# Medicare Program; Prospective Payment System for Inpatient Rehabilitation Facilities > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A00-27646 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** November 3, 2000 - **Citation:** 65 FR 66304 ## Text DEPARTMENT OF HEALTH AND HUMAN SERVICES Health Care Financing Administration 42 CFR Parts 412 and 413 [HCFA-1069-P] RIN 0938-AJ55 Medicare Program; Prospective Payment System for Inpatient Rehabilitation Facilities AGENCY: Health Care Financing Administration (HCFA), HHS. ACTION: Proposed rule. SUMMARY: This proposed rule would establish a prospective payment system for Medicare payment of inpatient hospital services provided by a rehabilitation hospital or by a rehabilitation unit of a hospital. This proposed rule would implement section 1886(j) of the Social Security Act (the Act), as added by section 4421 of the Balanced Budget Act of 1997 (Public Law 105-33) and as amended by section 125 of the Balanced Budget Refinement Act of 1999 (Public Law 106-113), which authorizes the implementation of a prospective payment system for inpatient rehabilitation hospitals and rehabilitation units. It also authorizes the Secretary to require rehabilitation hospitals and rehabilitation units to submit such data as the Secretary deems necessary to establish and administer the prospective payment system. The prospective payment system described in this proposed rule would replace the reasonable cost-based payment system under which the rehabilitation hospitals and rehabilitation units are currently paid. DATES: We will consider comments if we receive them at the appropriate address, as provided below, no later than 5 p.m. on January 2, 2001. ADDRESSES: Mail written comments (one original and three copies) to the following address ONLY: Health Care Financing Administration, Department of Health and Human Services, Attention: HCFA-1069-P, P.O. Box 8010, Baltimore, MD 21244-8010. If you prefer, you may deliver your written comments (one original and three copies) to one of the following addresses: Room 443-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW, Washington, DC 20201; or Room C5-14-03, Central Building, 7500 Security Boulevard, Baltimore, MD 21244-1850. Comments mailed to the delivery addresses may be delayed and could be considered late. FOR FURTHER INFORMATION CONTACT: Robert Kuhl, (410) 786-4597 (General information). Pete Diaz, (410) 786-1235 (Requirements for completing the Minimum Data Set for Post Acute Care (MDS-PAC), and other MDS-PAC issues). Jacqueline Gordon, (410) 786-4517 (Payment system, the case-mix classification methodology, transition payments, relative weights/case-mix index, update factors, transfer policies, payment adjustments). Nora Hoban, (410) 786-0675 (Calculation of the payment rates, relative weights/case-mix index, wage index, payment adjustments). SUPPLEMENTARY INFORMATION: Comments, Procedures, Availability of Copies, and Electronic Access Because of staffing and resource limitations, we cannot accept comments by facsimile (FAX) transmission. In commenting, please refer to file code HCFA-1069-P. Comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, in Room 443-G of the Department's office at 200 Independence Avenue, SW., Washington, DC, on Monday through Friday of each week from 8:30 a.m. to 5 p.m. (Phone: (202) 690-7890). Copies: To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512-2250. The cost for each copy is $8. As an alternative, you can view and photocopy the Federal Register document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federal Register . This Federal Register document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. The Website address is: http://www.access.gpo.gov/nara/index.html. To assist readers in referencing sections contained in this document, we are providing the following table of contents. Table of Contents I. Background A. Overview of Current Payment System for Inpatient Rehabilitation Facilities B. Research for Alternate Prospective Payment Systems for Inpatient Rehabilitation Facilities Prior to the Balanced Budget Act of 1997 C. Requirements of the BBA and the BBRA for Inpatient Rehabilitation Facilities D. Policy Objectives in Developing a Prospective Payment System for Inpatient Rehabilitation Facilities E. Discussion of Evaluated Options for the Prospective Payment System for Inpatient Rehabilitation Facilities F. Inpatient Rehabilitation Facility Prospective Payment System—General Overview G. Applicability of the Inpatient Rehabilitation Facility Prospective Payment System II. Current Research to Support the Establishment of the Inpatient Rehabilitation Prospective Payment System—Update of RAND Analysis A. Overview of the Updated Work for the Proposed Rule B. Construction of Data File for Analysis C. Description of Sources of the Data File D. Description of the Methodology Used to Construct the Data File E. Representativeness of the Data File F. Analyses to Support Future Adjustments to the Payment System III. The Minimum Data Set for the Post Acute Care (MDS-PAC) Patient Assessment Instrument A. Implementation of the MDS-PAC B. Overview of MDS-PAC Assessment Process C. The MDS-PAC Assessment and Medical Necessity D. The MDS-PAC Assessment Reference Date E. Performing the MDS-PAC Assessment F. The MDS-PAC Assessment Schedule G. Computerization of the MDS-PAC Data H. Quality Monitoring I. MDS-PAC Training and Technical Support for IRFs J. Patient Rights K. Medical Review Under the IRF Prospective Payment System IV. Case-Mix Group Case Classification System A. Background B. Case-Mix Groups V. Payment Rates A. Development of CMG Relative Weights B. Transfer Payment Policy C. Special Cases that Are Not Transfers D. Adjustments E. Calculation of the Budget Neutral Conversion Factor Minus Two Percent F. Development of the Federal Prospective Payment G. Examples of Computing the Adjusted Facility Prospective Payments H. Computing Total Payments During Fiscal Year 2001 I. Method of Payment J. Update to the Adjusted Facility Federal Prospective Payment VI. Provisions of the Proposed Rule VII. Response to Comments VIII. Regulatory Impact Statement A. Background B. Anticipated Effects of this Proposed Rule C. Alternatives Considered IX. Collection of Information Requirements Regulations Text Appendix A—Technical Discussion of Cases and Facilities Used in RAND Analysis Appendix B—Variables Suggested for Exclusion from the MDS-PAC Instrument Appendix BB—Patient Assessment Instrument: Minimum Data Set for Post Acute Care; Version 1 Appendix BBB—Item-by-Item Guide to the Minimum Data Set for Post Acute Care (MDS-PAC) Appendix C—List of Comorbidities Appendix D—IRF Market Basket In addition, because of the many terms to which we refer by acronym in this proposed rule, we are listing these acronyms and their corresponding terms in alphabetical order below: ADL—Activities of Daily Living BBA—Balanced Budget Act of 1997, Public Law 105-33 BBRA—Balanced Budget Refinement Act of 1999, Public Law 106-113 CMGs—case-mix groups CMI—case-mix index COS—Clinical Outcomes Systems DRGs—diagnosis-related groups FIM—functional independence measure FIM—FRG-functional independence measurement-function related group FRG—Function Related Group FY—Federal fiscal year HCFA—Health Care Financing Administration HHAs—home health agencies HMO—health maintenance organization IRF—inpatient rehabilitation facilities MDCN—Medicare Data Collection Network MDS—PAC-Minimum Data Set for Post Acute Care MedPAC—Medicare Payment Advisory Commission MEDPAR—Medicare provider analysis and review MPACT—MDS-PAC Tool—Minimum Data Set for Post Acute Care Tool OASIS—Outcome and Assessment Information Set ProPAC—Prospective Payment Assessment Commission RICs—Rehabilitation Impairment Categories SNF—skilled nursing facility TEFRA—Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248 UDSmr—Uniform Data Set for medical rehabilitation Y2K—Year 2000/Millennium I. Background When the Medicare statute was originally enacted in 1965, Medicare payment for hospital inpatient services was based on the reasonable costs incurred in furnishing services to Medicare beneficiaries. The statute was later amended by section 101(a) of the Tax Equity and Fiscal Responsibility Act of 1982 (Public Law 97-248) to limit payment by placing a limit on allowable costs per discharge. Section 601 of the Social Security Amendments of 1983 (Public Law 98-21) added a new section 1886(d) to the Social Security Act (the Act) which replaced the reasonable cost-based payment system for most hospital inpatient services. Section 1886(d) of the Act provides for a prospective payment system for the operating costs of hospital inpatient stays effective with hospital cost reporting periods beginning on or after October 1, 1983. Although most hospital inpatient services became subject to a prospective payment system, certain specialty hospitals were excluded from that system. As discussed in detail in section I.A.1 of this preamble, rehabilitation hospitals and distinct part rehabilitation units in hospitals were among the excluded facilities. Subsequent to the implementation of the hospital inpatient prospective payment system, both the number of excluded rehabilitation facilities, particularly distinct part units, and Medicare payments to these facilities grew rapidly. In order to control escalating costs, the Congress, through enactment of section 4421 of the Balanced Budget Act of 1997 (BBA) (Public Law 105-33) and section 125 of the Balanced Budget Refinement Act of 1999 (BBRA) (Public Law 106-113), provided for the implementation of a prospective payment system for inpatient rehabilitation facilities. Section 4421 of the BBA amended the Act by adding section 1886(j), which authorizes the implementation of a prospective payment system for inpatient rehabilitation services. This proposed rule would implement a Medicare prospective payment system, as authorized by section 1886(j) of the Act, for inpatient rehabilitation hospitals and units. We refer to these inpatient rehabilitation hospitals and units as “inpatient rehabilitation facilities” or “IRFs” throughout this proposed rule. The statute provides for the prospective payment system for IRFs to be implemented for cost reporting periods beginning on or after October 1, 2000. The statute also provides for a new prospective payment system for home health services for cost reporting periods beginning on or after October 1, 2000, along with modifications to the existing prospective payment systems for acute care hospitals and skilled nursing facilities. Although we are working very hard to implement the extensive changes required by the statute, the demands of simultaneously implementing new prospective payment systems (for example, outpatient hospital and home health) and modifying existing payment systems are significant. The creation of each new payment system or modification to an existing payment system requires an extraordinary amount of lead time to develop and implement the necessary changes to our existing computerized claims processing systems. In addition, it requires additional time after implementation to ensure that these complex changes are properly administered. After an extensive analysis of the changes required to HCFA's systems, we have concluded that it is infeasible to implement the IRF prospective payment system as of October 1, 2000. Therefore, we plan to implement the IRF prospective payment system for cost reporting periods beginning on or after April 1, 2001. We believe that this implementation date is the earliest feasible date given the scope and magnitude of the implementation requirements associated with this and other mandated provisions. In this proposed rule, we provide a number of discussions useful in understanding the development and implementation of the IRF prospective payment system. These discussions include the following: • An overview of the current payment system for IRFs. • A discussion of research on IRF patient classification systems and prospective payment systems, including prior and current research performed by the RAND Corporation. • A discussion of statutory requirements for developing and implementing an IRF prospective payment system. • A discussion of the proposed requirement that IRFs complete the Minimum Data Set for Post Acute Care (MDS-PAC) (a patient assessment instrument) as a part of the data collection deemed necessary by the Secretary to implement and administer the IRF prospective payment system. • A discussion of the IRF patient classification system using case-mix groups (CMGs). • A detailed discussion of the proposed prospective payment system including the relative weights and payment rates for each CMG, adjustments to the payment system, additional payments, and budget neutrality requirements mandated by section 1886(j). • An analysis of the impact of the IRF prospective payment system on the Federal budget and inpatient rehabilitation facilities, including small rural facilities. Finally, we are proposing conforming changes to existing regulations as well as new regulations that are necessary to implement the proposed IRF prospective payment system. A. Overview of Current Payment System for Inpatient Rehabilitation Facilities 1. Exclusion of Certain Facilities From the Hospital Inpatient Prospective Payment System Although payment for operating costs of most hospital inpatient services became subject to a prospective payment system when the hospital inpatient prospective payment system was implemented in October 1983, certain types of specialty hospitals and units were excluded from that payment system. As set forth in section 1886(d)(1)(B) of the Act, the following hospitals were originally excluded from the hospital inpatient prospective payment system: psychiatric, rehabilitation, children's, and long-term care. Effective with cost reporting periods beginning on or after October 1, 1989 cancer hospitals were added to this list by section 6004(a) of the Omnibus Budget Reconciliation Act of 1989 Public Law (101-239). In addition, psychiatric and rehabilitation distinct part units of hospitals are excluded from the hospital inpatient prospective payment system. These specialty hospitals were excluded by the Congress from the hospital inpatient prospective payment system because they typically treat cases that involve lengths of stay that are, on average, longer or more costly than would be predicted by the diagnosis related group (DRG) system and, therefore, could be systematically underpaid if the DRG system was applied to them. These exclusions were the result of concerns that DRGs—the classification system on which payment under the hospital inpatient prospective payment system is based—might not accurately account for the