reclassifications in the final rule for FY provisions are addressed in section III.B.
payments to outpatient departments and 2001, if such action appears warranted. of this preamble, as they relate to
to hospitals that would qualify to We also are seeking specific comments calculation of the FY 2001 wage indexes
become critical access hospitals. on how such a limitation, if any, should for hospitals in the affected counties as
Regulations implementing section be imposed. if they were reclassified to the specified
1886(d)(8)(E) of the Act are currently For example, it could be argued that area; and in the Addendum to this
under development and will be if a hospital has applied to be treated as preamble as they relate to the
published in a separate document. being located in a rural area under standardized amounts.
However, we note that the statutory section 1886(d)(8)(E) of the Act, then the
language of section 1886(d)(8)(E) of the 2. Revised Thresholds Applicable to
hospital should be treated as rural for all
Act does not address the issue of purposes under section 1886(d), and it Rural Hospitals for Wage Index
interactions between changes in would be inappropriate to permit the Reclassifications
classification under section hospital to be reclassified back to an Existing §§ 412.230(e)(1)(iii) and
1886(d)(8)(E) of the Act and the MGCRB urban area for any purpose. Under this (e)(1)(iv) provide that hospitals may
reclassification process under section approach, hospitals seeking obtain reclassification to another area
1886(d)(10) of the Act. The Secretary reclassification under section for purposes of calculating and applying
has extremely broad authority under 1886(d)(8)(E) of the Act would be the wage index if the hospital’s average
section 1886(d)(10) of the Act to treated as rural for all purposes under hourly wages are at least 108 percent of
establish criteria for reclassification section 1886(d) and would be able to the average hourly wages in the area
under the MGCRB process. Section 401 benefit from special provisions that where it is physically located, and at
of Public Law 106–113 does not amend apply to rural hospitals. They would least 84 percent of the average hourly
section 1886(d)(10) of the Act to limit not, however, be eligible for wages in a proximate area to which the
the agency’s discretion under the reclassification back to an urban area for hospital seeks reclassification. These
provision in any way, nor does section either the wage index or the thresholds apply equally to urban and
1886(d)(8)(E) of the Act (as added by standardized amount. This would apply rural hospitals seeking reclassification.

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Historically, the financial hospitals might qualify by lowering the Section 9202 of the Consolidated
performance of rural hospitals under the thresholds because we do not have data Omnibus Reconciliation Act (COBRA)
prospective payment system has lagged indicating which hospitals meet all of of 1985 (Public Law 99–272) established
behind that of urban hospitals. Despite the other reclassification criteria (e.g., a methodology for determining
an overall increase in recent years of proximity), our analysis indicates that, payments to hospitals for the costs of
Medicare inpatient operating profit if we were to raise the 108 percent approved GME programs at section
margins, some rural hospitals continue threshold to 109 percent, approximately 1886(h)(2) of the Act. Section 1886(h)(2)
to struggle financially (as measured by 20 rural hospitals would no longer of the Act, as implemented in
Medicare inpatient operating qualify. If the upper threshold were to regulations at § 413.86(e), sets forth a
prospective payment system payments be raised to 110 percent, another 16 payment methodology for the
minus costs, divided by payments). For hospitals would not qualify. On the determination of a hospital-specific,
example, during FY 1997, while the other hand, increasing the lower base-period per resident amount (PRA)
national average hospital margin was threshold from 84 percent to 85 percent that is calculated by dividing a
15.1 percent, it was 8.9 percent for rural would result in only 2 rural hospitals hospital’s allowable costs of GME for a
hospitals. In addition, approximately becoming ineligible to reclassify. Only 1 base period by its number of residents
one-third of rural hospitals continue to additional hospital would be affected by in the base period. The base period is,
experience negative Medicare inpatient raising the threshold to 86 percent. for most hospitals, the hospital’s cost
margins despite this relatively high Based on this analysis, we anticipate reporting period beginning in FY 1984
average margin. approximately 50 rural hospitals are (that is, the period of October 1, 1983
In response to the lower margins of likely to benefit from this proposed through September 30, 1984). The PRA
rural hospitals and the potential for a change. is multiplied by the number of full-time
negative impact on beneficiaries’ access equivalent (FTE) residents working in
to care if these hospitals were to close, We believe this proposal achieves an
all areas of the hospital complex (or
we considered potential administrative appropriate balance between allowing
non-hospital sites, when applicable),
changes that could help improve certain hospitals that are currently just
and the hospital’s Medicare share of
payments for rural hospitals. One below the thresholds to become eligible
total inpatient days to determine
approach in that regard would be to for reclassification, while not
Medicare’s direct GME payments. In
make it easier for rural hospitals to liberalizing the criteria so much that an
addition, as specified in section
reclassify for purposes of receiving a excessive number of hospitals begin to 1886(h)(2)(D)(ii) of the Act, for cost
higher wage index. The current reclassify. Because these reporting periods beginning on or after
thresholds for applying for wage index reclassifications are budget neutral, October 1, 1993, through September 30,
reclassification are based on our nonreclassified hospitals’ payments are 1995, each hospital’s PRA for the
previous analysis showing the average negatively impacted by reclassification. previous cost reporting period is not
hospital wage as a percentage of its area We believe there are many factors adjusted for any FTE residents who are
wage was 96 percent, and one standard associated with lower margins among not either a primary care or an obstetrics
deviation from that average was equal to rural hospitals. We would note that and gynecology resident. As a result,
12 percentage points (see the June 4, section 410 of Public Law 106–113 hospitals with both primary care/
1992 proposed rule (57 FR 23635) and requires the Comptroller General of the obstetrics and gynecology residents and
the September 1, 1992 final rule (57 FR United States to ‘‘conduct a study of the non-primary care residents have two
39770)). Because rural hospitals’ current laws and regulations for separate PRAs for FY 1994 and,
financial performance has consistently geographic reclassification of hospitals thereafter, one for primary care and one
remained below that of urban hospitals, to determine whether such for non-primary care. (Thus, for
we now believe that rural hospitals reclassification is appropriate for purposes of this proposed rule, when
merit special dispensation with respect purposes of applying wage indices.’’ In we refer to a hospital’s PRA, this
to qualifying for reclassification for addition, section 411 of Public Law amount is inclusive of any CPI–U
purposes of the wage index. Therefore, 106–113 requires MedPAC to conduct a adjustments the hospital may have
we are proposing to change those study on the adequacy and received since the hospital’s base-year,
average wage threshold percentages so appropriateness of the special payment including any CPI-U adjustments the
more rural hospitals can be reclassified. categories and methodologies hospital may have received because the
Specifically, we are proposing to lower established for rural hospitals. We hospital trains primary care/non-
the upper threshold for rural hospitals anticipate that the results of these primary care residents, as specified
to 106 percent and the lower threshold studies will help identify other areas to under existing § 413.86(e)(3)(ii)).
to 82 percent. The thresholds for urban help improve payments for rural
hospitals seeking reclassification for 2. Use of National Average Per Resident
hospitals, either through Amount Methodology in Computing
purposes of the wage index would be reclassifications or other means.
unchanged. We would note that rural Direct GME Payments
hospitals comprised nearly 90 percent G. Payment for Direct Costs of Graduate Section 311 of Public Law 106–113
of FY 2000 wage index reclassifications. Medical Education (§ 413.86) amended section 1886(h)(2) of the Act
Under this proposal, beginning October 1. Background to establish a methodology for the use
1, 2000, rural hospitals would be able to of a national average PRA in computing
reclassify for the wage index if, among Under section 1886(h) of the Act, direct GME payments for cost reporting
other things, their average hourly wages Medicare pays hospitals for the direct periods beginning on or after October 1,
are at least 106 percent of the area in costs of graduate medical education 2000 and on or before September 30,
which they are physically located, and (GME). The payments are based on the 2005. Generally, section 311 establishes
at least 82 percent of the average hourly number of residents trained by the a ‘‘floor’’ and a ‘‘ceiling’’ based on a
wages in the proximate area to which it hospital. Section 1886(h) of the Act, as locality-adjusted, updated, weighted
seeks reclassification. amended by section 4623 of Public Law average PRA. Each hospital’s PRA is
Although it is difficult to estimate 105–33, caps the number of residents compared to the floor and ceiling to
precisely how many additional that hospitals may count for direct GME. determine whether its PRA should be

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26310 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

revised. Accordingly, we are proposing component)) in accordance with section average PRA is updated according to
to implement section 311 by setting 1848(e) of the Act and 42 CFR 414.26 each hospital’s cost reporting period,
forth the prescribed methodology for (which is used to adjust physician the updated weighted average PRA (the
calculation of the weighted average payments for the different wage areas), national average PRA) would be further
PRA. We then discuss the proposed for the physician fee schedule area in adjusted to calculate a locality-adjusted
steps for determining whether a which the hospital is located. national average PRA for each hospital.
hospital’s PRA will be adjusted based Step 3: We add all the standardized This is done by multiplying the updated
upon the proposed calculated weighted hospital PRAs (as calculated in Step 2), national average PRA by the 1999 GAF
average PRA, in accordance with the each weighted by hospitals’ respective (as specified in the October 31, 1997
methodology specified under section FTEs, and then divide by the total Federal Register (62 FR 59257)) for the
311 of Public Law 106–113. number of FTEs. fee schedule area in which the hospital
We propose to calculate the weighted Based upon this three-step is located.
average PRA based upon data from calculation, we have determined the Step 3: Determine possible revisions
hospitals’ cost reporting periods ending proposed weighted average PRA (for to the PRA. For cost reporting periods
during FY 1997 (October 1, 1996 cost reporting periods ending during FY beginning on or after October 1, 2000
through September 30, 1997), as 1997) to be $68,487. and on or before September 30, 2005,
directed by section 311 of Public Law For cost reporting periods beginning the locality-adjusted national average
106–113. We accessed these FY 1997 on or after October 1, 2000 and on or PRA, as calculated in Step 2, is then
cost reporting data from the Hospital before September 30, 2005 (FY 2001 compared to the hospital’s individual
Cost Report Information System (HCRIS) through FY 2005), the national average PRA. Based upon the provisions of
and also obtained the necessary data for PRA is applied using the following three section 1886(h)(2) of the Act, as
those hospitals that are not included in steps: amended by section 311 of Public Law
HCRIS (because they file manual cost Step 1: Update the weighted average 106–113, a hospital’s PRA would be
reports), from those hospitals’ fiscal PRA for inflation. Under section revised, if appropriate, according to the
intermediaries. If a hospital had more 1886(h)(2) of the Act, as amended by following:
than one cost reporting period ending in section 311 of Public Law 106–113, the • Floor—For cost reporting periods
FY 1997, we propose to include all of weighted average PRA is updated by the beginning in FY 2001, to determine
its cost reports ending in FY 1997 in our estimated percentage increase in the which PRAs (primary care and non-
calculations. However, if a hospital did consumer price index for all urban primary care separately) are below the
not have a cost reporting period ending consumers (CPI–U) during the period 70 percent floor, a hospital’s locality-
in FY 1997, such as a hospital with a beginning with the month that adjusted national average PRA is
long cost reporting period beginning in represents the midpoint of the cost multiplied by 70 percent. This resulting
FY 1996 and ending in FY 1998, the reporting periods ending during FY number is then compared to the
hospital is excluded from our 1997 and ending with the midpoint of hospital’s PRA that is updated for
calculations. One hospital is excluded the hospital’s cost reporting period that inflation to the current cost reporting
from our calculation even though it did begins in FY 2001. Therefore, the period. If the hospital’s PRA would be
have a cost reporting period ending weighted average standardized PRA less than 70 percent of the locality-
during FY 1997 because, at that time, it ($68,487) would be updated by the adjusted national average PRA, the
was a new teaching hospital with no increase in CPI–U for the period individual PRA is replaced by 70
established PRA (the first year of beginning with the midpoint of all cost percent of the locality-adjusted national
training for a new teaching hospital is reporting periods for hospitals with cost average PRA for that cost reporting
paid for by Medicare on a cost basis; a reporting periods ending during FY period and would be updated for
PRA is applied in calculating a 1997 (October 1, 1996), and ending with inflation in future years by the CPI–U.
hospital’s payment beginning with the the midpoint of the individual hospital’s We note that there may be some
hospital’s second year of residency cost reporting period that begins during hospitals with primary care and non-
training). The total number of hospitals FY 2001. primary care PRAs where both PRAs are
that we include in our calculation is For example, Hospital A has a replaced by 70 percent of the locality-
1,235. Thirty-five of these hospitals are calendar year cost reporting period. adjusted national average PRA. In these
hospitals with more than one cost Thus, for Hospital A, the weighted situations, the hospital would receive
report. average PRA is updated from October 1, identical PRAs; no distinction in PRAs
In accordance with section 311 of 1996 to July 1, 2001, because July 1 is would be made for differences in
Public Law 106–113, we propose to the midpoint of its cost reporting period inflation (because a hospital has both
calculate the weighted average PRA in beginning on or after October 1, 2000. primary care and non-primary care
the following manner: Or, for example, if Hospital B has a cost PRAs, each of which is updated as
Step 1: We determine each hospital’s reporting period starting October 1, the described in § 413.86(e)(3)(ii)) as of cost
single PRA by adding each hospital’s weighted average PRA is updated from reporting periods beginning on or after
primary care and non-primary care October 1, 1996 to April 1, 2001, the October 1, 2000.
PRAs, weighted by its respective FTEs, midpoint of the cost reporting period for For example, if the FY 2001 locality-
and dividing by the sum of the FTEs for Hospital B. Therefore, the starting point adjusted national average PRA for Area
primary care and non-primary care for updating the weighted average PRA X is $100,000, then 70 percent of that
residents. is the same date for all hospitals amount is $70,000. If, in Area X,
Step 2: We standardize each hospital’s (October 1, 1996), but the ending date is Hospital A has a primary care FY 2001
single PRA by dividing it by the 1999 different because it is dependent upon PRA of $69,000 and a non-primary care
geographic adjustment factor (GAF) the cost reporting period for each FY 2001 PRA of $67,000, both of
(which is an average of the three hospital. Hospital A’s FY 2001 PRAs are replaced
geographic index values (weighted by Step 2: Adjust for locality. In by the $70,000 floor. Thus, $70,000 is
the national average weight for the work accordance with section 1886(h)(2) of the amount that would be used to
component, practice expense the Act, as amended by section 311 of determine Hospital A’s direct GME
component, and malpractice Public Law 106–113, once the weighted payments for both primary care and

