# Medicare Program; Prospective Payment System for Long-Term Care Hospitals RY 2009: Annual Payment Rate Updates, Policy Changes, and Clarifications; and Electronic Submission of Cost Reports: Revision to Effective Date of Cost Reporting Period > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A08-1219 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** May 9, 2008 - **Citation:** 73 FR 26788 ## Text DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Part 412 [CMS-1393-F and CMS-1199-F] RINs 0938-AO94 and 0938-AN87 Medicare Program; Prospective Payment System for Long-Term Care Hospitals RY 2009: Annual Payment Rate Updates, Policy Changes, and Clarifications; and Electronic Submission of Cost Reports: Revision to Effective Date of Cost Reporting Period AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Final rule. SUMMARY: This final rule updates the annual payment rates for the Medicare prospective payment system (PPS) for inpatient hospital services provided by long-term care hospitals (LTCHs). We are also consolidating the annual July 1 update for payment rates and the October 1 update for Medicare severity long-term care diagnosis-related group (MS-LTC-DRG) weights to a single rulemaking cycle that coincides with the Federal fiscal year (FFY). In addition, we are clarifying various policy issues. This final rule also finalizes the provisions from the Electronic Submission of Cost Reports: Revision to Effective Date of Cost Reporting Period interim final rule with comment period that was published in the May 27, 2005 Federal Register which revises the existing effective date by which all organ procurement organizations (OPOs), rural health clinics (RHCs), Federally qualified health centers (FQHCs), and community mental health centers (CMHCs) are required to submit their Medicare cost reports in a standardized electronic format from cost reporting periods ending on or after December 31, 2004 to cost reporting periods ending on or after March 31, 2005. This final rule does not affect the current cost reporting requirement for hospices and end-stage renal disease (ESRD) facilities. Hospices and ESRD facilities are required to continue to submit cost reports under the Medicare regulations in a standardized electronic format for cost reporting periods ending on or after December 31, 2004. DATES: The provisions of this final rule are effective on July 8, 2008. FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487 (General information). Judy Richter, (410) 786-2590 (General information, payment adjustments for special cases, onsite discharges and readmissions, interrupted stays, co-located providers, and short-stay outliers). Michele Hudson, (410) 786-5490 (Calculation of the payment rates, MS-LTC-DRGs, relative weights and case-mix index, market basket, wage index, budget neutrality, and other payment adjustments). Ann Fagan, (410) 786-5662 (Patient classification system). Linda McKenna, (410) 786-4537 (Payment adjustments and interrupted stay). Elizabeth Truong, (410) 786-6005 (Federal rate update, budget neutrality, other adjustments, and calculation of the payment rates). Michael Treitel, (410) 786-4552 (High cost outliers and cost-to-charge ratios). Darryl E. Simms, (410) 786-4524 (Electronic Submission of Cost Reports: Revision to Effective Date of Cost Reporting Period). Table of Contents I. Background of the LTCH PPS A. Legislative and Regulatory Authority B. Criteria for Classification as a LTCH 1. Classification as a LTCH 2. Hospitals Excluded from the LTCH PPS C. Transition Period for Implementation of the LTCH PPS D. Limitation on Charges to Beneficiaries E. Administrative Simplification Compliance Act (ASCA) and Health Insurance Portability and Accountability Act (HIPAA) Compliance II. Summary of the Provisions of This Final Rule III. Medicare Severity Long-Term Care Diagnosis-Related Group (LTC-DRG) Classifications and Relative Weights A. Background B. Patient Classifications Into MS-LTC-DRGs C. Organization of MS-LTC-DRGs D. Method for Updating the MS-LTC-DRG Classifications and Relative Weights 1. Background 2. FY 2008 MS-LTC-DRG Relative Weights IV. Changes to the LTCH PPS Payment Rates and other Changes for the 2009 LTCH PPS Rate Year A. Overview of the Development of the Payment Rates B. Consolidation of the Annual Updates for Payment and MS-LTC-DRG Relative Weights to One Annual Update C. LTCH PPS Market Basket 1. Overview of the Rehabilitation, Psychiatric and Long-Term Care (RPL) Market Basket 2. Market Basket Estimate for the 2009 LTCH PPS Rate Year D. One-time Prospective Adjustment to the Standard Federal Rate E. Standard Federal Rate for the 2009 LTCH PPS Rate Year 1. Background 2. Standard Federal Rate for the 2009 LTCH PPS Rate Year F. Calculation of LTCH Prospective Payments for the 2009 LTCH PPS Rate Year 1. Adjustment for Area Wage Levels a. Background b. Updates to the Geographic Classifications/Labor Market Area Definitions (1) Background (2) Update to the CBSA-Based Labor Market Area Definitions (3) Clarification of New England Deemed Counties (4) Codification of the Definitions of Urban and Rural Under 42 CFR Part 412, Subpart O c. Labor-Related Share d. Wage Index Data 2. Adjustment for Cost-of-Living in Alaska and Hawaii 3. Adjustment for High-Cost Outliers (HCOs) a. Background b. Cost-to-Charge Ratios (CCRs) c. Establishment of the RY 2009 Fixed-Loss Amount d. Application of Outlier Policy to Short-Stay Outlier (SSO) Cases 4. Other Payment Adjustments 5. Technical Correction to the Budget Neutrality Requirement at § 412.523(d)(2) G. Conforming Changes V. Computing the Adjusted Federal Prospective Payments for the 2009 LTCH PPS Rate Year VI. Monitoring VII. Method of Payment VIII. RTIs Research IX. Electronic Submission of Cost Reports: Revision to Effective Date of Cost Reporting Period A. Background B. Provisions of the Interim Final Rule with Comment Period C. Analysis of and Responses to Public Comments D. Provisions of the Final Regulations X. Collection of Information Requirements XI. Regulatory Impact Analysis A. RY 2009 LTCH PPS 1. Introduction a. Executive Order 12866 b. Regulatory Flexibility Act (RFA) c. Impact on Rural Hospitals d. Unfunded Mandates e. Federalism f. Alternatives Considered 2. Anticipated Effects of Payment Rate Changes a. Budgetary Impact b. Impact on Providers c. Calculation of Prospective Payments d. Results (1) Location (2) Participation Date (3) Ownership Control (4) Census Region (5) Bed size e. Effects on the Medicare Program f. Effects on Medicare Beneficiaries 3. Accounting Statement B. Electronic Submission of Cost Reports: Revision to Effective Date of Cost Reporting Period Regulations Text Addendum Table 1: Long-Term Care Hospital Wage Index for Urban Areas for Discharges Occurring From July 1, 2008 through September 30, 2009 Table 2: Long-Term Care Hospital Wage Index for Rural Areas for Discharges Occurring from July 1, 2008 through September 30, 2009 Table 3: FY 2008 MS-LTC-DRG Relative Weights, Geometric Average Length of Stay, Short-Stay Outlier Threshold and IPPS-Comparable Threshold (for Short-Stay Outlier Cases) Acronyms Because of the many terms to which we refer by acronym in this rule, we are listing the acronyms used and their corresponding terms in alphabetical order below: 3M Health Information System AHA American Hospital Association AHIMA American Health Information Management Association ALOS Average length of stay ALTHA Acute Long Term Hospital Association ASCA Administrative Simplification Compliance Act of 2002 (Pub. L. 107-105) BBA Balanced Budget Act of 1997 (Pub. L. 105-33) BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Balanced Budget Refinement Act of 1999 (Pub. L. 106-113) BIPA Medicare, Medicaid, and SCHIP [State Children's Health Insurance Program] Benefits Improvement and Protection Act of 2000 (Pub. L. 106-554) BLS Bureau of Labor Statistics BN Budget neutrality CBSA Core-based statistical area CC Complications and comorbidities CCR Cost-to-charge ratio C&M Coordination and maintenance CMI Case-mix index CMS Centers for Medicare & Medicaid Services COLA Cost of living adjustment COP Condition of participation CPI Consumer Price Index CY Calendar year DSH Disproportionate share of low-income patients DRGs Diagnosis-related groups ECI Employment Cost Index FI Fiscal intermediary FY Fiscal year FFY Federal fiscal year HCO High-cost outlier HCRIS Hospital cost report information system HHA Home health agency HHS (Department of) Health and Human Services HIPAA Health Insurance Portability and Accountability Act (Pub. L. 104-191) HIPC Health Information Policy Council HwHs Hospitals within hospitals ICD-9-CM International Classification of Diseases, Ninth Revision, Clinical Modification (codes) IME Indirect medical education I-O Input-Output IPF Inpatient psychiatric facility IPPS [Acute Care Hospital] Inpatient Prospective Payment System IRF Inpatient rehabilitation facility LOS Length of stay LTC-DRG Long-term care diagnosis-related group LTCH Long-term care hospital MAC Medicare Administrative Contractor MCE Medicare code editor MDC Major diagnostic categories MedPAC Medicare Payment Advisory Commission MedPAR Medicare provider analysis and review MMA Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. 108-173) MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007 (Pub. L. 110-173) MSA Metropolitan statistical area MS-DRG Medicare severity diagnosis-related group MS-LTC-DRG Medicare severity long-term care diagnosis-related group NAICS North American Industrial Classification System NALTH National Association of Long Term Hospitals NCHS National Center for Health Statistics OACT [CMS'] Office of the Actuary OBRA 86 Omnibus Budget Reconciliation Act of 1986 (Pub. L. 99-509) OMB Office of Management and Budget OPM U.S. Office of Personnel Management O.R. Operating room OSCAR Online Survey Certification and Reporting (System) PIP Periodic interim payment PLI Professional liability insurance PMSA Primary metropolitan statistical area PPI Producer Price Indexes PPS Prospective payment system PSF Provider specific file QIO Quality Improvement Organization (formerly Peer Review organization (PRO)) RIA Regulatory impact analysis RPL Rehabilitation psychiatric long-term care (hospital) RTI Research Triangle Institute, International RY Rate year (begins July 1 and ends June 30) SIC Standard industrial code SNF Skilled nursing facility SSO Short-stay outlier TEFRA Tax Equity and Fiscal Responsibility Act of 1982 (Pub. L. 97-248) TEP Technical expert panel UHDDS Uniform hospital discharge data set I. Background of the LTCH PPS A. Legislative and Regulatory Authority Section 123 of the Medicare, Medicaid, and SCHIP (State Children's Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113) as amended by section 307(b) of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) provides for payment for both the operating and capital-related costs of hospital inpatient stays in long-term care hospitals (LTCHs) under Medicare Part A based on prospectively set rates. The Medicare prospective payment system (PPS) for LTCHs applies to hospitals described in section 1886(d)(1)(B)(iv) of the Social Security Act (the Act), effective for cost reporting periods beginning on or after October 1, 2002. Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as “a hospital which has an average inpatient length of stay (as determined by the Secretary) of greater than 25 days.” Section 1886(d)(1)(B)(iv)(II) of the Act also provides an alternative definition of LTCHs: Specifically, a hospital that first received payment under section 1886(d) of the Act in 1986 and has an average inpatient length of stay (LOS) (as determined by the Secretary of Health and Human Services (the Secretary)) of greater than 20 days and has 80 percent or more of its annual Medicare inpatient discharges with a principal diagnosis that reflects a finding of neoplastic disease in the 12-month cost reporting period ending in fiscal year (FY) 1997. Section 123 of the BBRA requires the PPS for LTCHs to be a “per discharge” system with a diagnosis-related group (DRG) based patient classification system that reflects the differences in patient resources and costs in LTCHs. Section 307(b)(1) of the BIPA, among other things, mandates that the Secretary shall examine, and may provide for, adjustments to payments under the LTCH PPS, including adjustments to DRG weights, area wage adjustments, geographic reclassification, outliers, updates, and a disproportionate share adjustment. In the August 30, 2002 Federal Register , we issued a final rule that implemented the LTCH PPS authorized under BBRA and BIPA (67 FR 55954). This system uses information from LTCH patient records to classify patients into distinct MS-long-term care diagnosis-related groups (MS-LTC-DRGs) based on clinical characteristics and expected resource needs. Payments are calculated for each MS-LTC-DRG and provisions are made for appropriate payment adjustments. Payment rates under the LTCH PPS are updated annually and published in the Federal Register . The LTCH PPS replaced the reasonable cost-based payment system under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) (Pub. L. 97-248) for payments for inpatient services provided by a LTCH with a cost reporting period beginning on or after October 1, 2002. (The regulations implementing the TEFRA reasonable cost-based payment provisions are located at 42 CFR part 413.) With the implementation of the PPS for acute care hospitals authorized by the Social Security Amendments of 1983 (Pub. L. 98-21), which added section 1886(d) to the Act, certain hospitals, including LTCHs, were excluded from the PPS for acute care hospitals and were paid their reasonable costs for inpatient services subject to a per discharge limitation or target amount under the TEFRA system. For each cost reporting period, a hospital-specific ceiling on payments was determined by multiplying the hospital's updated target amount by the number of total current year Medicare discharges. (Generally, in this document when we refer to discharges, the intent is to describe Medicare discharges.) The August 30, 2002 final rule further details the payment policy under the TEFRA system (67 FR 55954). In the August 30, 2002 final rule, we also presented an in-depth discussion of the LTCH PPS, including the patient classification system, relative weights, payment rates, additional payments, and the BN requirements mandated by section 123 of the BBRA. The same final rule that established regulations for the LTCH PPS under 42 CFR part 412, subpart O, also contained LTCH provisions related to covered inpatient services, limitation on charges to beneficiaries, medical review requirements, furnishing of inpatient hospital services directly or under arrangement, and reporting and recordkeeping requirements. We refer readers to the August 30, 