resource costs for the types of patients treated in those facilities. The concern that DRGs might not accurately account for costs in excluded hospitals arose because the hospital inpatient prospective payment system was developed from the cost and utilization experience of general hospitals, which typically provide acute care for a variety of medical conditions. The hospital inpatient prospective payment system is a system of average-based payments that assume that some patient stays will consume more resources than the typical stay, while others will demand fewer resources. Thus, an efficiently operated hospital should be able to deliver care to its Medicare patients for an overall cost that is at or below the amount paid under the hospital inpatient prospective payment system. In a Report to Congress: Hospital Prospective Payment for Medicare (1982), the Department of Health and Human Services stated that the “467 DRGs were not designed to account for these types of treatment” found in the four special classes of hospitals, and noted that “including these hospitals will result in criticism * * * (and) their application to these hospitals would be inaccurate and unfair.” Accordingly, this report to the Congress suggested that a DRG system might not work as well for these treatment classes as they did for other medical specialties. One concern was that the resource needs of patients in these excluded hospitals were not solely correlated with diagnoses. A second concern was that the mix of service intensities provided by these specialty hospitals significantly differed from that of general medical/surgical hospitals. The legislative history of the 1983 amendments to the Act stated that the “DRG system was developed for short-term acute care general hospitals and as currently constructed does not adequately take into account special circumstances of diagnoses requiring long stays.” (Report of the Committee on Ways and Means, U.S. House of Representatives, to Accompany HR 1900, H.R. Rep. No. 98-25, at 141 (1983)). Following enactment in April 1983 of the Social Security Amendments of 1983, we undertook a number of initiatives to ensure implementation of the hospital inpatient prospective payment system by October 1, 1983. Important activities included the publication of the rules and regulations for the hospital inpatient prospective payment system. The interim final rule was published in the September 1, 1983 Federal Register (48 FR 39752). We published a final rule in the January 3, 1984, Federal Register (49 FR 234) following a public comment period, evaluation of comments received, and formulation of responses to and regulatory revisions to the regulations based upon the comments. Updates and modifications of the regulations are published annually in the Federal Register . Together, the initial statutory mandate and the published regulations addressed several important program issues. One program issue was the implementation of the criteria for hospitals that are seeking to be excluded from the hospital inpatient prospective payment system under one of the specialty classes, including IRFs. The regulations concerning exclusion from the hospital inpatient prospective payment system, in part 412, subpart B, are discussed below. 2. Requirements for Inpatient Rehabilitation Facilities To be Excluded From the Hospital Inpatient Prospective Payment System Under section 1886(d)(1)(B) of the Act, the prospective payment system for hospital inpatient operating costs set forth in section 1886(d) of the Act does not apply to several specified types of entities, including a rehabilitation hospital “as defined by the Secretary” or, “in accordance with regulations of the Secretary,” a rehabilitation unit of a hospital which is a distinct part of the hospital “as defined by the Secretary.” In general, existing regulations in part 412, subpart B provide that to be excluded from the hospital inpatient prospective payment system, an IRF must—(1) Have a provider agreement or be a unit in an institution that has in effect an agreement to participate as a hospital under part 489; and (2) except for newly participating hospitals seeking to be excluded, demonstrate that they serve an inpatient population of whom at least 75 percent require intensive rehabilitative services for the treatment of 1 or more of 10 specified conditions. The specified conditions are stroke, spinal cord injury, congenital deformity, amputation, major multiple trauma, hip fracture, brain injury, polyarthritis including rheumatoid arthritis, neurological disorders, and burns. Patients in IRFs require frequent physician involvement, rehabilitation nursing, and care from a coordinated group of professionals. (All IRFs that meet the requirements in §§ 412.23(b), 412.25, and 412.29 would be paid under the IRF prospective payment system proposed in this rule.) 3. Payment System Requirements Prior to the Balanced Budget Act of 1997 Hospitals that are excluded from the hospital inpatient prospective payment system are paid for inpatient operating costs under the provisions of section 1886(b) of the Act. Until the IRF prospective payment system is implemented, IRFs are paid on the basis of Medicare reasonable costs limited by a facility-specific target amount per discharge. Each facility has a separate payment limit or target amount that is calculated for that facility based on its cost per discharge in a base year, subject to caps. The target amount is adjusted annually by an update factor called the rate-of-increase percentage. Facilities whose costs are below their target amounts receive bonus payments equal to the lesser of half of the difference between costs and the target amount, up to a maximum of 5 percent of the target amount. For facilities whose costs exceed their target amounts, Medicare provides relief payments equal to half of the amount by which the hospitals costs exceeded the target amount up to 10 percent of the target amount. Facilities that experience a more significant increase in patient acuity can also apply for an additional amount under the regulations for Medicare exception payments. 4. Strengths and Weaknesses of the Current Payment System Utilization of post-acute care services has grown rapidly in recent years. Since the implementation of the hospital inpatient prospective payment system, average length of stay in acute care hospitals has decreased and patients are increasingly being discharged to post-acute care settings such as IRFs, skilled nursing facilities (SNFs), home health agencies (HHAs), and long-term care hospitals to complete their course of treatment. The increased utilization of post-acute care providers, including excluded facilities, has fueled the rapid growth in payments in recent years. With increased utilization and the incentives associated with the reasonable-cost based payment system, discussed below, the number of IRFs has also increased significantly. In its March 1999 Report to the Congress the Medicare Payment Advisory Commission (MedPAC) (formerly the Prospective Payment Assessment Commission (ProPAC)) stated, “Aggregate spending has increased at a fairly rapid pace, reflecting increased patient volume rather than increased payments per discharge. Aggregate Medicare operating payments to rehabilitation facilities rose 18 percent annually between 1990 and 1996, from $1.9 billion to $4.3 billion. Since 1990, payments per discharge have risen less than the rate of inflation, reaching $10,500 in 1996.” (p. 90.) The MedPAC report explains that the— TEFRA system has remained in effect longer than expected partly because of difficulties in accounting for the variation in resource use across patients in exempted facilities. The unintended consequences of sustaining that system have included a steady growth in the number of prospective payment system-exempt facilities and a substantial payment inequity between older and newer facilities. In particular, the payment system encouraged new exempt facilities to maximize their costs in the base year to establish high cost limits. Once subject to its relatively high limit, a recent entrant could reduce its costs below its limit, resulting in reimbursement of its full costs. * * * By contrast, facilities that existed before they became subject to TEFRA could not influence their cost limits. Given the relatively low limits of older facilities, they are more likely to incur costs above their limits and thus receive payments less than their costs. (p. 72) To address concerns such as the historical growth in payments and disparity in payments to existing and newly excluded hospitals and units, the BBA mandated several changes to the current payment system. These changes are outlined in section I.C.1 of this preamble. In addition, we and other organizations have conducted research since the inception of the hospital inpatient prospective payment system to determine if alternate prospective payment systems are feasible for these excluded hospitals. B. Research for Alternate Prospective Payment Systems for Inpatient Rehabilitation Facilities Prior to the Balanced Budget Act of 1997 Below is a discussion of research projects and other analyses concerning prospective payment systems that are relevant to the development of the IRF prospective payment system that we are proposing to implement in this rule. The methods and tasks that must be undertaken in order to develop an IRF prospective payment system include development of a patient classification system that accounts for differences in patient case mix. A patient classification system is developed by classifying patients into mutually exclusive groups based on similar clinical characteristics and similar levels of resource use. A factor to weight differences in patient case mix can be developed by measuring the relative difference in resource intensity among the different groups. We are proposing to implement a payment system that uses case-mix groups and weighting factors that account for the intensity of services delivered to IRF Medicare patients. 1. Early Studies In October 1984, as mentioned in the 1987 Report to the Congress: Developing a Prospective Payment System for Excluded Hospitals (1987), the Medical College of Wisconsin and the RAND Corporation (RAND) began a joint effort to investigate the feasibility of a prospective payment system for excluded hospitals including IRFs. The RAND Corporation is a nonprofit institution with extensive health care background in improving policy and decision making through research and analysis. This joint effort was under a HCFA cooperative agreement with the RAND Corporation. The Medical College of Wisconsin collected data from a survey of patient records that included standard discharge data, diagnostic condition, functional status and other impairment measures, billing data, and facility information gathered from telephone interviews. RAND assisted in the design and analysis of the survey data and obtained a 20 percent sample of the HCFA patient billing file for FY 1984—the implementation year of the hospital inpatient prospective payment system. The data were used to analyze the delivery systems of rehabilitation care. The Report to the Congress stated that care in IRFs “emphasizes the treatment of functional limitations and disability”. Functional limitations could be measured by the patient's ability to perform activities of daily living such as locomotion, dressing, eating, bathing, etc. The patient's level of performing these activities of daily living is referred to as the patient's functional status. The results of this analysis showed that “diagnostic condition explained little, whereas functional status measures explained substantially more, of the variance in total charges for a rehabilitation stay.” However, at the time of this analysis, a nationally-accepted set of functional status measures had not been developed for application in a classification system for IRFs. 2. Functional Status Studies While numerous studies involved developing and assessing functional status, several researchers (for example, Batavia 1988; Johnston 1984) suggested using functional status as the basis for a rehabilitation payment system. Functional status, as measured by a patient's ability to perform activities of daily living and by mobility, can be evaluated at admission and discharge or any time during the stay. In addition, change in functional status (the difference in functional status from admission to discharge) can be measured. Researchers evaluated several methods of using functional status at different stages of the patient's stay to develop a payment system. For the most part, the use of these methods resulted in payment systems that appeared to be inadequate in creating the proper incentives to care for high resource use patients and to produce quality outcomes. Basing a payment system on expected improvement in a patient's functional limitations requires a scale that is sensitive to changes in functional status. In addition, precise data describing the functional status of the patient would have to be collected on admission and at periodic intervals until discharge (Hosek et al.; 1986). The development of a patient classification system for a case-mix adjusted prospective payment system was hindered by the lack of an appropriate and widely accepted functional status measure for inpatient rehabilitation. The functional independence measure (FIM) was developed to fill this need (Hamilton et al., 1987). The functional independence measure addresses a patient's functional status covering six domains—self-care, sphincter control, mobility, locomotion, social cognition, and communication. There are two national sources of functional independence measures. The Uniform Data Set for Medical Rehabilitation (UDSmr) is operated within the Center for Functional Assessment Research, U. B. Foundation Activities, Inc. The UDSmr collects data on patient age, sex, living situation prior to hospitalization, the impairment that is the primary reason for admission to the IRF, and functional status at admission and discharge. It also includes patient admission and discharge information as well as hospital charges. The Clinical Outcomes System (COS) is operated by Caredata.com, Inc. (formerly Medirisk Inc.), located in Atlanta, Georgia. The COS contains the same type of patient information as UDSmr. However, we have been notified that the COS has been discontinued as of July 2000. 