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non-primary care FTEs in its cost cost reporting period beginning in FY FY 2003, FY 2004, or FY 2005, a
reporting period beginning in FY 2001, 2003, compare the hospital’s PRA from hospital’s PRA from the previous cost
and the $70,000 PRA would be updated the FY 2002 cost reporting period to the reporting period is compared to the
for inflation by the CPI–U in subsequent locality-adjusted national average PRA locality-adjusted national average PRA
years. from FY 2002), then, subject to the from the previous cost reporting period.
• Ceiling—For cost reporting periods limitation in section IV.G.2.d. of this
beginning on or after October 1, 2000 d. General Rule for Hospitals That
preamble, the hospital’s PRA is updated
Exceed the Ceiling
and on or before September 30, 2005 in accordance with section
(FY 2001 through FY 2005), a ceiling 1886(h)(2)(D)(i) of the Act, except that For cost reporting periods beginning
that is equal to 140 percent of each the CPI–U applied is reduced (but not in FY 2001 through FY 2005, if a
locality-adjusted national average PRA below zero) by 2 percentage points. hospital’s PRA exceeds 140 percent of
would be calculated and compared to For example, for purposes of Hospital the locality-adjusted national average
each individual hospital’s PRA. If the A’s FY 2003 cost report, Hospital A’s PRA and it is adjusted under any of the
hospital’s PRA is greater than 140 PRA for FY 2002 is compared to above criteria, the current year PRA
percent of the locality-adjusted national Hospital A’s locality-adjusted national cannot be reduced below 140 percent of
average PRA, the PRA would be average PRA ceiling for FY 2002. If, in the locality-adjusted national average
adjusted depending on the fiscal year as FY 2002, Hospital A’s PRA is $100,001 PRA.
follows: and the FY 2002 locality-adjusted For example, to determine the PRA of
national average PRA ceiling is Hospital A, in FY 2003, Hospital A had
a. FY 2001 $100,000, then for FY 2003, Hospital A’s a FY 2002 PRA of $100,001 and the FY
For cost reporting periods beginning PRA is updated with the FY 2003 CPI– 2002 locality-adjusted national average
in FY 2001, each hospital’s PRA from U minus 2 percent. If, in this scenario, PRA ceiling is $100,000. For FY 2003,
the preceding cost reporting period (that the CPI–U for FY 2003 is 1.024, Hospital applying an update of the CPI–U factor
is, FY 2000) is compared to the FY 2001 A would update its PRA in FY 2003 by minus 2 percentage points (for example,
locality-adjusted national average PRA. 1.004 (the CPI–U minus 2 percentage 1.024 ¥ .02 = 1.004 would yield an
If the individual hospital’s FY 2000 PRA points). However, if the CPI–U factor for updated PRA of $100,401) while the
exceeds 140 percent of the FY 2001 FY 2003 is 1.01 and subtracting 2 locality-adjusted national average PRA
locality-adjusted national average PRA, percentage points of 1.01 yields 0.99, (before calculation of the ceiling) is
the PRA is frozen at the FY 2000 PRA, the PRA for FY 2003 would not be updated for FY 2003 with the full CPI–
and is not updated in FY 2001 by the updated, and would remain $100,001. U factor (1.024) so that the ceiling of
CPI–U factor, subject to the limitation in We note that, while the language in $100,000 is now increased to $102,400
section IV.G.2.d. of this preamble. section 1886(h)(2)(D)(iv)(I) and in (that is, $100,000 × 1.024 = $102,400).
For example, if the FY 2001 locality- section 1886(h)(2)(D)(iv)(II) of the Act Therefore, applying the adjustment
adjusted national average PRA ‘‘ceiling’’ (the sections that describe the would result in a PRA of $100,401,
for Area Y is $140,000 (that is, 140 adjustments to PRAs for hospitals that which is under the ceiling of $102,400
percent of $100,000, the hypothetical exceed 140 percent of the locality- for FY 2003. In this situation, for
locality-adjusted national average PRA), adjusted national average PRA) is very purposes of the FY 2003 cost report,
and if, in this area, Hospital B has a FY similar, the language does differ. Hospital A’s PRA equals $102,400.
2000 PRA of $140,001, then for FY Section 1886(h)(2)(D)(iv)(I) of the Act We note that if the hospital’s PRA
2001, Hospital B’s PRA is frozen at states that for a cost reporting period does not exceed 140 percent of the
$140,001 and is not updated by the CPI– beginning during FY 2000 or FY 2001, locality-adjusted national average PRA,
U for FY 2001. ‘‘if the approved FTE resident amount the PRA is updated by the CPI–U for the
for a hospital for the preceding cost respective fiscal year. If a hospital’s PRA
b. FY 2002 reporting period exceeds 140 percent of is updated by the CPI–U because it is
For cost reporting periods beginning the locality-adjusted national average less than 140 percent of the locality-
in FY 2002, the methodology used to per resident amount * * * for that adjusted national average PRA for a
calculate each hospital’s individual PRA hospital and period * * *, the respective fiscal year, and once updated,
would be the same as described in approved FTE resident amount for the the PRA exceeds the 140 percent ceiling
section IV.G.2.a. above for FY 2001. period involved shall be the same as the for the respective fiscal year, the
Each hospital’s PRA from the preceding approved FTE resident amount for such updated PRA would still be used to
cost reporting period (that is, FY 2001) preceding cost reporting period.’’ calculate the hospital’s direct GME
is compared to the FY 2002 locality- (Emphasis added.) Section payments. Whether a hospital’s PRA
adjusted national average PRA. If the 1886(h)(2)(D)(iv)(II) of the Act states that exceeds the ceiling is determined before
individual hospital’s FY 2001 PRA for a cost reporting period beginning the application of the update factors; if
exceeds 140 percent of the FY 2002 during FY 2003, FY 2004, or FY 2005, a hospital’s PRA exceeds the ceiling
locality-adjusted national average PRA, ‘‘if the approved FTE resident amount only because of the application of the
the PRA is frozen at the FY 2001 PRA, for a hospital for the preceding cost update factors, the hospital’s PRA
and is not updated in FY 2002 by the reporting period exceeds 140 percent of would retain the CPI–U factors.
CPI–U factor, subject to the limitation in the locality-adjusted national average For example, if, in FY 2001, the
section IV.G.2.d. of this preamble. per resident amount * * * for that locality-adjusted national average PRA
hospital and preceding period, the ceiling for Area Y is $140,000, and if, in
c. FY 2003, FY 2004, and FY 2005 approved FTE resident amount for the this area, Hospital B has a FY 2000 PRA
For cost reporting periods beginning period involved shall be updated of $139,000, then for FY 2001, Hospital
in FY 2003, FY 2004, and FY 2005, if * * . *.’’ (Emphasis added.) B’s PRA is updated for inflation for FY
the hospital’s PRA for the previous cost Accordingly, for FYs 2001 and 2002, a 2001 because the PRA is below the
reporting period is greater than 140 hospital’s PRA from the previous cost ceiling. However, once the update
percent of the locality-adjusted national reporting period is compared to the factors are applied, Hospital B’s PRA is
average PRA for that same previous cost locality-adjusted national average PRA now $142,000 (that is, above the
reporting period (for example, for the of the current cost reporting period. For $140,000 ceiling). In this scenario,

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26312 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

Hospital B’s inflated PRA would be 46004). In the preamble of the August The 10-year transition period
used to calculate its direct GME 29, 1997 final rule, in setting forth our established to phase in the prospective
payments because Hospital B has only policy on the determination of per payment system for capital-related costs
exceeded the ceiling after the resident amounts for hospitals that did is effective for discharges occurring on
application of the inflation factors. not have residents in the 1984 GME base or after October 1, 1991 (FY 1992)
• PRAs greater than or equal to the period, we stated that we would use a through discharges occurring on or
floor and less than or equal to the ‘‘weighted’’ average of the per resident before September 30, 2001. For FY 2001,
ceiling. For cost reporting periods amounts for hospitals located in the hospitals paid under the fully
beginning in FY 2001 through FY 2005, same geographic area. However, we prospective transition period
if a hospital’s PRA is greater than or inadvertently did not include a specific methodology will be paid 100 percent of
equal to 70 percent and less than or reference to ‘‘weighted’’ in the language the Federal rate and zero percent of
equal to 140 percent of the locality- of the regulation text. Therefore, we are their hospital-specific rate, while
adjusted national average PRA, the proposing to specify that the ‘‘weighted hospitals paid under the hold-harmless
hospital’s PRA is updated using the mean value’’ of per resident amounts of transition period methodology will be
existing methodology specified in hospitals located in the same geographic paid 85 percent of their allowable old
§ 413.86(e)(3)(i). wage area is used for determining the capital costs (100 percent for sole
For cost reporting periods beginning base period for certain hospitals for cost community hospitals) plus a payment
in FY 2006 and thereafter, a hospital’s reporting periods beginning in the same for new capital costs based on the
PRA for its preceding cost reporting fiscal years. Federal rate. Fiscal year 2001 is the final
period would be updated using the year of the capital transition period and,
existing methodology specified in H. Outliers: Miscellaneous Change
therefore, the last fiscal year for which
§ 413.86(e)(3)(i). Under the provisions of section a portion of a hold-harmless hospital’s
We are proposing to redesignate the capital costs per discharge will be paid
1886(d)(5)(A)(i) of the Act, the Secretary
existing § 413.86(e)(4) as § 413.86(e)(5) on a cost basis (except for new
does not pay for day outliers for
and add the rules implementing section hospitals). Also, since fully prospective
discharges from hospitals paid under
1886(h)(2) of the Act, as amended by
the prospective payment systems that hospitals will be paid based on 100
section 311 of Public Law 106–113, in
occur after September 30, 1997. We are percent of the Federal rate and zero
the vacated § 413.86(e)(4). Because we
proposing to make a conforming change percent of their hospital-specific rate,
are proposing to apply the methodology
to § 412.2(a) by deleting the reference to we will not determine a hospital-
for updating the PRA for inflation that
an additional payment for both specific rate update for FY 2001 in
is described in existing § 413.86(e)(3),
inpatient operating and inpatient section IV of the Addendum of this
we also are proposing to amend
capital-related costs for cases that have proposed rule. Beginning with
§ 413.86(e)(3) to make those rules
an atypically long length of stay. discharges occurring on or after October
applicable to the cost reporting periods
1, 2001 (FY 2002), payment for capital-
(FY 2001 through FY 2005) specified in V. The Prospective Payment System for
the proposed § 413.86(e)(4), and in related costs will be determined based
Capital-Related Costs: The Last Year of
subsequent cost reporting periods. solely on the capital standard Federal
the Transition Period
In addition, we are proposing to make rate. Hospitals that were defined as
a conforming change by amending Since FY 2001 is the last year of the ‘‘Anew’’ for the purposes of capital
proposed redesignated § 413.86(e)(5) to 10-year transition period established to payments during the transition period
account for situations in which phase in the prospective payment (§ 412.30(b)) will continue to be paid
hospitals do not have a 1984 base period system for hospital capital-related costs, according to the applicable payment
and establish a PRA in a cost reporting for the readers’ benefit, we are providing methodology outlined in § 412.324.
period beginning on or after October 1, a summary of the statutory basis for the Generally, during the transition
2000. We believe there are two factors system, the development and evolution period, inpatient capital-related costs
to consider when a new teaching of the system, the methodology used to are paid on a per discharge basis, and
hospital establishes its PRA under determine capital-related payments to the amount of payment depends on the
proposed redesignated § 413.86(e)(5). hospitals, and the policy for providing relationship between the hospital-
First, for example, when calculating the exceptions payments during the specific rate and the Federal rate during
weighted mean value of PRAs of transition period. the hospital’s base year. A hospital with
hospitals located in the same geographic Section 1886(g) of the Act requires the a base year hospital-specific rate lower
area or the weighted mean of the PRAs Secretary to pay for the capital-related than the Federal rate is paid under the
in the hospital’s census region (as costs of inpatient hospital services ‘‘in fully prospective payment methodology
specified in § 412.62(f)(1)(i)), the accordance with a prospective payment during the transition period. This
hospitals’ PRAs used to calculate the system established by the Secretary.’’ method is based on a dynamic blend
weighted mean values are subject to the Under the statute, the Secretary has percentage of the hospital’s hospital-
provisions of proposed § 413.86(e)(4), broad authority in establishing and specific rate and the applicable Federal
the national average PRA methodology. implementing the capital prospective rate for each year during the transition
Second, the resulting PRA established payment system. We initially period. A hospital with a base period
under proposed redesignated implemented the capital prospective hospital-specific rate greater than the
§ 413.86(e)(5) also would be subject to payment system in the August 30, 1991 Federal rate is paid under the hold-
the national average PRA methodology final rule (56 FR 43409), in which we harmless payment methodology during
specified in proposed § 413.86(e)(4). established a 10-year transition period the transition period. A hospital paid
We also are making a clarifying to change the payment methodology for under the hold-harmless payment
amendment to the proposed Medicare inpatient capital-related costs methodology receives the higher of (1)
redesignated § 413.86(e)(5)(i)(B) to from a reasonable cost-based a blended payment of 85 percent of
account for an oversight in the methodology to a prospective reasonable cost for old capital plus an
regulations text when we amended our methodology (based fully on the Federal amount for new capital based on a
regulations on August 29, 1997 (62 FR rate). portion of the Federal rate or (2) a

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payment based on 100 percent of the Hospitals Located in Alaska and the national Federal rate for capital-
adjusted Federal rate. The amount Hawaii) × (1 + DSH Adjustment related costs.
recognized as old capital is generally Factor + IME Adjustment Factor). In the August 30, 1991 final rule, we
limited to the allowable Medicare established a capital exceptions policy,
Hospitals may also receive outlier which provides for exceptions payments
capital-related costs that were in use for
payments for those cases that qualify during the transition period (§ 412.348).
patient care as of December 31, 1990.
Under limited circumstances, capital- under the thresholds established for Section 412.348 provides that, during
related costs for assets obligated as of each fiscal year. Section 412.312(c) the transition period, a hospital may
December 31, 1990, but put in use for provides for a single set of thresholds to receive additional payment under an
patient care after December 31, 1990, identify outlier cases for both inpatient exceptions process when its regular
also may be recognized as old capital if operating and inpatient capital-related payments are less than a minimum
certain conditions are met. These costs payments. percentage, established by class of
are known as obligated capital costs. During the capital prospective hospital, of the hospital’s reasonable
New capital costs are generally defined payment system transition period, a capital-related costs. The amount of the
as allowable Medicare capital-related hospital may also receive an additional exceptions payment is the difference
costs for assets put in use for patient payment under an exceptions process if between the hospital’s minimum
care after December 31, 1990. Beginning its total inpatient capital-related payment level and the payments the
in FY 2001, at the conclusion of the payments are less than a minimum hospital would receive under the capital
transition period for the capital percentage of its allowable Medicare prospective payment system in the
prospective payment system, capital inpatient capital-related costs for absence of an exceptions payment. The
payments will be based solely on the qualifying classes of hospitals. For up to comparison is made on a cumulative
Federal rate for the vast majority of 10 years after the conclusion of the basis for all cost reporting periods
hospitals. transition period, a hospital may also during which the hospital is subject to
During the transition period, new receive an additional payment under a the capital prospective payment
hospitals are exempt from the special exceptions process if certain transition rules. The minimum payment
prospective payment system for capital- qualifying criteria are met and its total percentages for regular capital
related costs for their first 2 years of inpatient capital-related payments are exceptions payments by class of
operation and are paid 85 percent of less than the 70 percent minimum hospitals for FY 2001 are:
their reasonable cost during that period. percentage of its allowable Medicare • For sole community hospitals, 90
The hospital’s first 12-month cost inpatient capital-related costs. percent;
• For urban hospitals with at least
reporting period (or combination of cost In accordance with section 100 beds that have a disproportionate
reporting periods covering at least 12 1886(d)(9)(A) of the Act, under the share patient percentage of at least 20.2
months) beginning at least 1 year after prospective payment system for percent or that received more than 30
the hospital accepts its first patient inpatient operating costs, hospitals percent of their net inpatient care
serves as the hospital’s base period. located in Puerto Rico are paid for revenues from State or local
Those base year costs qualify as old operating costs under a special payment governments for indigent care, 80
capital and are used to establish its formula. Prior to FY 1998, hospitals in percent;
hospital-specific rate used to determine Puerto Rico were paid a blended rate • For all other hospitals, 70 percent of
its payment methodology under the that consisted of 75 percent of the the hospital’s reasonable inpatient
capital prospective payment system. applicable standardized amount specific capital-related costs.
Effective with the third year of to Puerto Rico hospitals and 25 percent The provision for regular exceptions
operation, the hospital is paid under of the applicable national average payments will expire at the end of the
either the fully prospective standardized amount. However, transition period. Payments will no
methodology or the hold-harmless effective October 1, 1997, under longer be adjusted to reflect regular
methodology. If the fully prospective amendments to the Act enacted by exceptions payments at § 412.348.
methodology is applicable, the hospital section 4406 of Public Law 105–33, Accordingly, for cost reporting periods
is paid using the appropriate transition operating payments to hospitals in beginning on or after October 1, 2001,
blend of its hospital-specific rate and Puerto Rico are based on a blend of 50 hospitals will receive only the per
the Federal rate for that fiscal year until percent of the applicable standardized discharge payment based on the Federal
the conclusion of the transition period, amount specific to Puerto Rico hospitals rate for capital costs (plus any
at which time the hospital will be paid and 50 percent of the applicable applicable DSH or IME and outlier
based on 100 percent of the Federal rate. national average standardized amount. adjustments) unless a hospital qualifies
If the hold-harmless methodology is In conjunction with this change to the for a special exceptions payment under
applicable, the hospital will receive operating blend percentage, effective § 412.348(g).
hold-harmless payment for assets in use with discharges on or after October 1, Under the special exceptions
during the base period for 8 years, 1997, we compute capital payments to provision at § 412.348(g), an additional
which may extend beyond the transition hospitals in Puerto Rico based on a payment may be made for up to 10 years
period. blend of 50 percent of the Puerto Rico beyond the end of the capital
The basic methodology for rate and 50 percent of the Federal rate. prospective payment system transition
determining capital prospective Section 412.374 provides for the use of period for eligible hospitals. The capital
payments based on the Federal rate is this blended payment system for special exceptions process is budget
set forth in § 412.312. For the purpose payments to Puerto Rico hospitals under neutral; that is, even after the end of the
of calculating payments for each the prospective payment system for capital prospective payment system
discharge, the standard Federal rate is inpatient capital-related costs. transition, we will continue to make an
adjusted as follows: Accordingly, for capital-related costs, adjustment to the capital Federal rate in
(Standard Federal Rate) × (DRG Weight) we compute a separate payment rate a budget neutral manner to pay for
× (GAF) × (Large Urban Add-on, if specific to Puerto Rico hospitals using exceptions, as long as an exceptions
applicable) x (COLA Adjustment for the same methodology used to compute policy is in force. Currently, the limited