2002 final rule for a comprehensive discussion of the research and data that supported the establishment of the LTCH PPS (67 FR 55954). In the June 6, 2003 Federal Register , we published a final rule that set forth the FY 2004 annual update of the payment rates for the Medicare PPS for inpatient hospital services furnished by LTCHs (68 FR 34122). It also changed the annual period for which the payment rates are effective. The annual updated rates are now effective from July 1 through June 30 instead of from October 1 through September 30. We refer to the July through June time period as a “long-term care hospital rate year” (LTCH PPS rate year). In addition, we changed the publication schedule for the annual update to allow for an effective date of July 1. The payment amounts and factors used to determine the annual update of the LTCH PPS Federal rate are based on a LTCH PPS rate year. While the LTCH payment rate update is effective July 1, the annual update of the DRG classifications and relative weights for LTCHs are linked to the annual adjustments of the acute care hospital inpatient DRGs and are effective each October 1. The Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) (Pub. L. 110-173) that was enacted on December 29, 2007 has various effects on the LTCH PPS. The new law's provisions also have varying timeframes of applicability. First, we note that certain provisions of the MMSEA provided that Secretary shall not apply, for cost reporting periods beginning on or after the date of the enactment of the MMSEA (December 29, 2007) for a 3-year period: The extension of payment adjustments at § 412.534 to “grandfathered LTCHs” (a long term care hospital identified by the amendment made by section 4417(a) of Pub. L. 105-33); and the payment adjustment at § 412.536 to “freestanding” LTCHs. In addition, the new law provides that the Secretary shall not apply, for the 3-year period beginning on the date of enactment of the Act the revision to the SSO policy that was finalized in the rate year RY 2008 LTCH PPS final rule (72 FR 26904 and 26992) and the one-time adjustment to the payment rates provided for in § 412.523(d)(3). The statute also provides that the base rate for RY 2008 be the same as the base rate for RY 2007 (the revised base rate, however, does not apply to discharges occurring on or after July 1, 2007 and before April 1, 2008); for a 3-year moratorium (with specified exceptions) on the establishment of new LTCHs, LTCH satellites, and on the increase in the number of LTCH beds. The new law also revises in the threshold percentages for certain co-located LTCHs and LTCH satellites governed under § 412.534. Finally, the MMSEA provides for an expanded review of medical necessity for admission and continued stay at LTCHs. In this final rule, we are establishing the applicable Federal rates for RY 2009 consistent with section 1886(m)(2) of the Act as amended by MMSEA. We are also revising the regulations at § 412.523(d)(3) to change the methodology for the one-time budget neutrality adjustment and to comply with section 114(c)(4) of the MMSEA. Other policy revisions necessitated by the statutory changes of the MMSEA were addressed in separate rulemaking document and other provisions required by this new law will be addressed in the future. B. Criteria for Classification as a LTCH 1. Classification as a LTCH Under the existing regulations at § 412.23(e)(1) and (e)(2)(i), which implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to be paid under the LTCH PPS, a hospital must have a provider agreement with Medicare and must have an average Medicare inpatient LOS of greater than 25 days. Alternatively, § 412.23(e)(2)(ii) states that for cost reporting periods beginning on or after August 5, 1997, a hospital that was first excluded from the PPS in 1986 and can demonstrate that at least 80 percent of its annual Medicare inpatient discharges in the 12-month cost reporting period ending in FY 1997 have a principal diagnosis that reflects a finding of neoplastic disease must have an average inpatient LOS for all patients, including both Medicare and non-Medicare inpatients, of greater than 20 days. Section 412.23(e)(3) provides that, subject to the provisions of paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, the average Medicare inpatient LOS, specified under § 412.23(e)(2)(i) is calculated by dividing the total number of covered and noncovered days of stay for Medicare inpatients (less leave or pass days) by the number of total Medicare discharges for the hospital's most recent complete cost reporting period. Section 412.23 also provides that subject to the provisions of paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, the average inpatient LOS specified under § 412.23(e)(2)(ii) is calculated by dividing the total number of days for all patients, including both Medicare and non-Medicare inpatients (less leave or pass days) by the number of total discharges for the hospital's most recent complete cost reporting period. In the RY 2005 LTCH PPS final rule (69 FR 25674), we specified the procedure for calculating a hospital's inpatient average length of stay (ALOS) for purposes of classification as a LTCH. That is, if a patient's stay includes days of care furnished during two or more separate consecutive cost reporting periods, the total days of a patient's stay would be reported in the cost reporting period during which the patient is discharged (69 FR 25705). Therefore, we revised § 412.23(e)(3)(ii) to specify that, effective for cost reporting periods beginning on or after July 1, 2004, in calculating a hospital's ALOS, if the days of an inpatient stay involve days of care furnished during two or more separate consecutive cost reporting periods, the total number of days of the stay are considered to have occurred in the cost reporting period during which the inpatient was discharged. Fiscal intermediaries (FIs) verify that LTCHs meet the ALOS requirements. We note that the inpatient days of a patient who is admitted to a LTCH without any remaining Medicare days of coverage, regardless of the fact that the patient is a Medicare beneficiary, will not be included in the above calculation. Because Medicare would not be paying for any of the patient's treatment, data on the patient's stay would not be included in the Medicare claims processing systems. In order for both covered and noncovered days of a LTCH hospitalization to be included, a patient admitted to the LTCH must have at least 1 remaining benefit day (68 FR 34123). The FI's determination of whether or not a hospital qualifies as an LTCH is based on the hospital's discharge data from the hospital's most recent complete cost reporting period as specified in § 412.23(e)(3) and is effective at the start of the hospital's next cost reporting period as specified in § 412.22(d). However, if the hospital does not meet the ALOS requirement as specified in § 412.23(e)(2)(i) or (ii), the hospital may provide the FI with data indicating a change in the ALOS by the same method for the period of at least 5 months of the immediately preceding 6-month period (69 FR 25676). Our interpretation of § 412.23(e)(3) was to allow hospitals to submit data using a period of at least 5 months of the most recent data from the immediately preceding 6-month period. As we stated in the FY 2004 Hospital Inpatient Prospective Payment System (IPPS) final rule, published in the August 1, 2003, Federal Register , prior to the implementation of the LTCH PPS, we did rely on data from the most recently submitted cost report for purposes of calculating the ALOS (68 FR 45464). The calculation to determine whether an acute care hospital qualifies for LTCH status was based on total days and discharges for LTCH inpatients. However, with the implementation of the LTCH PPS, for the ALOS specified under § 412.23(e)(2)(i), we revised § 412.23(e)(3)(i) to only count total days and discharges for Medicare inpatients (67 FR 55970 through 55974). In addition, the ALOS specified under § 412.23(e)(2)(ii) is calculated by dividing the total number of days for all patients, including both Medicare and non-Medicare inpatients (less leave or pass days) by the number of total discharges for the hospital's most recent complete cost reporting period. As we discussed in the FY 2004 IPPS final rule, we are unable to capture the necessary data from our existing cost reporting forms (68 FR 45464). Therefore, we notified FIs and LTCHs that until the cost reporting forms are revised, for purposes of calculating the ALOS, we will be relying upon census data extracted from Medicare Provider Analysis and Review (MedPAR) files that reflect each LTCH's cost reporting period (68 FR 45464). Requirements for hospitals seeking classification as LTCHs that have undergone a change in ownership, as described in § 489.18, are set forth in § 412.23(e)(3)(iv). 2. Hospitals Excluded From the LTCH PPS The following hospitals are paid under special payment provisions, as described in § 412.22(c), and therefore, are not subject to the LTCH PPS 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 the Social Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or section 222(a) of the Social Security Amendments of 1972 (Pub. L. 92-603) (42 U.S.C. 1395b-1 (note)) (Statewide all-payer systems, subject to the rate-of-increase test at section 1814(b) of the Act). • Nonparticipating hospitals furnishing emergency services to Medicare beneficiaries. C. Transition Period for Implementation of the LTCH PPS In the August 30, 2002, final rule (67 FR 55954), we provided for a 5-year transition period. During this 5-year transition period, a LTCH's total payment under the PPS was based on an increasing percentage of the Federal rate with a corresponding decrease in the percentage of the LTCH PPS payment that is based on reasonable cost concepts. However, effective for cost reporting periods beginning on or after October 1, 2006, total LTCH PPS payments are based on 100 percent of the Federal rate. D. Limitation on Charges to Beneficiaries In the August 30, 2002, final rule, we presented an in-depth discussion of beneficiary liability under the LTCH PPS (67 FR 55974 through 55975). In the RY 2005 LTCH PPS final rule (69 FR 25676), we clarified that the discussion of beneficiary liability in the August 30, 2002, final rule was not meant to establish rates or payments for, or define Medicare-eligible expenses. Under § 412.507, if the Medicare payment to the LTCH is the full LTC-DRG payment amount, as consistent with other established hospital prospective payment systems, a LTCH may not bill a Medicare beneficiary for more than the deductible and coinsurance amounts as specified under § 409.82, § 409.83, and § 409.87 and for items and services as specified under § 489.30(a). However, under the LTCH PPS, Medicare will only pay for days for which the beneficiary has coverage until the SSO threshold is exceeded. Therefore, if the Medicare payment was for a SSO case (§ 412.529) that was less than the full LTC-DRG payment amount because the beneficiary had insufficient remaining Medicare days, the LTCH could also charge the beneficiary for services delivered on those uncovered days (§ 412.507). E. Administrative Simplification Compliance Act (ASCA) and Health Insurance Portability and Accountability Act (HIPAA) Compliance Claims submitted to Medicare must comply with both the Administrative Simplification Compliance Act (ASCA) (Pub. L. 107-105), and Health Insurance Portability and Accountability Act of 1996 (HIPAA) (Pub. L. 104-191). Section 3 of the ASCA requires that the Medicare Program deny payment under Part A or Part B for any expenses incurred for items or services “for which a claim is submitted other than in an electronic form specified by the Secretary.” Section 1862(h) of the Act (as added by section 3(a) of the ASCA) provides that the Secretary shall waive such denial in two specific types of cases and may also waive such denial “in such unusual cases as the Secretary finds appropriate” (68 FR 48805). Section 3 of the ASCA operates in the context of the HIPAA regulations, which include, among other provisions, the transactions and code sets standards requirements codified as 45 CFR parts 160 and 162, subparts A and I through R (generally known as the Transactions Rule). The Transactions Rule requires covered entities, including covered health care providers, to conduct certain electronic healthcare transactions according to the applicable transactions and code sets standards. II. Summary of the Provisions of This Final Rule The RY 2009 proposed rule appeared in the Federal Register (73 FR 5342) on January 29, 2008. We received 18 timely items of correspondence on the proposed rule that we respond to in the appropriate sections of this final rule. We also received one comment that addressed our policy on satellites of LTCHs that is beyond the scope of this regulation. Also beyond the scope of this regulation was a comment directed to our interpretation of the “25 percent threshold policy” revisions, one of the requirements specified in 114 of the MMSEA, provisions of which will be addressed in a future rulemaking. In this final rule, we are revising the LTCH PPS payment rate update cycle and making other policy changes and clarifications. The following is a summary of the major areas that we are addressing in this final rule. In section III. of this final rule, we discuss the LTCH PPS patient classification and the relative weights which are linked to the annual adjustments of the acute care hospital inpatient DRG system, and are based on the annual revisions to the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) codes effective each October 1. In this section, we also summarize the severity adjusted MS-LTC-DRGs and the development of the relative weights for FY 2008 as established in the FY 2008 IPPS final rule with comment period as well as the proposed update to the MS-LTC-DRGs and relative weights for FY 2009 presented in the FY 2009 IPPS proposed rule. In section IV.B. of this final rule, we are extending the rate year cycle for RY 2009 to a 15-month period, from July 1, 2008 through September 30, 2009. We will continue to have an update to the MS-LTC-DRG classifications and weights effective for October 1, 2008. We are consolidating the annual update to the payment rates and the update of the MS-LTC classifications and weights beginning October 1, 2009. As discussed in section IV.E.2. of this final rule, we are establishing a 2.7 percent update to the LTCH PPS Federal rate for the 2009 LTCH PPS rate year based on the most recent market basket estimate for the 15-month 2009 LTCH PPS rate year and an adjustment to account for improvements in coding and documentation. Also in section IV. of this final rule, we discuss the prospective payment rate for RY 2009. In section IV. D. of this final rule, we discuss the possible one-time adjustment to the Federal payment rate under § 412.523(d)(3). Consistent with section 114(c)(4) of MMSEA, we did not propose any adjustment under § 412.523(d)(3). However, at this time, we are revising the regulations to clarify the objectives of the possible one-time adjustment, to more precisely reflect the methodology, and to reflect the requirements of section 114(c)(4) of the MMSEA to the regulatory text. In section V. of this final rule, we discuss the updates to the payment rates, including the revisions to the wage index, the labor-related share, the cost-of-living adjustment (COLA) factors, and the outlier threshold, for the 2009 LTCH PPS rate year. In section VI. of this final rule, we discuss our on-going monitoring protocols under the LTCH PPS. In section VIII. of this final rule, we discuss Research Triangle Institute's (RTI) analysis relating to the development of LTCH patient-and facility-level criteria. In section IX. of this final rule, we are finalizing the revision to the effective date of cost reporting periods for electronic submission of cost reports for certain entities. In section XI. of this final rule, we analyze the impact of the changes established in this final rule on Medicare expenditures, Medicare-participating LTCHs, and Medicare beneficiaries. III. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Classifications and Relative Weights A. Background Section 123 of the BBRA requires that the Secretary implement a PPS for LTCHs (that is, a per-discharge system with a DRG-based patient classification system reflecting the differences in patient resources and costs). Section 307(b)(1) of the BIPA modified the requirements of section 123 of the BBRA by requiring that the Secretary examine “the feasibility and the impact of basing payment under such a system (the LTCH PPS) on the use of existing (or refined) hospital DRGs that have been modified to account for different resource use of LTCH patients, as well as the use of the most recently available hospital discharge data.” When the LTCH PPS was implemented for cost reporting periods beginning on or after October 1, 2002, we adopted the same DRG patient classification system (that is, the CMS DRGs) that was utilized at that time under the hospital inpatient prospective payment system (IPPS). As a component of the LTCH PPS, we refer to the patient classification system as the “LTC-DRGs.” As discussed in greater detail below, although the patient classification system used under both the LTCH PPS and the IPPS are the same, the relative weights are different. The established relative weight methodology and data used under the LTCH PPS result in LTC-DRG relative weights that reflect “the different resource use of long-term care hospital patients consistent with the statute.” As part of our efforts to better recognize severity of illness among patients, in the FY 2008 IPPS final rule with comment period (72 FR 47130), the Medicare Severity diagnosis related groups (MS-DRGs) and the Medicare Severity long-term care diagnosis related groups (MS-LTC-DRGs) were adopted for the IPPS and the LTCH PPS, respectively, effective October 1, 2007 (FY 2008). For a full description of the development and implementation of the MS-DRGs and MS-LTC-DRGs, see the FY 2008 IPPS final rule with comment period (72 FR 47141 through 47175 and 47277 through 47299). (We note that in that same final rule, we revised the regulations at § 412.503 to specify that for LTCH discharges occurring on or after October 1, 2007, when applying the provisions of this subpart for policy descriptions and payment calculations, all references to LTC-DRGs would be considered a reference to MS-LTC-DRGs. For the remainder of this section, we present the discussion in terms of the current MS-LTC-DRG patient classification unless specifically referring to the previous LTC-DRG patient classification system (that was in effect before October 1, 2007).) We believe the MS-DRGs (and by extension, the MS-LTC-DRGs) represent a substantial improvement over the previous CMS DRGs in their ability to differentiate cases based on severity of illness and resource consumption. The MS-DRGs represent an increase in the number of DRGs by 207 (that is, from 538 to 745) (72 FR 47171). In addition to improving the DRG system's recognition of severity of illness, we believe the MS-DRGs are responsive to the public comments that were made on the FY 2007 IPPS proposed rule with respect to how we should undertake further DRG reform. The MS-DRGs use the CMS DRGs as the starting point for revising the DRG system to better recognize resource complexity and severity of illness. We have generally retained all of the refinements and improvements that have been made to the base DRGs over the years that recognize the significant advancements in medical technology and changes to medical practice. In accordance with section 123 of the BBRA as amended by section 307(b)(1) of the BIPA and § 412.515, we use information derived from LTCH PPS patient records to classify LTCH discharges into distinct MS-LTC-DRGs based on clinical characteristics and estimated resource needs. As stated above, the MS-LTC-DRGs used as the patient classification component of the LTCH PPS correspond to the hospital inpatient MS-DRGs in the IPPS. We assign an appropriate weight to the MS-LTC-DRGs to account for the difference in resource use by patients exhibiting the case complexity and multiple medical problems characteristic of LTCHs. In a departure from the IPPS, we use low-volume MS-LTC-DRGs (less than 25 LTCH cases) in determining the MS-LTC-DRG relative weights, since LTCHs do not typically treat the full range of diagnoses as do acute care hospitals. To manage the large number of low-volume MS-LTC-DRGs (all MS-LTC-DRGs with fewer than 25 LTCH cases), for purposes of determining the relative weights, we group low-volume MS-LTC-DRGs into 5 quintiles based on average charge per discharge. (A detailed discussion of the application of the Lewin Group “quintile” model that was used to develop the LTC-DRGs appears in the August 30, 2002, LTCH PPS final rule (67 FR 55978).) We also account for adjustments to payments for short-stay outlier (SSO) cases (that is, cases where the covered length of stay (LOS) at the LTCH is less than or equal to five-sixths of the geometric ALOS for the MS-LTC-DRG). Furthermore, we make adjustments to account for nonmonotonically increasing weights, when necessary (as described below in this section). That is, theoretically, cases under the MS LTC DRG system that are more severe require greater expenditure of medical care resources and will result in higher average charges. Therefore, in the three severity levels, weights should increase monotonically with severity, from the lowest to highest severity level. B. Patient Classifications Into MS-LTC-DRGs Generally, under the LTCH PPS, a Medicare payment is made at a predetermined specific rate for each discharge; that payment varies by the MS-LTC-DRG to which a beneficiary's stay is assigned. Cases are classified into MS-LTC-DRGs for payment based on the following six data elements: • Principal diagnosis. • Up to eight additional diagnoses. • Up to six procedures performed. • Age. • Sex. • Discharge status of the patient. Upon the discharge of the patient from a LTCH, the LTCH must assign appropriate diagnosis and procedure codes from the most current version of the International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM). HIPAA Transactions and Code Sets Standards regulations at 45 CFR parts 160 and 162 require that no later than October 16, 2003, all covered entities must comply with the applicable requirements of subparts A and I through R of part 162. Among other requirements, those provisions direct covered entities to use the ASC X12N 837 Health Care Claim: Institutional, Volumes 1 and 2, version 4010, and the applicable standard medical data code sets for the institutional health care claim or equivalent encounter information transaction (see 45 CFR 162.1002 and 45 CFR 162.1102). For additional information on the ICD-9-CM Coding System, refer to the FY 2008 IPPS final rule with comment period (72 FR 47241 through 47243 and 47277 through 47281). We also refer readers to the detailed discussion on correct coding practices in the August 30, 2002, LTCH PPS final rule (67 FR 55981 through 55983). Additional coding instructions and examples are published in the Coding Clinic for ICD-9-CM. Medicare contractors (that is, fiscal intermediaries (FIs), now called Medicare Administrative Contractors (MACs)) enter the clinical and demographic information into their claims processing systems and subject this information to a series of automated screening processes called the Medicare Code Editor (MCE). These screens are designed to identify cases that require further review before assignment into a MS-LTC-DRG can be made. During this process, the following types of cases are selected for further development: • Cases that are improperly coded. (For example, diagnoses are shown that are inappropriate, given the sex of the patient. Code 68.69, Other and unspecified radical abdominal hysterectomy, would be an inappropriate code for a male.) • Cases including surgical procedures not covered under Medicare. (For example, organ transplant in a nonapproved transplant center.) • Cases requiring more information. (For example, ICD-9-CM codes are required to be entered at their highest level of specificity. There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 262, Other severe protein-calorie malnutrition, contains all appropriate digits, but if it is reported with either fewer or more than 3 digits, the claim will be rejected by the MCE as invalid.) After screening through the MCE, each claim is classified into the appropriate MS-LTC-DRG by the Medicare LTCH GROUPER software. The Medicare GROUPER software, which is used under the LTCH PPS, is specialized computer software, and is the same GROUPER software program used under the IPPS. The GROUPER software was developed as a means of classifying each case into a MS-LTC-DRG on the basis of diagnosis and procedure codes and other demographic information (age, sex, and discharge status). Following the MS-LTC-DRG assignment, the Medicare contractor (FI or MAC) determines the prospective payment amount by using the Medicare PRICER program, which accounts for hospital-specific adjustments. Under the LTCH PPS, we provide an opportunity for the LTCH to review the MS-LTC-DRG assignments made by the Medicare contractor and to submit additional information within a specified timeframe as specified in § 412.513(c). The GROUPER software is used both to classify past cases to measure relative hospital resource consumption to establish the DRG weights and to classify current cases for purposes of determining payment. The records for all Medicare hospital inpatient discharges are maintained in the MedPAR file. The data in this file are used to evaluate possible MS-DRG classification changes and to recalibrate the MS-DRG and MS-LTC-DRG relative weights during CMS' annual update under both the IPPS (§ 412.60(e)) and the LTCH PPS (§ 412.517), respectively. As discussed in greater detail in section III.D. of this preamble, with the implementation of section 503(a) of the MMA, there is the possibility that one feature of the GROUPER software program may be updated twice during a Federal FY (FFY) (October 1 and April 1) as required by the statute for the IPPS (69 FR 48954 through 48957). The use of the ICD-9-CM code set is also compliant with the current requirements of the Transactions and Code Sets Standards regulations at 45 CFR parts 160 and 162, published in accordance with HIPAA. C. Organization of the MS-LTC-DRGs The MS-DRGs (used under the IPPS) and the MS-LTC-DRGs (used under the LTCH PPS) are based on the CMS DRG structure. As noted above in this section, we refer to the DRGs under the LTCH PPS as MS-LTC-DRGs although they are structurally identical to the DRGs used under the IPPS. The MS-DRGs are organized into 25 major diagnostic categories (MDCs), most of which are based on a particular organ system of the body; the remainder involve multiple organ systems (such as MDC 22, Burns). Within most MDCs, cases are then divided into surgical DRGs and medical DRGs. Surgical DRGs are assigned based on a surgical hierarchy that orders operating room (O.R.) procedures or groups of O.R. procedures by resource intensity. The GROUPER software program does not recognize all ICD-9-CM procedure codes as procedures affecting DRG assignment, that is, procedures which are not surgical (for example, EKG), or minor surgical procedures (for example, 86.11, Biopsy of skin and subcutaneous tissue). In developing Version 25.0 of the GROUPER program (the FY 2008 MS-DRGs), the diagnoses comprising the CC list were completely redefined. The revised CC list is primarily comprised of significant acute disease, acute exacerbations of significant chronic diseases, advanced or end stage chronic diseases, and chronic diseases associated with extensive debility. In general, most chronic diseases were not included on the revised CC list. For a patient with a chronic disease, a significant acute manifestation of the chronic disease was required to be present and coded for the patient to be assigned a CC. In addition to the revision of the CC list, each CC was also categorized as a major CC (MCC) or a CC based on relative resource use. Approximately 12 percent of all diagnoses codes were classified as a major CC (MCC), 24 percent as a CC, and 64 percent as a non CC. Diagnoses closely associated with mortality (ventricular fibrillation, cardiac arrest, shock, and respiratory arrest) were assigned as an MCC if the patient lived but as a non CC if the patient died. The MCC, CC, and non CC categorization was used to subdivide the surgical and medical DRGs into up to three levels, with a case being assigned to the most resource intensive level (for example, a case with two secondary diagnoses that are categorized as an MCC and a CC is assigned to the MCC level). To create the MS-DRGs (and by extension, the MS-LTC-DRGs) individual DRGs were subdivided into three, two, or one level, depending on the CC impact on resources used for those cases. As noted above in this section, further information on the development and implementation of the MS-DRGs and MS-LTC-DRGs can be found in the FY 2008 IPPS final rule with comment period (72 FR 47138 through 47175 and 47277 through 47299). D. Method for Updating the MS-LTC-DRG Classifications and Relative Weights 1. Background Under the LTCH PPS, relative weights for each MS-LTC-DRG are a primary element used to account for the variations in cost per discharge and resource utilization among the payment groups (that is, the MS-LTC-DRGs). To