# Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System for Federal Fiscal Year 2021

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2020-17209

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** August 10, 2020
- **Citation:** 85 FR 48424

## Text

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 412
[CMS-1729-F]
RIN 0938-AU05
Medicare Program; Inpatient Rehabilitation Facility Prospective Payment System for Federal Fiscal Year 2021

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Final rule.

SUMMARY:

This final rule updates the prospective payment rates for inpatient rehabilitation facilities (IRFs) for Federal fiscal year (FY) 2021. As required by statute, this final rule includes the classification and weighting factors for the IRF prospective payment system's case-mix groups and a description of the methodologies and data used in computing the prospective payment rates for FY 2021. This final rule adopts more recent Office of Management and Budget statistical area delineations and applies a 5 percent cap on any wage index decreases compared to FY 2020 in a budget neutral manner. This final rule also amends the IRF coverage requirements to remove the post-admission physician evaluation requirement and codifies existing documentation instructions and guidance. In addition, this final rule amends the IRF coverage requirements to allow, beginning with the second week of admission to the IRF, a non-physician practitioner who is determined by the IRF to have specialized training and experience in inpatient rehabilitation to conduct 1 of the 3 required face-to-face visits with the patient per week, provided that such duties are within the non-physician practitioner's scope of practice under applicable state law.

DATES:

These regulations are effective on October 1, 2020.

Applicability dates:
The updated IRF prospective payment rates are applicable for IRF discharges occurring on or after October 1, 2020, and on or before September 30, 2021 (FY 2021).

FOR FURTHER INFORMATION CONTACT:

Gwendolyn Johnson, (410) 786-6954, for general information.

Catie Cooksey, (410) 786-0179, for information about the IRF payment policies and payment rates.

Kadie Derby, (410) 786-0468, for information about the IRF coverage policies.

SUPPLEMENTARY INFORMATION:

Availability of Certain Information Through the Internet on the CMS Website

The IRF PPS Addenda along with other supporting documents and tables referenced in this final rule are available through the internet on the CMS website at
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS.

We note that in previous years, each rule or notice issued under the IRF PPS has included a detailed reiteration of the various regulatory provisions that have affected the IRF PPS over the years. That discussion, along with detailed background information for various other aspects of the IRF PPS, is now available on the CMS website at
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS.

I. Executive Summary

A. Purpose

This final rule updates the prospective payment rates for IRFs for FY 2021 (that is, for discharges occurring on or after October 1, 2020, and on or before September 30, 2021) as required under section 1886(j)(3)(C) of the Social Security Act (the Act). As required by section 1886(j)(5) of the Act, this final rule includes the classification and weighting factors for the IRF PPS's case-mix groups (CMGs) and a description of the methodologies and data used in computing the prospective payment rates for FY 2021. This final rule adopts more recent Office of Management and Budget (OMB) statistical area delineations and applies a 5 percent cap on any wage index decreases compared to FY 2020 in a budget neutral manner. This final rule also amends the IRF coverage requirements to remove the post-admission physician evaluation requirement and codifies existing documentation instructions and guidance. In addition, this final rule amends the IRF coverage requirements to allow, beginning with the second week of admission to the IRF, a non-physician practitioner who is determined by the IRF to have specialized training and experience in inpatient rehabilitation to conduct 1 of the 3 required face-to-face visits with the patient per week, provided that such duties are within the non-physician practitioner's scope of practice under applicable state law. There are no updates in this final rule to the IRF Quality Reporting Program (QRP).

B. Waiver of the 60-Day Delayed Effective Date for the Final Rule

The United States is responding to an outbreak of respiratory disease caused by a novel (new) coronavirus that has now been detected in more than 190 locations internationally, including in all 50 States and the District of Columbia. The virus has been named “SARS-CoV-2” and the disease it causes has been named “coronavirus disease 2019” (abbreviated “COVID-19”).

Due to CMS prioritizing efforts in support of containing and combatting the COVID-19 PHE, and devoting significant resources to that end, as discussed and for the reasons discussed in section XIII. of this final rule, we are hereby waiving the 60-day requirement and determining that the IRF PPS final rule will take effect 55 days after issuance.

C. Summary of Major Provisions

In this final rule, we use the methods described in the FY 2020 IRF PPS final rule (84 FR 39054) to update the prospective payment rates for FY 2021 using updated FY 2019 IRF claims and the most recent available IRF cost report data, which is FY 2018 IRF cost report data. This final rule adopts more recent OMB statistical area delineations and applies a 5 percent cap on any wage index decreases compared to FY 2020 in a budget neutral manner. This final rule also amends the IRF coverage requirements to remove the post-admission physician evaluation requirement and codifies existing documentation instructions and guidance. In addition, this final rule amends the IRF coverage requirements to allow non-physician practitioners to perform some of the weekly visits, provided that such duties are within the non-physician practitioner's scope of practice under applicable state law.

D. Summary of Impact

Table 1—Cost and Benefit

Provision description
Transfers

FY 2021 IRF PPS payment rate update
The overall economic impact of this final rule is an estimated $260 million in increased payments from the Federal Government to IRFs during FY 2021.

II. Background

A. Statutory Basis and Scope

Section 1886(j) of the Act provides for the implementation of a per-discharge PPS for inpatient rehabilitation hospitals and inpatient rehabilitation units of a hospital (collectively, hereinafter referred to as IRFs). Payments under the IRF PPS encompass inpatient operating and capital costs of furnishing covered rehabilitation services (that is, routine, ancillary, and capital costs), but not direct graduate medical education costs, costs of approved nursing and allied health education activities, bad debts, and other services or items outside the scope of the IRF PPS. A complete discussion of the IRF PPS provisions appears in the original FY 2002 IRF PPS final rule (66 FR 41316) and the FY 2006 IRF PPS final rule (70 FR 47880), and we provided a general description of the IRF PPS for FYs 2007 through 2019 in the FY 2020 IRF PPS final rule (84 FR 39055 through 39057).

Under the IRF PPS from FY 2002 through FY 2005, the prospective payment rates were computed across 100 distinct CMGs, as described in the FY 2002 IRF PPS final rule (66 FR 41316). We constructed 95 CMGs using rehabilitation impairment categories (RICs), functional status (both motor and cognitive), and age (in some cases, cognitive status and age may not be a factor in defining a CMG). In addition, we constructed five special CMGs to account for very short stays and for patients who expire in the IRF.

For each of the CMGs, we developed relative weighting factors to account for a patient's clinical characteristics and expected resource needs. Thus, the weighting factors accounted for the relative difference in resource use across all CMGs. Within each CMG, we created tiers based on the estimated effects that certain comorbidities would have on resource use.

We established the Federal PPS rates using a standardized payment conversion factor (formerly referred to as the budget-neutral conversion factor). For a detailed discussion of the budget-neutral conversion factor, please refer to our FY 2004 IRF PPS final rule (68 FR 45684 through 45685). In the FY 2006 IRF PPS final rule (70 FR 47880), we discussed in detail the methodology for determining the standard payment conversion factor.

We applied the relative weighting factors to the standard payment conversion factor to compute the unadjusted prospective payment rates under the IRF PPS from FYs 2002 through 2005. Within the structure of the payment system, we then made adjustments to account for interrupted stays, transfers, short stays, and deaths. Finally, we applied the applicable adjustments to account for geographic variations in wages (wage index), the percentage of low-income patients, location in a rural area (if applicable), and outlier payments (if applicable) to the IRFs' unadjusted prospective payment rates.

For cost reporting periods that began on or after January 1, 2002, and before October 1, 2002, we determined the final prospective payment amounts using the transition methodology prescribed in section 1886(j)(1) of the Act. Under this provision, IRFs transitioning into the PPS were paid a blend of the Federal IRF PPS rate and the payment that the IRFs would have received had the IRF PPS not been implemented. This provision also allowed IRFs to elect to bypass this blended payment and immediately be paid 100 percent of the Federal IRF PPS rate. The transition methodology expired as of cost reporting periods beginning on or after October 1, 2002 (FY 2003), and payments for all IRFs now consist of 100 percent of the Federal IRF PPS rate.

Section 1886(j) of the Act confers broad statutory authority upon the Secretary to propose refinements to the IRF PPS. In the FY 2006 IRF PPS final rule (70 FR 47880) and in correcting amendments to the FY 2006 IRF PPS final rule (70 FR 57166), we finalized a number of refinements to the IRF PPS case-mix classification system (the CMGs and the corresponding relative weights) and the case-level and facility-level adjustments. These refinements included the adoption of the OMB's Core-Based Statistical Area (CBSA) market definitions; modifications to the CMGs, tier comorbidities; and CMG relative weights, implementation of a new teaching status adjustment for IRFs; rebasing and revising the market basket index used to update IRF payments, and updates to the rural, low-income percentage (LIP), and high-cost outlier adjustments. Beginning with the FY 2006 IRF PPS final rule (70 FR 47908 through 47917), the market basket index used to update IRF payments was a market basket reflecting the operating and capital cost structures for freestanding IRFs, freestanding inpatient psychiatric facilities (IPFs), and long-term care hospitals (LTCHs) (hereinafter referred to as the rehabilitation, psychiatric, and long-term care (RPL) market basket). Any reference to the FY 2006 IRF PPS final rule in this final rule also includes the provisions effective in the correcting amendments. For a detailed discussion of the final key policy changes for FY 2006, please refer to the FY 2006 IRF PPS final rule.

The regulatory history previously included in each rule or notice issued under the IRF PPS is available on the CMS website at
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/index?redirect=/InpatientRehabFacPPS/.

B. Provisions of the PPACA Affecting the IRF PPS in FY 2012 and Beyond

The Patient Protection and Affordable Care Act (PPACA) (Pub. L. 111-148) was enacted on March 23, 2010. The Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), which amended and revised several provisions of the PPACA, was enacted on March 30, 2010. In this final rule, we refer to the two statutes collectively as the “Patient Protection and Affordable Care Act” or “PPACA”.