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26314 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

special exceptions policy will allow for cost reporting periods ending during Moreover, in light of the short
exceptions payments for 10 years fiscal year 1996.’’ Furthermore, section timeframe for implementing this
beyond the conclusion of the 10-year 1886(b)(3)(H)(iii), as added by Public provision, we would use the wage data
capital transition period or through Law 106–113, requires the Secretary to for acute hospitals since they are the
September 30, 2011. provide for ‘‘an appropriate adjustment most feasible data source.
to the labor-related portion of the In the July 30, 1999 final rule (64 FR
VI. Proposed Changes for Hospitals and
amount determined under such 41529), we established the FY 2000 caps
Hospital Units Excluded From the
subparagraph to take into account the on the target amounts as follows:
Prospective Payment System
differences between average wage- • Psychiatric hospitals and units:
A. Limits on and Adjustments to the related costs in the area of the hospital $11,110.
Target Amounts for Excluded Hospitals and the national average of such costs • Rehabilitation hospitals and units:
and Units (§ 413.40(b)(4) and (g)) within the same class of hospital.’’ $20,129.
1. Updated Caps
Consistent with the broad authority • Long-term care hospitals: $39,712.
conferred on the Secretary by section Therefore, based on these previously
Section 1886(b)(3) of the Act (as 1886(b)(3)(H)(iii) of the Act to determine calculated caps on the target amounts
amended by section 4414 of Public Law the appropriate wage adjustment, we and consistent with the broad authority
105–33) establishes caps on the target propose to account for differences in conferred on the Secretary by section
amounts for certain existing excluded wage-related costs by adjusting the caps 1886(b)(3)(H)(iii) of the Act to determine
hospitals and units for cost reporting to account for the following: the appropriate wage adjustment to the
periods beginning on or after October 1, First, we would adjust each hospital’s
1997 through September 30, 2002. The caps, we have determined the labor-
target amount to account for area
caps on the target amounts apply to the related and nonlabor-related portions of
differences in wage-related costs. For
following three classes of excluded the proposed caps on the target amounts
each class of hospitals (psychiatric,
hospitals: Psychiatric hospitals and for FY 2001 using the methodology
rehabilitation, and long-term care), we
units, rehabilitation hospitals and units, would determine the labor-related outlined above.
and long-term care hospitals. portion of each hospital’s FY 1996 target
Class of ex- Labor- Nonlabor-
A discussion of how the caps on the amount by multiplying its target amount cluded hospital related related
target amounts were calculated can be by the actuarial estimate of the labor- or unit share share
found in the August 29, 1997 final rule related portion of costs (or 0.71553).
with comment period (62 FR 46018); the Similarly, we would determine the Psychiatric ........ $8,106 $3,223
May 12, 1998 final rule (63 FR 26344); nonlabor-related portion of each Rehabilitation .... 15,108 6,007
the July 31, 1998 final rule (63 FR hospital’s FY 1996 target amount by Long-Term Care 29,312 11,654
41000), and the July 30, 1999 final rule multiplying its target amount by the
(64 FR 41529). For purposes of actuarial estimate of the nonlabor- These labor-related and nonlabor-
calculating the caps on existing related portion of costs (or 0.28447). related portions of the proposed caps on
facilities, the statute required us to Next, we would account for wage the target amounts for FY 2001 are
calculate the national 75th percentile of differences among hospitals within each based on the current estimate of the
the target amounts for each class of class by dividing the labor-related market basket increase for excluded
hospital (psychiatric, rehabilitation, or portion of each hospital’s target amount hospitals and units for FY 2001 of 3.1
long-term care) for cost reporting by the hospital’s FY 1998 hospital wage percent.
periods ending during FY 1996. Under index under the hospital inpatient In the interim final rule with
section 1886(b)(3)(H)(iii) of the Act, the prospective payment system (see comment period that we plan to
resulting amounts are updated by the § 412.63), as shown in Tables 4A and 4B publish, we will revise §§ 413.40(c)(4)(i)
market basket percentage to the of the August 29, 1997 final rule (62 FR and (c)(4)(ii) to incorporate the changes
applicable fiscal year. However, section 46070). Within each class, each in the formula used to determine the
121 of Public Law 106–113 amended hospital’s wage-adjusted target amount limitation on the target amounts for
section 1886(b)(3)(H) of the Act to would be calculated by adding the excluded hospitals and units, as
provide for an appropriate wage wage-adjusted labor-related portion of provided for by section 121 of Public
adjustment to the caps on the target its target amount and the nonlabor- Law 106–113.
amounts for psychiatric hospitals and related portion of its target amount. Finally, to determine payments
units, rehabilitation hospitals and units, Then, the wage-adjusted target amounts described in § 413.40(c), the cap on the
and long-term care hospitals, effective for hospitals within each class would be hospital’s target amount per discharge is
for cost reporting periods beginning on arrayed in order to determine the determined by adding the hospital’s
or after October 1, 1999, through national 75th percentile caps on the nonlabor-related portion of the national
September 30, 2002. We intend to target amounts for each class. 75th percentile cap to its wage-adjusted,
publish an interim final rule with This adjustment methodology for the labor-related portion of the national
comment period implementing this national 75th percentile of the target 75th percentile cap. A hospital’s wage-
provision for cost reporting periods amounts is identical to the methodology adjusted, labor-related portion of the
beginning on or after October 1, 1999 we utilized for the wage index target amount is calculated by
and before October 1, 2000. This adjustment described in the August 29, multiplying the labor-related portion of
proposed rule addresses the wage 1997 final rule (62 FR 46020) to the national 75th percentile cap for the
adjustment to the caps for cost reporting calculate the wage-adjusted 110 percent hospital’s class by the hospital’s
periods beginning on or after October 1, of the national median target amounts applicable wage index. For FY 2001, a
2000. for new excluded hospitals and units. hospital’s applicable wage index is the
For purposes of calculating the caps, Again, we recognize that wages may wage index under the hospital inpatient
section 1886(b)(3)(H)(ii) of the Act differ for prospective payment hospitals prospective payment system (see
requires the Secretary to first ‘‘estimate and excluded hospitals, but we believe § 412.63), for cost reporting periods
the 75th percentile of the target amounts that the wage data reflect area beginning on or after October 1, 2000
for such hospitals within such class for differences in wage-related costs. and ending on or before September 30,

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Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules 26315

2001 as shown in Tables 4A and 4B of hospitals and units) for cost reporting 4. Continuous Improvement Bonus
this proposed rule. A hospital’s periods beginning on or after October 1, Payment
applicable wage index corresponds to 2000 and before October 1, 2002. The Under § 413.40(d)(4), for cost
the area in which the hospital or unit is prospective payment system will be reporting periods beginning on or after
physically located (MSA or rural area) fully implemented for cost reporting October 1, 1997, an ‘‘eligible’’ hospital
and is not subject to prospective periods beginning on or after October 1, may receive continuous improvement
payment system hospital reclassification 2002. Section 1886(j) was amended by bonus payments in addition to its
under section 1886(d)(10) of the Act. section 125 of Public Law 106–113 to payment for inpatient operating costs
2. Updated Caps for New Excluded require the Secretary to use the plus a percentage of the hospital’s rate-
Hospitals and Units (§ 413.40(f)) discharge as the payment unit under the of-increase ceiling (as specified in
prospective payment system for § 413.40(d)(2)). An eligible hospital is a
Section 1886(b)(7) of the Act
inpatient rehabilitation services and to hospital that has been a provider
establishes a payment methodology for
establish classes of patient discharges by excluded from the prospective payment
new psychiatric hospitals and units,
rehabilitation hospitals and units, and functional-related groups. system for at least three full cost
long-term care hospitals. Under the We will issue a separate notice of reporting periods prior to the applicable
statutory methodology, for a hospital proposed rulemaking in the Federal period and the hospital’s operating costs
that is within a class of hospitals Register on the prospective payment per discharge for the applicable period
specified in the statute and that first system for inpatient rehabilitation are below the lowest of its target
receives payments as a hospital or unit amount, trended costs, or expected costs
facilities. That document will discuss
excluded from the prospective payment for the applicable period. Prior to
the requirements in section
system on or after October 1, 1997, the enactment of Public Law 106–113, the
1886(j)(1)(A)(i) of the Act for a transition
amount of payment will be determined amount of the continuous improvement
phase covering the first two cost
as follows: For the first two 12-month bonus payment was equal to the lesser
reporting periods under the prospective of—
cost reporting periods, the amount of payment system. During this transition (a) 50 percent of the amount by which
payment is the lesser of (1) the operating phase, inpatient rehabilitation facilities operating costs were less than the
costs per case; or (2) 110 percent of the will receive a payment rate comprised expected costs for the period; or
national median of target amounts for of a blend of the facility specific rate (b) 1 percent of the ceiling.
the same class of hospitals for cost (the TEFRA percentage) based on the Section 122 of Public Law 106–113
reporting periods ending during FY amount that would have been paid amended section 1886(b)(2) of the Act to
1996, updated to the first cost reporting under Part A with respect to these costs provide, for cost reporting periods
period in which the hospital receives if the prospective payment system beginning on or after October 1, 2000,
payments and adjusted for differences would not be implemented and the and before September 30, 2001, for an
in area wage levels. inpatient rehabilitation facility
The proposed amounts included in increase in the continuous improvement
prospective payment rate (prospective bonus payment for long-term care and
the following table reflect the updated
payment percentage). As set forth in psychiatric hospitals and units. Under
110 percent of the wage neutral national
median target amounts for each class of sections 1886(j)(1)(C)(i) and (ii) of the section 1886(b)(2) of the Act, as
excluded hospitals and units for cost Act, the TEFRA percentage for a cost amended, a hospital that is within one
reporting periods beginning during FY reporting period beginning on or after of these two classes of hospitals
2001. These figures are updated to October 1, 2000, and before October 1, (psychiatric hospitals or units and long-
reflect the projected market basket 2001, is 662⁄3 percent; the prospective term-care hospitals) will receive the
increase of 3.1 percent. For a new payment percentage is 331⁄3 percent. For lesser of 50 percent of the amount by
provider, the labor-related share of the cost reporting periods beginning on or which the operating costs are less than
target amount is multiplied by the after October 1, 2001 and before October the expected costs for the period, or the
appropriate geographic area wage index 1, 2002, the TEFRA percentage is 331⁄3 increased percentages mandated by
and added to the nonlabor-related share percent and the prospective payment statute as follows:
in order to determine the per case limit percentage is 662⁄3 percent. (a) For a cost reporting period
on payment under the statutory beginning on or after October 1, 2000
As provided in section 1886(j)(3)(A)
payment methodology for new and before September 30, 2001, 1.5
of the Act, the prospective payment
providers. percent of the ceiling; and
rates will be based on the average
(b) For a cost reporting period
inpatient operating and capital costs of beginning on or after October 1, 2001,
Class of ex- Labor- Nonlabor- rehabilitation facilities and units.
cluded hospital related related and before September 30, 2002, 2
or unit share share Payments will be adjusted for case-mix percent of the ceiling.
using patient classification groups, area We are proposing to revise
Psychiatric ........ $6,592 $2,623 wages, inflation, outlier status and any § 413.40(d)(4) to incorporate this
Rehabilitation .... 12,964 5,154 other factors the Secretary determines provision of the statute.
Long-Term Care 16,708 6,643 necessary. We will propose to set
prospective payment amounts in effect B. Responsibility for Care of Patients in
3. Development of Prospective Payment during FY 2001 so that total payments Hospitals-Within-Hospitals
System for Inpatient Rehabilitation under the system are projected to equal (§ 413.40(a)(3))
Hospitals and Units 98 percent of the amount of payments Effective October 1, 1999, for
Section 4421 of Public Law 105–33 that would have been made under the hospitals-within-hospitals, we
added section 1886(j) to the Act. Section current payment system. Outlier implemented a policy that allows for a
1886(j) of the Act mandates the phase- payments in a fiscal year may not be 5-percent threshold for cases in which
in of a case-mix adjusted prospective projected or estimated to exceed 5 a patient discharged from an excluded
payment system for inpatient percent of the total payments based on hospital-within-a-hospital and admitted
rehabilitation services (freestanding the rates for that fiscal year. to the host hospital was subsequently

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26316 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

readmitted to the excluded hospital- (1) For facility services, not including reduction to operating or capital costs
within-a-hospital. With respect to these any services for which payment may be under § 413.124 or § 413.130(j)(7), and
cases, if the excluded hospital exceeds made as outpatient professional blended payment amounts for
the 5-percent threshold, we do not services, the reasonable costs of the ambulatory surgical center services,
include any previous discharges to the CAH in providing the services; and radiology services, and other diagnostic
prospective payment hospital in (2) For professional services otherwise services.
calculating the excluded hospital’s cost included within outpatient CAH Under proposed § 413.70(b)(3), we
per discharge. That is, the entire stay is services, the amounts that would would specify that any CAH that elects
considered one Medicare ‘‘discharge’’ otherwise be paid under Medicare if the to be paid under the optional method
for purposes of payments to the services were not included in outpatient must make an annual request in writing,
excluded hospital. The effect of this CAH services. and deliver the request for the election
rule, as explained more fully in the May Section 403(d) of Public Law 106–113 to the fiscal intermediary at least 60
7, 1999 proposed rule (64 FR 24716) and added section 1834(g)(3) to the Act to days before the start of the affected cost
in the July 30, 1999 final rule (64 FR further specify that payment amounts reporting period. In addition, proposed
41490), is to prevent inappropriate under this election are be determined § 413.70(b)(3) states that if a CAH elects
Medicare payment to hospitals having a without regard to the amount of the payment under this method, payment to
large number of such stays. customary or other charge. the CAH for each outpatient visit will be
In the existing regulations at The amendment made by section the sum of the following two amounts:
403(d) is effective for cost reporting
§ 413.40(a)(3), we state that the 5- • For facility services, not including
percent threshold is determined based periods beginning on or after October 1,
any outpatient professional services for
on the total number of discharges from 2000.
We are proposing to revise § 413.70 to which payment may be made on a fee
the hospital-within-a-hospital. We have schedule basis, the amount would be
received questions as to whether, in incorporate the provisions of section
403(d) of Public Law 106–113. The the reasonable costs of the services as
determining whether the threshold is determined in accordance with
existing § 413.70 specifies a single set of
met, we consider Medicare patients only applicable principles of cost
reasonable cost basis payment rules
or all patients (Medicare and non- reimbursement in 42 CFR Parts 413 and
applicable to both inpatient and
Medicare). To avoid any further 415, except for certain payment
outpatient services furnished by CAHs.
misunderstanding, we are clarifying the principles that would not apply as
As section 403(d) of Public Law 106–
definition of ‘‘ceiling’’ in § 413.40(a)(3) specified above; and
113 provides that CAHs may elect to be
by specifying that the 5-percent
paid on a reasonable cost basis for • For professional services, otherwise
threshold is based on the Medicare payable to the physician or other
facility services and on a fee schedule
inpatients discharged from the hospital- practitioner on a fee schedule basis, the
basis for professional services, we are
within-a-hospital in a particular cost amounts would be those amounts that
proposing to revise the section to allow
reporting period, not on total Medicare for separate payment rules for CAH would otherwise be paid for the services
and non-Medicare inpatient discharges. inpatient and outpatient services. if the CAH had not elected payment
C. Critical Access Hospitals (CAHs) We are proposing to place the under this method.
provisions of existing § 413.70(a) and (b) We would also specify that payment
1. Election of Payment Method that relate to payment on a reasonable to a CAH for outpatient services would
(§ 413.70) cost basis for inpatient services be subject to the Part B deductible and
Section 1834(g) of the Act, as in effect furnished by a CAH under proposed coinsurance amounts, as determined
before enactment of Public Law 106– § 413.70(a). Proposed § 413.70(a)(2) under §§ 410.152, 410.160, and 410.161.
113, provided that the amount of would also state that payment to a CAH Final payment to the CAH for its facility
payment for outpatient CAH services is for inpatient services does not include services to inpatients and outpatients
the reasonable costs of the CAH in professional services to CAH inpatients furnished during a cost reporting would
providing such services. However, the and is subject to the Part A hospital be based on a cost report for that period,
reasonable costs of the CAH’s services to deductible and coinsurance determined as required under § 413.20(b).
outpatients included only the CAH’s under 42 CFR part 409, Subpart G. 2. Condition of Participation: Organ,
costs of providing facility services, and We are proposing to include under
Tissue, and Eye Procurement (§ 485.643)
did not include any payment for § 413.70(b) the payment rules for
professional services. Physicians and outpatient services furnished by CAHs, Sections 1820(c)(2)(B) and 1861(mm)
other practitioners who furnished including the option for CAHs to elect of the Act set forth the criteria for
professional services to CAH outpatients to be paid on the basis of reasonable designating a CAH. Under this
billed the Part B carrier for these costs for facility services and on the authority, the Secretary has established
services and were paid under the basis of the physician fee schedule for in regulations the minimum
physician fee schedule in accordance professional services. Under proposed requirements a CAH must meet to
with the provisions of section 1848 of § 413.70(b)(2), we would retain the participate in Medicare (42 CFR part
the Act. existing provision that unless the CAH 485, Subpart F).
Section 403(d) of Public Law 106–113 elects the option provided for under Section 1905(a) of the Act provides
amended section 1834(g) of the Act to section 403 of Public Law 106–113, that Medicaid payments may be made
permit the CAH to elect to be paid for payment for outpatient CAH services is for any other medical care, and any
its outpatient services under another on a reasonable cost basis, as other type of remedial care recognized
option. CAHs making this election determined in accordance with section under State law, specified by the
would be paid amounts equal to the 1861(v)(1)(A) of the Act and the Secretary. The Secretary has specified
sum of the following, less the amount applicable principles of cost CAH services as Medicaid services in
that the hospital may charge as reimbursement in Parts 413 and 415 regulations, specifically, the regulations
described in section 1866(a)(2)(A) of the (except for certain payment principles at 42 CFR 440.170(g)(1)(i), and defined
Act (that is, Part A and Part B that do not apply; that is, the lesser of CAH services under Medicaid as those
deductibles and coinsurance): costs or charges, RCE limits, any type of services furnished by a provider