ensure that Medicare patients classified to each MS-LTC-DRG have access to an appropriate level of services and to encourage efficiency, each year based on the best available data, we calculate a relative weight for each MS-LTC-DRG that represents the resources needed by an average inpatient LTCH case in that MS-LTC-DRG. For example, cases in a MS-LTC-DRG with a relative weight of 2 will, on average, cost twice as much as cases in a MS-LTC-DRG with a relative weight of 1. Under § 412.517, the MS-LTC-DRG classifications and weighting factors (that is, relative weights) are adjusted annually to reflect changes in factors affecting the relative use of LTCH resources, including treatment patterns, technology and number of discharges. In the June 6, 2003 LTCH PPS final rule (68 FR 34122 through 34125), we changed the LTCH PPS annual payment rate update cycle to be effective July 1 through June 30 instead of October 1 through September 30. In addition, because the patient classification system utilized under the LTCH PPS is the same DRG system that is used under the IPPS, in that same final rule, we explained that the annual update of the LTC-DRG classifications and relative weights will continue to remain linked to the annual reclassification and recalibration of the CMS DRGs used under the IPPS (as is the case with the MS-DRGs effective for discharges occurring on or after October 1, 2007 (see § 412.503)). Therefore, we specified that we will continue to update the LTC-DRG classifications and relative weights to be effective for discharges occurring on or after October 1 through September 30 each year. We further stated at that time that we will publish the annual proposed and final update of the LTC-DRGs in the same notice as the proposed and final update for the IPPS (69 FR 34125). (We note that in section IV.B. of this preamble, we are proposing to revise § 412.535 in order to consolidate the annual July 1 and October 1 LTCH PPS update cycles, so that beginning with FY 2010, both the annual update to the standard Federal rate (and other rate and policy changes) and the annual update to the MS-LTC-DRGs would be presented in a single Federal Register publication to be effective on October 1 each year.) Under existing § 412.535(b), the FY 2008 update of the LTCH PPS patient classification system and relative weights was presented in the FY 2008 IPPS final rule with comment (72 FR 47277 through 47299). For the reader's benefit, we are providing a summary of the discussion presented in that final rule with comment in section III.D.2. of this preamble. For FY 2008, the MS-LTC-DRG classifications and relative weights were updated based on LTCH data from the FY 2006 MedPAR file, which contained hospital bills data from the March 2007 update. The MS-LTC-DRG patient classification system for FY 2008 consists of 745 DRGs that formed the basis of the Version 25.0 GROUPER program utilized under the LTCH PPS. The 745 MS-LTC-DRGs included two “error DRGs.” As in the IPPS, we included two error DRGs in which cases that cannot be assigned to valid DRGs will be grouped. These two error DRGs are MS-LTC-DRG 998 (Principal Diagnosis Invalid as a Discharge Diagnosis) and MS-LTC-DRG 999 (Ungroupable). The other 743 MS-LTC-DRGs are the same DRGs used in the IPPS GROUPER program for FY 2008 (Version 25.0). In the past, the annual update to the CMS DRGs was based on the annual revisions to the ICD-9-CM codes and was effective each October 1. The ICD-9-CM coding update process was revised as discussed in greater detail in the FY 2005 IPPS final rule (69 FR 48953 through 48957). Specifically, section 503(a) of the MMA includes a requirement for updating diagnosis and procedure codes twice a year instead of the former process of annual updates on October 1 of each year. This requirement is included as part of the amendments to the Act relating to recognition of new medical technology under the IPPS. (For additional information on this provision, including its implementation and its impact on the LTCH PPS, refer to the FY 2005 IPPS final rule (69 FR 48953 through 48957) and the RY 2006 LTCH PPS final rule (70 FR 24172 through 24177).) As noted above in this section, with the implementation of section 503(a) of the MMA, there is the possibility that one feature of the GROUPER software program may be updated twice during a FFY (October 1 and April 1) as required by the statute for the IPPS. Specifically, diagnosis and procedure codes for new medical technology may be created and added to existing DRGs in the middle of the FFY on April 1. No new MS-LTC-DRGs will be created or deleted. Consistent with our current practice, any changes to the MS-DRGs or relative weights will be made at the beginning of the next FFY (October 1). Therefore, there will not be any impact on MS-LTC-DRG payments under the LTCH PPS until the following October 1 (although the new ICD-9-CM diagnosis and procedure codes would be recognized April 1). As we explained in the FY 2008 IPPS final rule with comment period (72 FR 47277), annual changes to the ICD-9-CM codes historically were effective for discharges occurring on or after October 1 each year. Thus, the manual and electronic versions of the GROUPER software, which are based on the ICD-9-CM codes, were also revised annually and effective for discharges occurring on or after October 1 each year. The patient classification system used under the LTCH PPS (MS-LTC-DRGs) is the same DRG patient classification system used under the IPPS, which historically had been updated annually and was effective for discharges occurring on or after October 1 through September 30 each year. We have also explained that since we do not publish a mid-year IPPS rule, we will assign any new diagnosis or procedure codes implemented on April 1 to the same DRG in which its predecessor code was assigned, so that there will be no impact on the DRG assignments until the following October 1. Any coding updates will be available through the Web sites provided in section II.G.10. of the preamble of the FY 2008 IPPS final rule with comment period (72 FR 47241 through 47243) and through the Coding Clinic for ICD-9-CM. Publishers and software vendors currently obtain code changes through these sources to update their code books and software system. If new codes are implemented on April 1, revised code books and software systems, including the GROUPER software program, will be necessary because we must use current ICD-9-CM codes. Therefore, for purposes of the LTCH PPS, because each ICD-9-CM code must be included in the GROUPER algorithm to classify each case into a MS-LTC-DRG, the GROUPER software program used under the LTCH PPS would need to be revised to accommodate any new codes. At the September 2007 ICD-9-CM C&M Committee meeting, there were no compelling requests for an April 1, 2008 implementation of new ICD-9-CM codes, and therefore, we expect that the next update to the ICD-9-CM coding system will not occur until October 1, 2008 (FY 2009). Therefore, we expect that the ICD-9-CM coding set implemented on October 1, 2007, will continue through September 30, 2008 (FY 2008). The next update to the MS-LTC-DRGs and relative weights for FY 2009 will be presented in the FY 2009 IPPS proposed and final rules. 2. FY 2008 MS-LTC-DRG Relative Weights In accordance with § 412.523(c), we adjust the LTCH PPS standard Federal rate by the MS-LTC-DRG relative weights in determining payment to LTCHs for each case. Relative weights for each MS-LTC-DRG are a primary element used to account for the variations in cost per discharge and resource utilization among the payment groups as described in § 412.515. To ensure that Medicare patients who are classified to each MS-LTC-DRG have access to services and to encourage efficiency, we calculate a relative weight for each MS-LTC-DRG that represents the resources needed by an average inpatient LTCH case in that MS-LTC-DRG. For example, cases in a MS-LTC-DRG with a relative weight of 2 will, on average, cost twice as much as cases in a MS-LTC-DRG with a weight of 1. As we discussed in the FY 2008 IPPS final rule with comment period (72 FR 47282), the MS-LTC-DRG relative weights effective under the LTCH PPS for Federal FY 2008 were calculated using the March 2007 update of FY 2006 MedPAR data which contains hospital bills received through March 31, 2007, and Version 25.0 of the GROUPER software. LTCHs often specialize in certain areas, such as ventilator-dependent patients and rehabilitation or wound care. Some case types (DRGs) may be treated, to a large extent, in hospitals that have relatively high or relatively low charges. Distribution of cases with relatively high (or low) charges in specific MS-LTC-DRGs has the potential to inappropriately distort the measure of average charges. To account for the fact that cases may not be randomly distributed across LTCHs, we use a hospital-specific relative value (HSRV) method to calculate relative weights. We believe this method removes this hospital-specific source of bias in measuring average charges. Specifically, we reduce the impact of the variation in charges across providers on any particular MS-LTC-DRG relative weight by converting each LTCH's charge for a case to a relative value based on that LTCH's average charge. (See the FY 2008 IPPS final rule with comment period for further information on the application of the HSRV methodology under the LTCH PPS (72 FR 47282).) To account for MS-LTC-DRGs with low volume (that is, with fewer than 25 LTCH cases), we grouped those “low volume” MS-LTC-DRGs into 1 of 5 categories (quintiles) based on average charges for the purposes of determining relative weights. Each of the low volume MS-LTC-DRGs grouped to a specific quintile received the same relative weight and ALOS using the formula applied to the regular MS-LTC-DRGs (25 or more cases). (See the FY 2008 IPPS final rule with comment period for further explanation of the development and composition of each of the 5 low volume quintiles for FY 2008 (72 FR 47283 through 47288).) After grouping the cases in the appropriate MS-LTC-DRG, generally, we calculated the relative weights by first removing statistical outliers and cases with a LOS of 7 days or less. Next, we adjusted the number of cases remaining in each MS-LTC-DRG for the effect of SSO cases under § 412.529. The short-stay adjusted discharges and corresponding charges were used to calculate “relative adjusted weights” in each MS-LTC-DRG using the HSRV method. In determining the FY 2008 MS-LTC-DRG relative weights, we also made adjustments, as necessary, to adjust for nonmonotonicity for the severity levels within a specific base MS-LTC-DRG. (Refer to the FY 2008 IPPS final rule with comment period for further information on the treatment of severity levels and adjustments for nonmonotonically increasing relative weights for FY 2008 (72 FR 47282 through 47283 and 47293 through 47295).) Furthermore, we determined FY 2008 MS-LTC-DRG relative weights for the 185 MS-LTC-DRGs for which there were no LTCH cases in the database (that is, LTCH claims from the FY 2006 LTCH MedPAR files). (A list of the FY 2008 “no-volume” MS-LTC-DRGs and further explanation of their FY 2008 relative weight assignment can be found in the FY 2008 IPPS final rule with comment period (72 FR 47289 through 47293).) In adopting the MS-LTC-DRGs beginning in FY 2008, we established a 2-year transition. Specifically, for FY 2008, the first year of the transition, 50 percent of the relative weight for a MS-LTC-DRG is based on the average LTC-DRG relative weight under Version 24.0 of the LTC-DRG GROUPER. The remaining 50 percent of the relative weight is based on the MS-LTC-DRG relative weight under Version 25.0 of the MS-LTC-DRG GROUPER. (See the FY 2008 IPPS final rule with comment period (72 FR 47295) for additional details on the methodology used to determine the transition blended MS-LTC-DRG relative weights for FY 2008.) In the RY 2008 LTCH PPS final rule (72 FR 26882), under the broad authority conferred upon the Secretary under section 123 of Pub. L. 106-113 as amended by section 307(b) of Pub. L. 106-554 to develop the LTCH PPS, we established that beginning with the update for FY 2008, the annual update to the MS-LTC-DRG classifications and relative weights will be done in a budget neutral manner such that estimated aggregate LTCH PPS payments would be unaffected, that is, would be neither greater than nor less than the estimated aggregate LTCH PPS payments that would have been made without the MS-LTC-DRG classification and relative weight changes. Historically, we had not updated the LTC-DRGs in a budget neutral manner because we believed that past fluctuations in the relative weights were primarily due to changes in LTCH coding practices rather than changes in patient severity. In light of the most recently available LTCH claims data at that time, which indicated that LTCH claims data no longer appeared to significantly reflect changes in LTCH coding practices in response to the implementation of the LTCH PPS, we believed that, beginning with FY 2008, it is appropriate to update the MS-LTC-DRGs in a budget neutral manner (that is, so that estimated aggregate LTCH PPS payments will neither increase nor decrease). Accordingly, in that same final rule with comment period, we established under § 412.517(b) that the annual update to the MS-LTC-DRG classifications and relative weights be done in a budget neutral manner. (As noted above in section III.A. of this preamble, we revised the regulations at § 412.503 to specify that “MS-LTC-DRG” is used in place of “LTC-DRG” for discharges occurring on or after October 1, 2007.) Consistent with that provision, we updated the MS-LTC-DRG classifications and relative weights for FY 2008 based on the most recent available data and included a budget neutrality adjustment. For further details on the methodology and calculation of the FY 2008 MS-LTC-DRG budget neutrality factor, refer to the FY 2008 IPPS final rule with comment period (72 FR 47295 through 47296). Table 11 of the Addendum to the FY 2008 IPPS final rule with comment period lists the MS-LTC-DRGs and their respective transition blended budget neutral relative weights, geometric mean LOS, “short-stay outlier threshold” (that is, five-sixths of the geometric mean LOS), and the “IPPS Comparable Threshold” (that is, the IPPS geometric average length of stay plus one standard deviation) for each MS-LTC-DRG for FY 2008 (see (72 FR 48143 through 48157), and the technical correction made in the October 10, 2007 correction notice (72 FR 57733), which has been reprinted in Table 3 of the Addendum of this final rule for convenience). As we noted previously in this section, there were no new ICD-9-CM code requests for an April 1, 2008 update. Therefore, Version 25.0 of the MS-DRG GROUPER software established in the