The PPACA included several provisions that affect the IRF PPS in FYs 2012 and beyond. In addition to what was previously discussed, section 3401(d) of the PPACA also added section 1886(j)(3)(C)(ii)(I) of the Act (providing for a “productivity adjustment” for fiscal year (FY) 2012 and each subsequent FY). The productivity adjustment for FY 2021 is discussed in section VI.B. of this final rule. Section 1886(j)(3)(C)(ii)(II) of the Act provides that the application of the productivity adjustment to the market basket update may result in an update that is less than 0.0 for a FY and in payment rates for a FY being less than such payment rates for the preceding FY.

Sections 3004(b) of the PPACA and section 411(b) of the Medicare Access and CHIP Reauthorization Act of 2015 (Pub. L. 114-10, enacted on April 16, 2015) (MACRA) also addressed the IRF PPS. Section 3004(b) of PPACA reassigned the previously designated section 1886(j)(7) of the Act to section 1886(j)(8) of the Act and inserted a new section 1886(j)(7) of the Act, which contains requirements for the Secretary to establish a quality reporting program (QRP) for IRFs. Under that program, data must be submitted in a form and manner and at a time specified by the Secretary. Beginning in FY 2014, section 1886(j)(7)(A)(i) of the Act requires the application of a 2 percentage point reduction to the market basket increase factor otherwise applicable to an IRF (after application of paragraphs (C)(iii) and (D) of section 1886(j)(3) of the Act) for a FY if the IRF does not comply with the requirements of the IRF QRP for that FY. Application of the 2 percentage point reduction may result in an update that is less than 0.0 for a FY and in payment rates for a FY being less than such payment rates for the preceding FY. Reporting-based reductions to the market basket increase factor are not cumulative; they only apply for the FY involved. Section 411(b) of the MACRA amended section 1886(j)(3)(C) of the Act by adding paragraph (iii), which required us to apply for FY 2018, after the application of section 1886(j)(3)(C)(ii) of the Act, an increase factor of 1.0 percent to update the IRF prospective payment rates.

C. Operational Overview of the Current IRF PPS

As described in the FY 2002 IRF PPS final rule (66 FR 41316), upon the admission and discharge of a Medicare Part A fee-for-service (FFS) patient, the IRF is required to complete the appropriate sections of a Patient Assessment Instrument (PAI), designated as the IRF-PAI. In addition, beginning with IRF discharges occurring on or after October 1, 2009, the IRF is also required to complete the appropriate sections of the IRF-PAI upon the admission and discharge of each Medicare Advantage (MA) patient, as described in the FY 2010 IRF PPS final rule (74 FR 39762 and 74 FR 50712). All required data must be electronically encoded into the IRF-PAI software product. Generally, the software product includes patient classification programming called the Grouper software. The Grouper software uses specific IRF-PAI data elements to classify (or group) patients into distinct CMGs and account for the existence of any relevant comorbidities.

The Grouper software produces a five-character CMG number. The first character is an alphabetic character that indicates the comorbidity tier. The last four characters are numeric characters that represent the distinct CMG number. A free download of the Grouper software is available on the CMS website at
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/Software.html.
The Grouper software is also embedded in the iQIES User tool available in iQIES at
https://www.cms.gov/medicare/quality-safety-oversight-general-information/iqies.

Once a Medicare Part A FFS patient is discharged, the IRF submits a Medicare claim as a Health Insurance Portability and Accountability Act of 1996 (HIPAA) (Pub. L. 104-191, enacted on August 21, 1996)—compliant electronic claim or, if the Administrative Simplification Compliance Act of 2002 (ASCA) (Pub. L. 107-105, enacted on December 27, 2002) permits, a paper claim (a UB-04 or a CMS-1450 as appropriate) using the five-character CMG number and sends it to the appropriate Medicare Administrative Contractor (MAC). In addition, once a MA patient is discharged, in accordance with the Medicare Claims Processing Manual, chapter 3, section 20.3 (Pub. L. 100-04), hospitals (including IRFs) must submit an informational-only bill (type of bill (TOB) 111), which includes Condition Code 04 to their MAC. This will ensure that the MA days are included in the hospital's Supplemental Security Income (SSI) ratio (used in calculating the IRF LIP adjustment) for FY 2007 and beyond. Claims submitted to Medicare must comply with both ASCA and HIPAA.

Section 3 of the ASCA amended section 1862(a) of the Act by adding paragraph (22), which requires the Medicare program, subject to section 1862(h) of the Act, to deny payment under Part A or Part B for any expenses 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, in turn, provides that the Secretary shall waive such denial in situations in which there is no method available for the submission of claims in an electronic form or the entity submitting the claim is a small provider. In addition, the Secretary also has the authority to waive such denial in such unusual cases as the Secretary finds appropriate. For more information, see the “Medicare Program; Electronic Submission of Medicare Claims” final rule (70 FR 71008). Our instructions for the limited number of Medicare claims submitted on paper are available at
http://www.cms.gov/manuals/downloads/clm104c25.pdf.

Section 3 of the ASCA operates in the context of the administrative simplification provisions of HIPAA, which include, among others, the requirements for transaction standards and code sets codified in 45 CFR part 160 and part 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 covered electronic transactions according to the applicable transaction standards. (See the CMS program claim memoranda at
http://www.cms.gov/ElectronicBillingEDITrans/
and listed in the addenda to the Medicare Intermediary Manual, Part 3, section 3600).

The MAC processes the claim through its software system. This software system includes pricing programming called the “Pricer” software. The Pricer software uses the CMG number, along with other specific claim data elements and provider-specific data, to adjust the IRF's prospective payment for interrupted stays, transfers, short stays, and deaths, and then applies the applicable adjustments to account for the IRF's wage index, percentage of low-income patients, rural location, and outlier payments. For discharges occurring on or after October 1, 2005, the IRF PPS payment also reflects the teaching status adjustment that became effective as of FY 2006, as discussed in the FY 2006 IRF PPS final rule (70 FR 47880).

D. Advancing Health Information Exchange

The Department of Health and Human Services (HHS) has a number of initiatives designed to encourage and support the adoption of interoperable health information technology and to promote nationwide health information exchange to improve health care and patient access to their health information. The Office of the National Coordinator for Health Information Technology (ONC) and CMS work collaboratively to advance interoperability across settings of care, including post-acute care.

To further interoperability in post-acute care settings, CMS continues to explore opportunities to advance electronic exchange of patient information across payers, providers and with patients, including developing systems that use nationally recognized health IT standards such as the Logical Observation Identifiers Names and Codes (LOINC), the Systematized

Nomenclature of Medicine (SNOMED), and the Fast Healthcare Interoperability Resources (FHIR). In addition, CMS and ONC established the Post-Acute Care Interoperability Workgroup (PACIO) to facilitate collaboration with industry stakeholders to develop FHIR standards that could support the exchange and reuse of patient assessment data derived from the minimum data set (MDS), inpatient rehabilitation facility patient assessment instrument (IRF-PAI), long term care hospital continuity assessment record and evaluation (LCDS), outcome and assessment information set (OASIS) and other sources.

The Data Element Library (DEL) continues to be updated and serves as the authoritative resource for PAC assessment data elements and their associated mappings to health IT standards. The DEL furthers CMS' goal of data standardization and interoperability. These interoperable data elements can reduce provider burden by allowing the use and exchange of healthcare data, support provider exchange of electronic health information for care coordination, person-centered care, and support real-time, data driven, clinical decision making. Standards in the Data Element Library (
https://del.cms.gov/DELWeb/pubHome
) can be referenced on the CMS website and in the ONC Interoperability Standards Advisory (ISA). The 2020 ISA is available at
https://www.healthit.gov/isa.

In the September 30, 2019
Federal Register
, CMS published a final rule, “Medicare and Medicaid Programs; Revisions to Requirements for Discharge Planning” (84 FR 51836) (“Discharge Planning final rule”), that revises the discharge planning requirements that hospitals (including psychiatric hospitals, long-term care hospitals, and inpatient rehabilitation facilities), critical access hospitals (CAHs), and home health agencies, must meet to participate in Medicare and Medicaid programs. The rule supports CMS' interoperability efforts by promoting the exchange of patient information between health care settings, and by ensuring that a patient's necessary medical information is transferred with the patient after discharge from a hospital, CAH, or post-acute care services provider. For more information on the Discharge planning requirements, please visit the final rule at
https://www.federalregister.gov/documents/2019/09/30/2019-20732/medicare-and-medicaid-programs-revisions-to-requirements-for-discharge-planning-for-hospitals.

On May 1 2020, ONC and CMS published the final rules, “21st Century Cures Act: Interoperability, Information Blocking, and the ONC Health IT Certification Program,”
1

(85 FR 25642) and “Patient Access and Interoperability”
2

(85 FR 25510) to promote secure and more immediate access to health information for patients and healthcare providers through the use of standards-based application programming interfaces (APIs) that enable easier access to electronic health information. The CMS Interoperability and Patient Access rule also finalizes a new regulation under the Conditions of Participation for hospitals (85 FR 25584), including CAHs and psychiatric hospitals, which will require these providers to send electronic patient event notifications of a patient's admission, discharge, and/or transfer to appropriate recipients, including applicable post-acute care providers and suppliers. These notifications can help alert post-acute care providers and suppliers when a patient has been seen in the ED or admitted to the hospital, supporting more effective care coordination across settings. We invite providers to learn more about these important developments and how they are likely to affect IRFs.

1

https://www.govinfo.gov/content/pkg/FR-2020-05-01/pdf/2020-07419.pdf.

2

https://www.govinfo.gov/content/pkg/FR-2020-05-01/pdf/2020-05050.pdf.

III. Summary of Provisions of the Proposed Rule

In the FY 2021 IRF PPS proposed rule, we proposed to update the IRF prospective payment rates for FY 2021. We also proposed to adopt more recent Office of Management and Budget statistical area delineations and apply a 5 percent cap on any wage index decreases compared to FY 2020 in a budget neutral manner. We also proposed to amend the IRF coverage requirements to remove the post-admission physician evaluation requirement and codify existing documentation instructions and guidance. Additionally, we proposed to amend the IRF coverage requirements to allow non-physician practitioners to perform certain requirements that are currently required to be performed by a rehabilitation physician.

The proposed policy changes and updates to the IRF prospective payment rates for FY 2021 are as follows:

• Update the CMG relative weights and average length of stay values for FY 2021, in a budget neutral manner, as discussed in section IV. of the FY 2021 IRF PPS proposed rule (85 FR 22065, 22069 through 22073).