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Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules 26317

meeting the Medicare conditions of option to either donate or not donate announced that it was recommending a
participation (CoP). organs, tissues, or eyes. The CAH may combined update of between 3.5 percent
Section 1138 of the Act provides that choose to have OPO staff perform this and 4.0 percent for operating and
a CAH participating in Medicare must function, have CAH and OPO staff capital-related payments for FY 2001.
establish written protocols to identify jointly perform this function, or rely This recommendation is higher than the
potential organ donors that: (1) Assures exclusively on CAH staff. Research current law amount as prescribed by
that potential donors and their families indicates that consent to organ donation Public Law 105–33 and proposed in this
are made aware of the full range of is highest when the formal request is rule. Because of the timing of MedPAC’s
options for organ or tissue donation as made by OPO staff or by OPO staff and announcement in relation to the
well as their rights to decline donation; hospital staff together. While we require publication of this proposed rule, we
(2) encourage discretion and sensitivity collaboration, we also recognize that intend to respond to MedPAC’s
with respect to the circumstances, CAH staff may wish to perform this recommendation in the FY 2001 final
views, and beliefs of those families; and function and may do so when properly rule to be issued in August 2000 when
(3) require that an organ procurement trained. Moreover, the CoP would we will have had the opportunity to
agency designated by the Secretary be require the CAH to ensure that CAH review the data analyses that
notified of potential organ donors. employees who initiate a request for substantiate MedPAC’s
On June 22, 1998, as part of the donation to the family of a potential recommendation.
Medicare hospital conditions of donor have been trained as designated
participation under Part 482, subpart C, A. Combined Operating and Capital
we added to the regulations at § 482.45, Finally, the CoP would require the Prospective Payment Systems
a condition that specifically addressed CAH to work with the OPO and at least (Recommendation 3J)
organ, tissue, and eye procurement. one tissue bank and one eye bank in Recommendation: The Congress
However, Part 482 does not apply to educating staff on donation issues, should combine prospective payment
CAHs, as CAHs are a distinct type of reviewing death records to improve system operating and capital payment
provider with separate CoP under Part identification of potential donors, and rates to create a single prospective rate
485. Therefore, we are proposing to add maintaining potential donors while for hospital inpatient care. This change
a CoP for organ, tissue, and eye necessary testing and placement of would require a single set of payment
procurement for CAHs at a new organs and tissues is underway. adjustments—in particular, for indirect
§ 485.643 that generally parallels the We are sensitive to the possible medical education and disproportionate
CoP at § 482.45 for all Medicare burden this proposed CoP may place on share hospital payments—and a single
hospitals with respect to the statutory CAHs. Therefore, we are particularly payment update.
requirement in section 1138 of the Act interested in comments and information Response: We responded to a similar
concerning organ donation. CAHs are concerning the following requirements: comment in the July 30, 1999 final rule
not full service hospitals and therefore (1) Developing written protocols for (64 FR 41552), the July 31, 1998 final
are not equipped to perform organ donations; (2) developing agreements rule (63 FR 41013), and the September
transplantations. Therefore, we are not with OPOs, tissue banks, and eye banks; 1, 1995 final rule (60 FR 45816). In
including the standard applicable to (3) referring all deaths to the OPO; (4) those rules, we stated that our long-term
Medicare hospitals that CAHs must be working cooperatively with the goal was to develop a single update
a member of the Organ Procurement and designated OPO, tissue bank, and eye framework for operating and capital
Transplantation Network (OPTN), abide bank in educating staff on donation prospective payments and that we
by its rules and provide organ issues, reviewing death records, and would begin development of a unified
transplant-related data to the OPTN, the maintaining potential donors. We note framework. However, we have not yet
Scientific Registry, organ procurement that the proposed requirement allow developed such a single framework as
agencies, or directly to the Department some degree of flexibility for the CAH. the actual operating system update has
on request of the Secretary. For example, the CAH would have the been determined by Congress through
The proposed CoP for CAHs includes option of using an OPO-approved FY 2002. In the meantime, we intend to
several requirements designed to education program to train its own maintain as much consistency as
increase organ donation. One of these employees as routine requestors or possible with the current operating
requirements is that a CAH must have deferring requesting services to the framework in order to facilitate the
an agreement with the Organ OPO, the tissue bank, or the eye bank eventual development of a unified
Procurement Organization (OPO) to provide requestors. framework. We maintain our goal of
designated by the Secretary, under combining the update frameworks at the
which the CAH will contact the OPO in VII. MedPAC Recommendations end of the 10-year capital transition
a timely manner about individuals who We have reviewed the March 1, 2000 period (the end of FY 2001) and may
die or whose death is imminent. The report submitted by MedPAC to examine combining the payment
OPO will then determine the Congress and have given it careful systems post-transition. Because of the
individual’s medical suitability for consideration in conjunction with the similarity of the update frameworks, we
donation. In addition, the CAH must proposals set forth in this document. believe that they could be combined
have an agreement with at least one MedPAC’s recommendations and our with little difficulty.
tissue bank and at least one eye bank to responses are set forth below. In the discussion of its
cooperate in the retrieval, processing, We note that MedPAC’s March 1, recommendation, MedPAC notes that it
preservation, storage, and distribution of 2000 report did not contain a ‘‘is examining broad reforms to the
tissues and eyes, as long as the recommendation concerning the update prospective payment system, including
agreement does not interfere with organ factors for inpatient hospital operating DRG refinement and modifications of
donation. The proposed CoP would costs under the prospective payment the graduate medical education
require a CAH to ensure, in system or for hospitals and hospital payment and the IME and DSH
collaboration with the OPO with which units excluded from the prospective adjustments. The Commission believes
it has an agreement, that the family of payment system. However, at its April that a combined hospital prospective
every potential donor is informed of its 13, 2000 public meeting, MedPAC payment rate should be established

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26318 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

whether or not broader reforms are providing inpatient and outpatient set up a process under which
undertaken. However, if the Congress hospital services for which the hospital commenters can gain access to the raw
acts on any or all of the Commission’s is not compensated, including non- data on an expedited basis. Generally,
recommendations, it should consider Medicare bad debt, charity care, and the data are available in computer tape
combining operating and capital charges for Medicaid and indigent care. or cartridge format; however, some files
payments as part of a larger package.’’ These data must be reported on the are available on diskette as well as on
We agree that ultimately the operating hospital’s cost reports for cost reporting the Internet at
and capital prospective payment periods beginning on or after October 1, stats/pubfiles.html. Data files are listed
systems should be combined into a 2001, and will provide information that below with the cost of each. Anyone
single system. However, we believe that, will enable MedPAC and us to evaluate wishing to purchase data tapes,
because of MedPAC’s ongoing analysis potential refinements to the DSH cartridges, or diskettes should submit a
and the Administration’s pending DSH formula to address issues referred to by written request along with a company
report to Congress, any such unification MedPAC. check or money order (payable to
should occur within the context of other Medicare fiscal intermediaries will HCFA–PUF) to cover the cost to the
system refinements. audit these data to ensure their accuracy following address: Health Care
B. Continuing Postacute Transfer and consistency. Our experience with Financing Administration, Public Use
Payment Policy (Recommendation 3K) administering the current DSH formula Files, Accounting Division, P.O. Box
leads us to believe that this auditing 7520, Baltimore, Maryland 21207–0520,
Recommendation: The Commission function would necessarily be (410) 786–3691. Files on the Internet
recommends continuing the existing extensive, because the non-Medicare may be downloaded without charge.
policy of adjusting per case payments data that would be collected have never
through an expanded transfer policy 1. Expanded Modified MedPAR-
before been collected and reviewed by Hospital (National)
when a short length of stay results from Medicare’s fiscal intermediaries. The
a portion of the patient’s care being data would have to be determined to be The Medicare Provider Analysis and
provided in another setting. accurate and usable, and corrected if Review (MedPAR) file contains records
Response: As noted in section IV.A. of for 100 percent of Medicare
this preamble, we have undertaken We agree that the current statutory beneficiaries using hospital inpatient
(through a contract with HER) an payment formula could be improved, services in the United States. (The file
analysis of the impact on hospitals and largely because of different threshold is a Federal fiscal year file, that is,
hospital payments of the postacute levels and different formula parameters discharges occurring October 1 through
transfer provision. That analysis (based applicable to different groups of September 30 of the requested year.)
on preliminary data covering only hospitals. We are in the process of The records are stripped of most data
approximately 6 months of discharge preparing a report to Congress on the elements that would permit
data) showed a minimal impact on the Medicare DSH adjustment that includes identification of beneficiaries. The
rate of short-stay postacute transfers several options for amending the hospital is identified by the 6-position
after implementation of the policy. statutory formula. Medicare billing number. The file is
However, average profit margins as Recommendation: To provide further available to persons qualifying under
measured by HER declined from $2,454 protection for the primarily voluntary the terms of the Notice of Proposed New
prior to implementation of the policy to hospitals with mid-level low-income Routine Uses for an Existing System of
$1,180 after implementation. We believe shares, the minimum value, or Records published in the Federal
these preliminary findings demonstrate Register on December 24, 1984 (49 FR
threshold, for the low-income share that
that the postacute transfer provision has 49941), and amended by the July 2,
a hospital must have before payment is
had only marginal impact on existing 1985 notice (50 FR 27361). The national
made should be set to make 60 percent
practice patterns while more closely file consists of approximately 11 million
of hospitals eligible to receive
aligning the payments to hospitals for records. Under the requirements of
disproportionate share payments.
these cases with the costs incurred. these notices, an agreement for use of
Response: Currently, approximately
Therefore, we agree with MedPAC’s HCFA Beneficiary Encrypted Files must
less than 40 percent of all prospective
recommendation that the policy should be signed by the purchaser before
payment system hospitals receive DSH
be continued. release of these data. For all files
payments. Therefore, this
requiring a signed agreement, please
C. Disproportionate Share Hospitals recommendation would entail
write or call to obtain a blank agreement
(DSH) (Recommendations 3L and 3M) significant redistributions of existing
form before placing an order. Two
Recommendation: To address DSH payments if implemented in a
versions of this file are created each
longstanding problems and current legal budget neutral manner. We are
year. They support the following:
and regulatory developments, Congress particularly concerned about the effect • Notice of Proposed Rulemaking
should reform the disproportionate of this recommendation on hospitals (NPRM) published in the Federal
share adjustment to: include the costs of receiving substantial DSH payments Register. This file, scheduled to be
all poor patients in calculating low- currently, including major teaching available by the end of April, is derived
income shares used to distribute hospitals and public hospitals. The from the MedPAR file with a cutoff of
disproportionate share payments, and analysis by MedPAC demonstrates that 3 months after the end of the fiscal year
use the same formula to distribute these hospitals would be negatively (December file).
payments to all hospitals covered by impacted if more hospitals were made • Final Rule published in the Federal
prospective payment. eligible for DSH payments. Register. The FY 1999 MedPAR file
Response: As we noted in section VIII. Other Required Information used for the FY 2001 final rule will be
IV.E. of this preamble, Public Law 106– cut off 6 months after the end of the
113 directed the Secretary to require A. Requests for Data From the Public fiscal year (March file) and is scheduled
subsection (d) hospitals (as defined in In order to respond promptly to to be available by the end of April.
section 1886(d)(1)(B) of the Act) to public requests for data related to the Media: Tape/Cartridge
submit data on costs incurred for prospective payment system, we have File Cost: $3,655.00 per fiscal year

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Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules 26319

Periods Available: FY 1988 through FY • NPRM published in the Federal MEDIA: TAPE/CARTRIDGE
1999 Register.
2. Expanded Modified MedPAR- • Final Rule published in the Federal Periods
beginning and before
Hospital (State) Register. on or after
The State MedPAR file contains Media: Diskette/most recent year on the
records for 100 percent of Medicare Internet PPS–IV ............. 10/01/86 10/01/87
beneficiaries using hospital inpatient PPS–V .............. 10/01/87 10/01/88
File Cost: $165.00 per year PPS–VI ............. 10/01/88 10/01/89
services in a particular State. The
records are stripped of most data Periods Available: FY 2001 PPS Update PPS–VII ............ 10/01/89 10/01/90
PPS–VIII ........... 10/01/90 10/01/91
elements that will permit identification 4. HCFA Hospital Wages Indices PPS–IX ............. 10/01/91 10/01/92
of beneficiaries. The hospital is (Formerly: Urban and Rural Wage Index PPS–X .............. 10/01/92 10/01/93
identified by the 6-position Medicare Values Only) PPS–XI ............. 10/01/93 10/01/94
billing number. The file is available to
PPS–XIII ........... 10/01/94 10/01/95
persons qualifying under the terms of This file contains a history of all wage
the Notice of Proposed New Routine indices since October 1, 1983. (Note: The PPS–XIII, PPS–XIV, and PPS–
Uses for an Existing System of Records XV Minimum Data Sets are part of the PPS–
published in the December 24, 1984 Media: Diskette/most recent year on the XIII, PPS–XIV, and PPS–XV Hospital Date Set
Internet Files).
Federal Register notice, and amended
by the July 2, 1985 notice. This file is File Cost: $165.00 per year File Cost: $770.00 per year
a subset of the Expanded Modified Periods Available: FY 2001 PPS Update
MedPAR-Hospital (National) as 8. PPS–IX to PPS–XII Capital Data Set
described above. Under the 5. PPS SSA/FIPS MSA State and County
Crosswalk The Capital Data Set contains selected
requirements of these notices, an
data for capital-related costs, interest
agreement for use of HCFA Beneficiary
This file contains a crosswalk of State expense and related information and
Encrypted Files must be signed by the
and county codes used by the Social complete balance sheet data from the
purchaser before release of these data.
Security Administration (SSA) and the Medicare hospital cost report. The data
Two versions of this file are created
Federal Information Processing set includes only the most current cost
each year. They support the following:
• NPRM published in the Federal Standards (FIPS), county name, and a report (as submitted, final settled or
Register. This file, scheduled to be historical list of Metropolitan Statistical reopened) submitted for a Medicare
available by the end of April, is derived Area (MSA). certified hospital by the Medicare fiscal
from the MedPAR file with a cutoff of intermediary to HCFA. This data set is
Media: Diskette/Internet updated at the end of each calendar
3 months after the end of the fiscal year
(December file). File Cost: $165.00 per year quarter and is available on the last day
• Final Rule published in the Federal Periods Available: FY 2001 PPS Update of the following month.
Register. The FY 1999 MedPAR file
6. Reclassified Hospitals New Wage MEDIA: TAPE/CARTRIDGE
used for the FY 2001 final rule will be
Index (Formerly: Reclassified Hospitals
cut off 6 months after the end of the
by Provider Only) Periods
fiscal year (March file) and is scheduled
beginning and before
to be available by the end of April. This file contains a list of hospitals on or after
Media: Tape/Cartridge that were reclassified for the purpose of
File Cost: $1,130.00 per State per year assigning a new wage index. Two PPS–IX ............. 10/01/91 10/01/92
Periods Available: FY 1988 through FY versions of these files are created each PPS–X .............. 10/01/92 10/01/93
1999 year. They support the following: PPS–XI ............. 10/01/93 10/01/94
PPS–XII ............ 10/01/94 10/01/95
3. HCFA Wage Data • NPRM published in the Federal
This file contains the hospital hours Register. (Note: The PPS–XIII, PPS–XIV, and PPS–
• Final Rule published in the Federal XV Capital Data Sets are part of the PPS–XIII,
and salaries for FY 1997 used to create PPS–XIV, PPS–XV Hospital Data Set files.)
the proposed FY 2001 prospective Register.
payment system wage index. The file File Cost: $770.00 per year
Media: Diskette/Internet
will be available by the beginning of
February for the NPRM and the File Cost: $165.00 per year 9. PPS–XIII to PPS–XV Hospital Data
beginning of May for the final rule. Set
Periods Available: FY 2001 PPS Update
7. PPS–IV to PPS–XII Minimum Data The file contains cost, statistical,
Processing Wage data PPS fiscal
year year year Set financial, and other data from the
Medicare Hospital Cost Report. The data
2000 1997 2001 The Minimum Data Set contains cost, set includes only the most current cost
1999 1996 2000 statistical, financial, and other report (as submitted, final settled, or
1998 1995 1999 information from Medicare hospital cost reopened) submitted for a Medicare-
1997 1994 1998 reports. The data set includes only the certified hospital by the Medicare fiscal
1996 1993 1997
most current cost report (as submitted, intermediary to HCFA. The data set are
1995 1992 1996
1994 1991 1995 final settled, or reopened) submitted for updated at the end of each calendar
1993 1990 1994 a Medicare participating hospital by the quarter and is available on the last day
1992 1989 1993 Medicare fiscal intermediary to HCFA. of the following month.
1991 1988 1992 This data set is updated at the end of
each calendar quarter and is available Media: Diskette/Internet
These files support the following: on the last day of the following month. File Cost: $2,500.00