FY 2008 IPPS final rule with comment period will continue to be effective until October 1, 2008. Moreover, the MS-LTC-DRGs and relative weights for FY 2008 established in Table 11 of that same IPPS final rule with comment period (78 FR 48143 through 48157) will continue to be effective until October 1, 2008 (just as they would have been even if there had been any new ICD-9-CM code requests for an April 1, 2008 update). We note that Table 11 was corrected in the FY 2008 IPPS correction notice that appeared in the October 10, 2007 Federal Register (72 FR 57733) and is hereinafter referred to as the second FY 2008 IPPS correction notice. Accordingly, Table 3 in the Addendum of this final rule lists the MS-LTC-DRGs and their respective relative weights, geometric ALOS and “Short-Stay Outlier Threshold” that we will continue to use for the period of July 1, 2008 through September 30, 2009. (As noted above, this table is the same as Table 11 of the Addendum to the FY 2008 IPPS final rule with comment period, including the technical correction made in the second FY 2008 IPPS correction notice (72 FR 57733), which has been reprinted in Table 3 of the Addendum of this final rule for the reader's convenience.) The next proposed update to the ICD-9-CM coding system was presented in the FY 2009 IPPS proposed rule (and there were no April 1, 2008 updates to the ICD-9-CM coding system). In addition, the proposed MS-DRGs and GROUPER for FY 2009 that would be used for the IPPS and the LTCH PPS, effective October 1, 2008, and the proposed update to the MS-LTC-DRG relative weights for FY 2009 were presented in the recently published IPPS FY 2009 proposed rule (see 73 FR 23590 through 23608). The proposed MS-LTC-DRGs and their respective proposed relative weights, geometric ALOS and “Short-Stay Outlier Threshold” that would be effective October 1, 2008 through September 30, 2009 are presented in Table 11 to the Addendum of the FY 2009 IPPS proposed rule (73 FR 23891 through 23905). IV. Changes to the LTCH PPS Payment Rates and Other Changes for the 2009 LTCH PPS Rate Year A. Overview of the Development of the Payment Rates The LTCH PPS was effective beginning with a LTCH's first cost reporting period beginning on or after October 1, 2002. Effective with that cost reporting period, LTCHs are paid, during a 5-year transition period, a total LTCH prospective payment that is comprised of an increasing proportion of the LTCH PPS Federal rate and a decreasing proportion based on reasonable cost-based principles, unless the hospital makes a one-time election to receive payment based on 100 percent of the Federal rate, as specified in § 412.533. New LTCHs (as defined at § 412.23(e)(4)) are paid based on 100 percent of the Federal rate, with no phase-in transition payments. The basic methodology for determining LTCH PPS Federal prospective payment rates is set forth at § 412.515 through § 412.536. In this section, we discuss the factors that would be used to update the LTCH PPS standard Federal rate for the 2009 LTCH PPS rate year that would be effective for LTCH discharges occurring on or after July 1, 2008 through September 30, 2009. When we implemented the LTCH PPS in the August 30, 2002 LTCH PPS final rule (67 FR 56029 through 56031), we computed the LTCH PPS standard Federal payment rate for FY 2003 by updating the latest available (FY 1998 or FY 1999) Medicare inpatient operating and capital cost data, using the excluded hospital market basket. Section 123(a)(1) of the BBRA requires that the PPS developed for LTCHs be budget neutral for the initial year of implementation. Therefore, in calculating the standard Federal rate under § 412.523(d)(2), we set total estimated LTCH PPS payments equal to estimated payments that would have been made under the reasonable cost-based payment methodology had the LTCH PPS not been implemented. Section 307(a)(2) of the BIPA specified that the increases to the target amounts and the cap on the target amounts for LTCHs for FY 2002 provided for by section 307(a)(1) of the BIPA shall not be considered in the development and implementation of the LTCH PPS. Section 307(a)(2) of the BIPA also specified that enhanced bonus payments for LTCHs provided for by section 122 of BBRA were not to be taken into account in the development and implementation of the LTCH PPS. Furthermore, as specified at § 412.523(d)(1), the initial standard Federal rate was reduced by an adjustment factor to account for the estimated proportion of outlier payments under the LTCH PPS to total estimated LTCH PPS payments (8 percent). For further details on the development of the FY 2003 standard Federal rate, see the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56037), and for subsequent updates to the LTCH PPS Federal rate, refer to the following final rules: RY 2004 LTCH PPS final rule (68 FR 34134 through 34140), RY 2005 LTCH PPS final rule (69 FR 25682 through 25684), RY 2006 LTCH PPS final rule (70 FR 24179 through 24180), RY 2007 LTCH PPS final rule (71 FR 27819 through 27827), and RY 2008 LTCH PPS final rule (72 FR 26870 through 27029). B. Consolidation of the Annual Updates for Payment and MS-LTC-DRG Relative Weights to One Annual Update In the August 30, 2002 final rule implementing the LTCH PPS, we established a schedule at § 412.535 for publishing information pertaining to the LTCH PPS. That schedule set a publication date of “on or before August 1 prior to the beginning of each Federal Fiscal Year (FFY),” which coincided with the statutorily mandated publication schedule for the IPPS (67 FR 55954). In the June 6, 2003 LTCH PPS final rule, we revised this schedule in § 412.535 to provide that “(a) Information on the unadjusted Federal payment rates and a description of the methodology and data used to calculate the payment rates are published on or before May 1 prior to the start of each long-term care hospital prospective payment system rate year which begins July 1, unless for good cause it is published after May 1, but before June 1. (b) Information on the LTC-DRG classification and associated weighting factors is published on or before August 1 prior to the beginning of each Federal fiscal year.” At the time, we explained that the LTC-DRG patient classifications used by the LTCH PPS for FY 2003 are based directly on the same version of DRGs used by the IPPS, that is, Grouper 20 (68 FR 34126). As discussed above in section III of this final rule, effective for LTCH PPS discharges occurring on or after October 1, 2007, all references to LTC-DRGs and DRGs in the existing regulations are understood to represent MS-LTC-DRGs. This is addressed in the regulations at § 412.503. Therefore, we did not make any changes to the timing for the annual update for LTC-DRG classifications and relative weights. The annual update to the DRG classifications and relative weights continues to be published on a FFY cycle, as is the update of the acute care hospital IPPS DRG system. In changing the payment rate update schedule for the LTCH PPS, it was our intent to avoid concurrent publications of the annual updates for these two significant payment systems for purposes of administrative feasibility and efficiency. With this in mind, we changed the effective date for the annual update of the LTCH PPS payment rate from October 1 to July 1 of each year beginning with July 1, 2003. We believed this change would help use our limited resources effectively and facilitate a timely publication of both the IPPS and LTCH PPS proposed and final rules. Thus, currently the annual update of the LTCH PPS Federal rates does not coincide with the start of the FFY, but rather, are effective prior to the Federal FY. In the RY 2009 LTCH PPS proposed rule (73 FR 5351 through 5352), we proposed a change to the current schedule for the annual updates of the LTCH PPS Federal payment rates to consolidate the rulemaking cycle for the annual update of the LTCH PPS. Under our proposed policy, the annual update to the LTCH PPS Federal payment rates along with the description of the methodology and data used to calculate these payment rates, and the annual updating of the MS-LTC-DRG classifications and associated weighting factors for LTCHs would occur on the same schedule and appear in the same publication. Therefore, under our proposed policy, the updates to the rates and the weights would both be effective on October 1 (on a Federal fiscal year schedule). Consequently, under this proposal the annual updates to the LTCH PPS Federal rates would no longer be published with a July 1 effective date. We received several comments on our proposal to consolidate the annual payment rate and MS-LTC-DRG update schedules of the LTCH PPS to an October 1 through September 30 cycle, which are summarized below. Comment: A large number of commenters, including MedPAC, agree with and strongly support our proposal to consolidate the LTCH rulemaking cycle to a single, annual rulemaking that corresponds with the IPPS annual update effective October 1 each year. In addition, many of these same commenters endorsed our proposal to extend the 2009 rate year by 3 months, allowing for a 15-month rate period (July 1, 2008 through September 30, 2009), rather than having a 3-month period followed by a 12-month rate year to transition from a July 1 to an October 1 update cycle. Commenters considered this proposal to be a reasonable one, and that a 15-month rate year would create an appropriate transition to an October 1 update by allowing for stability in the LTCH PPS payment rates. Commenters noted that a 3-month rate year followed by a 12-month rate year would be unduly burdensome. We received no comments in opposition to our proposal to consolidate the LTCH rulemaking cycles. However, we received many comments on our proposed update to the Federal rate for the 15-month RY 2009. One commenter suggested that CMS should include an inflationary update to address the 3 additional months. Although supportive of the proposal to consolidate the LTCH rulemaking cycles to be effective October 1, two commenters expressed concern that CMS had not provided a description of how this combined rulemaking would be accomplished. Other commenters believe that there could be confusion between LTCH PPS payment policy changes and IPPS payment policy changes if the annual rulemaking for the LTCH PPS were to be combined with the annual IPPS rulemaking. Consequently, these commenters recommended that the LTCH PPS rule be issued either separately from the IPPS rule or as a separate component within the IPPS rule to allow for easier accessibility and the ability to more accurately assess policy impacts on the LTCH PPS. Response: We appreciate the positive responses to our proposal to consolidate the annual July 1 update for payment rates and the October 1 update for MS-LTC-DRG weights to a single annual update effective October 1, as well as the positive responses with regard to our proposal to extend the 2009 rate year for another 3 months; that is, from July 1, 2008 to September 30, 2009. We are finalizing these provisions in this final rule. In response to several commenters' concerns that we had not provided sufficient details concerning the consolidation; that is, the manner in which we actually plan to produce the documents for the annual rulemaking for the LTCH PPS relative to the annual IPPS rulemaking, we are continuing to evaluate the commenters' suggestions concerning whether the LTCH PPS proposed and final rules should be included as part of the proposed and final IPPS publications or whether it would be more appropriate for there to be two separate publications—one for the proposed and final IPPS rules and the other for the proposed and final LTCH PPS rules. Any decision that we make must take into consideration many factors, including administrative feasibility and budgetary impact, that would affect the development and production of the annual rulemaking for the LTCH PPS and the IPPS. We do want to emphasize, however, that if the decision is made to produce the LTCH PPS rulemaking and the IPPS rulemaking in the same “package,” we would make every effort to clearly identify the LTCH PPS sections and differentiate those from the sections that only deal with the IPPS to avoid any confusion between LTCH PPS payment policy changes and IPPS payment policy changes. (We note that each of our regulations includes a title and a summary of its contents so the public can easily identify the material that applicable to LTCHs, including any material in a combined IPPS/LTCH PPS package. We also note that presently we publish the annual update to the MS-LTC-DRG classifications and relative weights as well as other payment policy changes to excluded IPPS hospitals (such as HwHs) in the IPPS proposed and final rules with no discernible confusion on the part of the public. Therefore, we believe the public would be able to easily recognize those portions of a combined package that pertain to the LTCH PPS. In response to the commenter who suggested that we include an inflationary update to address the 3 additional months for purposes of the consolidation, we would note that this issue is discussed in the summary of the comments and responses on the proposed 15-month RY 2009 market basket estimate in section IV.C. of the preamble of this final rule. The summary of the comments and responses on our proposed update to the Federal rate for the 15-month RY 2009 can be found in section IV.E.2. of this preamble. After reviewing the public comments, we are finalizing our proposal to change the current schedule for the annual updates of the LTCH PPS Federal payment rates in this final rule. We are consolidating the rulemaking cycle for the annual update of the LTCH PPS Federal payment rates and description of the methodology and data used to calculate these payment rates, with the annual updating of the MS-LTC-DRG classifications and associated weighting factors for LTCHs so that the updates to the rates and the weights would both be effective on October 1 each Federal fiscal year. Under this change, the annual updates to the LTCH PPS Federal rates would no longer be published with a July 1 effective date. We believe that it is important to note that our revision to the existing rulemaking cycle is a result of comments on prior rules, as well as recent input from the LTCH industry, as well as consideration of our resources. After further consideration of those comments and concerns, we agree that having the effective date of the annual update of the LTCH PPS Federal payment rates on July 1 of each year while retaining the October 1 effective date for updating LTC-DRG classifications and weights has proved both burdensome and time-consuming for all parties involved. We are aware that a consolidated update that we are finalizing will be resource intensive, but it will eliminate some duplicative