3. Studies on Patient Classification Systems In 1991, Nancy Diane Harada presented a study in her dissertation titled “The Development of a Resource-Based Patient Classification Scheme for Rehabilitation.” This study developed a clinically-based, diagnosis-specific patient classification system for rehabilitation hospital services. The final classification system in this study includes 33 patient classification groups. The patient classification groups are referred to as Rehabilitation Functional Related Groups. Harada believed that, at the facility level, the rehabilitation functional related groups could be viewed as a managerial tool to monitor the quality of care, as well as the resources expended in the treatment of rehabilitation patients. From a policy perspective, use of the rehabilitation functional related groups could minimize the adverse incentives for IRFs to underserve certain groups that may arise from the lack of case-mix index adjusted payments in the current cost limit payment system. The results of this study found that rehabilitation functional related group methodology may provide an appropriate basis for the prospective payment of rehabilitation services. Using FIM data reported to UDSmr, a team of researchers from the University of Pennsylvania developed a patient classification system, Function Related Groups (FRGs), referred to as the FIM-FRGs (Stineman et al., 1994). The American Rehabilitation Association (currently known as the American Medical Rehabilitation Providers Association) funded the development of a prototype of function related groups. Further work and revisions were funded by the Agency for Health Care Research and Quality, formerly known as the Agency for Health Care Policy and Research and the National Center for Medical Rehabilitation Research at the National Institutes of Health. As FIM-FRGs were refined, they were reframed using the International Classification of Impairments, Disabilities and Handicaps to ensure a better measure of the consumption of rehabilitation resources, prognosis, and outcome (Stineman, 1997). These classifications were designed to be related to the major categories of the DRGs and indirectly linked to the ICD-9-CM with focus on disabilities and impairment categorization. This original work on a FIM-FRG patient classification system identified 21 clinically defined rehabilitation impairment categories (RICs) such as stroke, traumatic brain dysfunction, non-traumatic brain dysfunction, and non-traumatic spinal cord injury. The RICs were then subdivided into FIM-FRGs using the FIM motor score, FIM cognitive score, and age. Accordingly, the FIM-FRG patient classification system first sorted patients into a RIC and then used assessments of patient functional and cognitive abilities and age to classify them into a FIM-FRG. 4. HCFA-Sponsored Analysis by RAND In 1994, we contracted with RAND for analyses designed to: (1) examine the stability of the original FRGs; (2) extend the FRGs to take account of previously unexamined cases (re-admissions), previously unused information (interrupted stays), and newly available data (Medicare data on comorbidities and complications); and (3) evaluate the performance of FRGs when cost rather than length of stay is used to form groups and when only Medicare cases rather than all cases are used to form groups. RAND's analyses: (1) evaluated the suitability of the FIM-FRG patient classification system; (2) evaluated a prospective payment system for inpatient rehabilitation facilities based on the FIM-FRGs; and (3) prepared final reports describing the evaluation of the UDSmr, FIM, and FIM-FRGs. This analysis used more current data to replicate and update previous work performed by RAND in 1990. Two data systems—the UDSmr and Medicare program information—were the primary sources for these analyses. UDSmr provided RAND with functional status and demographic information for rehabilitation discharge data on 139,360 cases from 352 IRFs from calendar year 1994. The Medicare program information included Medicare bill and cost report data for 1994. The first step of the analysis involved matching UDSmr cases with Medicare records using patient and facility identifiers. Because patient and facility identifiers on the UDSmr records were encrypted, it was necessary to use a sophisticated matching probability technique to match Medicare records to a corresponding UDSmr case. In addition, several thousand of the Medicare discharges corresponded to part of an interrupted rehabilitation stay. For the purposes of this analysis, a rehabilitation stay interrupted by a single admission to an acute care hospital is treated as two rehabilitation discharges, one interrupted by two admissions to an acute care hospital is treated as three rehabilitation discharges, and so on. Using this definition of “interrupted stays”, RAND stated that the 139,360 cases found in the UDSmr data corresponded to 144,719 Medicare discharges. A file with the matched patient data was created. RAND then subjected this patient data to a rigorous and complex statistical algorithm to test the predictive power of resource use to classify these patients into RICs and corresponding FIM-FRGs. As a result, RAND recommended that the number of FRGs per RIC be limited to a maximum of 5 and proposed a total of 70 FRGs. Facility level data from the hospital cost report information system file was used to test the feasibility of using the resulting FIM-FRGs to develop an IRF prospective payment system. The results of the RAND study were released in September 1997 and are contained in two reports available through the National Technical Information Service (NTIS). The reports are— • Classification System for Inpatient Rehabilitation Patients—A Review and Proposed Revisions to the Function Independence Measure-Function Related Groups, NTIS order number PB98-105992INZ; and • Prospective Payment System for Inpatient Rehabilitation, NTIS order number PB98-106024INZ. These reports can be ordered by calling the NTIS sales desk at 1-800-553-6847 or by e-mail at orders@ntis.fedworld.gov . RAND found that, with limitations, the FIM-FRGs were effective predictors of resource use based on the proxy measurement: length of stay. FRGs based upon FIM motor scores, cognitive scores, and age remained stable over time (prediction remained consistent between the 1990 and 1994 data). Researchers at RAND developed, examined, and evaluated a model payment system based upon FIM-FRG classifications that explains approximately 50 percent of patient costs and approximately 60 to 65 percent of costs at the facility level. Based on this analysis, RAND concluded that a rehabilitation prospective payment system using this model is feasible. RAND's design of a rehabilitation prospective payment system aimed to achieve the following three important goals: • To provide hospitals with incentives for efficiency. • To ensure access to high quality and appropriate care for all Medicare beneficiaries. • To distribute Medicare payments to hospitals in an equitable way. RAND needed to account adequately for each hospital's patient mix and for other appropriate factors that affect costs. This aspect of the analysis was based on the notion that Medicare should not pay hospitals more for inefficiency or even for a greater intensity of care than is typically received by patients with similar clinical characteristics and social support levels. Two technical advisory panels provided advice concerning this research. The first panel reviewed the reliability of the FIM scoring process and the second panel provided guidance on the development of the patient classification system. These panels raised some major concerns about the FIM-FRG research. First, the UDSmr data represented only 24 percent of IRFs and accounted for 40 percent of all Medicare cases in IRFs. Second, the UDSmr data over-represented free-standing rehabilitation hospitals and under-represented excluded units with a slight over-representation of teaching hospitals. Third, while the FIM-FRG system is a good predictor of length of stay, more work was needed to determine the system's ability to predict the intensity of services furnished during a stay. Fourth, hospital charges might not accurately reflect actual resource use in this context, so relative weights based on hospital charges might be distorted. This problem would be further exacerbated because there is evidence of unexplainable distorted charging patterns among facilities under the current payment limits, which have been in effect for a prolonged period of time. 5. Prospective Payment Assessment Commission Analysis for 1997 Report to Congress In its 1997 Report to Congress, the Prospective Payment Assessment Commission (ProPAC) recommended that a prospective payment system for IRFs based on patient case mix should be implemented as soon as possible. ProPAC stated that RAND's work on the FIM-FRGs could be an adequate basis for prospective payment, and that implementation of a system in the near future is feasible. (ProPAC's March 1, 1997 report was published as Appendix F to our proposed rule “Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1998 Rates” published in the June 2, 1997 Federal Register (62 FR 29902).) In response to this recommendation, we cited in our final rule “Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1998 Rates” published in the August 29, 1997, Federal Register (62 FR 45966), the concerns raised by the technical advisory panels and our review of the RAND analysis as issues that needed to be further addressed before implementing a prospective payment system using the FIM-FRG patient classification system. In addition, we stated that our preference is to focus on developing a coordinated payment system for post-acute care across all settings that relies on a core assessment tool. Accordingly, one of our goals in developing a prospective payment system would be that it is based on the characteristics of the patient and their needs rather than the characteristics or type of provider of care. C. Requirements of the BBA and the BBRA for Inpatient Rehabilitation Facilities 1. Provisions for the Current Payment System The following BBA provisions relating to the current payment system were explained in detail and implemented in our final rule published in the August 29, 1997 Federal Register (62 FR 45966). Section 4411 describes the update of payments for specific fiscal years (FYs) using the market basket effective for cost reporting periods beginning on or after October 1, 1997. Section 4412 describes the reduction of capital payments for FYs 1998 through 2002, effective October 1, 1997. Section 4413 describes the provisions for rebasing a facility's target amount for cost reporting periods beginning during FY 1998. Section 4414 describes the requirement to cap and update the rate-of-increase limits for cost reporting periods beginning on or after October 1, 1997. Section 4415 describes the provisions regarding bonus and relief payments effective for cost reporting periods beginning on or after October 1, 1997. Section 4419 eliminates the exemptions from the target amounts effective for cost reporting periods beginning on or after October 1, 1997. 2. Provisions for a Prospective Payment System Section 4421(a) of the BBA amended the Act by adding a new section 1886(j) to the Act that provides for the implementation of a Medicare prospective payment system for all IRFs. For cost reporting periods beginning on or after the implementation date and before October 1, 2002, payment to IRFs will be based on a blend of—(1) the amount that would have been paid under Part A with respect to these costs if the prospective payment system were not implemented and (2) the IRF Federal prospective payment. For cost reporting periods beginning on or after October 1, 2002, IRFs will be paid under the fully implemented Federal prospective payment system. Under the prospective payment system, rehabilitation facilities will be paid based on predetermined amounts. These prospective payments will encompass the inpatient operating and capital costs of furnishing covered rehabilitation services (that is, routine, ancillary, and capital costs) but not for costs of approved educational activities, bad debts, and other costs not subject to the provisions of the IRF prospective payment system. Covered rehabilitation services include services for which benefits are provided under Part A (the hospital insurance program) of the Medicare program. Section 1886(j)(1)(A) of the Act provides that, notwithstanding section 1814(b) of the Act and subject to the provisions of section 1813 of the Act regarding beneficiary deductibles and coinsurance responsibility, the amount of payment for inpatient rehabilitation hospital services equals an amount determined under section 1886(j) of the Act. Sections 1886(j)(1)(A)(i) and (ii) of the Act provide for a transition phase covering cost reporting periods that begin during the first two Federal fiscal years under the prospective payment system. During this transition phase, IRFs will receive a payment rate comprised of a blend of the “TEFRA percentage” of the amount that would have been paid under Part A with respect to those costs if the prospective payment system had not been implemented, and the “prospective payment percentage” of payments using the IRF prospective payment system rate. Section 1886(j)(1)(B) of the Act sets forth a requirement applicable to all facilities for the payment rates under the fully implemented system. Notwithstanding section 1814(b) of the Act and subject to the provisions of section 1813 of the Act regarding beneficiary deductibles and coinsurance responsibility, the amount of the payment with respect to the operating and capital costs of a rehabilitation facility for a payment unit in a cost reporting period beginning on or after October 1, 2002, will be equal to the per unit payment rate established under this prospective payment system for the fiscal year in which the payment unit of service occurs. Sections 1886(j)(1)(C)(i) and (ii) of the Act set forth the applicable TEFRA and prospective payment rate percentages during the transition period. For a cost reporting period beginning on or after April 1, 2001 and before October 1, 2001, the “TEFRA percentage” is 66 2/3 percent and “the prospective payment percentage” is 33 1/3 percent; and on or after October 1, 2001, and before October 1, 2002, the “TEFRA percentage” is 33 1/3 percent and “prospective payment percentage” is 66 2/3 percent. Section 1886(j)(1)(D) of the Act contains the definition of “payment unit.” Until the passage of the BBRA, “payment unit” was defined by the statute as “a discharge, day of inpatient hospital services, or other unit of payment defined by the Secretary”. However, section 125(a)(1) of the BBRA amended section 1886(j)(1)(D) of the Act by striking “day of inpatient hospital services, or other unit of payment defined by the Secretary.” Accordingly, the payment unit utilized in the IRF prospective payment system will be a discharge. Section 125(a)(3) of the BBRA also amended the Act by adding a new section 1886(j)(1)(E) to the Act that states: “(E) CONSTRUCTION RELATING TO TRANSFER AUTHORITY.