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26320 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

Periods be- hospital inpatient prospective payment affected public, including automated
ginning on systems for operating and capital-related
and before collection techniques.
or after costs. The data are taken from various • We are soliciting public comment
sources, including the Provider-Specific on each of these issues for the sections
PPS–XIII ........... 10/01/95 10/01/96 that contain information collection
PPS–XIV ........... 10/01/96 10/01/97
File, Minimum Data Sets, and prior
PPS–XV ............ 10/01/97 10/01/98 impact files. The data set is abstracted
from an internal file used for the impact Section 412.77, Determination of the
10. Provider-Specific File analysis of the changes to the Hospital-Specific Rate for Inpatient
prospective payment systems published Operating Costs for Certain Sole
This file is a component of the in the Federal Register. This file is
PRICER program used in the fiscal Community Hospitals Based on a
available for release 1 month after the Federal Fiscal Year 1996 Base Period,
intermediary’s system to compute DRG proposed and final rules are published
payments for individual bills. The file and 412.92, Special Treatment: Sole
in the Federal Register. Community Hospitals
contains records for all prospective Media: Diskette/Internet
payment system eligible hospitals, File Cost: $165.00 Sections 412.77(a)(2) and
including hospitals in waiver States, Periods Available: FY 2001 PPS Update 412.92(d)(1)(ii) state that an otherwise
and data elements used in the eligible hospital that elects not to
prospective payment system 14. AOR/BOR Tables receive payment based on its hospital-
recalibration processes and related This file contains data used to specific rate as determined under
activities. Beginning with December develop the DRG relative weights. It § 412.77 must notify its fiscal
1988, the individual records were contains mean, maximum, minimum, intermediary of its decision prior to the
enlarged to include pass-through per standard deviation, and coefficient of beginning of its cost reporting period
diems and other elements. variation statistics by DRG for length of beginning on or after October 1, 2000.
Media: Diskette/Internet stay and standardized charges. The BOR We estimate that it will take each
File Cost: $265.00 tables are ‘‘Before Outliers Removed’’ hospital that notifies its intermediary of
Periods Available: FY 2001 PPS Update and the AOR is ‘‘After Outliers its election not to receive payments
Removed.’’ (Outliers refers to statistical based on its hospital-specific rate as
11. HCFA Medicare Case-Mix Index File outliers, not payment outliers.) Two determined under § 412.77 an hour to
This file contains the Medicare case- versions of this file are created each draft and send its notice. However, we
mix index by provider number as year. They support the following: are unable at this time to determine how
published in each year’s update of the • NPRM published in the Federal many hospitals will make this election
Medicare hospital inpatient prospective Register. and, therefore, will need to notify their
payment system. The case-mix index is • Final rule published in the Federal intermediaries of their decision.
a measure of the costliness of cases Register. Section 485.643, Condition of
treated by a hospital relative to the cost Media: Diskette/Internet Participation: Organ, Tissue, and Eye
of the national average of all Medicare File Cost: $165.00 Procurement
hospital cases, using DRG weights as a Periods Available: FY 2001 PPS Update
measure of relative costliness of cases. For further information concerning It is important to note that because of
Two versions of this file are created these data tapes, contact The HCFA the inherent flexibility of this proposed
each year. They support the following: Public Use Files Hotline at (410) 786– regulation, the extent of the information
• NPRM published in the Federal 3691. collection requirements is dependent
Register. Commenters interested in obtaining or upon decisions that will be made either
• Final rule published in the Federal discussing any other data used in by the CAH or by the CAH in
Register. constructing this rule should contact conjunction with the OPO or the tissue
Stephen Phillips at (410) 786–4531. and eye banks, or both. Thus, the
Media: Diskette/most recent year on paperwork burden on individual CAHs
Internet B. Information Collection Requirements will vary and is subject, in large part, to
Price: $165.00 per year/per file Under the Paperwork Reduction Act their decisionmaking.
Periods Available: FY 1985 through FY of 1995, we are required to provide 60- The burden associated with the
1999 day notice in the Federal Register and requirements of this section include: (1)
12. DRG Relative Weights (Formerly solicit public comment before a The requirement to maintain protocol
Table 5 DRG) collection of information requirement is documentation demonstrating that the
This file contains a listing of DRGs, submitted to the Office of Management five requirements of this section have
DRG narrative description, relative and Budget (OMB) for review and been met; (2) the requirement for a CAH
weights, and geometric and arithmetic approval. In order to fairly evaluate to notify an OPO, a tissue bank, or an
mean lengths of stay as published in the whether an information collection eye bank of any imminent or actual
Federal Register. The hard copy image should be approved by OMB, section death; and (3) the time required for a
has been copied to diskette. There are 3506(c)(2)(A) of the Paperwork hospital to document and maintain OPO
two versions of this file as published in Reduction Act of 1995 requires that we referral information.
the Federal Register: solicit comment on the following issues: We estimate that, on average, the
• NPRM. • The need for the information requirement to maintain protocol
• Final rule. collection and its usefulness in carrying documentation demonstrating that the
Media: Diskette/Internet out the proper functions of our agency. requirements of this section have been
File Cost: $165.00 • The accuracy of our estimate of the met will impose one hour of burden on
Periods Available: FY 2001 PPS Update information collection burden. each CAH (on 161 CAHs) on an annual
• The quality, utility, and clarity of basis (a total of 161 annual burden
13. PPS Payment Impact File
the information to be collected. hours).
This file contains data used to • Recommendations to minimize the The CoP in this section would require
estimate payments under Medicare’s information collection burden on the CAHs to notify the OPO about every

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Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules 26321

death that occurs in the CAH. The Security Boulevard, Baltimore, PART 412—PROSPECTIVE PAYMENT
average Medicare hospital has Maryland 21244–1850. Attn: John SYSTEMS FOR INPATIENT HOSPITAL
approximately 165 beds and 200 deaths Burke HCFA–1118-P; and SERVICES
per year. However, by statute and Office of Information and Regulatory
regulation, CAHs may use no more than A. Part 412 is amended as follows:
Affairs, Office of Management and 1. The authority citation for Part 412
15 beds for acute care services. Budget, Room 3001, New Executive continues to read as follows:
Assuming that the number of deaths in Office Building, Washington, DC
a hospital is related to the number of Authority: Secs. 1102 and 1871 of the
20503. Attn: Allison Herron Eydt, Social Security Act (42 U.S.C. 1302 and
acute care beds, there should be HCFA Desk Officer.
approximately 18 deaths per year in the 1395hh).
average CAH. We estimated that the These new information collection and 2. Section 412.2 is amended by
average notification telephone call to recordkeeping requirements have been revising the last sentence of paragraph
the OPO takes 5 minutes. Based on this submitted to the Office of Management (a) to read as follows:
estimate, a CAH would need and Budget (OMB) for review under the
§ 412.2 Basis of payment.
approximately 90 minutes per year to authority of PRA. We have submitted a
copy of the proposed rule to OMB for (a) Payment on a per discharge basis.
notify the OPO about all deaths and
its review of the information collection * * * An additional payment is made for
imminent deaths.
requirements. These requirements will both inpatient operating and inpatient
Under the proposed CoP, a CAH may
not be effective until they have been capital-related costs, in accordance with
agree to have the OPO determine
approved by OMB. subpart F of this part, for cases that are
medical suitability for tissue and eye
extraordinarily costly to treat.
donation or may have alternative The requirements associated with a
arrangements with a tissue bank and an * * * * *
hospital’s application for a geographic
eye bank. These alternative redesignation, codified in Part 412, are § 412.4 [Amended]
arrangements could include the CAH’s currently approved by OMB under OMB 3. In § 412.4(f)(3), the reference to
direct notification of the tissue and eye approval number 0938–0573, with an ‘‘§ 412.2(e)’’ is removed and ‘‘ 412.2(b)’’
bank of potential tissue and eye donors expiration date of September 30, 2002. is added in its place.
or direct notification of all deaths. If a 4. Section 412.63 is amended by:
CAH chose to contact both a tissue bank C. Public Comments
a. Revising paragraph (s);
and an eye bank directly on all deaths, Because of the large number of items b. Redesignating paragraphs (t), (u),
it would need an additional 6 hours per of correspondence we normally receive (v), and (w) as paragraphs (u), (v), (w),
year (that is, 5 minutes per call) in order on a proposed rule, we are not able to and (x) respectively; and
to call both the tissue and eye bank acknowledge or respond to them c. Adding a new paragraph (t), to read
directly. Again, the impact is small, and individually. However, in preparing the as follows:
the proposed regulation permits the final rule, we will consider all
CAH to decide how this process will § 412.63 Federal rates for inpatient
comments concerning the provisions of operating costs for fiscal years after
take place. Note that many communities this proposed rule that we receive by Federal fiscal year 1984.
already have a one-phone call system in the date and time specified in the DATES
place. In addition, some OPOs are also * * * * *
section of this preamble and respond to (s) Applicable percentage change for
tissue banks or eye banks, or both. A
those comments in the preamble to that fiscal year 2001. The applicable
CAH that chose to use the OPO’s tissue
rule. We emphasize that section percentage change for fiscal year 2001 is
and eye bank services in these localities
1886(e)(5) of the Act requires the final the percentage increase in the market
would need to make only one telephone
rule for FY 2001 to be published by basket index for prospective payment
call on every death.
August 1, 2000, and we will consider hospitals (as defined in § 413.40(a) of
We estimate that additional time
only those comments that deal this subchapter) for sole community
would be needed by the CAH to
specifically with the matters discussed hospitals and the increase in the market
annotate the patient record or fill out a
in this proposed rule. basket index minus 1.1 percentage
form regarding the disposition of a call
to the OPO or the tissue bank or the eye List of Subjects points for other hospitals in all areas.
bank, or both. This recordkeeping (t) Applicable percentage change for
should take no more than 5 minutes per 42 CFR Part 412 fiscal year 2002. The applicable
call. Therefore, the paperwork burden percentage change for fiscal year 2002 is
Administrative practice and the percentage increase in the market
associated with the call(s) would add up procedure, Health facilities, Medicare,
to an additional 270 minutes per year basket index for prospective payment
Puerto Rico, Reporting and hospitals (as defined in § 413.40(a) of
per CAH. recordkeeping requirements.
In summary, the information this subchapter) minus 1.1 percentage
collection requirements of this section 42 CFR Part 413 points for hospitals in all areas.
would be a range of from 3 to 9 hours * * * * *
per CAH, or 483 to 1,449 hours annually Health facilities, Kidney diseases, 5. Section 412.73 is amended by
nationally. Medicare, Puerto Rico, Reporting and revising paragraph (c)(12) and adding
If you comment on these information recordkeeping requirements. paragraphs (c)(13), (c)(14), and (c)(15),
collection and recordkeeping 42 CFR Part 485 to read as follows:
requirements, please mail copies § 412.73 Determination of the hospital-
directly to the following addresses: Grant programs—health, Health specific rate based on a Federal fiscal year
Health Care Financing Administration, facilities, Medicaid, Medicare, 1982 base period.
Office of Information Services, Reporting and recordkeeping
* * * * *
Security and Standards Group, requirements. (c) Updating base-year costs * * *
Division of HCFA Enterprise 42 CFR Chapter IV is proposed to be (12) For Federal fiscal years 1996
Standards, Room N2–14–26, 7500 amended as set forth below: through 2000. For Federal fiscal years

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26322 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

1996 through 2000, the update factor is (3) This section applies only to cost using the methodology set forth in
the applicable percentage change for reporting periods beginning on or after § 412.73(c)(12) through (c)(15).
other prospective payment hospitals in October 1, 2000. (f) DRG adjustment. The applicable
each respective year as set forth in (4) The formula for determining the hospital-specific cost per discharge is
§§ 412.63(n) through (r). hospital-specific costs for hospitals multiplied by the appropriate DRG
(13) For Federal fiscal year 2001. For described under paragraph (a)(1) of this weighting factor to determine the
Federal fiscal year 2001, the update section is set forth in paragraph (f) of hospital-specific base payment amount
factor is the percentage increase in the this section. (target amount) for a particular covered
market basket index for prospective (b) Base-period costs for hospitals discharge.
payment hospitals (as defined in subject to fiscal year 1996 rebasing. (1) (g) Phase-in of fiscal year 1996 base-
§ 413.40(a) of this chapter). General rule. Except as provided in period rate. The intermediary calculates
(14) For Federal fiscal year 2002. For paragraph (b)(2) of this section, for each the hospital-specific rates determined
Federal fiscal year 2002, the update hospital eligible under paragraph (a) of on the basis of the fiscal year 1996 base
factor is the percentage increase in the this section, the intermediary period rate as follows:
market basket index for prospective determines the hospital’s Medicare Part (1) For Federal fiscal year 2001, the
payment hospitals (as defined in A allowable inpatient operating costs, as hospital-specific rate is the sum of 75
§ 413.40(a) of this chapter) minus 1.1 described in § 412.2(c), for the 12-month percent of the hospital-specific rate for
percentage points. or longer cost reporting period ending fiscal year 1982 or fiscal year 1987 (the
(15) For Federal fiscal year 2003 and on or after September 30, 1996 and § 412.73 or § 412.75 target amount), plus
for subsequent years. For Federal fiscal 25 percent of the hospital-specific rate
before September 30, 1997, and
year 2003 and subsequent years, the for fiscal year 1996 (the § 412.77 target
computes the hospital-specific rate for
update factor is the percentage increase amount).
purposes of determining prospective
in the market basket index for (2) For Federal fiscal year 2002, the
payment rates for inpatient operating
prospective payment hospitals (as hospital-specific rate is the sum of 50
costs as determined under § 412.92(d).
defined in § 413.40(a) of this chapter). percent of the § 412.73 or § 412.75 target
(2) Exceptions. (i) If the hospital’s last
* * * * * cost reporting period ending before amount and 50 percent of the § 412.77
September 30, 1997 is for less than 12 target amount.
§ 412.75 [Amended] (3) For Federal fiscal year 2003, the
6. In § 412.75(d), the cross reference months, the base period is the hospital’s
hospital-specific rate is the sum of 25
‘‘§ 412.73 (c)(5) through (c)(12)’’ is most recent 12-month or longer cost
percent of the § 412.73 or § 412.75 target
removed and ‘‘§ 412.75(c)(15)’’ is added reporting period ending before the short
amount and 75 percent of the § 412.77
in its place. period report.
target amount.
(ii) If the hospital does not have a cost (4) For Federal fiscal year 2004 and
§ 412.76 [Redesignated] reporting period ending on or after any subsequent fiscal years, the
7. Section 412.76 is redesignated as a September 30, 1996 and before hospital-specific rate is 100 percent of
new § 412.78. September 30, 1997, and does have a the § 412.77 target amount.
8. A new § 412.77 is added to read as cost reporting period beginning on or (h) Notice of hospital-specific rates.
follows: after October 1, 1995 and before October The intermediary furnishes a hospital
1, 1996, that cost reporting period is the eligible for rebasing a notice of the
§ 412.77 Determination of the hospital-
specific rate for inpatient operating costs base period unless the cost reporting hospital-specific rate as computed in
for certain sole community hospitals based period is for less than 12 months. If that accordance with this section. The notice
on a Federal fiscal year 1996 base period. cost reporting period is for less than 12 will contain a statement of the hospital’s
(a) Applicability. (1) This section months, the base period is the hospital’s Medicare Part A allowable inpatient
applies to a hospital that has been most recent 12-month or longer cost operating costs, the number of Medicare
designated as a sole community reporting period ending before the short discharges, and the case-mix index
hospital, as described in § 412.72, that cost reporting period. If a hospital has adjustment factor used to determine the
received payment for its cost reporting no cost reporting period beginning in hospital’s cost per discharge for the
period beginning during 1999 based on fiscal year 1996, the hospital will not Federal fiscal year 1996 base period.
its hospital-specific rate for either fiscal have a hospital-specific rate based on (i) Right to administrative and judicial
year 1982 under § 412.73 or fiscal year fiscal year 1996. review. An intermediary’s determination
1987 under § 412.75, and that elects (c) Costs on a per discharge basis. The of the hospital-specific rate for a
under paragraph (a)(2) of this section to intermediary determines the hospital’s hospital is subject to administrative and
be paid based on a fiscal year 1996 base average base-period operating cost per judicial review. Review is available to a
period. discharge by dividing the total operating hospital upon receipt of the notice of
(2) Hospitals that are otherwise costs by the number of discharges in the the hospital-specific rate. This notice is
eligible for but elect not to receive base period. For purposes of this treated as a final intermediary
payment on the basis of their Federal section, a transfer as defined in determination of the amount of program
fiscal year 1996 updated costs per case § 412.4(b) is considered to be a reimbursement for purposes of subpart
must notify their fiscal intermediary of discharge. R of part 405 of this chapter.
this decision prior to the beginning of (d) Case-mix adjustment. The (j) Modification of hospital-specific
their cost reporting period beginning on intermediary divides the average base- rate. (1) The intermediary recalculates
or after October 1, 2000, for which such period cost per discharge by the the hospital-specific rate to reflect the
payments would otherwise be made. If hospital’s case-mix index for the base following:
a hospital does not make the period. (i) Any modifications that are
notification to its fiscal intermediary (e) Updating base-period costs. For determined as a result of administrative
before the end of the cost reporting purposes of determining the updated or judicial review of the hospital-
period, the hospital is deemed to have base-period costs for cost reporting specific rate determinations; or
elected to have section 1886(b)(3)(I) of periods beginning in Federal fiscal year (ii) Any additional costs that are
the Act apply to the hospital. 1996, the update factor is determined recognized as allowable costs for the