resource use. For example, some of our resources used for the payment simulations that are used to estimate LTCH PPS payments for purposes of the respective impact analyses are duplicated for the annual LTCH PPS rate update and the annual MS-LTC-DRG update. Furthermore, the data used for LTCH PPS payment rate update impact analysis are also used in the annual MS-LTC-DRG. This consolidation of the rulemaking cycle will allow us to use the same information simultaneously for both these analyses. Moreover, we understand the concern that there are increased costs involved in updating the billing systems of LTCHs to accommodate two separate updates, one for the Federal rate and one for the DRG weights, in the same cost reporting period. We also considered the possibility that two separate updates could increase the potential for calculating payment errors under the LTCH PPS. In order to revise the payment rate update to an October 1 through September 30 period, as proposed, we will extend the 2009 rate period to September 30, 2009 such that RY 2009 will be 15 months. This 15-month rate period will extend from July 1, 2008 through September 30, 2009. We believe that the additional 3 months to RY 2009 (July, August, and September) will provide for a smooth transition to a consolidated annual update for both the LTCH PPS payment rates and the LTCH PPS MS-LTC-DRG classifications and weighting factors. (When we developed this proposed policy, we considered the alternative of revising the payment rate update to an October 1 through September 30 period by shortening RY 2009 such that it would only be 3 months (that is, July 1, 2008 through September 30, 2008). We decided that this option would prove to be both burdensome and time consuming resulting in two payment rate changes within a very short (3-month) period of time.) After the 2009 rate period, the rate period for the LTCH PPS payment rate and other policy changes will be October 1 through September 30, and the annual update to the MS-LTC-DRG classifications and relative weights will continue to be effective on October 1. The October through September rate period will first begin on October 1, 2009, therefore, the next update to the LTCH PPS Federal rates after the 15-month RY 2009 will be for RY 2010. We note that, once the annual LTCH PPS rate update cycle moves to October 1 effective October 1, 2009, the LTCH PPS rate year will coincide with Federal FY beginning in 2010. In this final rule, we are finalizing our proposed revisions to § 412.503 to redefine the LTCH PPS' rate year to mean October 1 through September 30, rather than from July 1 through June 30. We are also revising § 412.535 to reflect the change to the annual payment rate update cycle described above. The discussion of the 15-month market basket update for the 2009 rate year can be found below in sections IV.C.2.of this final rule. C. LTCH PPS Market Basket 1. Overview of the Rehabilitation, Psychiatric and Long-Term Care (RPL) Market Basket Historically, the Medicare program has used a market basket to account for price increases in the services furnished by providers. The market basket used for the LTCH PPS includes both operating and capital-related costs of LTCHs because the LTCH PPS uses a single payment rate for both operating and capital-related costs. The development of the initial LTCH PPS standard Federal rate for FY 2003, using the excluded hospital with capital market basket, is discussed in further detail in the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56033). In the August 30, 2002 final rule (67 FR 56016 through 56017 and 56030), which implemented the LTCH PPS, we established the use of the excluded hospital with capital market basket as the LTCH PPS market basket. The excluded hospital with capital market basket was also used to update the limits on LTCHs' operating costs for inflation under the TEFRA reasonable cost-based payment system. We explained that we believe the use of the excluded hospital with capital market basket to update LTCHs' costs for inflation was appropriate because the excluded hospital market basket (with a capital component) measures price increases of the services furnished by excluded hospitals, including LTCHs. For further details on the development of the excluded hospital with capital market basket, see the RY 2004 LTCH PPS final rule (68 FR 34134 through 34137). In the RY 2007 LTCH PPS final rule (71 FR 27810), we noted that based on our research, we did not develop a market basket specific to LTCH services. We are still unable to create a separate market basket specifically for LTCHs due to the small number of facilities and the limited amount of data that is reported (for instance, only approximately 15 percent of LTCHs reported contract labor cost data for 2002). In that same final rule, under the broad authority conferred upon the Secretary by section 123 of the BBRA as amended by section 307(b) of the BIPA, we adopted the RPL market basket as the appropriate market basket of goods and services under the LTCH PPS for discharges occurring on or after July 1, 2006. Specifically, beginning with the 2007 LTCH PPS rate year, for the LTCH PPS, we adopted the use of the RPL market basket which is based on FY 2002 cost report data. We choose to use the FY 2002 Medicare cost report data because it was the most recent, relatively complete cost data for inpatient rehabilitation facilities (IRFs), inpatient psychiatric facilities (IPFs), and LTCHs available at the time of rebasing. The RPL market basket is determined based on the operating and capital costs of IRFs, IPFs and LTCHs. All IRFs are currently paid under the IRF PPS Federal payment rate, all LTCHs are currently paid 100 percent of the standard Federal rate under the LTCH PPS, and most IPFs are transitioning to payment based on 100 percent of the Federal per diem payment amount under the IPF PPS. Payments to IPFs will be based exclusively on 100 percent of the Federal rate for cost reporting periods beginning on or after January 1, 2008. As we explained in that same final rule, we believe a market basket based on the data of IRFs, IPFs and LTCHs is appropriate to use under the LTCH PPS since it is the best available data that reflects the cost structures of LTCHs. For further details on the development of the RPL market basket, including the methodology for determining the operating and capital portions of the RPL market basket, see the RY 2007 LTCH PPS final rule (71 FR 27810 through 27817). 2. Market Basket Estimate for the 2009 LTCH PPS Rate Year As discussed in greater detail above in this section, for the 2009 LTCH PPS rate year, we are consolidating the current LTCH PPS rate year (payment rates and other policy changes) update and fiscal year MS-LTC-DRG update into one annual update cycle. Therefore, the next payment rate update cycle would be effective July 1, 2008 through September 30, 2009 extending the next rate year update by 3 months representing a 15-month period for the RY 2009 rate. Accordingly, for the 2009 LTCH PPS rate year, we proposed to use a 15-month (that is, July 1, 2008 through September 30, 2009) estimate of the RPL market basket based on the best available data. Consistent with our historical practice, we estimate the RPL market basket update based on Global Insight, Inc.'s forecast using the most recent available data. Global Insight, Inc. is a nationally recognized economic and financial forecasting firm that contracts with CMS to forecast the components of CMS' market baskets. To determine a 15-month market basket update for RY 2009, as we discussed in the proposed rule, we calculate the 5-quarter moving average index level for July 1, 2008 through September 30, 2009 and the 4-quarter moving average index level for July 1, 2007 through June 30, 2008. The percent change in these two values represents the 15-month market basket update. In the RY 2009 proposed rule (73 FR 5352), based on Global Insight's 4th quarter 2007 forecast with history through the 3rd quarter of 2007, we proposed a 15-month market basket estimate of 3.5 percent for the proposed 15-month 2009 LTCH PPS rate year. In that same proposed rule, we also proposed that if more recent data were available, we would use it to determine the RY 2009 market basket update in the final rule. Consistent with our historical practice to use the most recent estimate of the RPL market basket available for the final rule, the most recent estimate of the RPL market basket for July 1, 2008 through September 30, 2009, based on Global Insight's 1st quarter 2008 forecast with history through the 4th quarter of 2007, is 3.6 percent. As we proposed and as noted above, we determine this 15-month market basket update by calculating the 5-quarter moving average index level for July 1, 2008 through September 30, 2009 and the 4-quarter moving average index level for July 1, 2007 through June 30, 2008. The percent change in these two values represents the 15-month market basket update for RY 2009. We note that, based on the most recent available data, if we were not consolidating the two annual LTCH PPS payment system updates by extending the 2009 LTCH PPS rate year by 3 months, the market basket estimate for a 12-month RY 2009 is 3.2 percent, based on the most recent estimate of the 12-month RPL market basket for July 1, 2008 through June 30, 2009. We determined this 12-month market basket estimate based on the method stated in the proposed rule (see 73 FR 5353). Comment: We received one comment on the 15-month market basket estimate for RY 2009 that we presented in the proposed rule, which suggested that the proposed market basket update for RY 2009 does not include an inflationary update factor to address the additional 3 months that would result from the proposal to extend the 2009 rate year through September 30, 2009. Response: We disagree with the comment that the proposed market basket update of 3.5 percent does not reflect the entire 15-month period. The proposed RY 2009 3.5 percent market basket estimate as well as the RY 2009 3.6 percent market basket estimate we are establishing in this final rule as based on the forecasted increase in the LTCH PPS market basket (that is, the RPL market basket) to account for projected inflation for the entire 15-month RY 2009, which includes the additional 3 months that results from extending RY 2009 to move the annual rate update period from July 1 to October 1. As discussed in the proposed rule (73 FR 5352) and as reiterated above, we determined the 15-month market basket by calculating two average index levels: (1) the 5-quarter moving average index level for July 1, 2008 through September 30, 2009; and (2) the 4-quarter moving average index level for July 1, 2007 through June 30, 2008. The percent change in these two values represents the 15-month market basket estimate. By including the 3-month period of July 1, 2009 through September 30, 2009 in the first average index level calculated, we are capturing inflationary pressures for these 3 months. In comparison, if we were calculating only a 12-month market basket estimate for the period July 1, 2008 through June 30, 2009, we instead would calculate the 4-quarter moving average index level for July 1, 2008 through June 30, 2009 and the 4-quarter moving average index level for July 1, 2007 through June 30, 2008. The percent change in these two values represents the 12-month market basket estimate. Therefore, after our review of the public comments, we are finalizing the 15-month RPL market basket update of 3.6 percent for RY 2009, based on Global Insight's 1st quarter 2008 forecast. The update to the standard Federal rate for RY 2009 is discussed below in section IV.E. of this preamble. D. One-time Prospective Adjustment to the Standard Federal Rate As we discussed in the August 30, 2002 LTCH PPS final rule (67 FR 56027), consistent with the statutory requirement for budget neutrality in section 123(a)(1) of the BBRA, we estimated aggregate payments under the LTCH PPS for FY 2003 to be equal to the estimated aggregate payments that would be made if the LTCH PPS were not implemented. Our methodology for estimating payments for purposes of the budget neutrality calculations used the best available data at the time and necessarily reflected several assumptions including costs, inflation factors and intensity of services provided. In conducting our budget neutrality calculations, we took into account the statutory requirement that certain statutory provisions that affect the level of payments to LTCHs in years prior to the implementation of the LTCH PPS shall not be taken into account in the development and implementation of the LTCH PPS. Specifically, section 307(a)(2) of the BIPA requires that the increases to the target amounts and the increases to the cap on the target amounts for LTCHs provided for by section 307(a)(1) of the BIPA (as set forth in section 1886(b)(3)(J) of the Act) and the enhanced bonus payments for LTCHs provided for by section 122 of the BBRA (as set forth in section 1886(b)(2)(E) of the Act) are not to be taken into account in the development and implementation of the LTCH PPS. We have been monitoring payment data in order to evaluate whether there is a significant difference between the payments estimated on the basis of the data available at the time of the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56037) and payment estimates based on more complete data that have become available since that time. We indicated from the inception of the LTCH PPS that it was possible for the aggregate amount of actual payments in FY 2003 to be significantly higher or lower than the estimates on which the budget neutrality calculations were based to the extent that later, more complete data differ significantly from the data that were available at the time of the original calculations. Section 123(a)(1) of the BBRA, as amended by section 307(b) of BIPA, provides broad authority to the Secretary in developing the LTCH PPS, including the authority for establishing appropriate adjustments. Under this broad authority to make appropriate adjustments, we provided in § 412.523(d)(3) of the regulations, for the possibility of making a one-time prospective adjustment to the LTCH PPS rates by July 1, 2008, so that the effect of any significant difference between actual payments and estimated payments for the first year of the LTCH PPS would not be perpetuated in the LTCH PPS rates for future years. In the RY 2009 LTCH PPS proposed rule (72 FR 5353), based on the best available data at that time, we estimated that total Medicare program payments for LTCH services over the next 5 LTCH PPS rate years would be $4.67 billion for the 2009 LTCH PPS rate year; $4.82 billion for the 2010 LTCH PPS rate year; $5.06 billion for the 2011 LTCH PPS rate year; $5.36 billion for the 2012 LTCH PPS