—Nothing in this subsection shall be construed as preventing the Secretary from providing for an adjustment to payments to take into account the early transfer of a patient from a rehabilitation facility to another site of care.” We invite comments on the proposed transfer policy discussed in section V. of this preamble. Section 1886(j)(2)(A) of the Act, as added by the BBA, directed the Secretary to establish case-mix groups based on the factors as the Secretary deems appropriate, which may include impairment, age, related prior hospitalization, comorbidities, and functional capability of the patient. This section also requires the Secretary to establish a method of classifying specific patients in rehabilitation facilities within these groups. The BBRA amended section 1886(j)(2)(A)(i) of the Act to describe the classification system to read as follows: “Classes of patient discharges of rehabilitation facilities by functional-related groups (each in this subsection referred to as a ‘case mix group’), based on impairment, age, comorbidities, and functional capability of the patient and such other factors as the Secretary deems appropriate to improve the explanatory power of functional independence measure-function related groups.” Section 1886(j)(2)(B) of the Act provides that the Secretary will assign each case-mix group a weighting factor reflecting the facility resources used for patients within the group as compared to patients classified within other groups. Section 1886(j)(2)(C)(i) of the Act directs the Secretary to adjust “from time to time” the case-mix classifications and weighting factors “as appropriate to reflect changes in treatment patterns, technology, case-mix, number of payment units for which payment is made under this title, and other factors which may affect the relative use of resources.” Such periodic adjustments shall be made in a manner so that changes in aggregate payments are a result of real changes in case-mix, not changes in coding that are unrelated to real changes in case-mix. Section 1886(j)(2)(C)(ii) of the Act provides that, if the Secretary determines that adjustments to the case-mix classifications or weighting factors resulted in (or are likely to result in) a change in aggregate payments that does not reflect real changes in case-mix, the Secretary shall adjust the per payment unit payment rate for subsequent years so as to eliminate the effect of the coding or classification changes. Section 1886(j)(2)(D) of the Act authorizes the Secretary to require rehabilitation facilities to submit such data as the Secretary deems necessary to establish and administer the IRF prospective payment system. Section 1886(j)(3)(A) of the Act describes how the prospective payment rate will be determined. A prospective payment rate will be determined for each payment unit for which an IRF is entitled to payment under the prospective payment system. The payment rate will be based on the average payment per payment unit for inpatient operating and capital costs of IRFs, using the most recently available data, and adjusted by the following factors: • Updating the per-payment unit amount to the fiscal year involved by the applicable percentage increase (as defined by section 1886(b)(3)(B)(ii) of the Act) covering the period from the midpoint of the period for such data through the midpoint of fiscal year 2000 and by an increase factor specified by the Secretary for subsequent fiscal years; • Reducing the rate by a factor equaling the proportion of Medicare payments under the prospective payment system as estimated by the Secretary based on prospective payment amounts which are additional payments relating to outlier and related payments; • Accounting for area wage variations among IRFs; • Applying the case-mix weighting factors; and • Adjusting for such other factors as determined necessary by the Secretary to properly reflect variations in necessary costs of treatment among IRFs. Section 1886(j)(3)(B) of the Act directs the Secretary to establish IRF prospective payment system payment rates during fiscal years 2001 and 2002 at levels such that, in the Secretary's estimation, total payments under the new system will equal 98 percent of the amount that would have been made for operating and capital costs in those years if the IRF prospective payment system had not been implemented. In establishing these payment amounts, the Secretary shall consider the effects of the prospective payment system on the total number of payment units from IRFs and other factors. Section 1886(j)(3)(C) of the Act addresses the annual increase factor, to be applied beginning with FY 2001. This factor shall be based on an appropriate percentage increase in a market basket of goods and services comprising services for which payment is made under section 1886(j) of the Act. Under section 1886(j)(4)(A) of the Act, the Secretary is authorized but not required to provide for an additional payment to a rehabilitation facility for patients in a case-mix group, based upon the patient being classified as an outlier based on an unusual length of stay, costs, or other factors specified by the Secretary. The amount of the additional payment must approximate the marginal cost of care above what otherwise would be paid and must be budget neutral. The total amount of the additional payments to IRFs under the prospective payment system for a fiscal year may not be projected to exceed 5 percent of the total payments based on prospective payment rates for payment units in that year. Section 1886(j)(4)(B) of the Act establishes that the Secretary is authorized but not required to provide for adjustments to the payment amounts under the prospective payment system as the Secretary deems appropriate to take into account the unique circumstances of IRFs located in Alaska and Hawaii. Section 1886(j)(5) of the Act provides for the Secretary to publish in the Federal Register , on or before August 1 of each fiscal year, the classifications and weighting factors for the IRF case-mix groups and a description of the methodology and data used in computing the prospective payment rates for that fiscal year. Section 1886(j)(6) of the Act provides that the Secretary shall adjust the proportion (as estimated by the Secretary from time to time) of IRFs' costs that are attributable to wages and wage-related costs, of the prospective payment rates for area differences in wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the IRF compared to the national average wage level for such facilities. Additionally, the Secretary is required to make a budget-neutral update to the area wage adjustment factor no later than October 1, 2001, and at least once every 36 months thereafter. The budget neutral update is based on information available to the Secretary (and updated as appropriate) of the wages and wage-related costs incurred in furnishing rehabilitation services. Sections 1886(j)(7)(A), (B), (C) and (D) of the Act establish that there shall be no administrative or judicial review under sections 1869 and 1878 of the Act or otherwise of the establishment of case-mix groups, of the methodology for the classification of patients within these groups, the weighting factors, the prospective payment rates, outlier and special payments and area wage adjustments. Section 125(b) of the BBRA provides that the Secretary shall conduct a study of the impact on utilization and beneficiary access to services of the implementation of the IRF prospective payment system. A report on the study must be submitted to the Congress not later than 3 years after the date the IRF prospective payment system is first implemented. D. Policy Objectives in Developing a Prospective Payment System for Inpatient Rehabilitation Facilities In developing the prospective payment system for IRFs, we identified policy objectives to evaluate the relative merits of the various policy options considered. The objectives we identified include the following: • The creation of a beneficiary-centered payment system that promotes quality of care, access to care, and continuity of care and is administratively feasible while controlling costs. • The provision of incentives to furnish services as efficiently as possible without diminishing the quality of the care or limiting access to care. • The creation of a payment system that is fair and equitable to facilities, beneficiaries, and the Medicare program. • The IRF prospective payment system must be able to recognize legitimate cost differences among various settings furnishing the same service; and any patient classification system used to group patients and services should be based on clinically coherent categories and, at the same time, reflect similar resource use. This would limit opportunities to “upcode” or “game” the system. In its March 1999 Report to the Congress, MedPAC recommended in detail the type of prospective payment system it believed should be implemented for IRFs. As will be discussed further in this proposed rule, MedPAC's recommendations share much with our approach and policy objectives for the development of an IRF prospective payment system. Both HCFA and MedPAC believe the IRF prospective payment system should include the use of a comprehensive patient assessment instrument such as the MDS-PAC. HCFA and MedPAC both seek sufficient data to devise a patient classification system that effectively predicts resource use. HCFA and MedPAC believe the prospective payment system should be based on reliable and valid payment weights using functional and other diagnostic data. We agree with MedPAC's recommendation to use a per discharge unit of payment. Also, there is a shared belief that a discharge-based system provides an inherent incentive to discharge patients prematurely, and that this impetus could be overcome by implementing sound transfer and short-stay policies as part of the prospective payment system. Accordingly, we have taken steps to initiate the appropriate research to meet our immediate needs in developing this proposed rule and in implementing an IRF prospective payment system, as well as to collect data for the future that may reflect actual facility resources used to meet the needs of Medicare beneficiaries. E. Discussion of Evaluated Options for the Prospective Payment System for Inpatient Rehabilitation Facilities We used the objectives identified above in section I.D. of the preamble to evaluate policy options under consideration. The IRF prospective payment system we are proposing consists of the following major components: the patient assessment instrument; the patient classification system; the unit of payment; and the data used to construct the payment rates. A brief discussion of the major issues and options considered in preparing this proposed rule follows. 1. Patient Assessment Instrument Data from a patient assessment instrument will allow us to: (1) Group patients into a CMG for payment under the prospective payment system; and (2) monitor the effects the prospective payment system has on the access and the quality of patient care. We have reviewed the data elements of the UDSmr and COS instruments and the MDS-PAC. We are proposing to use the MDS-PAC because we believe it contains the data elements that will better enable us to implement and administer the IRF prospective payment system required by section 1886(j) of the Act. In section III of this preamble, we will discuss in detail the reasons for our proposal to use the MDS-PAC patient assessment instrument. 2. Patient Classification System The patient classification system is another important component of the prospective payment system. We initially considered two primary patient classification systems—one similar to the hospital inpatient prospective payment system and the other similar to the one used in the skilled nursing facility prospective payment system. Ideally, we would like to maintain similar classification systems for those entities delivering comparable services. We recognize a unified classification system would have to recognize patient needs and facilitate appropriate compensation across various post-acute care settings. Section 125(a) of the BBRA mandated the use of a per discharge payment unit and established classes of patients by functional-related groups. Therefore, in implementing the IRF prospective payment system we will use CMGs, consistent with section 1886(j)(2) of the Act. 3. Unit of Payment Under the provisions of section 1886(j)(1)(D) as added by the BBA, we considered using either a per diem or a per discharge unit of payment. The vast majority of rehabilitation episodes begin with an acute event. The goal of inpatient rehabilitation is functional improvement that will allow the patient to return to independent living in the community, and, as evidenced by ongoing research, the majority of cases are, in fact, discharged to a community setting. Further, a discharge is also the current unit of payment under the TEFRA payment system. Finally, as noted above, the BBRA amends the Act to provide that the “payment unit” under the IRF prospective payment system is the discharge. Therefore, we propose to use a per discharge payment unit in accordance with section 1886(j)(1)(D) of the Act. 4. Data Used to Construct Payment Rates We gave careful consideration in deciding which data to use to create the proposed relative weights and payment rates. Two sources of data were considered: (1) Medicare bill and corresponding UDSmr/COS data; and (2) patient level staff time measurements. The methodology we are proposing to use to calculate the relative weights of each CMG attempts to account for the cost variations among rehabilitation facilities and focus on variations among patient types. Further, the payment rates we are proposing are established in a budget neutral manner in accordance with section 1886(j)(3)(B) of the Act. Section V of the preamble describes the methodology that we are proposing to use to develop relative weights and payment rates. Under the current payment system, payment limits are based on historical costs in a base period. Accordingly, payments to a given facility for a given year might not accurately reflect the facility's actual costs in that year. Creating a new payment system based on costs that are a product of the existing payment methodology raises concerns that these costs may not adequately reflect actual resource use. In order to develop a prospective payment system that is more reflective of the actual costs of delivering care, further work is needed to identify these costs and the services and resources required by patients. The IRF data from calendar years 1996 and 1997 bills and FY 1997 cost reports contain the most recent available data we have to create the new IRF prospective payment system rates. We will continue to explore other options, including the use of staff time measurements, later Medicare bill and UDSmr/COS data, and other data to improve the explanatory power of the CMGs and to derive payments that more directly reflect the resources used to produce services delivered in the IRFs. F. Inpatient Rehabilitation Facility Prospective Payment System—General Overview In accordance with the requirements of section 1886(j) of the Act, we are proposing to implement a prospective payment system for IRFs that will replace the current reasonable cost-based payment system. The new prospective payment system will utilize information from a patient assessment instrument to classify patients into distinct groups based on clinical characteristics and expected resource needs. Separate payments are calculated for each group with additional case and facility level adjustments applied, as described below. 