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Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules 26323

hospital’s base period as a result of greatest aggregate payment for the cost cap in accordance with the provisions of
administrative or judicial review of the reporting period: § 413.86(g)(7) of this subchapter.
base-period notice of amount of program (A) The Federal payment rate (ix) A hospital may receive a
reimbursement. applicable to the hospitals as temporary adjustment to its full-time
(2) With respect to either the hospital- determined under § 412.63. equivalent cap to reflect residents added
specific rate determination or the (B) The hospital-specific rate as because of another hospital’s closure if
amount of program reimbursement determined under § 412.73. the hospital meets the criteria specified
determination, the actions taken on (C) The hospital-specific rate as in § 413.86(g)(8) of this subchapter.
administrative or judicial review that determined under § 412.75. * * * * *
provide a basis for the recalculations of (ii) For cost reporting periods (g) Indirect medical education
the hospital-specific rate include the beginning on or after October 1, 2000, a payment for managed care enrollees.
following: sole community hospital that was paid For portions of cost reporting periods
(i) A reopening and revision of the for its cost reporting period beginning occurring on or after January 1, 1998, a
hospital’s base-period notice of amount during 1999 on the basis of the hospital- payment is made to a hospital for
of program reimbursement under specific rate specified in paragraph indirect medical education costs, as
§§ 405.1885 through 405.1889 of this (d)(1)(i)(B) or (d)(1)(i)(C) of this section, determined under paragraph (e) of this
chapter. may elect to use the hospital-specific section, for discharges associated with
(ii) A prehearing order or finding rate as determined under § 412.77. individuals who are enrolled under a
issued during the provider payment * * * * * risk-sharing contract with an eligible
appeals process by the appropriate 10. Section 412.105 is amended by: organization under section 1876 of the
reviewing authority under § 405.1821 or a. Revising paragraph (d)(3)(v); Act or with a Medicare+Choice
§ 405.1853 of this chapter that resolved b. Republishing paragraph (f)(1) organization under title XVIII, Part C of
a matter at issue in the hospital’s base- introductory text and revising paragraph the Act during the period, according to
period notice of amount of program (f)(1)(vii); the applicable payment percentages
reimbursement. c. Adding new paragraphs (f)(1)(viii) described in §§ 413.86(d)(3)(i) through
(iii) An affirmation, modification, or and (f)(1)(ix); and (d)(3)(v) of this subchapter.
reversal of a Provider Reimbursement d. Revising paragraph (g), to read as 11. In § 412.106, the introductory text
Review Board decision by the follows: of paragraph (e) is republished and
Administrator of HCFA under§ 405.1875 paragraphs (e)(4) and (e)(5) are revised
§ 412.105 Special treatment: Hospitals that
of this chapter that resolved a matter at to read as follows:
incur indirect costs for graduate medical
issue in the hospital’s base-period education programs.
notice of amount of program § 412.106 Special treatment: Hospitals that
reimbursement. * * * * * serve a disproportionate share of low-
(d) Determination of education income patients.
(iv) An administrative or judicial
adjustment factor * * * * * * * *
review decision under § 405.1831,
(3) * * * (e) Reduction in payment for FYs
§ 405.1871, or § 405.1877 of this chapter
(v) For discharges occurring during 1998 through 2002. The amounts
that is final and no longer subject to
fiscal year 2001, 1.54. otherwise payable to a hospital under
review under applicable law or
regulations by a higher reviewing * * * * * paragraph (d) of this section are reduced
authority, and that resolved a matter at (f) Determining the total number of by the following:
issue in the hospital’s base-period full-time equivalent residents for cost * * * * *
notice of amount of program reporting periods beginning on or after (4) For FY 2001, 3 percent.
reimbursement. July 1, 1991. (1) For cost reporting (5) For FY 2002, 4 percent.
(v) A final, nonappealable court periods beginning on or after July 1, * * * * *
judgment relating to the base-period 1991, the count of full-time equivalent 12. Section 412.230 is amended by:
costs. residents for the purpose of determining a. Republishing the introductory text
(3) The adjustments to the hospital- the indirect medical education of paragraph (e)(1); and
specific rate made under paragraphs adjustment is determined as follows: b. Revising paragraph (e)(1)(iii) and
(i)(1) and (i)(2) of this section are * * * * * (e)(1)(iv)(A), to read as follows:
effective retroactively to the time of the (vii) If a hospital establishes a new
medical residency training program, as § 412.230 Criteria for an individual hospital
intermediary’s initial determination of
defined in § 413.86(g)(9) of this seeking redesignation to another rural area
the rate. or an urban area.
9. Section 412.92 is amended by subchapter, the hospital’s full-time
equivalent cap may be adjusted in * * * * *
revising paragraph (d)(1) to read as
accordance with the provisions of (e) Use of urban or other rural area’s
§§ 413.86(g)(6) (i) through (iv) of this wage index—(1) Criteria for use of
§ 412.92 Special treatment: sole subchapter. area’s wage index. Except as provided
community hospitals. (viii) A hospital that began in paragraphs (e)(3) and (e)(4) of this
* * * * * construction of its facility prior to section, to use an area’s wage index, a
(d) Determining prospective payment August 5, 1997, and sponsored new hospital must demonstrate the
rates for inpatient operating costs for medical residency training programs on following:
sole community hospitals. (1) General or after January 1, 1995 and on or before * * * * *
rules. (i) Except as provided in August 5, 1997, that either received (iii) The hospital’s average hourly
paragraph (d)(1)(ii) of this section, for initial accreditation by the appropriate wage is, in the case of a hospital located
cost reporting periods beginning on or accrediting body or temporarily trained in a rural area, at least 106 percent, and,
after April 1, 1990, a sole community residents at another hospital(s) until the in the case of a hospital located in an
hospital is paid based on whichever of facility was completed, may receive an urban area, at least 108 percent of the
the following amounts yields the adjustment to its full-time equivalent average hourly wage of hospitals in the

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26324 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

area in which the hospital is located; and ending before October 1, 2001, to its outpatients, as determined in
and eligible psychiatric hospitals and units accordance with section 1861(v)(1)(A) of
(iv) * * * and long-term care hospitals (as defined the Act and the applicable principles of
(A) The hospital’s average hourly in paragraph (d)(5) of this section) cost reimbursement in this part and in
wage is equal to, in the case of a receive payments in addition to those in Part 415 of this chapter, except that the
hospital located in a rural area, at least paragraph (d)(2) of this section, as following payment principles are
82 percent, and in the case of a hospital applicable. These payments are equal to excluded when determining payment
located in an urban area, at least 84 the lesser of— for CAH outpatient services:
percent of the average hourly wage of (A) 50 percent of the amount by (A) Lesser of costs or charges;
hospitals in the area to which it seeks which the operating costs are less than (B) RCE limits;
redesignation. the expected costs for the period; or (C) Any type of reduction to operating
* * * * * (B) 1.5 percent of the ceiling. or capital costs under § 413.124 or
(iii) For cost reporting periods § 413.130(j)(7); and
PART 413—PRINCIPLES OF beginning on or after October 1, 2001, (D) Blended payment amounts for
REASONABLE COST and ending before October 1, 2002, ambulatory surgical services, radiology
REIMBURSEMENT; PAYMENT FOR eligible psychiatric hospitals and units services, and other diagnostic services;
END-STAGE RENAL DISEASE and long-term care hospitals receive (ii) Payment to a CAH under
SERVICES; OPTIONAL payments in addition to those in paragraph (b)(2) of this section does not
PROSPECTIVELY DETERMINED paragraph (d)(5) of this section, as include any costs of physician services
PAYMENT RATES FOR SKILLED applicable. These payments are equal to or other professional services to CAH
NURSING FACILITIES the lesser of— outpatients, and is subject to the Part B
(A) 50 percent of the amount by deductible and coinsurance amounts, as
B. Part 413 is amended as follows: determined under §§ 410.152(k),
1. The authority citation for Part 413 which the operating costs are less than
the expected costs for the periods; or 410.160, and 410.161 of this chapter.
is revised to read as follows:
(B) 2 percent of the ceiling. (3) Election to be paid reasonable
Authority: Secs. 1102, 1812(d), 1814(b), costs for facility services plus fee
1815, 1833(a), (i), and (n), 1871, 1881, 1883, * * * * *
3. Section 413.70 is revised to read as schedule for professional services. (i) A
and 1886 of the Social Security Act (42
follows: CAH may elect to be paid for outpatient
U.S.C. 1302, 1395d(d), 1395f(b), 1395g,
1395l(a), (i), and (n), 1395hh, 1395rr, 1395tt, services in any cost reporting period
and 1395ww). § 413.70 Payment for services of a CAH. under the method described in
(a) Payment for inpatient services paragraphs (b)(3)(ii) and (b)(3)(iii) of this
2. In § 413.40, paragraph (a)(3) is
furnished by a CAH. (1) Payment for section. This election must be made in
amended by revising paragraph (B) in
inpatient services of a CAH is the writing, made on an annual basis, and
the definition of ‘‘ceiling’’ and
reasonable costs of the CAH in delivered to the intermediary at least 60
paragraph (d)(4) is revised, to read as
providing CAH services to its inpatients, days before the start of each affected
as determined in accordance with cost reporting period. An election of this
§ 413.40 Ceiling on the rate of increase in section 1861(v)(1)(A) of the Act and the payment method, once made for a cost
hospital inpatient costs. applicable principles of cost reporting period, remains in effect for
(a) Introduction. * * * reimbursement in this part and in Part all of that period and applies to all
(3) Definitions. * * * 415 of this chapter, except that the services furnished to outpatients during
Ceiling. * * * following payment principles are that period.
(B) The hospital-within-a-hospital has excluded when determining payment (ii) If the CAH elects payment under
discharged to the other hospital and for CAH inpatient services: this method, payment to the CAH for
subsequently readmitted more than 5 (i) Lesser of cost or charges; each outpatient visit will be the sum of
percent (that is, in excess of 5.0 percent) (ii) Ceilings on hospital operating the following amounts:
of the total number of Medicare costs; and (A) For facility services, not including
inpatients discharged from the hospital- (iii) Reasonable compensation any services for which payment may be
within-a-hospital in that cost reporting equivalent (RCE) limits for physician made under paragraph (b)(3)(ii)(B) of
period. services to providers. this section, the reasonable costs of the
* * * * * (2) Payment to a CAH for inpatient services as determined under paragraph
(d) Application of the target amount services does not include any costs of (b)(2)(i) of this section; and
in determining the amount of payment. physician services or other professional (B) For professional services
* * * services to CAH inpatients, and is otherwise payable to the physician or
(4) Continuous improvement bonus subject to the Part A hospital deductible other practitioner on a fee schedule
payments. (i) For cost reporting periods and coinsurance, as determined under basis, the amounts that otherwise would
beginning on or after October 1, 1997 subpart G of part 409 of this chapter. be paid for the services if the CAH had
and ending before October 1, 2000, (b) Payment for outpatient services not elected payment under this method.
eligible hospitals (as defined in furnished by a CAH. (1) General. Unless (iii) Payment to a CAH is subject to
paragraph (d)(5) of this section) receive the CAH elects to be paid for services the Part B deductible and coinsurance
payments in addition to those in to its outpatients under the method amounts, as determined under
paragraph (d)(2) of this section, as specified in paragraph (b)(3) of this §§ 410.152, 410.160, and 410.161 of this
applicable. These payments are equal to section, the amount of payment for chapter.
the lesser of— outpatient services of a CAH is the (c) Final payment based on cost
(A) 50 percent of the amount by amount determined under paragraph report. Final payment to the CAH for
which the operating costs are less than (b)(2) of this section. CAH facility services to inpatients and
the expected costs for the period; or (2) Reasonable costs for facility outpatients furnished during a cost
(B) 1 percent of the ceiling. services. (i) Payment for outpatient reporting is based on a cost report for
(ii) For cost reporting periods services of a CAH is the reasonable costs that period, as required under
beginning on or after October 1, 2000, of the CAH in providing CAH services § 413.20(b).

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4. Section 413.86 is amended by: (e)(4)(i)(A)(1) of this section is (1) Floor. For cost reporting periods
a. Revising the first sentence of standardized by the 1999 geographic beginning on or after October 1, 2000
paragraph (d)(3); adjustment factor for the physician fee and on or before September 30, 2001, if
b. Revising the introductory text of schedule area (as determined under the hospital’s per resident amount
paragraph (e)(3); § 414.26 of this chapter) in which the would otherwise be less than 70 percent
c. Redesignating paragraph (e)(4) as hospital is located. of the locality-adjusted national average
paragraph (e)(5); (3) HCFA calculates an average of all per resident amount for FY 2001 (as
d. Adding a new paragraph (e)(4); hospitals’ standardized per resident determined under paragraph (e)(4)(ii)(B)
e. Revising newly designated amounts that are determined under of this section), the per resident amount
paragraph (e)(5)(i)(B); and paragraph (e)(4)(i)(A)(2) of this section. is equal to 70 percent of the locality-
f. Adding a new paragraph (e)(5)(iv), The resulting amount is the weighted adjusted national average per resident
to read as follows: average per resident amount. amount for FY 2001. For subsequent
(B) Primary care/obstetrics and cost reporting periods, the hospital’s per
§ 413.86 Direct graduate medical
education payments.
gynecology and non-primary care per resident amount is updated using the
resident amounts. A hospital’s per methodology specified under paragraph
* * * * * resident amount is an amount inclusive
(d) Calculating payment for graduate (e)(3)(i) of this section.
of any CPI–U adjustments that the (2) Ceiling. If the hospital’s per
medical education costs. * * * hospital may have received since the resident amount is greater than 140
(3) Step Three. For portions of cost
hospital’s base year, including any CPI– percent of the locality-adjusted national
reporting periods occurring on or after U adjustments the hospital may have average per resident amount, the per
January 1, 1998, the product derived in received because the hospital trains resident amount is adjusted as follows
step one is multiplied by the proportion primary care/obstetrics and gynecology for FY 2001 through FY 2005:
of the hospital’s inpatient days residents and non-primary care (i) FY 2001. For cost reporting periods
attributable to individuals who are residents as specified under paragraph beginning on or after October 1, 2000
enrolled under a risk-sharing contract (e)(3)(ii) of this section. and on or before September 30, 2001, if
with an eligible organization under (ii) Adjustment beginning in FY 2001 the hospital’s FY 2000 per resident
section 1876 of the Act and who are and ending in FY 2005. For cost amount exceeds 140 percent of the FY
entitled to Medicare Part A or with a reporting periods beginning on or after 2001 locality-adjusted national average
Medicare+Choice organization under October 1, 2000 and ending on or before per resident amount (as calculated
Title XVIII, Part C of the Act. * * * September 30, 2005, a hospital’s per under paragraph (e)(4)(ii)(B) of this
* * * * * resident amount is adjusted in section), then, subject to the provision
(e) Determining per resident amounts accordance with paragraphs (e)(4)(ii)(A) stated in paragraph (e)(4)(ii)(C)(2)(iv) of
for the base period. * * * through (e)(4)(ii)(C) of this section, in this section, the hospital’s per resident
(3) For cost reporting periods that order: amount is frozen at the FY 2000 per
beginning on or after July 1, 1986. (A) Updating the weighted average resident amount and is not updated for
Subject to the provisions of paragraph per resident amount for inflation. The FY 2001 by the CPI–U factor.
(e)(4) of this section, for cost reporting weighted average per resident amount (ii) FY 2002. For cost reporting
periods beginning on or after July 1, (as determined under paragraph periods beginning on or after October 1,
1986, a hospital’s base-period per (e)(4)(i)(A) of this section) is updated by 2001 and on or before September 30,
resident amount is adjusted as follows: the estimated percentage increase in the 2002, if the hospital’s FY 2001 per
* * * * * CPI–U during the period beginning with resident amount exceeds 140 percent of
(4) For cost reporting periods the month that represents the midpoint the FY 2002 locality-adjusted national
beginning on or after October 1, 2000 of the cost reporting periods ending average per resident amount, then,
and ending on or before September 30, during FY 1997 (that is, October 1, subject to the provision stated in
2005. For cost reporting periods 1996) and ending with the midpoint of paragraph (e)(4)(ii)(C)(2)(iv) of this
beginning on or after October 1, 2000 the hospital’s cost reporting period that section, the hospital’s per resident
and ending on or before September 30, begins in FY 2001. amount is frozen at the FY 2001 per
2005, a hospital’s per resident amount (B) Adjusting for locality. The resident amount and is not updated for
for each fiscal year is adjusted in updated weighted average per resident FY 2002 by the CPI–U factor.
accordance with the following amount determined under paragraph (iii) FY 2003 through FY 2005. For
provisions: (e)(4)(ii)(A) of this section (the national cost reporting periods beginning on or
(i) General provisions. For purposes of average per resident amount) is adjusted after October 1, 2002 and on or before
§ 413.86(e)(4)— for the locality of each hospital by September 30, 2005, if the hospital’s per
(A) Weighted average per resident multiplying the national average per resident amount for the previous cost
amount. The weighted average per resident amount by the 1999 geographic reporting period is greater than 140
resident amount is established as adjustment factor for the physician fee percent of the locality-adjusted national
follows: schedule area in which each hospital is average per resident amount for that
(1) Using data from hospitals’ cost located, established in accordance with same previous cost reporting period (for
reporting periods ending during FY § 414.26 of this subchapter. example, for cost reporting periods
1997, HCFA calculates each hospital’s (C) Determining necessary revisions to beginning in FY 2003, compare the
single per resident amount by adding the per resident amount. The locality- hospital’s per resident amount from the
each hospital’s primary care and non- adjusted national average per resident FY 2002 cost report to the hospital’s
primary care per resident amounts, amount, as calculated in accordance locality-adjusted national average per
weighted by its respective FTEs, and with paragraph (e)(4)(ii)(B) of this resident amount from FY 2002), then,
dividing by the sum of the FTEs for section, is compared to the hospital’s subject to the provision stated in
primary care and non-primary care per resident amount. Each hospital’s per paragraph (e)(4)(ii)(C)(2)(iv) of this
residents. resident amount is revised, if section, the hospital’s per resident
(2) Each hospital’s single per resident appropriate, according to the following amount is adjusted using the
amount calculated under paragraph three categories: methodology specified in paragraph