rate year; and $5.73 billion for the 2013 LTCH PPS rate year. In this final rule, consistent with the methodology established in the August 30, 2002 final rule (67 FR 56036), and based on the most recent available data, for the readers benefit, we are providing an estimate of total Medicare program payments for LTCH services for the next 5 LTCH PPS rate years in Table I. These estimates take into account the effects of changes as a result of the recent Medicare, Medicaid, and SCHIP Extension Act of 2007. Table I LTCH PPS rate year Estimated payments ($ in billions) 2009 4.78 2010 4.99 2011 5.14 2012 5.36 2013 5.67 In accordance with the methodology established in the August 30, 2002 LTCH PPS final rule (67 FR 56027 through 56037), these estimates are based on the most recent available data. These estimates are also based on our estimate of LTCH PPS rate year payments to LTCHs using CMS' Office of the Actuary's (OACT) most recent estimate of the RPL market basket, which is based on information from Global Insight, Inc., of 3.2 percent for the 2009 LTCH PPS rate year, 2.9 percent for the 2010 LTCH PPS rate year, 3.0 percent for the 2011 LTCH PPS rate year, and 3.2 percent for the 2012 and 2013 LTCH PPS rate years. We note that while the provisions in the MMSEA are current law and OACT develops its spending projections based on existing policy, changes that are being adopted in this final rule, are not considered to be existing policy and therefore, are not shown in Table I. We also considered OACT's most recent projections of changes in Medicare beneficiary enrollment of −0.3 percent in the 2009 LTCH PPS rate year, 0.2 percent in the 2010 LTCH PPS rate year, 0.5 percent in the 2011 LTCH PPS rate year, 1.5 percent in the 2012 LTCH PPS rate year and, 2.5 percent in the 2013 LTCH PPS rate year. It is important to note that, while we provide these estimates of future payments under the LTCH PPS in order to provide the public with a projected estimate of payments to LTCHs, these estimates will be neither the basis for determining whether the one-time budget neutrality adjustment available under § 412.523(d)(3) of the regulations should be proposed, nor are these estimates the basis for any of the policy changes adopted in this final rule. It is also important to note that any proposal regarding the one-time budget neutrality adjustment would be based solely on the data that would be available at the time of the proposal, rather than on projections of payments under LTCH PPS for future years. In the August 30, 2002 LTCH PPS final rule implementing the LTCH PPS (67 FR 55954), we set forth the implementing regulations, based upon the broad authority granted to the Secretary, under section 123 of the BBRA (as amended by section 307(b) of the BIPA). Section 123(a)(1) of the BBRA required that the system “maintain budget neutrality.” The statute requires the LTCH PPS to be budget neutral in FY 2003, so that estimated aggregate payments under the LTCH PPS for FY 2003 should be equal to the estimated aggregate payments that would be made if the LTCH PPS were not implemented for FY 2003. The methodology for determining the LTCH PPS standard Federal rate for FY 2003 that would “maintain budget neutrality” is described in considerable detail in the August 30, 2002 final rule (67 FR 56027 through 56037). As we discussed previously in this section, our methodology for estimating payments for the purposes of budget neutrality calculations used the best available data, and necessarily reflected assumptions in estimating aggregate payments that would be made if the LTCH PPS was not implemented. In the August 30, 2002 final rule, we also stated our intention to monitor LTCH PPS payment data to evaluate whether later data varied significantly from the data available at the time of the original budget neutrality calculations (for example, data related to inflation factors, intensity of services provided, or behavioral response to the implementation of the LTCH PPS). To the extent the later data significantly differ from the data employed in the original calculations, the aggregate amount of payments during FY 2003 based on later data may be higher or lower than the estimates upon which the budget neutrality calculations were based. In that same final rule, the Secretary exercised his broad authority in establishing the LTCH PPS and provided for the possibility of a one-time prospective adjustment to the LTCH PPS rates by October 1, 2006, in § 412.523(d)(3). This deadline was revised to July 1, 2008, in the RY 2007 LTCH PPS final rule. As we discussed in the RY 2007 LTCH PPS final rule (71 FR 27842 through 27844), because the LTCH PPS was only recently implemented, sufficient new data had not yet been generated that would enable us to conduct a comprehensive reevaluation of our budget neutrality calculations. Therefore, in that same final rule, we did not implement the one-time adjustment provided under § 412.523(d)(3) so that the effect of any significant difference between actual payments and estimated payments for the first year of the LTCH PPS would not be perpetuated in the PPS rates for future years. However, we stated that we would continue to collect and interpret new data as it became available in order to determine whether we should propose such an adjustment in the future. Therefore, we revised § 412.523(d)(3) by changing the original October 1, 2006 deadline (established in the August 30, 2002 final rule that implemented the LTCH PPS) to July 1, 2008, to postpone the possible one-time adjustment due to the time lag in the availability of Medicare data upon which a proposed adjustment would be based. We noted that there is a lag time between the submission of claims data and cost report data, and the availability of that data in the MedPAR files and HCRIS, respectively. As also explained in that same final rule, we believed that postponing the deadline of the possible one-time prospective adjustment to the LTCH PPS rates provided for in § 412.523(d)(3) to July 1, 2008, would allow our decisions regarding a possible adjustment to be based on more complete and up-to-date data. It should be noted that, in the years following the initial implementation of the LTCH PPS, we have already adopted some revised policies and adjustments to LTCH PPS payment levels. However, none of these revised policies and payment adjustments have addressed the intended purpose of the adjustment allowed under § 412.523(d)(3) of the regulations, to ensure that any significant difference between the original estimates and calculations based on more recent data are not perpetuated in the LTCH PPS rates for future years. For example, the adjustments that we have made to account for coding changes in excess of real severity increases in RY 2007 and RY 2008 were made to account for changes in coding behavior in the years following the implementation of the LTCH PPS, and not to address any issue regarding the budget neutrality calculations that were used to establish the base rate for the LTCH PPS. Section 114(c)(4) of MMSEA provides that the “Secretary shall not, for the 3-year period beginning on the date of the enactment of this Act, make the one-time prospective adjustment to long-term care hospital prospective payment rates provided for in § 412.523(d)(3) of title 42, Code of Federal Regulations, or any similar provision.” That provision delays the effective date of any one-time budget neutrality adjustment until no earlier than December 29, 2010. Therefore, we proposed to revise § 412.523(d)(3) of the regulations to conform with this requirement. Comment: Several commenters supported the proposed change in § 412.523(d)(3) of regulations to conform with the requirements of section 114(c)(4) of MMSEA, delaying the effective date of any one-time budget neutrality adjustment until no earlier than December 29, 2010. A few commenter disagreed with the proposed change to § 412.523(d)(3) because it did not include a specific date after which time CMS would no longer be able to implement a one-time budget neutrality as is currently specified in the regulations (that is, July 1, 2008). These commenters believe that the lack of an “end date” in the proposed change to § 412.523(d)(3) leaves LTCHs in a perpetual state of uncertainty, and therefore, recommend that CMS should specify in the regulations a reasonable date beyond which this adjustment can be made. Response: We appreciate the commenters support of the proposed change in § 412.523(d)(3) to conform with the requirements of section 114(c)(4) of MMSEA, delaying the effective date of any one-time budget neutrality adjustment until no earlier than December 29, 2010. We understand commenters' concerns and agree that it is reasonable to include a date by which the one-time budget neutrality adjustment must be implemented in order to provide predictability in LTCH PPS payments. In taking into account the statutory requirement that any one-time budget neutrality adjustment can be effective no earlier than December 29, 2010, and that annual updates to the LTCH PPS will be effective October 1 each year (beginning October 1, 2009, as discussed above in section IV.B. of this preamble), we believe that October 1, 2012 would allow us sufficient time after the statutorily required 3-year delay to develop, propose and finalize any one-time budget neutrality adjustment. Therefore, we are revising the regulations at § 412.523(d)(3) to delay the effective date of any one-time budget neutrality adjustment so that any such adjustment would be made no earlier than December 29, 2010, and no later than October 1, 2012. We believe that this date will allow adequate time to consider any additional comments that may arise after the MMSEA 3-year delay concerning the potential methodology we presented in the RY 2009 proposed rule without postponing indefinitely into the future any proposal for making an adjustment. Prior to the enactment of the MMSEA, we had developed a methodology for evaluating whether to propose a one-time budget neutrality adjustment under § 412.523(d)(3) of the regulations. In order to inform the public of our thinking, and to stimulate comments for our consideration during the 3-year delay in implementing any one-time budget neutrality adjustment under the law referenced above, we discussed our analysis and its results in the proposed rule (73 FR 5356 through 5360). Evaluating the appropriateness of a possible future proposal for a one-time prospective adjustment under § 412.523(d)(3) required a thorough review of the relevant LTCH data, as we discussed in the proposed rule. When we established the FY 2003 standard Federal rate in a budget neutral manner, we used the most recent LTCH cost data available at that time (that is, FY 1999 data), and trended that data forward to estimate what Medicare would have paid to LTCHs in FY 2003 under the TEFRA payment system if the PPS were not implemented for FY 2003 (67 FR 56033). We subsequently conducted a thorough review of the most recent relevant data and discussed those findings in the RY 2009 proposed rule. At the time we drafted the proposed rule, cost data from FY 2002, representing the final year LTCHs were paid under the TEFRA payment system, had become available. The cost report data for FY 2002 is comprised of a high proportion of settled and audited cost reports submitted by LTCHs. We also have acquired payment data on the first year of the LTCH PPS (that is, FY 2003). On the basis of our review of these data sources, we developed a potential methodology for determining whether the one-time adjustment available under § 412.523(d)(3) of the regulations should be proposed. On the basis of this methodology, we also presented a potential method for computing an adjustment, if appropriate. Employing that methodology, our analysis indicated that a permanent budget neutrality adjustment factor of 0.9625 to the LTCH PPS standard Federal rate could be warranted. Consistent with the requirements of section 114(c)(4) of the recently enacted MMSEA, we did not propose any adjustment for the upcoming rate year. However, we invited public comment on the analysis which we presented in the proposed rule. We noted that we would consider these comments if and when we decide to propose an actual adjustment. We also noted that in the final rule, we would respond to any comments on the proposed changes to § 412.523(d)(3) of the regulations that would: (1) Specify the methodology for the one-time budget neutrality adjustment; and (2) implement the requirements of section 114(c)(4) of Pub. L. 110-173, in the final rule. In order to determine whether a one-time budget neutrality adjustment could be warranted, it is necessary to estimate both aggregate payments under the LTCH PPS for FY 2003 and the estimated aggregate payments that would have been made under the TEFRA system in FY 2003 if the LTCH PPS were not implemented. While we know actual TEFRA payments to LTCHs for FY 2002, the last year of payment under that methodology, it is necessary to estimate what TEFRA payments would have been in FY 2003 if the new LTCH PPS had not been implemented. In developing the methodology for evaluating a one-time adjustment that we presented in the proposed rule, we considered whether we should employ actual FY 2003 costs to calculate estimated TEFRA payments for FY 2003 or employ costs for FY 2002 trended forward to FY 2003 as the basis for the calculation. We noted that basing the estimate on actual FY 2003 costs would avoid the need to employ any factor to update costs from FY 2002 to FY 2003. However, since FY 2003 was the first year of payment under the LTCH PPS, the cost experience of LTCHs in that year would reflect their response to the incentives provided by the new payment system, instead of reflecting behavior under the reasonable cost payment system. Indeed, implementation of an LTCH PPS should directly affect the behavior of LTCHs, and therefore, the level of costs in LTCHs. One of the incentives of a PPS is to improve efficiency in the delivery of care, which generally results in decreased cost per discharge. For this reason, employing FY 2003 costs directly could be a poor basis for estimating payments that “would have been made if the LTCH PPS were not implemented.” We indicated in the proposed rule that trending forward for 1 year the costs incurred under the last year of the TEFRA payment system poses a smaller prospect for distortion than using costs incurred during the subsequent year, when the incentives faced by LTCHs to reduce costs could have had a significant effect. Therefore, we indicated that we believed it may be preferable to base our calculation of the estimated aggregate payments that would have been made if the LTCH PPS were not implemented (that is, estimated FY 2003 TEFRA payments) on FY 2002 costs, trended forward