• Update the IRF PPS payment rates for FY 2021 by the proposed market basket increase factor, based upon the most current data available, with a proposed productivity adjustment required by section 1886(j)(3)(C)(ii)(I) of the Act, as described in section V. of the FY 2021 IRF PPS proposed rule (85 FR 22065, 22073 through 22075).

• Adopt the revised OMB delineations, the proposed IRF wage index transition, and the proposed update to the labor-related share for FY 2021 in a budget-neutral manner, as described in section V. of the FY 2021 IRF PPS proposed rule (85 FR 22065, 22075 through 22080).

• Describe the calculation of the IRF standard payment conversion factor for FY 2021, as discussed in section V. of the FY 2021 IRF PPS proposed rule (85 FR 22065, 22080 through 22081).

• Update the outlier threshold amount for FY 2021, as discussed in section VI. of the FY 2021 IRF PPS proposed rule (85 FR 22065, 22084 through 22085).

• Update the cost-to-charge ratio (CCR) ceiling and urban/rural average CCRs for FY 2021, as discussed in section VI. of the FY 2021 IRF PPS proposed rule (85 FR 22065, 22085 through 22086).

• Amend the IRF coverage requirements to remove the post-admission physician evaluation requirement as discussed in section VII. of the FY 2021 IRF PPS proposed rule (85 FR 22065, 22086 through 22087).

• Amend the IRF coverage requirements to codify existing documentation instructions and guidance as discussed in section VIII. of the FY 2021 IRF PPS proposed rule (85 FR 22065, 22087 through 22088).

• Amend the IRF coverage requirements to allow non-physician practitioners to perform certain requirements that are currently required to be performed by a rehabilitation physician, if permitted under state law, as discussed in section IX. of the FY 2021 IRF PPS proposed rule (85 FR 22065, 22088 through 22090).

• Describe the method for applying the reduction to the FY 2021 IRF increase factor for IRFs that fail to meet the quality reporting requirements as discussed in section X. of the FY 2021 IRF PPS proposed rule (85 FR 22065, 22090).

IV. Analysis of and Responses to Public Comments

We received 2,668 timely responses from the public, many of which contained multiple comments on the FY

2021 IRF PPS proposed rule (85 FR 22065). We received comments from various trade associations, inpatient rehabilitation facilities, individual physicians, therapists, clinicians, health care industry organizations, health care consulting firms, individual beneficiaries, and beneficiary groups. The following sections, arranged by subject area, include a summary of the public comments that we received, and our responses.

V. Update to the Case-Mix Group (CMG) Relative Weights and Average Length of Stay Values for FY 2021

As specified in § 412.620(b)(1), we calculate a relative weight for each CMG that is proportional to the resources needed by an average inpatient rehabilitation case in that CMG. For example, cases in a CMG with a relative weight of 2, on average, will cost twice as much as cases in a CMG with a relative weight of 1. Relative weights account for the variance in cost per discharge due to the variance in resource utilization among the payment groups, and their use helps to ensure that IRF PPS payments support beneficiary access to care, as well as provider efficiency.

We proposed to update the CMG relative weights and average length of stay values for FY 2021. As required by statute, we always use the most recent available data to update the CMG relative weights and average lengths of stay. For FY 2021, we proposed to use the FY 2019 IRF claims and FY 2018 IRF cost report data. These data are the most current and complete data available at this time. Currently, only a small portion of the FY 2019 IRF cost report data are available for analysis, but the majority of the FY 2019 IRF claims data are available for analysis. We also proposed that if more recent data become available after the publication of the proposed rule and before the publication of the final rule, we would use such data to determine the FY 2021 CMG relative weights and average length of stay values in the final rule.

We proposed to apply these data using the same methodologies that we have used to update the CMG relative weights and average length of stay values each FY since we implemented an update to the methodology to use the more detailed CCR data from the cost reports of IRF provider units of primary acute care hospitals, instead of CCR data from the associated primary care hospitals, to calculate IRFs' average costs per case, as discussed in the FY 2009 IRF PPS final rule (73 FR 46372). In calculating the CMG relative weights, we use a hospital-specific relative value method to estimate operating (routine and ancillary services) and capital costs of IRFs. The process used to calculate the CMG relative weights for this final rule is as follows:

Step 1.
We estimate the effects that comorbidities have on costs.

Step 2.
We adjust the cost of each Medicare discharge (case) to reflect the effects found in the first step.

Step 3.
We use the adjusted costs from the second step to calculate CMG relative weights, using the hospital-specific relative value method.

Step 4.
We normalize the FY 2021 CMG relative weights to the same average CMG relative weight from the CMG relative weights implemented in the FY 2020 IRF PPS final rule (84 FR 39054).

Consistent with the methodology that we have used to update the IRF classification system in each instance in the past, we proposed to update the CMG relative weights for FY 2021 in such a way that total estimated aggregate payments to IRFs for FY 2021 are the same with or without the changes (that is, in a budget-neutral manner) by applying a budget neutrality factor to the standard payment amount. We note that, as we typically do, we updated our data between the FY 2021 IRF PPS proposed and final rules to ensure that we use the most recent available data in calculating IRF PPS payments. This updated data reflects a more complete set of claims for FY 2019 and additional cost report data for FY 2018. To calculate the appropriate budget neutrality factor for use in updating the FY 2021 CMG relative weights, we use the following steps:

Step 1.
Calculate the estimated total amount of IRF PPS payments for FY 2021 (with no changes to the CMG relative weights).

Step 2.
Calculate the estimated total amount of IRF PPS payments for FY 2021 by applying the changes to the CMG relative weights (as discussed in this final rule).

Step 3.
Divide the amount calculated in step 1 by the amount calculated in step 2 to determine the budget neutrality factor of 0.9970 that would maintain the same total estimated aggregate payments in FY 2021 with and without the changes to the CMG relative weights.

Step 4.
Apply the budget neutrality factor from step 3 to the FY 2021 IRF PPS standard payment amount after the application of the budget-neutral wage adjustment factor.

In section VI.D. of this final rule, we discuss the use of the existing methodology to calculate the standard payment conversion factor for FY 2021.

In Table 2, “Relative Weights and Average Length of Stay Values for Revised Case-Mix Groups,” we present the CMGs, the comorbidity tiers, the corresponding relative weights, and the average length of stay values for each CMG and tier for FY 2021. The average length of stay for each CMG is used to determine when an IRF discharge meets the definition of a short-stay transfer, which results in a per diem case level adjustment.

Table 2—Relative Weights and Average Length of Stay Values for the Revised Case-Mix Groups

CMG

CMG description
(M = motor, A = age)