1. Patient Assessment Provisions We are proposing to require IRFs to complete the MDS-PAC patient assessment instrument for all Medicare patients admitted or discharged on or after April 1, 2001. In accordance with our proposed assessment schedule, the MDS-PAC would be completed on the 4th, 11th, 30th, and 60th day from the admission date of a Medicare patient and upon the discharge of a Medicare patient. In general, a 3-day observation period would be required prior to the completion of the MDS-PAC. Data from the MDS-PAC will be used to— • Determine the appropriate classification of a Medicare patient into a CMG for payment under the prospective payment system (using data from only the MDS-PAC completed on the fourth day); • Implement a system to monitor the quality of care furnished to Medicare patients; and • Ensure that appropriate case-mix and other adjustments can be made to the proposed patient classification system. A computerized MDS-PAC data collection system will be developed. Facilities will be required to input the MDS-PAC data into the data system. In general, this system consists of a computerized patient grouping software program (grouper software) and data transmission software. Upon the discharge of the patient, the existing Medicare claim form will be completed with the appropriate CMG indicated on the claim form so that the prospective payment can be made. The operational aspects and instructions for completing and submitting Medicare claims under the IRF prospective payment system will be addressed in a Medicare Program Memorandum once the final system requirements are developed and implemented. Further details about the MDS-PAC patient assessment instrument and data collection system are discussed in section III of this preamble. 2. Patient Classification Provisions We are proposing a patient classification system that uses case-mix groups called CMGs. The CMGs classify patient discharges by functional-related groups based on a patient's impairment, age, comorbidities, and functional capability. We began the development of the CMGs by using the FIM-FRG classification system and, with the most recent data available, we identified clinical aspects of the FIM-FRG system that could be improved to increase the ability of the CMGs to predict resource use. Further details of the proposed CMG classification system are discussed in section IV of this preamble. 3. Payment Rate Provisions The payment unit for the proposed IRF prospective payment system for Medicare patients will be a discharge. The payment rates will encompass inpatient operating and capital costs of furnishing covered inpatient rehabilitation hospital services, including routine, ancillary, and capital costs, but not the costs of bad debts or of approved educational activities. Beneficiaries may be charged only for deductibles, coinsurance amounts, and non-covered services (for example, telephone, and television, etc.). They may not be charged for the differences between the hospital's cost of providing covered care and the proposed Medicare prospective payment amount. The prospective payment rates that we are proposing to implement are determined using relative weights to account for the variation in resource needs among CMGs. We would adjust the payment rates to account for area differences in hospital wages. We would update the per discharge payment amounts annually. During FYs 2001 and 2002, the prospective payment system will be “budget neutral”, in accordance with the statute. That is, total payments for IRFs during these fiscal years will be projected to equal 98 percent of the amount of payments that would have been paid for operating and capital costs of IRFs had this new payment system not been enacted. This is discussed in detail in section V of this preamble. Based on our analysis of the data, we are proposing to adjust the payment rates for facilities located in rural areas and for costs associated with treating low income patients. We are proposing to make additional payments to IRFs for discharges meeting specified criteria as “outliers.” For the purposes of this proposed rule, outliers are cases that have unusually high costs when compared to the cases classified in the same CMG. We are proposing outlier payments that are projected to equal 3 percent of total estimated payments. In conjunction with an outlier policy, we are proposing payment policies regarding short stay cases and for cases that expire. In addition, we are proposing to implement a transfer policy, consistent with section 1886(j)(1)(E) of the Act, as added by the BBRA. (A detailed description of these policies appears in section V of the preamble.) 4. Implementation of the Prospective Payment System The statute provides for a 2-year transition period. During that time, 2 payment percentages will be used to determine an IRF's total payment under the prospective payment system as follows. For a cost reporting period beginning on or after April 1, 2001 and before October 1, 2001, the total prospective payment will consist of 66 2/3 percent of the amount based on the current payment system and 33 1/3 percent of the proposed Federal prospective payment. For a cost reporting period beginning during FY 2002, the total prospective payment will consist of 33 1/3 percent of the amount based on the current payment system and 66 2/3 percent of the proposed Federal prospective payment. For cost reporting periods beginning on or after October 1, 2002, Medicare payment for IRFs will be determined entirely under the proposed Federal prospective payment methodology. G. Applicability of the Inpatient Rehabilitation Facility Prospective Payment System This proposed rule would not change the criteria for a hospital or hospital unit to be classified as a rehabilitation hospital or a rehabilitation unit that is excluded from the hospital prospective payment systems under sections 1886(d) and 1886(g) of the Act, nor would it revise the survey and certification procedures applicable to entities seeking this classification. Accordingly, for cost reporting periods beginning on or after April 1, 2001, hospitals or hospital units that are classified as rehabilitation hospitals or rehabilitation units under subpart B of part 412 of the regulations will be paid under the proposed IRF prospective payment system (except for IRFs that are paid under the special payment provisions at § 412.22(c) of the regulations) as described below. The following rehabilitation hospitals and rehabilitation units, that are currently paid under section 1886(b) of the Act, would be paid under the proposed IRF prospective payment system for cost reporting periods beginning on or after April 1, 2001: 1. Excluded Rehabilitation Hospitals and Rehabilitation Units We are proposing that the IRF prospective payment system apply to inpatient rehabilitation services furnished by Medicare participating entities that are classified rehabilitation hospitals or rehabilitation units under §§ 412.22, 412.23, 412.25, 412.29 and 412.30. 2. Excluded Rehabilitation Hospitals and Rehabilitation Units Outside the 50 States and the District of Columbia Excluded rehabilitation hospitals and rehabilitation units located in Puerto Rico, Guam, the Virgin Islands, American Samoa, the Northern Marianas, and the District of Columbia will be subject to the IRF prospective payment system. The following hospitals are paid under special payment provisions, as described in § 412.22(c), and, therefore, are not subject to the proposed IRF prospective payment system rules: • Veterans Administration hospitals. • Hospitals that are reimbursed under State cost control systems approved under 42 CFR part 403. • Hospitals that are reimbursed in accordance with demonstration projects authorized under section 402(a) of Public Law 90-248 (42 U.S.C. 1395b-1) or section 222(a) of Public Law 92-603 (42 U.S.C. 1395b-1 (note)). II. Current Research To Support the Establishment of the Inpatient Rehabilitation Prospective Payment System—Update of the RAND Analysis A. Overview of the Updated Work for the Proposed Rule In July 1999, we contracted with the RAND Corporation (RAND) to update their previous research discussed in section I of this proposed rule. The update included an analysis of FIM data, the FRGs, and the model rehabilitation prospective payment system using more recent data from a greater number of IRFs. The purpose of updating the previous research is to develop the underlying data necessary to assist us in designing, developing, implementing, monitoring, and refining the proposed Medicare IRF prospective payment system based on case-mix groups. In addition, RAND expanded the scope of their previous research to include the examination of several payment elements, such as comorbidities and facility-level adjustments, as well as focus on implementation issues, including evaluation and monitoring. The update is restricted to Medicare patient data and the payment system is designed for payment of Medicare inpatient operating and capital costs only. Specifically, for this proposed rule, RAND performed the following tasks: • Constructed an updated data file, using the most recent data available from UDSmr, COS, HCFA, and other data sources. • Determined the extent to which the UDSmr and COS data are representative of the Medicare population. • Identified factors or variables that may be used to help us design and implement the payment system. • Developed data on the elements of the payment system regarding the patient classification system, relative weights and payment rates for each case-mix group, facility-level adjustments, and patient-level adjustments. • Developed data to examine the joint performance of all of the payment system elements by simulating facility payments for our analysis of the impact of implementing the payment system. • Developed data to assist in identifying specific issues in connection with implementing the payment system. • Presented options regarding the design and development of a system to monitor the effects of the payment system and other changes in the health care market on IRFs and on other post-acute care providers, including home health agencies and skilled nursing facilities, by measuring factors such as access, utilization, quality, and cost of care. B. Construction of Data File for Analysis Using the methodology in its previous research, RAND constructed a data file that was used to develop the proposed CMG patient classification system and the resulting payment weights, rates, and payment adjustments using more recent data. The analysis of this data file forms the basis of our discussion on the patient classification methodology and the structure of the payment system proposed in this rule. We expect that further analysis of the data file and review of the comments that we receive in response to this proposed rule may result in refinements to some patient CMGs and corresponding weights and rates. C. Description of Sources of the Data File The essential sources of the data file are Medicare program information and patient case-mix data. The Medicare program information includes patient discharge files (patient demographic, clinical, and financial information) and facility-level files (facility characteristics and financial information). Patient case-mix data is collected by IRFs using a patient assessment instrument. We are proposing to require the use of the MDS-PAC patient assessment instrument that includes patient case-mix data similar to the data collected on the UDSmr and COS, as described in section III of this preamble. However, the availability of MDS-PAC data records is limited to the sample of providers that participated in the pilot and field tests during its development. Therefore, to initially establish the IRF prospective payment system, we will be using a larger number of data records (as compared to the 1994 data used in RAND's previous study) from UDSmr and COS to represent more adequately the total number of IRFs. 1. Medicare Program Data For this proposed rule, RAND used calendar year 1996 and 1997 Medicare Provider Analysis and Review (MEDPAR) files. The MEDPAR file contains the records for all Medicare hospital inpatient discharges (including discharges for rehabilitation facilities). The data in the MEDPAR file include patient demographics (age, gender, race, residence zip code), clinical characteristics (diagnoses and procedures), and hospitalization characteristics (admission date, discharge date, days in intensive-care wards, charges by department, and payment information). The Medicare cost report data is contained in the Health Care Provider Cost Report Information System (HCRIS). The cost report files contain information on facility characteristics, utilization data, and cost and charge data by cost center. For this proposed rule, RAND used the HCRIS file containing the most current available cost data for cost reporting periods beginning during FYs 1996 and 1997. Supplementary information to this file includes—(1) The wage data for the area in which an IRF is located, (2) data on the number of residents assigned to rehabilitation units and the distribution of resident time across inpatient and outpatient settings, (3) data on the number of Medicare cases at each IRF that represent Supplemental Security Income (SSI) beneficiaries, and (4) information about payments under the current reasonable cost payment system. The Online Survey, Certification and Reporting System (OSCAR) file retains a list of all IRFs that are currently Medicare certified. For this proposed rule, RAND used the OSCAR file to identify instances in which we may be missing facility-level data. 2. Patient Case-Mix Data We