to FY 2003 using the excluded hospital with capital market basket. And we noted in this context that some representatives of LTCHs had expressed concern that employing FY 2003 costs directly would provide a poor basis upon which to estimate payments that “would have been made if the LTCH PPS were not implemented” for precisely the reasons we have just discussed. We also noted that basing the estimate of FY 2003 TEFRA payments on FY 2002 costs trended forward should satisfy these concerns. In determining whether a one-time budget neutrality adjustment could be warranted, we believe the estimate of the payments that would have been made in FY 2003 under the TEFRA methodology should be compared to estimated payments under the new LTCH PPS in FY 2003. The most direct way to determine payments under the new LTCH PPS, of course, is simply to aggregate the actual payments calculated under the LTCH PPS methodology for the discharges that occurred during the first year of the LTCH PPS (FY 2003). However, that approach raises an issue of consistency in the use of data. The discharges for which we paid under the LTCH PPS during FY 2003 are obviously not the same as the discharges for which costs were incurred during the last year of payment under the TEFRA methodology, FY 2002. For the reasons that we have just discussed, we stated in the proposed rule that we believed that the best way to estimate the TEFRA payments that would have been made to LTCHs during FY 2003 is to use inflated FY 2002 costs as a proxy for FY 2003 costs. Comparing actual FY 2003 LTCH PPS payments to FY 2003 TEFRA payments estimated on the basis of FY 2002 discharges would amount to a comparison between payments related to two different sets of discharges, potentially skewing the results. Therefore consistency suggests that, rather than comparing TEFRA payments based on FY 2002 costs updated to FY 2003, to aggregate LTCH PPS payments for discharges that actually occurred in FY 2003, it would be preferable to compare estimated TEFRA payments based on updated FY 2002 costs to the estimated payments that would have been made under LTCH PPS methodology in FY 2003 for those same FY 2002 discharges. In other words, we believe that the best approach would be to compare— • Estimated aggregate FY 2003 TEFRA payments calculated on the basis of FY 2002 costs updated to FY 2003; to • Estimated aggregate payments that would have been made in FY 2003 under the LTCH PPS methodology, by applying the FY 2003 LTCH payment rules to the discharges that occurred in FY 2002. In this way, we would ensure that we are comparing the estimated FY 2003 TEFRA payments, which are based on updated costs incurred for FY 2002 discharges to the estimated PPS payments that would have been made for those same FY 2002 discharges under the new LTCH PPS payment methodology. Therefore, in the absence of the MMSEA, we stated in the proposed rule that we would have proposed to employ the general methodology we have just described to determine: (1) Whether the one-time adjustment available under § 412.523(d)(3) of the regulations should be proposed for RY 2009, and (2) if such adjustment should be proposed, the actual proposed adjustment factor. In the proposed rule, we did propose to revise the current language of § 412.523(d)(3) of the regulations to conform more accurately reflect the purpose of providing for a possible one-time budget neutrality adjustment. At the time of the final LTCH PPS rule in 2002, we described the nature of the one-time adjustment in very general terms. Specifically, that section currently provides the following: The Secretary reviews payments under this prospective payment system and may make a one-time prospective adjustment to the long-term care hospital prospective payment system rates on or before July 1, 2008 so that the effect of any significant difference between actual payments and estimated payments for the first year of the long term care hospital prospective payment system is not perpetuated in the prospective payment rates for future years. As we stated in the proposed rule, our policy objective in providing for this one-time budget neutrality adjustment has always been to ensure that computations based on the earlier, necessarily limited (but at that time best available) data available at the inception of the LTCH PPS would not be built permanently into the rates if data available at a later date could provide more accurate results. Prior to the thorough analysis we conducted in preparation for the RY 2009 proposed rule, we had believed that the appropriate method for meeting this policy objective involved comparing actual payment data from the first year of payment under the LTCH PPS to our earlier estimate of payments in the first year of the LTCH PPS. As we have just discussed, we determined that the most appropriate methodology for evaluating an adjustment to the original budget neutrality adjustment did not involve comparing the payments estimated in the original calculations against the “actual payments * * * for the first year,” strictly speaking. Rather, as we discussed in the proposed rule, we believe that it is more appropriate to compare payments in the first year under the LTCH PPS to what payments would have been under the prior TEFRA rules for that year based on the best available data. As a result, under the broad authority of section 123 of the BBRA, as amended by section 307(b) of BIPA, to make appropriate adjustments to the LTCH PPS, we proposed to revise § 412.523(d)(3) of the regulations. Furthermore, as discussed in the proposed rule, considerations of consistency and other factors suggest that the most appropriate comparison would employ an estimate of FY 2003 LTCH PPS payments based on discharges from FY 2002. The cost incurred by LTCHs for those discharges would also be the basis for the best estimate of what would have been paid in FY 2003 under the TEFRA system. As we have discussed previously, we also proposed to revise that section of the regulations to correspond with the requirements of section 114(c)(4) of the Medicare, Medicaid, and SCHIP Extension Act of 2007. Specifically, we proposed to revise § 412.523(d)(3) of the regulations to read as follows: The Secretary reviews payments under this prospective payment system and may make a one-time prospective adjustment to the long-term care hospital prospective payment system rates no earlier than December 29, 2010, so that the effect of any significant difference between the data used in the original computations and more recent data to determine budget neutrality is not perpetuated in the prospective payment rates for future years. Comment: One commenter objected to the proposed change in the regulation on the grounds that it does not truly reflect the methodology we discussed more clearly, especially since the proposed text of the regulation makes no mention of FY 2003, the first year of payments under the LTCH PPS. The commenter further objected that the phrases “data used in the original computations” and “more recent data to determine budget neutrality” in the proposed regulation text are imprecise. Response: We do not agree that the phrases “data used in the original computations” and “more recent data to determine budget neutrality” in the proposed regulation text are imprecise. The meanings of these terms are fully explained in the detailed account presented in the preamble to the proposed rule (73 FR 5354 through 5360) of the methodology that we could employ in a proposal. We also clearly indicated in the preamble text that if we had proposed a one-time adjustment in the RY 2009 proposed rule, we would have used more recent data to estimate budget neutrality for the first year of the LTCH PPS, FY 2003. As we have also discussed, we indicated that we believe it is appropriate to use certain data elements from FY 2002, specifically FY 2002 TEFRA costs and FY 2002 LTCH discharges, as the most effective and consistent way to estimate budget neutrality for FY 2003 while avoiding the potentially distorting effects of factors such as behavioral changes in the first year of the new payment system. However, we often avoid specifying precise data elements and other details of methodology in regulations text, and instead provide for the regulations to reflect in general but accurate terms the methodology to be employed. (Instead, we typically include a discussion of specific data elements and complex details of our methodology in the preamble where we can flesh out in greater detail the nuances of our policies.) The current regulations text is not consistent with the methodology we had developed as the best means to evaluate whether to propose an adjustment. Our proposed regulation text captured the concepts in general, but more accurate, terms. In response to this comment we are, however, revising the proposed regulation text to specify that the estimates of budget neutrality do indeed pertain to FY 2003, the first year of the LTCH PPS. As also discussed above, we are also revising the proposed regulations text to include a specific end date after which CMS would no longer consider implementing a one-time budget neutrality adjustment (that is, on or before October 1, 2012). In addition, the structure of the regulations text we are finalizing would work if we ultimately proposed to use FY 2002 data to estimate FY 2003 payments or if we would propose to use FY 2003 data. The final regulation text that we are adopting in this final rule will therefore read: The Secretary reviews payments under this prospective payment system and may make a one-time prospective adjustment to the long-term care hospital prospective payment system rates no earlier than December 29, 2010 and by no later than October 1, 2012, so that the effect of any significant difference between the data used in the original computations of budget neutrality for FY 2003 and more recent data to determine budget neutrality for FY 2003 is not perpetuated in the prospective payment rates for future years. Comment: Two commenters alleged that we had failed to provide data supporting the proposal of making a one-time prospective adjustment to the LTCH rates no earlier than December 29, 2010. The commenters added that, without the ability to review the applicable data, the public cannot provide meaningful comment on this aspect of the proposed rule. Response: We did not actually propose to make a one-time prospective adjustment to the LTCH rates under § 412.523(d)(3) in the proposed rule. As noted above, in the proposed rule we presented a potential methodology for determining whether the one-time adjustment available under § 412.523(d)(3), could be warranted if we presented our analysis based on employing that method, and invited public comment on that analysis indicating that we would take such comments into account “if and when we decide to propose an actual adjustment” (see 73 FR 5354 and 5360). We did, however, propose to revise the regulations to provide that such an adjustment will not be made prior to December 29, 2010, as required by the MMSEA. We also described the potential methodology that we had developed prior to the passage of the MMSEA and revised the regulations text to be more consistent with the purpose of a one-time budget neutrality adjustment. We do not agree that the data we used in developing our estimate of a potential adjustment presented in the proposed rule has been unavailable to commenters. We clearly identified our data sources in the proposed rule, for example, cost report data from the Hospital Cost Reporting Information System for FYs 1999 through 2003, and FY 2002 LTCH MedPAR data (see 73 FR 5357 and 5359). We also described in great detail how we employed those data, including assumptions and adjustments that were necessary in developing a reasonable estimate. These data are readily available through our standard data request procedures that can be obtained by communication with our Office of Information Services (OIS). Information about obtaining MedPAR files and other Medicare data files is posted on the CMS Web page at: http://www.cms.hhs.gov/FilesForOrderGenInfo/ . Furthermore, we point out that other commenters were able to employ these and similar data sources to comment on the methodology that we discussed (in fact, one commenter commissioned an entire report on the “Assessment of the Proposed One-time Adjustment for Long Term Care Hospitals”). Therefore, we disagree that the public lack the necessary data to provide meaningful comment on that informational aspect of the proposed rule. Our revision to § 412.523(d)(3) of the regulations would continue to provide that the Secretary may make a one-time adjustment to the LTCH PPS rates in order to ensure that any “significant” difference is not perpetuated in the LTCH PPS rates for future years. The regulation does not specifically define what constitutes a significant difference for this purpose. In the absence of section 114(c)(4) of the MMSEA, we would have proposed to consider as “significant” any difference greater than or equal to a 0.25 percentage point difference between the original budget neutrality calculations and budget neutrality calculations based on the more recent data now available. This threshold avoids making an adjustment to account for very minor deviations between earlier and later estimates of budget neutrality. It is also consistent with thresholds that we have employed for similar purposes in prospective payment systems. For example, under the capital IPPS, we make a forecast error correction in the framework used to update the capital Federal rate if a previous forecast of input prices varies by at least a 0.25 percentage point from actual input price changes (72 FR 47425). We do not believe that we should treat differences greater than or equal to 0.25 percent as not “significant,” since the effect of any difference will be magnified as the rates are updated each year. As discussed previously, absent the requirement of section 114(c)(4) of the Medicare, Medicaid and SCHIP Extension Act of 2007, we would have proposed to use FY 2002 LTCH costs as a basis for estimating FY 2003 LTCH TEFRA payments in evaluating whether to propose a one-time prospective adjustment under § 412.523(d)(3). We also would have proposed to update the FY 2002 costs for inflation to FY 2003 by our Office of the Actuary's current estimate of the actual increase in the excluded hospital market basket from FY 2002 to FY 2003 of 4.2 percent. This updated amount would serve as the proxy for actual FY 2003 TEFRA costs in the proposed budget neutrality computation for purposes of § 412.523(d)(3). We estimated FY 2003 LTCH TEFRA payments using a methodology that is similar in concept to the method [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%3A08-1219. Public record. Not legal advice.