Relative weight
Tier 1
Tier 2
Tier 3

No
comorbidity
tier

Average length of stay
Tier 1
Tier 2
Tier 3

No
comorbidity
tier

0101
Stroke M >=72.50
1.0314
0.8818
0.8182
0.7830
10
10
10
9

0102
Stroke M >=63.50 and M <72.50
1.3174
1.1262
1.0451
1.0001
13
13
12
11

0103
Stroke M >=50.50 and M <63.50
1.6846
1.4401
1.3363
1.2789
15
16
15
14

0104
Stroke M >=41.50 and M <50.50
2.1886
1.8710
1.7361
1.6615
19
19
18
18

0105
Stroke M <41.50 and A >=84.50
2.4829
2.1226
1.9696
1.8850
23
23
21
20

0106
Stroke M <41.50 and A <84.50
2.8525
2.4385
2.2628
2.1655
26
24
23
23

0201
Traumatic brain injury M >=73.50
1.1495
0.9399
0.8443
0.7891
10
11
10
10

0202
Traumatic brain injury M >=61.50 and M <73.50
1.4440
1.1807
1.0606
0.9913
12
14
12
12

0203
Traumatic brain injury M >=49.50 and M <61.50
1.7411
1.4235
1.2787
1.1952
15
15
14
14

0204
Traumatic brain injury M >=35.50 and M <49.50
2.1669
1.7718
1.5915
1.4876
20
19
17
16

0205
Traumatic brain injury M <35.50
2.7369
2.2377
2.0101
1.8788
32
24
21
18

0301
Non-traumatic brain injury M >=65.50
1.2263
0.9941
0.9185
0.8514
11
11
10
10

0302
Non-traumatic brain injury M >=52.50 and M <65.50
1.5711
1.2737
1.1768
1.0908
14
14
13
12

0303
Non-traumatic brain injury M >=42.50 and M <52.50
1.8808
1.5247
1.4087
1.3058
16
16
15
14

0304
Non-traumatic brain injury M <42.50 and A >=78.50
2.1101
1.7105
1.5805
1.4650
19
18
16
16

0305
Non-traumatic brain injury M <42.50 and A <78.50
2.3049
1.8685
1.7264
1.6002
21
20
17
17

0401
Traumatic spinal cord injury M >=56.50
1.3684
1.1612
1.0460
0.9718
12
12
12
11

0402
Traumatic spinal cord injury M >=47.50 and M <56.50
1.7807
1.5110
1.3611
1.2646
16
16
14
15

0403
Traumatic spinal cord injury M >=41.50 and M <47.50
2.1371
1.8135
1.6336
1.5177
20
20
18
17

0404
Traumatic spinal cord injury M <31.50 and A <61.50
3.6185
3.0706
2.7660
2.5698
29
35
32
26

0405
Traumatic spinal cord injury M >=31.50 and M <41.50
2.7444
2.3288
2.0978
1.9490
25
26
22
21

0406
Traumatic spinal cord injury M >=24.50 and M <31.50 and A >=61.50
3.5969
3.0522
2.7494
2.5544
34
31
28
28

0407
Traumatic spinal cord injury M <24.50 and A >=61.50
4.1070
3.4850
3.1394
2.9166
46
36
32
32

0501
Non-traumatic spinal cord injury M >=60.50
1.3097
1.0178
0.9609
0.8875
13
12
11
10

0502
Non-traumatic spinal cord injury M >=53.50 and M <60.50
1.6273
1.2646
1.1939
1.1028
14
14
13
12

0503
Non-traumatic spinal cord injury M >=48.50 and M <53.50
1.8899
1.4687
1.3866
1.2807
16
16
15
14

0504
Non-traumatic spinal cord injury M >=39.50 and M <48.50
2.2506
1.7491
1.6513
1.5252
21
19
18
17

0505
Non-traumatic spinal cord injury M <39.50
2.9362
2.2819
2.1543
1.9899
28
24
22
21

0601
Neurological M >=64.50
1.3673
1.0293
0.9649
0.8770
12
11
10
10

0602
Neurological M >=52.50 and M <64.50
1.7016
1.2809
1.2008
1.0915
14
13
12
12

0603
Neurological M >=43.50 and M <52.50
2.0214
1.5216
1.4264
1.2965
16
15
15
14

0604
Neurological M <43.50
2.3456
1.7657
1.6552
1.5045
20
18
17
16

0701
Fracture of lower extremity M >=61.50
1.2473
1.0115
0.9585
0.8811
11
12
11
10

0702
Fracture of lower extremity M >=52.50 and M <61.50
1.5595
1.2647
1.1985
1.1016
14
14
13
12

0703
Fracture of lower extremity M >=41.50 and M <52.50
1.8956
1.5373
1.4568
1.3390
17
16
15
15

0704
Fracture of lower extremity M <41.50
2.1660
1.7566
1.6646
1.5300
19
18
17
17

0801
Replacement of lower-extremity joint M >=63.50
1.1268
0.9068
0.8121
0.7564
10
10
9
9

0802
Replacement of lower-extremity joint M >=57.50 and M <63.50
1.3248
1.0661
0.9548
0.8893
12
11
11
10

0803
Replacement of lower-extremity joint M >=51.50 and M <57.50
1.4799
1.1909
1.0666
0.9934
12
13
12
11

0804
Replacement of lower-extremity joint M >=42.50 and M <51.50
1.7056
1.3726
1.2293
1.1449
14
15
13
13

0805
Replacement of lower-extremity joint M <42.50
1.9874
1.5994
1.4324
1.3341
17
17
15
14

0901
Other orthopedic M >=63.50
1.2111
0.9651
0.9133
0.8273
11
11
10
10

0902
Other orthopedic M >=51.50 and M <63.50
1.5078
1.2015
1.1371
1.0301
13
13
12
12

0903
Other orthopedic M >=44.50 and M <51.50
1.7744
1.4139
1.3382
1.2122
15
15
14
14

0904
Other orthopedic M <44.5
2.0373
1.6235
1.5365
1.3918
17
17
16
15

1001
Amputation lower extremity M >=64.50
1.2960
1.0863
0.9748
0.9004
12
13
11
11

1002
Amputation lower extremity M >=55.50 and M <64.50
1.6010
1.3419
1.2042
1.1123
14
15
13
13

1003
Amputation lower extremity M >=47.50 and M <55.50
1.8708
1.5681
1.4072
1.2997
16
17
15
14

1004
Amputation lower extremity M <47.50
2.2049
1.8481
1.6585
1.5318
18
19
17
16

1101
Amputation non-lower extremity M >=58.50
1.2999
1.1583
1.0117
0.9810
12
11
11
13

1102
Amputation non-lower extremity M >=52.50 and M <58.50
1.7367
1.5476
1.3517
1.3107
14
13
14
14

1103
Amputation non-lower extremity M <52.50
1.9515
1.7390
1.5188
1.4728
17
13
15
14

1201
Osteoarthritis M >=61.50
1.4251
0.9495
0.9495
0.8718
11
10
10
10

1202
Osteoarthritis M >=49.50 and M <61.50
1.7907
1.1930
1.1930
1.0954
13
14
13
12

1203
Osteoarthritis M <49.50 and A >=74.50
2.0815
1.3867
1.3867
1.2734
15
14
16
14

1204
Osteoarthritis M <49.50 and A <74.50
2.1877
1.4575
1.4575
1.3383
15
15
15
15

1301
Rheumatoid other arthritis M >=62.50
1.1277
0.9311
0.8839
0.7847
9
11
10
9

1302
Rheumatoid other arthritis M >=51.50 and M <62.50
1.5429
1.2740
1.2094
1.0737
12
13
13
12

1303
Rheumatoid other arthritis M >=44.50 and M <51.50 and A >=64.50
1.7786
1.4686
1.3941
1.2377
14
15
14
14

1304
Rheumatoid other arthritis M <44.50 and A >=64.50
2.0617
1.7024
1.6161
1.4347
14
17
16
16

1305
Rheumatoid other arthritis M <51.50 and A <64.50
2.0876
1.7237
1.6363
1.4527
15
16
16
16

1401
Cardiac M >=68.50
1.1456
0.9392
0.8477
0.7585
10
10
10
9

1402
Cardiac M >=55.50 and M <68.50
1.4391
1.1799
1.0650
0.9529
13
13
11
11

1403
Cardiac M >=45.50 and M <55.50
1.7474
1.4326
1.2931
1.1570
15
15
13
13

1404
Cardiac M <45.50
2.0524
1.6827
1.5188
1.3590
18
17
16
14

1501
Pulmonary M >=68.50
1.2905
1.0335
0.9655
0.9262
11
11
10
10

1502
Pulmonary M >=56.50 and M <68.50
1.5913
1.2744
1.1906
1.1421
13
13
12
12

1503
Pulmonary M >=45.50 and M <56.50
1.8476
1.4796
1.3823
1.3261
16
14
13
13

1504
Pulmonary M <45.50
2.1421
1.7154
1.6027
1.5375
22
16
15
14

1601
Pain syndrome M >=65.50
0.9889
0.9889
0.8919
0.8028
9
10
11
9

1602
Pain syndrome M >=58.50 and M <65.50
1.1078
1.1078
0.9991
0.8992
10
11
11
11

1603
Pain syndrome M >=43.50 and M <58.50
1.3538
1.3538
1.2209
1.0989
12
14
13
13

1604
Pain syndrome M <43.50
1.7201
1.7201
1.5513
1.3963
13
15
17
15

1701
Major multiple trauma without brain or spinal cord injury M >=57.50
1.3910
1.0912
0.9919
0.9032
12
13
11
11

1702
Major multiple trauma without brain or spinal cord injury M >=50.50 and M <57.50
1.6988
1.3328
1.2115
1.1031
15
14
13
13

1703
Major multiple trauma without brain or spinal cord injury M >=41.50 and M <50.50
2.0140
1.5799
1.4362
1.3077
18
16
15
15

1704
Major multiple trauma without brain or spinal cord injury M >=36.50 and M <41.50
2.2279
1.7478
1.5888
1.4466
17
19
17
16

1705
Major multiple trauma without brain or spinal cord injury M <36.50
2.4447
1.9179
1.7434
1.5873
23
20
18
17

1801
Major multiple trauma with brain or spinal cord injury M >=67.50
1.2381
0.9821
0.8820
0.8180
14
13
10
10

1802
Major multiple trauma with brain or spinal cord injury M >=55.50 and M <67.50
1.5767
1.2506
1.1232
1.0418
13
15
12
12

1803
Major multiple trauma with brain or spinal cord injury M >=45.50 and M <55.50
1.9345
1.5344
1.3781
1.2782
17
17
15
14

1804
Major multiple trauma with brain or spinal cord injury M >=40.50 and M <45.50
2.2183
1.7596
1.5803
1.4657
22
19
17
16

1805
Major multiple trauma with brain or spinal cord injury M >=30.50 and M <40.50
2.6487
2.1010
1.8869
1.7501
28
23
20
19

1806
Major multiple trauma with brain or spinal cord injury M <30.50
3.4119
2.7063
2.4305
2.2543
37
29
22
25

1901
Guillain-Barré M >=66.50
1.2031
0.9356
0.9226
0.8738
14
12
13
10

1902
Guillain-Barré M >=51.50 and M <66.50
1.6292
1.2670
1.2493
1.1832
18
14
14
14

1903
Guillain-Barré M >=38.50 and M <51.50
2.5939
2.0172
1.9890
1.8838
25
21
21
21

1904
Guillain-Barré M <38.50
3.8189
2.9699
2.9284
2.7735
44
31
29
29

2001
Miscellaneous M >=66.50
1.2118
0.9833
0.9005
0.8282
11
11
10
9

2002
Miscellaneous M >=55.50 and M <66.50
1.4899
1.2090
1.1072
1.0182
13
13
12
11

2003
Miscellaneous M >=46.50 and M <55.50
1.7634
1.4309
1.3105
1.2052
15
15
14
13

2004
Miscellaneous M <46.50 and A >=77.50
1.9847
1.6104
1.4749
1.3564
18
17
15
15

2005
Miscellaneous M <46.50 and A <77.50
2.1338
1.7315
1.5858
1.4583
19
18
16
15

2101
Burns M >=52.50
1.8033
1.3711
1.1272
1.1272
17
13
13
14

2102
Burns M <52.50
2.4055
1.8289
1.5036
1.5036
20
21
15
15

5001
Short-stay cases, length of stay is 3 days or fewer

0.1643

2

5101
Expired, orthopedic, length of stay is 13 days or fewer

0.7262

8

5102
Expired, orthopedic, length of stay is 14 days or more

1.8015

19

5103
Expired, not orthopedic, length of stay is 15 days or fewer

0.8454

8

5104
Expired, not orthopedic, length of stay is 16 days or more

2.0896

20

Generally, updates to the CMG relative weights result in some increases and some decreases to the CMG relative weight values. Table 3 shows how we estimate that the application of the revisions for FY 2021 would affect particular CMG relative weight values, which would affect the overall distribution of payments within CMGs and tiers. We note that, because we implement the CMG relative weight revisions in a budget-neutral manner (as previously described), total estimated aggregate payments to IRFs for FY 2021 are not affected as a result of the CMG relative weight revisions. However, the revisions affect the distribution of payments within CMGs and tiers.

Table 3—Distributional Effects of the Changes to the CMG Relative Weights

Percentage change in CMG relative weights

Number
of cases
affected

Percentage
of cases
affected

Increased by 15% or more
64
0.0

Increased by between 5% and 15%
1,830
0.4

Changed by less than 5%
404,940
99.3

Decreased by between 5% and 15%
1,029
0.3

Decreased by 15% or more
11
0.0

As shown in Table 3, 99.3 percent of all IRF cases are in CMGs and tiers that would experience less than a 5 percent change (either increase or decrease) in the CMG relative weight value as a result of the revisions for FY 2021. The

changes in the average length of stay values for FY 2021, compared with the FY 2020 average length of stay values, are small and do not show any particular trends in IRF length of stay patterns.