entered into agreements with the University at Buffalo Foundation Activities, Inc. and Caredata.com, Inc. to retrieve UDSmr and COS data, respectively, for RAND's updated research. For this proposed rule, RAND used both UDSmr and COS data that describe rehabilitation stays in participating hospitals for calendar years 1996 and 1997. The data include demographic descriptions of the patient (birth date, gender, zip code, ethnicity, marital status, living setting), clinical descriptions of the patient (condition requiring rehabilitation, ICD-9-CM diagnoses, functional independence measures at admission and discharge) and the hospitalization data (encrypted hospital identifier, admission date, discharge date, charges, payment source, and an indicator of whether this is the first rehabilitation hospitalization for this condition, a readmission, or a short stay for evaluation). D. Description of the Methodology Used To Construct the Data File Under a separate contract, we contracted with RAND in September 1998 to construct a data file that linked the 1996 and 1997 UDSmr and COS patient records with patient records on the respective MEDPAR files that describe the same discharge. Under this contract, RAND determined the Medicare provider number(s) that correspond to each UDSmr/COS facility code. Next, RAND matched the UDSmr/COS and MEDPAR patients within the paired facilities. Because of the proprietary and sensitive nature of the UDSmr and COS patient records, certain data fields that specifically identify the patient and the servicing IRF were encrypted. Therefore, as in RAND's previous study (see section I of this preamble), it was necessary to subject the UDSmr, COS, and MEDPAR records to a sophisticated and complex matching probability technique. The result produces the most statistically valid match of patient/facility records and a data file that contains the characteristics of each Medicare beneficiary and his or her servicing IRF. Because of the complex scope and nature of the matching technique used, we have included in Appendix A of this proposed rule a technical discussion of each step taken to create the data file. The tables contained in Appendix A show the actual effects of applying the matching technique on both the patient and facility records. E. Representativeness of the Data File It is extremely important to examine the quality of the resulting match, including the extent to which the linked MEDPAR and UDSmr/COS records are representative of the MEDPAR universe. After constructing the data file described in Appendix A, we believe that the file contains the best available data to construct a prospective payment system for all IRFs within the parameters of the statutory requirements. Our analysis of the data file allows us to develop the proposed CMG patient classification and payment system, described below in sections IV and V of this preamble. F. Analyses To Support Future Adjustments to the Payment System The principal goal of the analysis described above is to determine the extent to which measurable patient characteristics permit classification of patients into identifiable groups that accurately predict the use of resources in inpatient rehabilitation facilities. The research to date indicates that CMGs are effective predictors of resource use as measured by proxies such as length of stay and charges. The use of these proxies is necessary because data that measures actual nursing and therapy time spent on patient care, and other resource use data, are not available. The scientifically structured collection of data on patient characteristics and patient-specific resource use may enhance our ability to refine the CMGs in a manner that supports our policy objectives for implementing a IRF prospective payment system. Accordingly, we have contracted with Aspen Systems Corporation to collect actual resource use data in a sample of IRFs. The data collected by Aspen will be submitted to RAND for analysis to determine if it can be used to support future refinements to the CMGs. III. The Minimum Data Set for Post-Acute Care (MDS-PAC) Patient Assessment Instrument A. Implementation of the MDS-PAC Under section 1886(j)(2)(D) of the Act, “The Secretary is authorized to require rehabilitation facilities that provide inpatient hospital services to submit such data as the Secretary deems necessary to establish and administer the prospective payment system under this subsection.” The collection of patient data is indispensable for the successful development and implementation of the IRF prospective payment system. A comprehensive, reliable system for collecting standardized patient assessment data is necessary for: (1) The objective assignment of Medicare beneficiaries to appropriate IRF CMGs; (2) the development of a system to monitor the effects of an IRF prospective payment system on patient care and outcomes; (3) the determination of whether future adjustments to the IRF CMGs are warranted; and (4) the development of an integrated system for post-acute care in the future. The MDS-PAC is the standardized patient assessment instrument we are proposing to use under the IRF prospective payment system. We acknowledge that the nature of the patient data we would collect may evolve over time. We believe that the present structure of independent Medicare post-acute benefits, which includes payment systems, coverage requirements, and quality assessment instruments based primarily on site of care, may provide incentives that result in reduced access and choice for beneficiaries and may contribute to inappropriate care. As a result of this fragmentation in the payment and delivery of post-acute care under Medicare, we are reevaluating the payment and delivery of post-acute services with the objective of developing a more integrated approach focusing on the entire post-acute episode of care and each patient's care needs regardless of setting. We believe the MDS-PAC will help to move Medicare toward our long term objective of creating a more integrated post acute care payment and delivery system that facilitates improved quality, choice and access to care for beneficiaries. Our goal of ultimately establishing a common system to assess patient characteristics and care needs for post-acute providers was endorsed by MedPAC in its March 1999 report to the Congress. MedPAC recommended that the Secretary collect a core set of patient assessment information across all post-acute settings. (Recommendation 5A). In the narrative supporting this recommendation, MedPAC “commends HCFA's development of the MDS-PAC and encourages its refinement and use. The instrument will facilitate greatly comparisons of patient characteristics and service use across inpatient post-acute settings. Insights gleaned from these data should inform future prospective payment system policies, as well as longer term policy considerations about post-acute care.” We share MedPAC's opinion of the utility of a common patient data system across post-acute settings. We believe that future refinements in the design and application of the MDS-PAC will provide us with essential information to inform policy decisions related to post-acute care users and their characteristics, quality, and payment. The implementation of the per-case prospective payment system based on the “functional-related group” methodology requires the use of a standardized data collection instrument that contains the elements required to classify a patient into a distinct CMG. To classify a patient into a distinct CMG the data collection instrument must first assign the patient into one of the various high level categories that are based principally on ICD-9-CM diagnoses plus some additional patient information. These high level categories are called Rehabilitation Impairment Categories. After that initial classification step a patient's comorbidity data (which is also based on the ICD-9-CM codes), the level of the patient's impairment as determined by the patient's motor and cognitive function scores, and the age of the patient are used to classify a patient into a distinct CMG within the higher level Rehabilitation Impairment Group. Additional data elements are required to identify the patient and for monitoring the quality of care furnished to patients in IRFs. Several approaches to the collection of these data elements are available. These include—(a) the development of a new data collection instrument, the MDS-PAC (as proposed in this rule); (b) adoption of an instrument closely modeled on the Uniform Data Set for Medical Rehabilitation (UDSmr) and the Caredata.com Clinical Outcome Set (COS) that would contain the needed data elements exactly as they have been recorded in the past and as used in the development of the FIM-FRG classification of patients; and (c) the incorporation verbatim into the new instrument (MDS-PAC) of the UDSmr/COS data elements that are relevant to payment. We are proposing the first option, the MDS-PAC, for the reasons outlined in the section below. 1. Use of MDS as Foundation The basis of the MDS-PAC system is the Minimum Data Set (MDS)/Resident Assessment Instrument (RAI). The MDS/RAI was one of the key provisions of the nursing home reform legislation enacted by the Omnibus Budget Reconciliation Act of 1987 (OBRA), Pub. L. 100-203, and the first standardized assessment instrument that the Congress required to be used in a post-acute care setting. The MDS is a core set of screening and assessment elements, including common definitions and coding categories, which forms the foundation of a comprehensive assessment (the RAI). OBRA mandated that we develop the MDS and require its use for all residents of certified long-term care facilities as a condition of participating in Medicare or Medicaid. We originally implemented the MDS/RAI in 1990 through 1991 in the approximately 17,000 certified long-term care facilities nationwide. The MDS/RAI has been used by long-term care facilities to assess all residents at specific points during their stay, regardless of payer source. Residents are assessed upon admission to the facility, after experiencing a significant change, and at least annually, with a review of key items required every 90 days. Regulations requiring all certified long-term care facilities to encode and transmit MDS data to the State and HCFA became effective June 22, 1998 ((62 FR 67174) “Resident Assessment In Long Term Care Facilities”). As of March 3, 2000, there were 23,829,196 records for 4,576,748 residents submitted to our national MDS repository. Long-term care facilities use the assessment system as the basis of developing an individualized plan of care. However, the design of our long-term care facility payment and quality of care systems relies on use of the resident characteristic, health status, and service use information derived from the MDS to support a number of our programs. For example, the SNF prospective payment system implemented in July 1998 relies on MDS data to classify patients into the appropriate case-mix categories. In addition, in July 1999, we began to use MDS data to generate quality indicators for use in the long-term care facility survey process. Also, long-term care facilities may request real-time MDS-based quality indicator reports, from the HCFA-sponsored State-level MDS data system, that compare the facility's performance in key care areas with the performance of other facilities within the State. These reports can be used for internal quality assurance and improvement activities. Our Peer Review Organizations (PROs) are using MDS data to conduct long-term care facility quality improvement activities in a number of areas, including pain management, pressure ulcers, and urinary incontinence. In keeping with our commitment to the nursing home industry to refine the MDS/RAI system over time to incorporate advances in assessment technology and changes in the nursing home population, we developed a second generation instrument, known as the MDS version 2. The MDS 2 was implemented nationally in 1996. Shortly thereafter, we agreed to begin work on a post-acute version of the MDS, in response to the long-term care industry's concerns that the MDS had not been constructed to address the characteristics and needs of the increasing numbers of short stay patients admitted to SNFs for rehabilitation and medically complex care. Before we started work on the MDS-PAC, however, we made a policy decision that our goal was to establish a common instrument to assess patients receiving services by all Medicare institutional post-acute providers. This broadened the scope of the instrument to include freestanding rehabilitation hospitals and hospital-based rehabilitation units, as well as long-term care hospitals. Our policy decision was based on a belief that there is considerable overlap among the patient populations and services rendered by post-acute care providers. The March 1999 MedPAC report to Congress indicated that prior distinctions in the types of patients and services provided across settings have become less clear for a number of reasons (p. 82), and that lack of uniform patient-level data across settings severely restricts our ability to identify where differences and overlaps occur. This hypothesis regarding the overlap of patient populations was tested by collecting MDS 2 data for patients of rehabilitation and long-term care hospitals and comparing that data with MDS records for SNF patients. The SNF database included records for long-stay nursing home residents who had been readmitted after a hospitalization and now qualified for a period of skilled care. There were 1,535 SNF patient records collected from initial MDS assessments in 1996. Of these patient records, 517 (34 percent) of the patients were expected to be discharged within 30 days of admission. An additional 248 (16 percent) were expected to be discharged in 31 to 90 days. For the remaining patient records, discharge status was unknown, not anticipated or (in a limited number of cases) the discharge variable was missing. This activity was also conducted in order to provide us with information about the characteristics, health status, and service utilization of rehabilitation and long-term care hospital patients, as part of our initial activities to inform development of the MDS-PAC. Staff from participating rehabilitation hospitals, rehabilitation units of acute care hospitals, and long-term care hospitals were trained in the use of the MDS 2.0, and were asked to complete it for a sample of their newly admitted patients during June through October 1998. Data were received for 614 patients in 26 rehabilitation hospitals and units, and for 479 patients in 26 long-term care hospitals. Of the 52 providers participating in the baseline data collection, 38 were recruited using a random sample of Medicare-certified providers. We found many similarities in the characteristics, health status, medical diagnoses, and service utilization patterns of SNF and rehabilitation hospital patients. We note that our focus groups indicated to us that many rehabilitation hospitals and self-proclaimed “subacute” SNFs have as a criteria for admission the patient's potential ability to be discharged from the facility within a certain time period. Thus, for comparative purposes we differentiated between the MDS records of SNF patients expected to be discharged and those of SNF patients not expected to be discharged. As illustrated below by Table 1C, patients in rehabilitation hospitals and SNF patients who were expected to be discharged demonstrated similar levels of activity of daily living (ADL) overall impairment, as measured by the MDS 2, while a greater number of SNF patients who were not expected to be discharged experienced impairment in “late loss” ADLs or were fully dependent. Table 1C.