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(e)(3)(i) of this section, except that the § 485.643 Condition of participation: Dated: April 14, 2000.
CPI–U applied for a 12-month period is Organ, tissue, and eye procurement. Nancy Ann Min DeParle,
reduced (but not below zero) by 2 The CAH must have and implement Administrator, Health Care Financing
percentage points. written protocols that: Administration
(iv) General rule for hospitals that Dated: April 28, 2000.
exceed the ceiling. For cost reporting (a) Incorporate an agreement with an Donna E. Shalala,
periods beginning on or after October 1, OPO designated under part 486 of this
2000 and on or before September 30, chapter, under which it must notify, in
2005, if a hospital’s per resident amount a timely manner, the OPO or a third [Editorial Note: The following Addendum
party designated by the OPO of and appendixes will not appear in the Code
exceeds 140 percent of the hospital’s of Federal Regulations.]
locality-adjusted national average per individuals whose death is imminent or
resident amount and it is adjusted under who have died in the CAH. The OPO Addendum—Proposed Schedule of
any of the criteria under paragraphs determines medical suitability for organ Standardized Amounts Effective With
(e)(4)(ii)(C)(2)(i) through (iii) of this donation and, in the absence of Discharges Occurring On or After
section, the current year per resident alternative arrangements by the CAH, October 1, 2000 and Update Factors
amount resident amount cannot be the OPO determines medical suitability and Rate-of-Increase Percentages
reduced below 140 percent of the for tissue and eye donation, using the Effective With Cost Reporting Periods
locality-adjusted national average per definition of potential tissue and eye Beginning On or After October 1, 2000
resident amount. donor and the notification protocol I. Summary and Background
(3) Per resident amounts greater than developed in consultation with the
tissue and eye banks identified by the In this Addendum, we are setting
or equal to the floor and less than or forth the proposed amounts and factors
equal to the ceiling. For cost reporting CAH for this purpose;
for determining prospective payment
periods beginning on or after October 1, (b) Incorporate an agreement with at rates for Medicare inpatient operating
2000 and on or before September 30, least one tissue bank and at least one costs and Medicare inpatient capital-
2005, if a hospital’s per resident amount eye bank to cooperate in the retrieval, related costs. We are also setting forth
is greater than or equal to 70 percent processing, preservation, storage and proposed rate-of-increase percentages
and less than or equal to 140 percent of distribution of tissues and eyes, as may for updating the target amounts for
the hospital’s locality-adjusted national be appropriate to assure that all usable hospitals and hospital units excluded
average per resident amount for each tissues and eyes are obtained from from the prospective payment system.
respective fiscal year, the hospital’s per potential donors, insofar as such an For discharges occurring on or after
resident amount is updated using the agreement does not interfere with organ October 1, 2000, except for sole
methodology specified in paragraph procurement; community hospitals, Medicare-
(e)(3)(i) of this section. (c) Ensure, in collaboration with the dependent, small rural hospitals, and
(5) Exceptions—(i) Base period for designated OPO, that the family of each hospitals located in Puerto Rico, each
certain hospitals. * * * potential donor is informed of its option hospital’s payment per discharge under
(B) The weighted mean value of per to either donate or not donate organs, the prospective payment system will be
resident amounts of hospitals located in tissues, or eyes. The individual based on 100 percent of the Federal
the same geographic wage area, as that designated by the CAH to initiate the national rate.
term is used in the prospective payment request to the family must be a Sole community hospitals are paid
system under part 412 of this chapter, designated requestor. A designated based on whichever of the following
for cost reporting periods beginning in requestor is an individual who has rates yields the greatest aggregate
the same fiscal years. If there are fewer completed a course offered or approved payment: the Federal national rate, the
than three amounts that can be used to by the OPO and designed in conjunction updated hospital-specific rate based on
calculate the weighted mean value, the FY 1982 cost per discharge, the updated
with the tissue and eye bank community
calculation of the per resident amounts hospital-specific rate based on FY 1987
in the methodology for approaching
includes all hospitals in the hospital’s cost per discharge, or, if qualified, 25
potential donor families and requesting
region as that term is used in percent of the updated hospital-specific
organ or tissue donation;
§ 412.62(f)(1)(i) of this chapter. rate based on FY 1996 cost per
(d) Encourage discretion and discharge, plus 75 percent of the
* * * * *
sensitivity with respect to the updated FY 1982 or FY 1987 hospital-
(iv) Effective October 1, 2000, the per circumstances, views, and beliefs of the
resident amounts established under specific rate. Section 405 of Public Law
families of potential donors; 106–113 amended section 1886(b)(3) of
paragraphs (e)(5)(i) through (iii) of this
section are subject to the provisions of (e) Ensure that the CAH works the Act to allow a sole community
paragraph (e)(4) of this section. cooperatively with the designated OPO, hospital that was paid for its cost
tissue bank and eye bank in educating reporting period beginning during FY
* * * * * 1999 on the basis of either its FY 1982
staff on donation issues, reviewing
PART 485B—CONDITIONS OF death records to improve identification or FY 1987 hospital-specific rate to elect
PARTICIPATION: SPECIALIZED of potential donors, and maintaining to rebase its hospital-specific rate based
PROVIDERS potential donors while necessary testing on its FY 1996 cost per discharge.
and placement of potential donated Section 404 of Public Law 106–113
C. Part 485 is amended as follows: organs, tissues, and eyes take place. amended section 1886(d)(5)(G) of the
1. The authority citation for part 485 Act to extend the special treatment for
(f) For purposes of these standards, Medicare-dependent, small rural
continues to read as follows: the term ‘‘Organ’’ means a human hospitals. Therefore, Medicare-
Authority: Sec. 1820 of the Act (42 U.S.C. kidney, liver, heart, lung, or pancreas. dependent, small rural hospitals are
1395i–4), unless otherwise noted.
(Catalog of Federal Domestic Assistance paid based on the Federal national rate
2. A new § 485.643 is added to Program No. 93.773, Medicare—Hospital or, if higher, the Federal national rate
subpart F to read as follows: Insurance) plus 50 percent of the difference

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Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules 26327

between the Federal national rate and by applying new budget neutrality living adjustments for Alaska and
the updated hospital-specific rate based adjustment factors to the large urban Hawaii, indirect medical education
on FY 1982 or FY 1987 cost per and other standardized amounts; costs, and payments to hospitals serving
discharge, whichever is higher. • An adjustment to ensure budget a disproportionate share of low-income
For hospitals in Puerto Rico, the neutrality as provided for in section patients.
payment per discharge is based on the 1886(d)(8)(D) of the Act by removing the Under sections 1886(d)(2)(H) and
sum of 50 percent of a Puerto Rico rate FY 2000 budget neutrality factor and (d)(3)(E) of the Act, in making payments
and 50 percent of a Federal national applying a revised factor; under the prospective payment system,
rate. • An adjustment to apply the revised the Secretary estimates from time to
As discussed below in section II of outlier offset by removing the FY 2000 time the proportion of costs that are
this Addendum, we are proposing to outlier offsets and applying a new offset; wages and wage-related costs. Since
make changes in the determination of and October 1, 1997, when the market basket
the prospective payment rates for • An adjustment in the Puerto Rico was last revised, we have considered
Medicare inpatient operating costs for standardized amounts to reflect the 71.1 percent of costs to be labor-related
FY 2001. The changes, to be applied application of a Puerto Rico-specific for purposes of the prospective payment
prospectively, would affect the wage index. system. The average labor share in
calculation of the Federal rates. In The standardized amounts set forth in Puerto Rico is 71.3 percent. We are
section III of this Addendum, we table 1E of section VI of this Addendum, proposing to revise the discharge-
discuss updates to the payments per which apply to sole community weighted national standardized amount
unit for blood clotting factor provided to hospitals, reflect updates of 3.1 percent for Puerto Rico to reflect the proportion
hospital inpatients who have (that is, the full market basket of discharges in large urban and other
hemophilia. In section IV of this percentage increase) as provided for in areas from the FY 1999 MedPAR file.
Addendum, we discuss our proposed section 406 of Public Law 106–113, but
changes for determining the prospective otherwise reflect the same adjustments 2. Computing Large Urban and Other
payment rates for Medicare inpatient as the national standardized amounts. Area Averages
capital-related costs for FY 2001.
A. Calculation of Adjusted Sections 1886(d)(2)(D) and (d)(3) of
Section V of this Addendum sets forth
Standardized Amounts the Act require the Secretary to compute
our proposed changes for determining
two average standardized amounts for
the rate-of-increase limits for hospitals 1. Standardization of Base-Year Costs or discharges occurring in a fiscal year: one
excluded from the prospective payment Target Amounts for hospitals located in large urban areas
system for FY 2001. The tables to which
Section 1886(d)(2)(A) of the Act and one for hospitals located in other
we refer in the preamble to this
required the establishment of base-year areas. In addition, under sections
proposed rule are presented at the end
cost data containing allowable operating 1886(d)(9)(B)(iii) and (d)(9)(C)(i) of the
of this Addendum in section VI.
costs per discharge of inpatient hospital Act, the average standardized amount
II. Proposed Changes to Prospective services for each hospital. The preamble per discharge must be determined for
Payment Rates for Inpatient Operating to the September 1, 1983 interim final hospitals located in urban and other
Costs for FY 2001 rule (48 FR 39763) contains a detailed areas in Puerto Rico. Hospitals in Puerto
The basic methodology for explanation of how base-year cost data Rico are paid a blend of 50 percent of
determining prospective payment rates were established in the initial the applicable Puerto Rico standardized
for inpatient operating costs is set forth development of standardized amounts amount and 50 percent of a national
at § 412.63 for hospitals located outside for the prospective payment system and standardized payment amount.
of Puerto Rico. The basic methodology how they are used in computing the Section 1886(d)(2)(D) of the Act
for determining the prospective Federal rates. defines ‘‘urban area’’ as those areas
payment rates for inpatient operating Section 1886(d)(9)(B)(i) of the Act within a Metropolitan Statistical Area
costs for hospitals located in Puerto required us to determine the Medicare (MSA). A ‘‘large urban area’’ is defined
Rico is set forth at §§ 412.210 and target amounts for each hospital located as an urban area with a population of
412.212. Below, we discuss the in Puerto Rico for its cost reporting more than 1 million. In addition, section
proposed factors used for determining period beginning in FY 1987. The 4009(i) of Public Law 100–203 provides
the prospective payment rates. The September 1, 1987 final rule (52 FR that a New England County
Federal and Puerto Rico rate changes, 33043, 33066) contains a detailed Metropolitan Area (NECMA) with a
once issued as final, will be effective explanation of how the target amounts population of more than 970,000 is
with discharges occurring on or after were determined and how they are used classified as a large urban area. As
October 1, 2000. As required by section in computing the Puerto Rico rates. required by section 1886(d)(2)(D) of the
1886(d)(4)(C) of the Act, we must also The standardized amounts are based Act, population size is determined by
adjust the DRG classifications and on per discharge averages of adjusted the Secretary based on the latest
weighting factors for discharges in FY hospital costs from a base period or, for population data published by the
2001. Puerto Rico, adjusted target amounts Bureau of the Census. Urban areas that
In summary, the proposed from a base period, updated and do not meet the definition of a ‘‘large
standardized amounts set forth in otherwise adjusted in accordance with urban area’’ are referred to as ‘‘other
Tables 1A and 1C of section VI of this the provisions of section 1886(d) of the urban areas.’’ Areas that are not
Addendum reflect— Act. Sections 1886(d)(2)(B) and (d)(2)(C) included in MSAs are considered ‘‘rural
• Updates of 2.0 percent for all areas of the Act required us to update base- areas’’ under section 1886(d)(2)(D) of
(that is, the market basket percentage year per discharge costs for FY 1984 and the Act. Payment for discharges from
increase of 3.1 percent minus 1.1 then standardize the cost data in order hospitals located in large urban areas
percentage points); to remove the effects of certain sources will be based on the large urban
• An adjustment to ensure budget of cost variations among hospitals. standardized amount. Payment for
neutrality as provided for in sections These effects include case-mix, discharges from hospitals located in
1886(d)(4)(C)(iii) and (d)(3)(E) of the Act differences in area wage levels, cost-of- other urban and rural areas will be