The comments we received on our proposal to update the CMG relative weights and average length of stay values for FY 2021 are summarized below.

Comment:
One commenter expressed concern about the decreases in some of the CMG relative weights and average length of stay values from the proposed updates, and questioned whether the FY 2019 data used to update these values for FY 2021 are reliable and valid. This commenter suggested that CMS freeze the CMG relative weights and average length of stay values at FY 2020 levels. This commenter also requested that CMS provide patient level data to allow stakeholders to analyze and model IRF payments and requested that CMS convene regularly scheduled TEPs to discuss and review payment model analyses. Additionally, this commenter also suggested that CMS should modify Table 3 to reflect the payment impacts of updating the CMG relative weights and requested that CMS provide actual changes in payment instead of changes in percentages, as this would provide more transparency related to the actual changes that IRFs may experience.

Response:
The annual updates to the CMG relative weights, which include both increases and decreases to the CMG relative weights, are intended to ensure that IRF payments are aligned as closely as possible with the current costs of care. The relative weights for each of the CMGs and tiers represent the relative costliness of patients in those CMGs and tiers compared with patients in other CMGs and tiers. Additionally, the average length of stay values are only used to determine which cases qualify for the short-stay transfer policy and are not used to determine payments for the non-short-stay transfer cases.

We do not agree that it would be appropriate to freeze the CMG relative weights and average length of stay values at FY 2020 levels because this would require us to base them on older data. Updating these values based on the most recent available data ensures that the IRF case mix system is as reflective as possible of recent changes in IRF utilization and case mix, thereby ensuring that IRF payments appropriately reflect the relative costs of caring for IRF patients. Freezing these values at FY 2020 levels does not allow us to reflect any changes in IRF utilization and case mix that might have occurred over time. As stated in the FY 2021 IRF PPS proposed rule, the FY 2019 data is the most current and complete data available for updating payments.

We are confident that the data is valid and reliable for use in setting IRF PPS payment rates. CMS's contractor (Research Triangle Institute (RTI)) analyzed 2 year's worth of these data (FYs 2017 and 2018) to determine the extent to which the data could predict resource use in the IRF setting. RTI produced two reports containing their analyses and findings, “Analyses to Inform the Potential use of Standardized Patient Assessment Data Elements in the Inpatient Rehabilitation Facility Prospective Payment System (PDF)” (April 2018) and “Analyses to Inform the Use of Standardized Patient Assessment Data Elements in the Inpatient Rehabilitation Facility Prospective Payment System (PDF)” (March 2019). These reports are both available for download from the IRF PPS website at
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/Research.

As most recently discussed in detail in the FY 2020 IRF PPS final rule (84 FR 39054), we believe that these data accurately reflect the severity of the IRF patient population and the associated costs of caring for these patients in the IRF setting. Therefore, we believe it is appropriate to use the FY 2019 data to update the CMG relative weights and average length of stay values for FY 2021 to ensure the case mix system is as reflective as possible of recent changes in IRF utilization and case mix.

With regard to the request for patient-level data, we are unable to make patient assessment and claims data publicly available on the CMS website because these data contain information that can be used to identify individual Medicare beneficiaries. However, stakeholders may obtain these data through the standard CMS data acquisition and Data Use Agreement (DUA) processes. More information on CMS data acquisition process can be found on the CMS website at
https://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/FilesForOrderGenInfo/index.

In addition, with regard to the request for the regularly scheduled TEPs to obtain stakeholder input on the routine annual updates to the CMG relative weights and average length of stay values, we provide the methodology for these updates in the IRF PPS proposed rules each year to enable stakeholders to comment on the methodology and provide any suggestions for updating this methodology. Furthermore, we rarely make changes to this methodology, so we believe that stakeholders have had ample opportunity to comment on this methodology over the years, and we do not believe that there would be added value to convening a TEP to discuss this well-established methodology.

With regard to the comment regarding Table 3, we do not agree with the commenter's suggestion that utilizing changes in payment would more adequately project changes in the CMG relative weight values than examining changes in the relative weight values themselves. We would also like to note that the data files published in conjunction with each proposed and final rule contain estimated facility level payment impacts for each IRF in our analysis file to support transparency and assist providers in determining the payment implications of the policy updates contained in each rule. However, we appreciate the commenter's suggested revisions to Table 3 and will take this comment under advisement for future consideration.

After consideration of the comments we received, we are finalizing our proposal to update the CMG relative weights and average length of stay values for FY 2021, as shown in Table 2 of this final rule. These updates are effective for FY 2021, that is, for discharges occurring on or after October 1, 2020 and on or before September 30, 2021.

VI. FY 2021 IRF PPS Payment Update

A. Background

Section 1886(j)(3)(C) of the Act requires the Secretary to establish an increase factor that reflects changes over time in the prices of an appropriate mix of goods and services for which payment is made under the IRF PPS. According to section 1886(j)(3)(A)(i) of the Act, the increase factor shall be used to update the IRF prospective payment rates for each FY. Section 1886(j)(3)(C)(ii)(I) of the Act requires the application of the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. Thus, in the FY 2021 IRF PPS proposed rule (85 FR 22073 through 22074), we proposed to update the IRF PPS payments for FY 2021 by a market basket increase factor as required by section 1886(j)(3)(C) of the Act based upon the most current data available, with a productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of the Act.

We have utilized various market baskets through the years in the IRF PPS. For a discussion of these market

baskets, we refer readers to the FY 2016 IRF PPS final rule (80 FR 47046).

In FY 2016, we finalized the use of a 2012-based IRF market basket, using Medicare cost report (MCR) data for both freestanding and hospital-based IRFs (80 FR 47049 through 47068). Beginning with FY 2020, we finalized a rebased and revised IRF market basket to reflect a 2016 base year. The FY 2020 IRF PPS final rule (84 FR 39071 through 39086) contains a complete discussion of the development of the 2016-based IRF market basket.

B. FY 2021 Market Basket Update and Productivity Adjustment

For FY 2021 (that is, beginning October 1, 2020 and ending September 30, 2021), we proposed to update the IRF PPS payments by a market basket increase factor as required by section 1886(j)(3)(C) of the Act, with a productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of the Act. For FY 2021, we proposed to use the same methodology described in the FY 2020 IRF PPS final rule (84 FR 39085) to compute the FY 2021 market basket increase factor to update the IRF PPS base payment rate.

Consistent with historical practice, we proposed to estimate the market basket update for the IRF PPS based on IHS Global Inc.'s (IGI's) forecast using the most recent available data. IGI is a nationally-recognized economic and financial forecasting firm with which we contract to forecast the components of the market baskets and multifactor productivity (MFP). Based on IGI's fourth quarter 2019 forecast with historical data through the third quarter of 2019, the 2016-based IRF market basket increase factor for FY 2021 was projected to be 2.9 percent. Therefore, we proposed that the 2016-based IRF market basket increase factor for FY 2021 would be 2.9 percent. We proposed that if more recent data became available after the publication of the proposed rule and before the publication of this final rule (for example, a more recent estimate of the market basket update), we would use such data to determine the FY 2021 market basket update in this final rule.

According to section 1886(j)(3)(C)(i) of the Act, the Secretary shall establish an increase factor based on an appropriate percentage increase in a market basket of goods and services. Section 1886(j)(3)(C)(ii) of the Act then requires that, after establishing the increase factor for a FY, the Secretary shall reduce such increase factor for FY 2012 and each subsequent FY, by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. Section 1886(b)(3)(B)(xi)(II) of the Act sets forth the definition of this productivity adjustment. The statute defines the productivity adjustment to be equal to the 10-year moving average of changes in annual economy-wide, private nonfarm business MFP (as projected by the Secretary for the 10-year period ending with the applicable FY, year, cost reporting period, or other annual period) (the “MFP adjustment”). The U.S. Department of Labor's Bureau of Labor Statistics (BLS) publishes the official measure of private nonfarm business MFP. Please see
http://www.bls.gov/mfp
for the BLS historical published MFP data. A complete description of the MFP projection methodology is available on the CMS website at
https://www.cms.gov/Research-Statistics-Dataand-Systems/Statistics-Trends-andReports/MedicareProgramRatesStats/MarketBasketResearch.html.

Using IGI's fourth quarter 2019 forecast, the 10-year moving average growth of MFP for FY 2021 was projected to be 0.4 percentage point. Thus, in accordance with section 1886(j)(3)(C) of the Act, we proposed to base the FY 2021 market basket update, which is used to determine the applicable percentage increase for the IRF payments, on IGI's fourth quarter 2019 forecast of the 2016-based IRF market basket. We proposed to then reduce this percentage increase by the estimated MFP adjustment for FY 2021 of 0.4 percentage point (the 10-year moving average growth of MFP for the period ending FY 2021 based on IGI's fourth quarter 2019 forecast). Therefore, the proposed FY 2021 IRF update was equal to 2.5 percent (2.9 percent market basket update less 0.4 percentage point MFP adjustment). Furthermore, we proposed that if more recent data became available after the publication of the proposed rule and before the publication of this final rule (for example, a more recent estimate of the market basket and/or MFP), we would use such data to determine the FY 2021 market basket update and MFP adjustment in this final rule.

Based on the more recent data available for this FY 2021 IRF final rule (that is, IGI's second quarter 2020 forecast of the 2016-based IRF market basket rate-of-increase with historical data through the first quarter of 2020), we estimate that the FY 2021 market basket update is 2.4 percent. We note that the fourth quarter 2019 forecast was developed prior to the economic impacts of the Coronavirus disease 2019 (COVID-19) pandemic. This lower update (2.4 percent) for FY 2021 relative to the proposed rule (2.9 percent) is primarily driven by slower anticipated compensation growth for both health-related and other occupations as labor markets are expected to be significantly impacted during the recession that started in February 2020 and throughout the anticipated recovery.