—Percent of Patients With ADL Impairment by Facility Type ADL score (hierarchical) LTC hospital Rehab hospital SNF discharge expected SNF discharge not expected 0—Independent 3.1 .8 4.2 3.4 1—Supervision 4.4 9.5 6.5 5.6 2—Limited 12.8 25.4 29.3 17.9 3—Early Loss ADL—extensive or dependent 4.2 14.8 8.2 9.8 4—Mid late loss ADL—extensive assistance late loss ADL 8.0 21.1 20.9 15.9 5—Mid late-some late loss ADL dependency 34.8 22.5 27.3 33.8 6—Full dependency 32.9 5.9 3.7 13.5 In addition, fewer SNF patients were reported to have symptoms of delirium as compared to rehabilitation hospital patients. While the number of SNF patients not expected to be discharged who experienced memory problems was higher, the overall cognitive performance score (a composite measure based on several MDS items) for patients across the four populations was remarkably similar, except for the higher number of long-term care hospital patients rated as a “6” (that is, very severely cognitively impaired). A comparison of cognitive impairment by facility type can be seen in Table 2C. Table 2C.—Percent of Patients with Cognitive Impairment by Facility Type Condition LTC hospital Rehab Hospital SNF discharge expected SNF discharge not expected Delirium Symptoms—New Easily Distracted 12.0 15.4 3.1 1.7 Altered Perceptions 9.7 5.9 2.6 2.2 Disorganized Speech 8.8 10.5 2.4 2.2 Restlessness 13.6 8.9 2.0 3.0 Lethargy 14.4 9.2 4.0 4.0 Mental Function Varies 17.2 13.5 5.2 4.0 Cognitive Performance Scale 0=Intact 40.5 49.3 46.0 17.9 1=Borderline Intact 14.3 13.6 16.7 17.6 2=Mild 7.2 10.2 12.0 11.3 3=Moderate 9.1 13.0 16.3 26.2 4=Moderate Severe 4.0 3.3 4.1 10.5 5=Severe 3.0 5.7 3.3 6.9 6=Very Severe 21.9 4.9 1.6 9.6 Memory Memory Problem—short term 32.8 36.2 37.0 61.0 Memory Problem—long-term 29.9 23.0 23.1 46.2 Memory Problem—situational 37.5 12.4 We did not find significant differences across care settings in many of the disease diagnoses recorded in section I of the MDS, although long-term care hospital patients had more cases of diabetes, cardiac dysrhythmia, post heart surgery, peripheral vascular disease, paraplegia, respiratory conditions, renal failure, and antibiotic-resistant infections (Table 3C). Table 3C.—Percent of Patients With Specific Conditions by Facility Type Condition LTC hospital Rehab hospital SNF discharge expected SNF discharge not expected Diseases Diabetes 37.0 25.0 27.0 24.2 Hyperthyroidism 0.4 0.7 0.7 0.3 Hypothyroidism 9.0 8.2 8.0 6.8 Arteriosclerotic heart disease 17.3 14.7 15.7 18.3 Cardiac dysrhythmia 21.1 11.3 14.7 17.2 Post heart surgery 24.0 13.0 6.9 6.2 CHF 23.0 8.5 21.6 22.9 Deep vein thrombosis 4.8 3.1 11.4 1.8 Hypertension 37.6 45.8 47.9 46.5 Hypotension 2.8 1.3 1.5 1.0 Peripheral vascular disease 15.0 9.0 8.6 6.0 Other cardiovascular disease 14.8 10.3 19.5 20.8 Arthritis 11.3 20.1 25.4 21.9 Hip fracture 6.7 11.6 14.1 7.4 Missing limb 5.4 4.9 3.0 3.5 Osteoporosis 7.1 3.6 8.0 10.5 Pathological bone fracture 1.3 1.8 1.0 1.5 Alzheimer's 1.5 0.5 4.1 12.3 Aphasia 2.3 6.5 3.8 7.2 CP 0.2 0.7 CVA 23.8 34.6 22.2 27.7 Other dementia 7.9 2.1 13.9 31.5 Hemiplegia/hemiparesis 12.9 27.8 8.8 10.1 MS 2.1 1.1 0.1 0.7 Paraplegia 3.0 2.1 0.3 0.3 Parkinson's 2.5 1.6 3.3 4.0 Quadriplegia 3.3 2.6 0.1 0.2 Seizure disorder 6.5 5.2 4.5 4.5 TIA 1.0 23 4.0 4.0 Traumatic brain injury 4.2 7.0 0.3 0.3 Anxiety disorder 4.6 5.2 7.8 6.8 Depression 10.2 14.4 14.6 13.6 Manic depression 0.8 1.1 0.9 0.7 Schizophrenia 0.8 0.5 1.0 1.5 Asthma 3.5 3.1 2.0 1.5 Emphysema/COPD 29.0 10.1 19.3 17.2 Pulmonary failure 24.0 4.3 Cataracts 2.9 3.3 6.5 5.5 Diabetic retinopathy 1.9 1.8 0.7 0.5 Glaucoma 3.8 2.9 5.9 4.0 Macular degeneration 1.5 0.7 1.2 0.8 Allergies 9.4 15.2 28.2 28.9 Anemia 15.7 11.9 18.2 19.5 Cancer 12.1 7.5 14.4 15.3 Renal failure 14.0 4.7 4.9 5.3 Amputated limb 5.4 5.0 N/A N/A Post surgery—elective hip 4.0 13.0 Antibiotic resistant infection 16.7 2.8 1.0 0.5 Pneumonia 19.2 3.1 8.5 6.5 UTI 21.9 19.9 21.1 23.1 Bladder Continence Continent, no catheter 28.0 60.9 63.4 45.6 Continent, catheter 52.1 15.2 N/A N/A Some incontinence 50.8 31.6 36.6 54.4 Bowel Continence 48.0 75.0 71.3 47.9 Complications Inability to lie flat—loss of breath 44.0 6.5 6.9 6.2 Shortness of breath—exertion 52.0 21.7 Shortness of breath—at rest 32.0 0.0 Difficulty coughing/clearing airways 40.0 2.2 N/A N/A Recurrent respiratory infection 28.0 2.2 Surgical wound 48.0 56.5 Pain None 45.4 25.6 36.0 58.8 Less than daily 17.3 19.5 31.0 22.3 Daily 37.3 55.0 33.0 18.9 Health Complications Syncope 2.3 1.0 .07 0 Unsteady Gait 26.2 52.5 48.0 40.1 Limited ROM—Arm 20.7 9.3 6.3 12.5 Limited ROM—Hand 18.0 7.2 3.5 8.8 Limited ROM—Foot 26.4 10.5 5.7 14.7 Pressure Ulcers—Any (stage 1-4) 36.0 17.9 17.7 21.6 Expectations (Rehabilitation Potential) Patient believes self could be more independent 53.7 74.5 45.1 16.2 Staff believes patient could be more independent 59.1 76.4 50.9 31.3 Patient able to perform tasks slowly 26.1 33.9 12.7 12.4 Major difference in ADLs AM and PM 8.1 16.7 1.9 3.2 Behavior Wander 3.6 4.1 2.8 9.1 Verbally abusive 3.4 3.8 3.0 5.4 Physically abusive 1.8 2.1 1.4 5.9 Socially inappropriate 3.2 4.8 4.2 8.6 Resists care 12.2 8.6 9.8 16.3 The diagnostic profiles of patients in rehabilitation hospitals and SNFs were similar, although rehabilitation hospitals treated a higher percentage of patients with strokes, hemiplegia/hemiparesis, and traumatic brain injury and fewer patients with congestive heart failure and emphysema or chronic obstructive pulmonary disease. Both bladder and bowel continence levels were similar for rehabilitation hospital and SNF patients who were expected to be discharged. Pain levels for rehabilitation hospital and SNF patients were also similar overall, although more SNF patients were reported to experience pain less frequently than daily and more rehabilitation hospital patients were assessed as having daily pain. Pressure ulcer rates for rehabilitation hospital and SNF patients were comparable, as were the number of patients with unsteady gait and limitations in range of motion. Rehabilitation hospitals reported a higher use of restraints. Rehabilitation hospital and SNF patients who were expected to be discharged had a similar number of behavioral symptoms, which were less overall as compared to the number of behavioral symptoms experienced by SNF patients not expected to be discharged. These results confirmed anecdotal information reported by rehabilitation hospital and SNF clinicians during our focus groups. While Medicare coverage policies allow payment to SNFs for a wider range of patients than rehabilitation hospitals, both groups reported that their patient populations had changed over the past few years, leading to some convergence in the types of patients treated by rehabilitation hospitals and SNFs. Both reported a large increase in the number of comorbidities and clinical complexities for patients admitted primarily for rehabilitative services, saying that “uncomplicated” patients were no longer admitted for inpatient rehabilitation, (instead, for example, “uncomplicated” patients requiring rehabilitation after a hip fracture now generally receive therapy in their homes). It is our view that any system used to classify rehabilitation patients should be based on the same measures of a patient's health status and care needs as are used in other segments of the post-acute care industry. However, for purposes of this proposed rule, we are most concerned that the classification instrument work well with IRF patients. Given our use of the MDS in SNFs, it is logical to extend an MDS-based system to IRFs. We are developing version 3 of the MDS/RAI, which we envision as containing sections for specific populations (for example, traditional, long stay resident; short-stay patient; those receiving palliative or end of life care; and pediatrics). 2. Other Options We recognized that many rehabilitation hospitals already use a patient assessment instrument that contains the functional independence measures (FIM). The FIM were developed by researchers who were funded by a consortium of rehabilitation professional associations and the Department of Education, at the State University of New York (SUNY) at Buffalo in the 1980s. The FIM are contained in a patient assessment instrument that is marketed by the Uniform Data System for Medical Rehabilitation (UDSmr) maintained by SUNY/Buffalo. Caredata.com Clinical Outcome System (COS) used to market a patient assessment instrument that contained the FIM, but we have been notified that Caredata.com has discontinued its business related to FIM reporting as of July 2000. The patient assessment instrument marketed by UDSmr is proprietary. Many rehabilitation providers are clients of UDSmr. Our 1997 data shows that approximately 68 percent of Medicare patients had a UDSmr or COS data file, indicating that these patients were assessed with the FIM. There is extensive experience with the FIM contained in the UDSmr and COS patient assessment instruments and the uses of the FIM data. This is documented by a substantial list of publications produced both in the United States and overseas (for example, Sweden and Japan), by the developers of the system, and by independent investigators. The developers of the FIM offer a certification course to train assessors in the use of the instruments. This results in very high rates of intra and inter rater reliability, with Cronbach alpha coefficients of more than 0.9 for both the motor and cognitive subscores. The Cronbach alpha coefficient is a statistical measure of inter-rater reliability with perfect reliability equal to 1.0. Therefore, a score of 0.9 indicates a very high level of inter-rater reliability. The MDS-PAC is a modification of the MDS, the patient assessment instrument developed for use in nursing facilities. The principal objective of the MDS is to facilitate care planning through a description of the needs of the patient for services. In contrast, the principal objective of the FIM is to assess person level disability in the inpatient medical rehabilitation setting. The strength of the FIM assessment instrument is that it is a well-evolved and extensively tested approach to the assessment of the critical components of care provided by IRFs, the impact on the patient improvement in functional capacity, and the purpose of the care provided by the IRFs. The variations among facilities in the difference between the observed and expected improvement in function are used as indicators of the quality and the effectiveness of the facilities. The organization that analyzes FIM data for providers generates benchmark data that allows IRFs to compare the outcome of their performance on the functional independence measures relative to other providers participating in the system. One drawback of the FIM assessment instrument is that it is specifically focused on functional performance. Information is collected only on the matters directly related to functional performance and only at admission and discharge, and, when possible, 6 months after discharge. There is, therefore, a lack of detail on the needs of the patient or on the evolution of the condition of the patient during the course of the admission. However, given that the mean length of stay in an IRF is 15.81 days (median length of stay is 14 days), we are specifically soliciting comments on the benefits of mid-stay assessments. We are not proposing to use the FIM assessment instruments marketed by either the UDSmr or COS as the basis for an IRF prospective payment, because of our desire to have a common measurement instrument across different post-acute provider settings. Our proposal to use an MDS-based approach comes from our conviction that the use of common item labels and definitions across different provider settings would be essential to monitoring patient care across different provider settings. While we recognize that there are differences between the MDS and the MDS-PAC, our intention is, at some point in the future, to reconcile these differences. Structuring the IRF assessment instrument consistent with the MDS would allow for comparison of patients across different institutional settings. The MDS-PAC collects information on many of the same activities or functional measures as the FIM but defines these activities more specifically in some cases. It would also help facilitate continuity of care in that comparable baseline data would accompany the patient's transfer from one setting to the other. Standardized information across provider types would also be extremely useful in comparing patient characteristics and potentially the appropriateness of care in different settings that serve the same populations. This is especially important since analysis by RAND (1997) shows that costs for the same services vary significantly by provider. When we began to develop the MDS in the 1980s, the possibility of using the FIM ADL scoring schema was considered. However, field experience demonstrated that nursing home staff did not feel comfortable making the level of distinctions required in the FIM. The FIM serve as a functional-based system designed to capture specific aspects of ADL performance. Therefore, the FIM's ability to measure items that are not functionally related, such as cognition, may be problematic. For example, in order to score communication on the FIM, compromises must be made to blend cognitive and performance ideas into a single construct. The scoring schema used in the MDS-PAC allows the instrument to describe a concept like communication from a functional performance perspective as well as from the cognitive perspective based on how much caregivers have to intervene to help compensate for the patient's communication deficits. UDSmr requires that users of the FIM (for example, therapists) be trained. An evaluation of the FIM scoring will be performed by RAND before a final rule is published. FIM scoring rules assign the lowest (most dependent) value to missing data which is likely to bias scores downward, especially upon admission when data are more likely to be missing. The payment implications may generally be to place patients in a more service intensive CMG. The MDS-PAC addresses this by having a separate coding entry (8) for activities that do not occur rather than instructing users to code with the most dependent level. An independent team of technical experts highlighted areas of concern regarding the FIM's accuracy in predicting costs for patient care. Panelists were concerned that the scoring of some items, such as cognitive functioning, gave raters a great deal of discretion in determining what evidence was used in the assessment and how often the behavior had occurred. These technical experts also agreed that a functional status assessment for payment purposes should be based on clinical observation of performance rather than on the rater's assessment of the patient's capacity to perform the task. The MDS-PAC uses the same FIM constructs as were originally designed by the UDSmr team but rewords them in such a way so that these items better fit into the context of the MDS instrument. In addition, the item language and definitions and instructions are integrated into the instrument. The administration of the MDS-PAC at more than one point in a patient's stay will permit assessment of patient changes during that episode of treatment and may lead to possible refinements to the patient classification system. We seek public comment on our proposal to use the MDS-PAC as the assessment instrument for the IRF prospective payment system, including: comments and supporting data regarding the additional burden and cost, if any, associated with this instrument; the suitability of the instrument for the rehabilitation setting and as a model for other post-acute care settings; views on whether the instrument has been properly tested and validated for industry-wide use; and the utility and reliability of the quality data items contained in the instrument. 3. Combining the MDS-PAC and the FIM The MDS-PAC covers several topics, for example, nutrition, swallowing, and pain, that are either not included in the FIM or not covered in sufficient detail in the FIM for clinical assessment purposes, and that are not currently used in classifying patients for payment. An alternative to using the MDS-PAC would be to retain the non-payment items from the MDS-PAC and incorporate the FIM items for patient classification into CMGs. Because of our concerns, as outlined above (for example, compatibility with assessments in other settings), we have rejected this option for purposes of this proposed rule and propose to use payment-related questions that are compatible with the FIM. However, the FIM assessment system has been under development since the mid 1980s and is currently recognized as a valid and reliable instrument to measure impairments in IRFs. The FIM are in current and increasing use in rehabilitation facilities, the data analysis being performed by UDSmr and by COS, with the data analysis organization depending on which of these two organizations the IRF has selected. Thus, there has been extensive training in and experience with the data elements, particularly the functional components, that enter into the construction of the CMGs. We will be testing whether the MDS-PAC results in patient classifications that are equivalent to the classifications that occurred with the FIMs (that is, the assessment instruments that were used to design the payment system). If the tests show that patients are classified differently using the MDS-PAC, HCFA will, in the final rule, incorporate the phrasing, definitions, and order of the items required by the payment system, based on the FIM, replacing the proposed equivalent sections of the MDS-PAC. This would meet our objective to field the more extensive instrument to provide a more complete picture of the evolution of condition of the patient and of the care provided in the IRF, but also to retain confidence in the validity of the classification of the patient. Using the phrasing, definitions, and order of the items would minimize the effect on reliability and validity inherent in the design of new data collection instruments. 4. The MDS-PAC Development Process Under contract, a team led by John N. Morris, Ph.D., at the Hebrew Rehabilitation Center for the Aged, began to develop the MDS-PAC in 1997. This team played a key role in designing the original MDS/RAI system and MDS 2. The MDS-PAC development process relied on broad-based input from a large and diverse constituency, representing rehabilitation facilities, SNFs, long-term care hospitals, and the viewpoints of individual and corporate providers, clinical disciplines, consumers, States, other Federal agencies, and researchers. Examples of organizations representing rehabilitation providers and clinicians include the American Medical Rehabilitation Providers Association, the American Hospital Association (representing hospital-based rehabilitation units), the Federation of American Health Systems, the Commission on Accreditation of Rehabilitation Facilities, the National Head Injury Foundation, the Uniform Data System for Medical Rehabilitation, the Association of Academic Physiatrists, and the American Academy of Physical Medicine and Rehabilitation. Representatives and staff of over 40 national organizations and agencies with a stake in the MDS-PAC were brought together in a technical expert panel, which met at the outset of the MDS-PAC development process, and at key intervals thereafter. The purpose of the technical expert panel was to provide us with advice on technical and operational issues associated with assessment of post-acute patients. We requested that technical expert panel representatives disseminate project information to their constituents, coordinate input from their members back to our project team, and assist with identifying facilities to participate in field testing of the instrument. We solicited comments from technical expert members on several drafts of the MDS-PAC, and also conducted a mailing that solicited comments from over 1100 facilities and individuals, identified in part by technical expert panel members. We also posted a project summary and various drafts of the MDS-PAC on our MDS web site. In addition, the project team reviewed the comments we received on the assessment instrument. We began development of the MDS-PAC by gathering baseline information through focus groups, a provider survey, and collection of MDS data within rehabilitation hospitals/hospital-based units and long-term care hospitals. We held two focus groups, consisting of physicians, nurses, and therapists who were involved in patient assessment and care planning on a daily basis within rehabilitation hospitals and units, SNFs, and long-term care hospitals. The clinicians who participated in the focus groups were all nominated by the national associations representing rehabilitation hospitals, SNFs, and long-term care hospitals. The purpose of the focus groups was to solicit real-world input regarding current assessment and care planning practices for post-acute patients. We also conducted a survey of SNF, rehabilitation hospital, and long-term care hospital providers to gather information about their patient populations, assessment and care planning practices, care processes, care delivery models, and the availability of various types of specialized staff. Facility staff were asked to comment on the perceived clinical utility of MDS items and each of the RAPs for their own patient populations. Providers participating in our focus groups were asked to pilot the questionnaire, which was subsequently refined. The questionnaire was then distributed to over 900 SNFs, rehabilitation hospitals and units, and long-term care hospitals that had requested information on the project or whose names we had received from associations participating on the technical expert panel. A total of 416 providers (224 SNFs, 131 rehabilitation hospitals or units, and 61 long-term care hospitals) responded to the survey during January through March 1998. A summary of these responses was presented during our March 1998 meeting with the technical expert panel. Using the input gathered from our initial activities, we developed an initial draft of the MDS-PAC in September 1997. In developing the initial MDS-PAC draft, it is important to note that we did not start with the current MDS 2. Rather, we used a “bottom-up” approach to build the MDS-PAC. This means that we started by listing the various domains and issues that had been identified through our initial focus groups and provider survey as relevant for the post-acute patient. We then selected items to measure those specific issues from the MDS 2 or other HCFA assessment instruments, such as the Outcome and Assessment Information Set (OASIS) or the Uniform Needs Assessment Instrument. New items were developed for those areas in which no item currently existed within our group of assessment tools. In building and refining the MDS-PAC items we relied extensively on the input of clinical experts serving on, or identified by, our technical expert panel. Appendix B contains a summary of the survey items and the responses of the clinical experts. The original MDS-PAC draft was refined through the production of 10 major draft revisions over a 2-year period. We solicited comments on various drafts through mailings to our technical expert panel, and to over 1100 providers that had been identified by the technical expert panel or otherwise indicated an interest in the project, as well as through posting of various drafts on our web site. One of the guiding principles of our MDS-PAC development has been that the instrument had to include items that were compatible with the FIM and would result in the same patient classifications generated using the FIM. In nearly all instances, we did not simply insert the functional independence measures items into the MDS-PAC. Generally, the goal was to develop blended items that were consistent with the general MDS model and scales, but were also capable of generating the type and level of detail contained in a specific functional independence measure item. This work was conducted through extensive collaboration with Dr. Carl Granger, who was a member of our MDS-PAC technical expert panel, and his UDSmr team. Prior to our final rule, we will be conducting further research to determine whether the MDS-PAC will classify patients into the same CMGs as they would have been classified into using FIM. 5. Developmental Testing of the MDS-PAC Drafts of the MDS-PAC were subjected to substantial field testing, to ensure it is both reliable and feasible for use as the patient data collection system needed to implement the IRF prospective payment system. Formal testing consisted of an initial pilot test, as well as two larger rounds of field testing, in rehabilitation hospitals and units, SNFs, and long-term care hospitals. In conducting research, a pilot test allows a preliminary trial of an instrument to discover and rectify any major problems before the main study begins. A pilot test uses a small study sample of facilities, whose results enable researchers to make last minute corrections and adjustments. A field test uses a larger sample and more formally delineated procedures and protocols. In conducting our tests we worked with a number of providers that volunteered to participate either directly or through their provider associations. However, most of the participants in each of the testing rounds were recruited randomly from our listing of Medicare-certified providers maintained in the Online Survey and Certification Reporting System; we designed our sample to ensure that participating facilities varied in geographic location, size, etc. Pilot testing of the MDS-PAC was conducted in September through October 1998, with a total of 20 providers (7 rehabilitation hospitals or units, 4 long-term care hospitals, 9 SNFs; 15 sites recruited randomly). A total of 161 assessments were completed as part of the pilot test, with 69 completed by rehabilitation hospitals, 68 by SNFs, and 24 by long-term care hospitals. MDS-PAC testing consisted of a pilot test and two field tests. A total of 16 assessors participated in the pilot test conducted in IRFs and 96 and 75 assessors participated in the first and second field tests, respectively. The MDS-PAC was used to assess a total of 885 admissions and 345 discharges in these IRFs during this pilot and field testing. The average length of stay for these admissions was 18.9 days with a median of 16 days. The initial field test occurred in January through April 1999, in 85 providers total (40 rehabilitation hospitals or units, 21 long-term care hospitals, 22 SNFs, and 2 facilities for which the above category was not properly recorded; 51 sites recruited randomly). A total of 1164 patients were assessed using draft 8 of the MDS-PAC, with 599 cases assessed in rehabilitation hospitals or units, 284 in SNFs and 281 in long-term care hospitals. The second field test was conducted in June through September 1999, in a total of 57 providers (33 rehabilitation hospitals and units, 11 long-term care hospitals, 13 SNFs; 39 sites recruited randomly). A total of 462 cases were completed in the second field test, with 285 patients assessed by rehabilitation hospitals, 80 by SNFs, and 97 by long-term care hospitals. Testing focused on the inter-rater reliability and clinical validity of MDS-PAC items, as well as the administrative feasibility and burden associated with completion of the assessment tool. Paired assessments were completed for a sample of cases during each of the field trials (N=171 assessments conducted using the June 30, 1999 version of the MDS-PAC used in field test 2) and reliability coefficients were calculated using a weighted Kappa statistic. Reliability measures whether the instrument would result in the same findings if it were administered at a later date or by a different person. The average reliability for the 315 items on the version of the MDS-PAC tested in the second field test (draft 9) was 0.78. A frequently cited standard in the research community, Fleiss (1975), establishes item reliability of 0.5 as acceptable, with levels of 0.75 or better considered as superior for tools of this nature. Reliability coefficients ranged from 0.51 for “repetitive health complaints” to 1.0 for seve [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A00-27646. Public record. Not legal advice.