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26328 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

based on the other standardized update factors (which is required by prior year adjustment, we would not
amount. sections 1886(e)(4)(A) and (e)(5)(A) of satisfy this condition.
Based on 1997 population estimates the Act) is set forth as Appendix D to In addition, we are proposing to apply
published by the Bureau of the Census, this proposed rule. these same adjustment factors to the
61 areas meet the criteria to be defined hospital-specific rates that are effective
as large urban areas for FY 2001. These 4. Other Adjustments to the Average for cost reporting periods beginning on
areas are identified by a footnote in Standardized Amounts or after October 1, 2000. (See the
Table 4A. a. Recalibration of DRG Weights and discussion in the September 4, 1990
Updated Wage Index—Budget final rule (55 FR 36073).)
3. Updating the Average Standardized
Amounts Neutrality Adjustment b. Reclassified Hospitals—Budget
Under section 1886(d)(3)(A) of the Section 1886(d)(4)(C)(iii) of the Act Neutrality Adjustment
Act, we update the area average specifies that, beginning in FY 1991, the Section 1886(d)(8)(B) of the Act
standardized amounts each year. In annual DRG reclassification and provides that, effective with discharges
accordance with section recalibration of the relative weights occurring on or after October 1, 1988,
1886(d)(3)(A)(iv) of the Act, we are must be made in a manner that ensures certain rural hospitals are deemed
proposing to update the large urban that aggregate payments to hospitals are urban. In addition, section 1886(d)(10)
areas’ and the other areas’ average not affected. As discussed in section II of the Act provides for the
standardized amounts for FY 2001 using of the preamble, we normalized the reclassification of hospitals based on
the applicable percentage increases recalibrated DRG weights by an determinations by the Medicare
specified in section 1886(b)(3)(B)(i) of adjustment factor, so that the average Geographic Classification Review Board
the Act. Section 1886(b)(3)(B)(i)(XVI) of case weight after recalibration is equal (MGCRB). Under section 1886(d)(10) of
the Act specifies that the update factor to the average case weight prior to the Act, a hospital may be reclassified
for the standardized amounts for FY recalibration. for purposes of the standardized amount
2001 is equal to the market basket Section 1886(d)(3)(E) of the Act or the wage index, or both.
percentage increase minus 1.1 requires us to update the hospital wage Under section 1886(d)(8)(D) of the
percentage points for hospitals, except index on an annual basis beginning Act, the Secretary is required to adjust
sole community hospitals, in all areas. October 1, 1993. This provision also the standardized amounts so as to
The Act, as amended by section 406 of requires us to make any updates or ensure that aggregate payments under
Public Law 106–113, specifies an adjustments to the wage index in a the prospective payment system after
update factor equal to the market basket manner that ensures that aggregate implementation of the provisions of
percentage increase for sole community payments to hospitals are not affected sections 1886(d)(8)(B) and (C) and
hospitals. by the change in the wage index. 1886(d)(10) of the Act are equal to the
The percentage change in the market To comply with the requirement of aggregate prospective payments that
basket reflects the average change in the section 1886(d)(4)(C)(iii) of the Act that would have been made absent these
price of goods and services purchased DRG reclassification and recalibration of provisions. Section 152(b) of Public Law
by hospitals to furnish inpatient care. the relative weights be budget neutral, 106–113 requires reclassifications under
The most recent forecast of the hospital and the requirement in section that subsection to be treated as
market basket increase for FY 2001 is 1886(d)(3)(E) of the Act that the updated reclassifications under section
3.1 percent. Thus, for FY 2001, the wage index be budget neutral, we used 1886(d)(10) of the Act. To calculate this
proposed update to the average historical discharge data to simulate budget neutrality factor, we used
standardized amounts equals 3.1 payments and compared aggregate historical discharge data to simulate
percent for sole community hospitals payments using the FY 2000 relative payments, and compared total
and 2.0 percent for other hospitals. weights and wage index to aggregate prospective payments (including IME
As in the past, we are adjusting the payments using the proposed FY 2001 and DSH payments) prior to any
FY 2000 standardized amounts to relative weights and wage index. The reclassifications to total prospective
remove the effects of the FY 2000 same methodology was used for the FY payments after reclassifications. Based
geographic reclassifications and outlier 2000 budget neutrality adjustment. (See on these simulations, we are applying
payments before applying the FY 2001 the discussion in the September 1, 1992 an adjustment factor of 0.994270 to
updates. That is, we are increasing the final rule (57 FR 39832).) Based on this ensure that the effects of reclassification
standardized amounts to restore the comparison, we computed a budget are budget neutral.
reductions that were made for the neutrality adjustment factor equal to The adjustment factor is applied to
effects of geographic reclassification and 0.996506. We also adjust the Puerto the standardized amounts after
outliers. We then apply the new offsets Rico-specific standardized amounts for removing the effects of the FY 2000
to the standardized amounts for outliers the effect of DRG reclassification and budget neutrality adjustment factor. We
and geographic reclassifications for FY recalibration. We computed a budget note that the proposed FY 2001
2001. neutrality adjustment factor for Puerto adjustment reflects wage index and
Although the update factors for FY Rico-specific standardized amounts standardized amount reclassifications
2001 are set by law, we are required by equal to 0.999753. These budget approved by the MGCRB or the
section 1886(e)(3) of the Act to report to neutrality adjustment factors are applied Administrator as of February 29, 2000.
the Congress our initial to the standardized amounts without The effects of any additional
recommendation of update factors for removing the effects of the FY 2000 reclassification changes resulting from
FY 2001 for both prospective payment budget neutrality adjustments. We do appeals and reviews of the MGCRB
hospitals and hospitals excluded from not remove the prior budget neutrality decisions for FY 2001 or from a
the prospective payment system. For adjustment because estimated aggregate hospital’s request for the withdrawal of
general information purposes, we have payments after the changes in the DRG a reclassification request will be
included the report to Congress as relative weights and wage index should reflected in the final budget neutrality
Appendix C to this proposed rule. Our equal estimated aggregate payments adjustment published in the final rule
proposed recommendation on the prior to the changes. If we removed the for FY 2001.

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c. Outliers report data as well as calculations (using calculate cost outlier payments for those
Section 1886(d)(5)(A) of the Act the best available data) indicating that hospitals for which the fiscal
provides for payments in addition to the the percentage of actual outlier intermediary computes operating cost-
basic prospective payments for ‘‘outlier’’ payments for FY 1999 is higher than we to-charge ratios lower than 0.201132 or
cases, cases involving extraordinarily projected before the beginning of FY greater than 1.308495 and capital cost-
high costs (cost outliers). Section 1999, and that the percentage of actual to-charge ratios lower than 0.01266 or
1886(d)(3)(B) of the Act requires the outlier payments for FY 2000 will likely greater than 0.16901. This range
Secretary to adjust both the large urban be higher than we projected before the represents 3.0 standard deviations (plus
and other area national standardized beginning of FY 2000. The calculations or minus) from the mean of the log
amounts by the same factor to account of ‘‘actual’’ outlier payments are distribution of cost-to-charge ratios for
discussed further below. all hospitals. We note that the cost-to-
for the estimated proportion of total
ii. Other changes concerning outliers. charge ratios in Tables 8A and 8B would
DRG payments made to outlier cases.
In accordance with section be used during FY 2001 when hospital-
Similarly, section 1886(d)(9)(B)(iv) of 1886(d)(5)(A)(iv) of the Act, we specific cost-to-charge ratios based on
the Act requires the Secretary to adjust calculated proposed outlier thresholds the latest settled cost report are either
the large urban and other standardized so that outlier payments are projected to not available or outside the three
amounts applicable to hospitals in equal 5.1 percent of total payments standard deviations range.
Puerto Rico to account for the estimated based on DRG prospective payment iii. FY 1999 and FY 2000 outlier
proportion of total DRG payments made rates. In accordance with section payments. In the July 30, 1999 final rule
to outlier cases. Furthermore, under 1886(d)(3)(E), we reduced the proposed (64 FR 41547), we stated that, based on
section 1886(d)(5)(A)(iv) of the Act, FY 2001 standardized amounts by the available data, we estimated that actual
outlier payments for any year must be same percentage to account for the FY 1999 outlier payments would be
projected to be not less than 5 percent projected proportion of payments paid approximately 6.3 percent of actual total
nor more than 6 percent of total to outliers. DRG payments. This was computed by
payments based on DRG prospective As stated in the September 1, 1993 simulating payments using the March
payment rates. final rule (58 FR 46348), we establish 1998 bill data available at the time. That
i. FY 2001 outlier thresholds. For FY outlier thresholds that are applicable to is, the estimate of actual outlier
2000, the fixed loss cost outlier both inpatient operating costs and payments did not reflect actual FY 1999
threshold was equal to the prospective inpatient capital-related costs. When we bills but instead reflected the
payment for the DRG plus $14,050 modeled the combined operating and application of FY 1999 rates and
($12,827 for hospitals that have not yet capital outlier payments, we found that policies to available FY 1998 bills. Our
entered the prospective payment system using a common set of thresholds current estimate, using available FY
for capital-related costs). The marginal resulted in a higher percentage of outlier 1999 bills, is that actual outlier
cost factor for cost outliers (the percent payments for capital-related costs than payments for FY 1999 were
of costs paid after costs for the case for operating costs. We project that the approximately 7.5 percent of actual total
exceed the threshold) was 80 percent. proposed thresholds for FY 2001 will DRG payments. We note that the
We applied an outlier adjustment to the result in outlier payments equal to 5.1 MedPAR file for FY 1999 discharges
FY 2000 standardized amounts of percent of operating DRG payments and continues to be updated. Thus, the data
0.948859 for the large urban and other 5.8 percent of capital payments based indicate that, for FY 1999, the
areas rates and 0.9402 for the capital on the Federal rate. percentage of actual outlier payments
Federal rate. The proposed outlier adjustment relative to actual total payments is
For FY 2001, we propose to establish factors to be applied to the standardized higher than we projected before FY 1999
a fixed loss cost outlier threshold equal amounts for FY 2001 are as follows: (and thus exceeds the percentage by
to the prospective payment rate for the which we reduced the standardized
DRG plus the IME and DSH payments Operating Capital amounts for FY 1999). In fact, the data
plus $17,250 ($15,763 for hospitals that standardized federal
amounts rate indicate that the proportion of actual
have not yet entered the prospective outlier payments for FY 1999 exceeds 6
payment system for capital-related National ......... 0.948865 0.9416 percent. Nevertheless, consistent with
costs). In addition, we propose to Puerto Rico ... 0.975408 0.9709 the policy and statutory interpretation
maintain the marginal cost factor for we have maintained since the inception
cost outliers at 80 percent. We apply the proposed outlier of the prospective payment system, we
To calculate FY 2001 outlier adjustment factors after removing the do not plan to recoup money and make
thresholds, we simulated payments by effects of the FY 2000 outlier adjustment retroactive adjustments to outlier
applying FY 2001 rates and policies to factors on the standardized amounts. payments for FY 1999.
the December 1999 update of the FY Table 8A in section VI of this We currently estimate that actual
1999 MedPAR file and the December Addendum contains the updated outlier payments for FY 2000 will be
1999 update of the provider-specific Statewide average operating cost-to- approximately 6.1 percent of actual total
file. As we have explained in the past, charge ratios for urban hospitals and for DRG payments, higher than the 5.1
to calculate outlier thresholds, we apply rural hospitals to be used in calculating percent we projected in setting outlier
a cost inflation factor to update costs for cost outlier payments for those hospitals policies for FY 2000. This estimate is
the cases used to simulate payments. for which the fiscal intermediary is based on simulations using the
For FY 1999, we used a cost inflation unable to compute a reasonable December 1999 update of the provider-
factor of minus 1.724 percent. For FY hospital-specific cost-to-charge ratio. specific file and the December 1999
2000, we used a cost inflation factor (or These Statewide average ratios would update of the FY 1999 MedPAR file
cost adjustment factor) of zero percent. replace the ratios published in the July (discharge data for FY 1999 bills). We
To set the proposed FY 2001 outlier 30, 1999 final rule (64 FR 41620). Table used these data to calculate an estimate
thresholds, we are using a cost inflation 8B contains comparable Statewide of the actual outlier percentage for FY
factor of 1.0 percent. This factor reflects average capital cost-to-charge ratios. 2000 by applying FY 2000 rates and
our analysis of the best available cost These average ratios would be used to policies to available FY 1999 bills.

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26330 Federal Register / Vol. 65, No. 88 / Friday, May 5, 2000 / Proposed Rules

5. FY 2001 Standardized Amounts contained in the table below. If the 1982 hospital-specific rate or the
The adjusted standardized amounts Office of Personnel Management updated FY 1987 hospital-specific rate
are divided into labor and nonlabor releases revised cost-of-living is higher than the Federal rate, 100
portions. Table 1A (Table 1E for sole adjustment factors before July 1, 2000, percent of the Federal rate plus 50
community hospitals) contains the two we will publish them in the final rule percent of the difference between the
national standardized amounts that we and use them in determining FY 2001 applicable hospital-specific rate and the
are proposing to be applicable to all payments. Federal rate.
hospitals, except hospitals in Puerto Prospective payment rate for Puerto
Rico. Under section 1886(d)(9)(A)(ii) of TABLE OF COST-OF-LIVING ADJUST- Rico = 50 percent of the Puerto Rico rate
the Act, the Federal portion of the MENT FACTORS, ALASKA AND HAWAII + 50 percent of a discharge-weighted
Puerto Rico payment rate is based on HOSPITALS average of the national large urban
the discharge-weighted average of the standardized amount and the Federal
national large urban standardized Alaska—All areas ............................... 1.25 national other standardized amount.
amount and the national other Hawaii:
standardized amount (as set forth in County of Honolulu ...................... 1.25
1. Federal Rate
Table 1A). The labor and nonlabor County of Hawaii ......................... 1.15 For discharges occurring on or after
portions of the national average County of Kauai ........................... 1.225 October 1, 2000 and before October 1,
standardized amounts for Puerto Rico County of Maui ............................ 1.225 2001, except for sole community
County of Kalawao ...................... 1.225 hospitals, Medicare-dependent, small
hospitals are set forth in Table 1C. This
table also includes the Puerto Rico (The above factors are based on data ob- rural hospitals and hospitals in Puerto
standardized amounts. tained from the U.S. Office of Personnel Rico, the hospital’s payment is based
Management.) exclusively on the Federal national rate.
B. Adjustments for Area Wage Levels The payment amount is determined as
and Cost of Living C. DRG Relative Weights
Tables 1A, 1C and 1E, as set forth in As discussed in section II of the Step 1—Select the appropriate
this Addendum, contain the proposed preamble, we have developed a national standardized amount
labor-related and nonlabor-related classification system for all hospital considering the type of hospital and
shares that would be used to calculate discharges, assigning them into DRGs, designation of the hospital as large
the prospective payment rates for and have developed relative weights for urban or other (see Table 1A or 1E in
hospitals located in the 50 States, the each DRG that reflect the resource section VI of this Addendum).
District of Columbia, and Puerto Rico. utilization of cases in each DRG relative Step 2—Multiply the labor-related
This section addresses two types of to Medicare cases in other DRGs. Table portion of the standardized amount by
5 of section VI of this Addendum the applicable wage index for the
adjustments to the standardized
contains the relative weights that we are geographic area in which the hospital is
amounts that are made in determining
proposing to use for discharges located (see Tables 4A, 4B, and 4C of
the prospective payment rates as
occurring in FY 2001. These factors section VI of this Addendum).
described in this Addendum.
have been recalibrated as explained in Step 3—For hospitals in Alaska and
1. Adjustment for Area Wage Levels section II of the preamble. Hawaii, multiply the nonlabor-related
Sections 1886(d)(3)(E) and D. Calculation of Prospective Payment portion of the standardized amount by
1886(d)(9)(C)(iv) of the Act require that Rates for FY 2001 the appropriate cost-of-living
we make an adjustment to the labor- adjustment factor.
related portion of the prospective General Formula for Calculation of Step 4—Add the amount from Step 2
payment rates to account for area Prospective Payment Rates for FY 2001 and the nonlabor-related portion of the
differences in hospital wage levels. This Prospective payment rate for all standardized amount (adjusted, if
adjustment is made by multiplying the hospitals located outside of Puerto Rico appropriate, under Step 3).
labor-related portion of the adjusted except sole community hospitals and Step 5—Multiply the final amount
standardized amounts by the Medicare-dependent, small rural from Step 4 by the relative weight
appropriate wage index for the area in hospitals = Federal rate. corresponding to the appropriate DRG
which the hospital is located. In section Prospective payment rate for sole (see Table 5 of section VI of this
III of this preamble, we discuss the data community hospitals = Whichever of Addendum).
and methodology for the proposed FY the following rates yields the greatest
aggregate payment: the Federal national 2. Hospital-Specific Rate (Applicable
2001 wage index. The proposed wage
rate, the updated hospital-specific rate Only to Sole Community Hospitals and
index is set forth in Tables 4A through
based on FY 1982 cost per discharge, Medicare-Dependent, Small Rural
4F of this Addendum.
the updated hospital-specific rate based Hospitals)
2. Adjustment for Cost-of-Living in on FY 1987 cost per discharge, or, if the Section 1886(b)(3)(C) of the Act, as
Alaska and Hawaii sole community hospital was paid for amended by section 405 of Public Law
Section 1886(d)(5)(H) of the Act its cost reporting period beginning 106–113, provides that sole community
authorizes an adjustment to take into during FY 1999 on the basis of either its hospitals are paid based on whichever
account the unique circumstances of FY 1982 or FY 1987 hospital-specific of the following rates yields the greatest
hospitals in Alaska and Hawaii. Higher rate and elects rebasing, 25 percent of its aggregate payment: the Federal national
labor-related costs for these two States updated hospital-specific rate based on rate, the updated hospital-specific rate
are taken into account in the adjustment FY 1996 cost per discharge plus 75 based on FY 1982 cost per discharge,
for area wages described above. For FY percent of its updated FY 1982 or FY the updated hospital-specific rate based
2001, we propose to adjust the 1987 hospital-specific rate. on FY 1987 cost per discharge, or, if the
payments for hospitals in Alaska and Prospective payment rate for sole community hospital was paid for
Hawaii by multiplying the nonlabor Medicare-dependent, small rural its cost reporting period beginning
portion of the standardized amounts by hospitals = 100 percent of the Federal during FY 1999 on the basis of either its
the appropriate adjustment factor rate, or, if the greater of the updated FY FY 1982 or FY 1987 hospital-specific

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