Based on the more recent data available for this FY 2021 IRF final rule, the current estimate of the 10-year moving average growth of MFP for FY 2021 is -0.1 percentage point. This MFP is based on the most recent macroeconomic outlook from IGI at the time of rulemaking (released June 2020) in order to reflect more current historical economic data. IGI produces monthly macroeconomic forecasts, which include projections of all of the economic series used to derive MFP. In contrast, IGI only produces forecasts of the more detailed price proxies used in the 2016-based IRF market basket on a quarterly basis. Therefore, IGI's second quarter 2020 forecast is the most recent forecast of the 2016-based IRF market basket update.

We note that it has typically been our practice to base the projection of the market basket price proxies and MFP in the final rule on the second quarter IGI forecast. For this FY 2021 IRF PPS final rule, we are using the IGI June macroeconomic forecast for MFP because it is a more recent forecast, and it is important to use more recent data during this period when economic trends, particularly employment and labor productivity, are notably uncertain because of the COVID-19 pandemic. Historically, the MFP adjustment based on the second quarter IGI forecast has been very similar to the MFP adjustment derived with IGI's June macroeconomic forecast. Substantial changes in the macroeconomic indicators in between monthly forecasts are atypical.

Given the unprecedented economic uncertainty as a result of the COVID-19 pandemic, the change in the IGI macroeconomic series used to derive MFP between the IGI second quarter 2020 IGI forecast and the IGI June 2020 macroeconomic forecast is significant. Therefore, we believe it is technically appropriate to use IGI's more recent June 2020 macroeconomic forecast to determine the MFP adjustment for the final rule as it reflects more current historical data. For comparison purposes, the 10-year moving average growth of MFP for FY 2021 is projected to be -0.1 percentage point based on IGI's June 2020 macroeconomic forecast compared to a FY 2021 projected 10-year moving average growth of MFP of 0.7 percentage point based on IGI's second quarter 2020 forecast. Mechanically subtracting the negative

10-year moving average growth of MFP from the IRF market basket increase factor using the data from the IGI June 2020 macroeconomic forecast would have resulted in a 0.1 percentage point increase in the FY 2021 IRF increase factor. However, under sections 1886(b)(3)(B)(xi)(II) and 1886(j)(3)(C) of the Act, the Secretary is required to reduce (not increase) the IRF market basket increase factor by changes in economy-wide productivity. Accordingly, we will be applying a 0.0 percentage point MFP adjustment to the IRF market basket increase factor. Therefore, the current estimate of the FY 2021 IRF increase factor is equal to 2.4 percent.

For FY 2021, the Medicare Payment Advisory Commission (MedPAC) recommends that we reduce IRF PPS payment rates by 5 percent. As discussed, and in accordance with sections 1886(j)(3)(C) and 1886(j)(3)(D) of the Act, the Secretary is required to update the IRF PPS payment rates for FY 2021 by an adjusted market basket increase factor which, based on the most recently available data, is 2.4 percent. Section 1886(j)(3)(C) of the Act does not provide the Secretary with the authority to apply a different update factor to IRF PPS payment rates for FY 2021.

The comments we received on the proposed market basket update and productivity adjustment are summarized below.

Comment:
One commenter (MedPAC) stated that Medicare's current payment rates for IRFs appear to be more than adequate and therefore recommended that the Congress reduce the IRF payment rate by 5 percent for FY 2021. The commenter appreciated that CMS cited MedPAC's recommendation, even while noting that the Secretary does not have the authority to deviate from statutorily mandated updates.

Response:
We appreciate MedPAC's interest in the IRF increase factor. However, we are required to update IRF PPS payments by the market basket update adjusted for productivity, as directed by section 1886(j)(3)(C) of the Act.

Comment:
A few commenters supported the proposal to update the market basket and productivity amounts using the latest available data, and encouraged CMS to update these factors using the latest available data as part of the release of the IRF PPS Final Rule. One commenter stated that they were pleased to see an increase in payments to IRFs and further increases to rural providers.

Response:
We appreciate the commenters' support for the proposed IRF annual payment update. As noted in the proposed rule, the final update would be based on a more recent forecast of the market basket and MFP adjustment if available. Therefore, incorporating an updated estimate of the market basket update and productivity adjustment in the final rule is consistent with what we have done historically for the IRF PPS as well as other Medicare PPSs as it reflects more current historical data as well as a revised outlook on the forecasted price pressures faced by providers for FY 2021 and inclusive of economic assumptions regarding the expected impacts from the COVID-19 pandemic.

Comment:
Several commenters expressed concern about the continued application of the productivity adjustment to IRFs. One commenter stated that while they understand that CMS is bound by statute to reduce the market basket update by a productivity adjustment factor in accordance with the PPACA, they continue to be concerned that IRFs will not have the ability to generate additional productivity gains at a pace matching the productivity of the economy at large on an ongoing, consistent basis as contemplated by the PPACA. In addition, the commenter stated that the recent developments related to the public health emergency due to COVID-19 have resulted in further productivity challenges for IRFs. The commenter respectfully requested that CMS carefully monitor the impact that these productivity adjustments will have on the rehabilitation hospital sector, provide feedback to Congress as appropriate, and reduce the productivity adjustment. A few commenters recommended that CMS continue to research productivity factors for health care providers and hospitals, and partner with Congress to implement a more appropriate, health care specific productivity adjustment.

Response:
We acknowledge the commenters' concerns regarding productivity growth at the economy-wide level and its application to IRFs. As the commenter acknowledges, section 1886(j)(3)(C)(ii)(I) of the Act requires the application of a productivity adjustment to the IRF PPS market basket increase factor. We will continue to monitor the impact of the payment updates on IRF Medicare payment adequacy as well as beneficiary access to care.

As stated in the FY 2020 IRF PPS final rule (84 FR 39087), we would be very interested in better understanding IRF-specific productivity; however, the data elements required to estimate IRF specific multi-factor productivity are not produced at the level of detail that would allow this analysis. We have estimated hospital-sector multi-factor productivity and have published the findings on the CMS website at
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/ProductivityMemo2016.pdf.

Comment:
One commenter stated that while they appreciate this modest increase to the payment rate, it is insufficient to offset the impact of cost inflation, sequestration, and the financial impact IRFs are facing due to COVID-19. The commenter encouraged CMS to consider these additional impacts in the final rule.

Response:
Since the publication of the FY 2021 IRF PPS proposed rule, we have incorporated more current historical data and revised forecasts provided by IGI that factor in expected impacts on price and wage pressures from the COVID-19 pandemic. By incorporating the most recent estimates available of the market basket update and productivity adjustment, we believe these data reflect the best available projection of input price inflation faced by IRFs for FY 2021, adjusted for economy-wide productivity, which is required by statute.

After consideration of the comments we received, we are finalizing a FY 2021 IRF update equal to 2.4 percent based on the most recent data available.

C. Labor-Related Share for FY 2021

Section 1886(j)(6) of the Act specifies that the Secretary is to adjust the proportion (as estimated by the Secretary from time to time) of IRFs' costs which are attributable to wages and wage-related costs, of the prospective payment rates computed under section 1886(j)(3) of the Act for area differences in wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the rehabilitation facility compared to the national average wage level for such facilities. The labor-related share is determined by identifying the national average proportion of total costs that are related to, influenced by, or vary with the local labor market. We proposed to continue to classify a cost category as labor-related if the costs are labor-intensive and vary with the local labor market.

Based on our definition of the labor-related share and the cost categories in the 2016-based IRF market basket, we proposed to calculate the labor-related share for FY 2021 as the sum of the FY 2021 relative importance of Wages and Salaries, Employee Benefits, Professional Fees: Labor-related,

Administrative and Facilities Support Services, Installation, Maintenance, and Repair Services, All Other: Labor-related Services, and a portion of the Capital-Related relative importance from the 2016-based IRF market basket. For more details regarding the methodology for determining specific cost categories for inclusion in the 2016-based IRF labor-related share, see the FY 2020 IRF PPS final rule (84 FR 39087 through 39089).

The relative importance reflects the different rates of price change for these cost categories between the base year (2016) and FY 2021. Based on IGI's fourth quarter 2019 forecast of the 2016-based IRF market basket, the sum of the FY 2021 relative importance for Wages and Salaries, Employee Benefits, Professional Fees: Labor-related, Administrative and Facilities Support Services, Installation Maintenance & Repair Services, and All Other: Labor-related Services was 69.0 percent. We proposed that the portion of Capital-Related costs that are influenced by the local labor market is 46 percent. Since the relative importance for Capital-Related costs was 8.5 percent of the 2016-based IRF market basket for FY 2021, we proposed to take 46 percent of 8.5 percent to determine the labor-related share of Capital-Related costs for FY 2021 of 3.9 percent. Therefore, we proposed a total labor-related share for FY 2021 of 72.9 percent (the sum of 69.0 percent for the labor-related share of operating costs and 3.9 percent for the labor-related share of Capital-Related costs). We proposed that if more recent data became available after publication of the proposed rule and before the publication of this final rule (for example, a more recent estimate of the labor-related share), we would use such data to determine the FY 2021 IRF labor-related share in this final rule.

Based on IGI's second quarter 2020 forecast of the 2016-based IRF market basket, the sum of the FY 2021 relative importance for Wages and Salaries, Employee Benefits, Professional Fees: Labor-related, Administrative and Facilities Support Services, Installation Maintenance & Repair Services, and All Other: Labor-related Services is 69.1 percent. We proposed that the portion of Capital-Related costs that are influenced by the local labor market is 46 percent. Since the relative importance for Capital-Related costs is 8.5 percent of the 2016-based IRF market basket for FY 2021, we take 46 percent of 8.5 percent to determine the labor-related share of Capital-Related costs for FY 2021 of 3.9 percent. Therefore, the current estimate of the total labor-related share for FY 2021 is equal to 73.0 percent (the sum of 69.1 percent for the labor-related share of operating costs and 3.9 percent for the labor-related share of Capital-Related costs). Table 4 shows the current estimate of the FY 2021 labor-related share and the FY 2020 final labor-related share using the 2016-based IRF market basket relative importance.

Table 4—FY 2021 IRF Labor-Related Share and FY 2020 IRF Labor-Related Share

FY 2021

labor-related share
1

FY 2020
final labor

related share
2

Wages and Salaries
48.6
48.1

Employee Benefits
11.4
11.4

Professional Fees: Labor-Related
3

5.0
5.0

Administrative and Facilities Support Services
0.7
0.8

Installation, Maintenance, and Repair Services
1.6
1.6

All Other: Labor-Related Services
1.8
1.8

Subtotal
69.1
68.7

Labor-related portion of Capital-Related (46%)
3.9
4.0

Total Labor-Related Share
73.0
72.7

1
Based on the 2016-based IRF market basket relative importance, IGI 2nd quarter 2020 forecast.

2
Based on the 2016-based IRF market basket relative importance as published in the
Federal Register
(84 FR 39089).

3
Includes all contract advertising and marketing costs and a portion of accounting, architectural, engineering, legal, management consulting, and home office contract labor costs.

The comment we received on the proposed labor related share for FY 2021 is summarized below.

Comment:
One commenter opposed the proposed increase in the labor related share because it penalizes any facility that has a wage index less than 1.0. The commenter stated that across the country, there is a growing disparity between high-wage and low-wage states and stated that this proposal will continue to exacerbate that disparity and further harm hospitals in many rural and underserved communities. Unless there is sufficient data to support the labor related share increase, the commenter requested that the percentage from 2020 should carry forward into 2021.

Response:
We appreciate the commenter's concern over the increase in the labor-related share; however, we believe it is technically appropriate to use the 2016-based IRF market basket relative importance to determine the labor-related share for FY 2021 as it is based on more recent data regarding price pressures and cost structure of IRFs. Our policy to use the most recent market basket to determine the labor-related share is a policy we have regularly adopted for the IRF PPS, (such as for the FY 2020 IRF PPS final rule (84 FR 39089)), as well as for other PPSs including but not limited to the Inpatient Psychiatric Facility PPS (84 FR 38446) and the Long-term care hospital PPS (84 FR 42642).

After consideration of the comment we received, we are finalizing the use of the sum of the FY 2021 relative importance for the labor-related cost categories based on the most recent forecast (IGI's second quarter 2020 forecast) of the 2016-based IRF market basket labor-related share cost weights as proposed.

D. Wage Adjustment for FY 2021

1. Background

Section 1886(j)(6) of the Act requires the Secretary to adjust the proportion of rehabilitation facilities' costs attributable to wages and wage-related costs (as estimated by the Secretary from time to time) by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the rehabilitation facility compared to the national average wage level for those facilities. The Secretary is required to update the IRF PPS wage index on the basis of information available to the Secretary on the wages and wage-related costs to furnish

rehabilitation services. Any adjustment or updates made under section 1886(j)(6) of the Act for a FY are made in a budget-neutral manner.

For FY 2021, we proposed to maintain the policies and methodologies described in the FY 2020 IRF PPS final rule (84 FR 39090) related to the labor market area definitions and the wage index methodology for areas with wage data. Thus, we proposed to use the CBSA labor market area definitions and the FY 2021 pre-reclassification and pre-floor hospital wage index data. In accordance with section 1886(d)(3)(E) of the Act, the FY 2021 pre-reclassification and pre-floor hospital wage index is based on data submitted for hospital cost reporting periods beginning on or after October 1, 2016, and before October 1, 2017 (that is, FY 2017 cost report data).

The labor market designations made by the OMB include some geographic areas where there are no hospitals and, thus, no hospital wage index data on which to base the calculation of the IRF PPS wage index. We proposed to continue to use the same methodology discussed in the FY 2008 IRF PPS final rule (72 FR 44299) to address those geographic areas where there are no hospitals and, thus, no hospital wage index data on which to base the calculation for the FY 2021 IRF PPS wage index.

The comments we received on these proposals are summarized below.

Comment:
One commenter recommended that CMS repeal the existing hospital wage index and recommended a number of changes to existing wage index policies, but acknowledged that legislative action may be necessary to accomplish some or all of the recommended changes.

Response:
We appreciate the commenter's recommendations on implementing wage index reform and the recommended modifications to the IRF PPS wage index polices. We believe that such recommendations should be part of a broader discussion on wage index reform across Medicare payment systems. These recommendations will be taken into consideration while we continue to explore potential wage index alternatives in the future.

Comment:
Some commenters who were supportive of using the concurrent year's IPPS wage data requested that CMS adopt IPPS wage index polices under the IRF PPS, including geographic reclassification, the imposition of a rural floor, and adjustments that address wage disparities between high and low wage index hospitals. Additionally, some commenters suggested that discrepancies in wage index policies between the IRF PPS and IPPS settings may impact access to care and competition for labor and requested that CMS ensure parity between wage index policies for all hospitals.

Response:
We appreciate the commenters' support for the continued use of the concurrent year's IPPS wage data. However, we note that the IRF PPS does not account for geographic reclassification under sections 1886(d)(8) and (d)(10) of the Act, and does not apply the “rural floor” under section 4410 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33, enacted on August 5, 1997). Furthermore, as we do not have an IRF-specific wage index, we are unable to determine the degree, if any, to which a geographic reclassification adjustment or a rural floor policy under the IRF PPS would be appropriate. The rationale for our current wage index policies is fully described in the FY 2006 IRF PPS final rule (70 FR 47880, 47926 through 47928).

With regard to the comments requesting that we adopt similar adjustments to address wage disparities between high and low wage index IPPS hospitals under the IRF PPS, we would like to note that the IRF wage index is derived from IPPS wage data. As such, any effects of this policy on the wage data of IPPS hospitals will be extended to the IRF setting, as this data will be used to establish the wage index for IRFs in the future.

We appreciate the commenters' concerns regarding beneficiary access to care and competition for labor resulting from different applicable wage index policies across different settings of care. While CMS and other stakeholders have explored potential alternatives to the current wage index system in the past, no consensus has been achieved regarding how best to implement a replacement system. These concerns will be taken into consideration while we continue to explore potential wage index reforms and monitor IRF wage index policies. After consideration of the comments we received, we are finalizing our proposed policies as discussed above relating to the wage index.

2. Core-Based Statistical Areas (CBSAs) for the FY 2021 IRF Wage Index

a. Background

The wage index used for the IRF PPS is calculated using the pre-reclassification and pre-floor inpatient PPS (IPPS) wage index data and is assigned to the IRF on the basis of the labor market area in which the IRF is geographically located. IRF labor market areas are delineated based on the CBSAs established by the OMB. The current CBSA delineations (which were implemented for the IRF PPS beginning with FY 2016) are based on revised OMB delineations issued on February 28, 2013, in OMB Bulletin No. 13-01. OMB Bulletin No. 13-01 established revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas in the United States and Puerto Rico based on the 2010 Census, and provided guidance on the use of the delineations of these statistical areas using standards published in the June 28, 2010
Federal Register
(75 FR 37246 through 37252). We refer readers to the FY 2016 IRF PPS final rule (80 FR 47068 through 47076) for a full discussion of our implementation of the OMB labor market area delineations beginning with the FY 2016 wage index.

Generally, OMB issues major revisions to statistical areas every 10 years, based on the results of the decennial census. However, OMB occasionally issues updates and revisions to the statistical areas to reflect the recognition of new areas or the addition of counties to existing areas. In some instances, these updates merge formerly separate areas, transfer components of an area from one area to another, or drop components from an area. On July 15, 2015, OMB issued OMB Bulletin No. 15-01, which provides minor updates to and supersedes OMB Bulletin No. 13-01 that was issued on February 28, 2013. The attachment to OMB Bulletin No. 15-01 provides detailed information on the update to statistical areas since February 28, 2013. The updates provided in OMB Bulletin No. 15-01 are based on the application of the 2010 Standards for Delineating Metropolitan and Micropolitan Statistical Areas to Census Bureau population estimates for July 1, 2012 and July 1, 2013.

In the FY 2018 IRF PPS final rule (82 FR 36250 through 36251), we adopted the updates set forth in OMB Bulletin No. 15-01 effective October 1, 2017, beginning with the FY 2018 IRF wage index. For a complete discussion of the adoption of the updates set forth in OMB Bulletin No. 15-01, we refer readers to the FY 2018 IRF PPS final rule. In the FY 2019 IRF PPS final rule (83 FR 38527), we continued to use the OMB delineations that were adopted beginning with FY 2016 to calculate the area wage indexes, with updates set forth in OMB Bulletin No. 15-01 that we adopted beginning with the FY 2018 wage index.

On August 15, 2017, OMB issued OMB Bulletin No. 17-01, which provided updates to and superseded OMB Bulletin No. 15-01 that was issued on July 15, 2015. The attachments to OMB Bulletin No. 17-01 provide detailed information on the update to statistical areas since July 15, 2015, and are based on the application of the 2010 Standards for Delineating Metropolitan and Micropolitan Statistical Areas to Census Bureau population estimates for July 1, 2014 and July 1, 2015. In the FY 2020 IRF PPS final rule (84 FR 39090 through 39091), we adopted the updates set forth in OMB Bulletin No. 17-01 effective October 1, 2019, beginning with the FY 2020 IRF wage index.

On April 10, 2018, OMB issued OMB Bulletin No. 18-03, which superseded the August 15, 2017 OMB Bulletin No. 17-01, and on September 14, 2018, OMB issued OMB Bulletin No. 18-04, which superseded the April 10, 2018 OMB Bulletin No. 18-03. These bulletins established revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas, and Combined Statistical Areas, and provided guidance on the use of the delineations of these statistical areas. A copy of this bulletin may be obtained at
https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf.
We note that on March 6, 2020 OMB issued OMB Bulletin 20-01 (available on the web at
https://www.whitehouse.gov/wp-content/uploads/2020/03/Bulletin-20-01.pdf
), but it was not issued in time for development of this rule.

While OMB Bulletin No. 18-04 is not based on new census data, there were some material changes based on the revised OMB delineations. The revisions OMB published on September 14, 2018 contain a number of significant changes. For example, under the new OMB delineations, there would be new CBSAs, urban counties that would become rural, rural counties that would become urban, and existing CBSAs that would be split apart. We discuss these changes in more detail in section VI.D.2.b. of this final rule. We proposed to adopt the updates to the OMB delineations announced in OMB Bulletin No. 18-04 effective beginning with FY 2021 under the IRF PPS. As noted previously, the March 6, 2020 OMB Bulletin 20-01 was not issued in time for development of this rule. While we do not believe that the minor updates included in OMB Bulletin 20-01 will impact the updates to the CBSA-based labor market area delineations, if appropriate, we will propose any updates from this bulletin in the FY 2022 IRF PPS proposed rule.

b. Implementation of New Labor Market Area Delineations

We believe it is important for the IRF PPS to use the latest labor market area delineations available as soon as is reasonably possible to maintain a more accurate and up-to-date payment system that reflects the reality of population shifts and labor market conditions. We further believe that using the most current delineations possible will increase the integrity of the IRF PPS wage index system by creating a more accurate representation of geographic variations in wage levels. Therefore, we proposed to adopt the new OMB delineations as described in the September 14, 2018 OMB Bulletin No. 18-04, effective beginning with the FY 2021 IRF PPS wage index. We proposed to use these new delineations to calculate area wage indexes in a manner that is generally consistent with the CBSA-based methodologies. As the adoption of the new OMB delineations may have significant negative impacts on the wage index values for certain geographic areas, we also proposed to apply a 5 percent cap on any decrease in an IRF's wage index from the IRF's wage index from the prior FY. This transition is discussed in more detail in section VI.D.3. of this final rule.

(1) Micropolitan Statistical Areas

OMB defines a “Micropolitan Statistical Area” as a CBSA associated with at least one urban cluster that has a population of at least 10,000, but less than 50,000 (75 FR 37252). We refer to these areas as Micropolitan Areas. Since FY 2006, we have treated Micropolitan Areas as rural and include hospitals located in Micropolitan Areas in each State's rural wage index. We refer the reader to the FY 2006 IRF PPS final rule for a complete discussion regarding treating Micropolitan Areas as rural. Therefore, in conjunction with our proposal to implement the new OMB labor market delineations beginning in FY 2021 and consistent with the treatment of Micropolitan Areas under the IPPS, we proposed to continue to treat Micropolitan Areas as “rural” and to include Micropolitan Areas in the calculation of the state's rural wage index.

(2) Urban Counties That Would Become Rural Under the New OMB Delineations

As previously discussed, we proposed to implement the new OMB labor market area delineations (based upon the 2010 Decennial Census data) beginning in FY 2021. Our analysis shows that a total of 34 counties (and county equivalents) that are currently considered part of an urban CBSA would be considered located in a rural area, beginning in FY 2021, under these new OMB delineations. Table 5 lists the 34 urban counties that will be rural with the implementation of the new OMB delineations.

Table 5—Counties That Will Transition From Urban to Rural Status

FIPS county code
County/county equivalent
State
Current CBSA
Current CBSA name

01127
Walker
AL
13820
Birmingham-Hoover, AL.

12045
Gulf
FL
37460
Panama City, FL.

13007
Baker
GA
10500
Albany, GA.

13235
Pulaski
GA
47580
Warner Robins, GA.

15005
Kalawao
HI
27980
Kahului-Wailuku-Lahaina, HI.

17039
De Witt
IL
14010
Bloomington, IL.

17053
Ford
IL
16580
Champaign-Urbana, IL.

18143
Scott
IN
31140
Louisville/Jefferson County, KY-IN.

18179
Wells
IN
23060
Fort Wayne, IN.

19149
Plymouth
IA
43580
Sioux City, IA-NE-SD.

20095
Kingman
KS
48620
Wichita, KS.

21223
Trimble
KY
31140
Louisville/Jefferson County, KY-IN.

22119
Webster
LA
43340
Shreveport-Bossier City, LA.

26015
Barry
MI
24340
Grand Rapids-Wyoming, MI.

26159
Van Buren
MI
28020
Kalamazoo-Portage, MI.

27143
Sibley
MN
33460
Minneapolis-St. Paul-Bloomington, MN-WI.

28009
Benton
MS
32820
Memphis, TN-MS-AR.

29119
Mc Donald
MO
22220
Fayetteville-Springdale-Rogers, AR-MO.

30037
Golden Valley
MT
13740
Billings, MT.

31081
Hamilton
NE
24260
Grand Island, NE.

38085
Sioux
ND
13900
Bismarck, ND.

40079
Le Flore
OK
22900
Fort Smith, AR-OK.

45087
Union
SC
43900
Spartanburg, SC.

46033
Custer
SD
39660
Rapid City, SD.

47081
Hickman
TN
34980
Nashville-Davidson-Murfreesboro-Franklin, TN.

48007
Aransas
TX
18580
Corpus Christi, TX.

48221
Hood
TX
23104
Fort Worth-Arlington, TX.

48351
Newton
TX
13140
Beaumont-Port Arthur, TX.

48425
Somervell
TX
23104
Fort Worth-Arlington, TX.

51029
Buckingham
VA
16820
Charlottesville, VA.

51033
Caroline
VA
40060
Richmond, VA.

51063
Floyd
VA
13980
Blacksburg-Christiansburg-Radford, VA.

53013
Columbia
WA
47460
Walla Walla, WA.

53051
Pend Oreille
WA
44060
Spokane-Spokane Valley, WA.

We proposed that the wage data for all hospitals located in the counties listed above would now be considered rural, beginning in FY 2021, when calculating their respective State's rural wage index. This rural wage index value would also be used under the IRF PPS. We refer readers to section VI.D.3. of this final rule for a discussion of the wage index transition policy due to these changes.

(3) Rural Counties That Will Become Urban Under the New OMB Delineations

As previously discussed, we are implementing the new OMB labor market area delineations (based upon the 2010 Decennial Census data) beginning in FY 2021. Analysis of these OMB labor market area delineations shows that a total of 47 counties (and county equivalents) that are currently considered located in rural areas will now be considered located in urban areas under the new OMB delineations. Table 6 lists the 47 rural counties that will be urban with the implementation of the new OMB delineations.

Table 6—Counties That Will Transition From Rural to Urban Status

FIPS county code
County/county equivalent
State
Proposed CBSA code
Proposed CBSA name

01063
Greene
AL
46220
Tuscaloosa, AL.

01129
Washington
AL
33660
Mobile, AL.

05047
Franklin
AR
22900
Fort Smith, AR-OK.

12075
Levy
FL
23540
Gainesville, FL.

13259
Stewart
GA
17980
Columbus, GA-AL.

13263
Talbot
GA
17980
Columbus, GA-AL.

16077
Power
ID
38540
Pocatello, ID.

17057
Fulton
IL
37900
Peoria, IL.

17087
Johnson
IL
16060
Carbondale-Marion, IL.

18047
Franklin
IN
17140
Cincinnati, OH-KY-IN.

18121
Parke
IN
45460
Terre Haute, IN.

18171
Warren
IN
29200
Lafayette-West Lafayette, IN.

19015
Boone
IA
11180
Ames, IA.

19099
Jasper
IA
19780
Des Moines-West Des Moines, IA.

20061
Geary
KS
31740
Manhattan, KS.

21043
Carter
KY
26580
Huntington-Ashland, WV-KY-OH.

22007
Assumption
LA
12940
Baton Rouge, LA.

22067
Morehouse
LA
33740
Monroe, LA.

25011
Franklin
MA
44140
Springfield, MA.

26067
Ionia
MI
24340
Grand Rapids-Kentwood, MI.

26155
Shiawassee
MI
29620
Lansing-East Lansing, MI.

27075
Lake
MN
20260
Duluth, MN-WI.

28031
Covington
MS
25620
Hattiesburg, MS.

28051
Holmes
MS
27140
Jackson, MS.

28131
Stone
MS
25060
Gulfport-Biloxi, MS.

29053
Cooper
MO
17860
Columbia, MO.

29089
Howard
MO
17860
Columbia, MO.

30095
Stillwater
MT
13740
Billings, MT.

37007
Anson
NC
16740
Charlotte-Concord-Gastonia, NC-SC.

37029
Camden
NC
47260
Virginia Beach-Norfolk-Newport News, VA-NC.

37077
Granville
NC
20500
Durham-Chapel Hill, NC.

37085
Harnett
NC
22180
Fayetteville, NC.

39123
Ottawa
OH
45780
Toledo, OH.

45027
Clarendon
SC
44940
Sumter, SC.

47053
Gibson
TN
27180
Jackson, TN.

47161
Stewart
TN
17300
Clarksville, TN-KY.

48203
Harrison
TX
30980
Longview, TX.

48431
Sterling
TX
41660
San Angelo, TX.

51097
King And Queen
VA
40060
Richmond, VA.

51113
Madison
VA
47894
Washington-Arlington-Alexandria, DC-VA-MD-WV.

51175
Southampton
VA
47260
Virginia Beach-Norfolk-Newport News, VA-NC.

51620
Franklin City
VA
47260
Virginia Beach-Norfolk-Newport News, VA-NC.

54035
Jackson
WV
16620
Charleston, WV.

54065
Morgan
WV
25180
Hagerstown-Martinsburg, MD-WV.

55069
Lincoln
WI
48140
Wausau-Weston, WI.

72001
Adjuntas
PR
38660
Ponce, PR.

72083
Las Marias
PR
32420
Mayagüez, PR.

We proposed that when calculating the area wage index, beginning with FY 2021, the wage data for hospitals located in these counties would be included in their new respective urban CBSAs. Typically, providers located in an urban area receive a higher wage index value than or equal to providers located in their State's rural area. We refer readers to section VI.D.3. of this final rule for a discussion of the wage index transition policy.

(4) Urban Counties That Will Move to a Different Urban CBSA Under the New OMB Delineations

In certain cases, adopting the new OMB delineations involves a change only in CBSA name and/or number, while the CBSA continues to encompass the same constituent counties. For example, CBSA 19380 (Dayton, OH) will experience both a change to its number and its name, and become CBSA 19430 (Dayton-Kettering, OH), while all of its three constituent counties will remain the same. In other cases, only the name of the CBSA will be modified, and none of the currently assigned counties will be reassigned to a different urban CBSA. Table 7 shows the current CBSA code and our proposed CBSA code where we proposed to change either the name or CBSA number only. We are not discussing further in this section these changes because they are inconsequential changes with respect to the IRF PPS wage index.

Table 7—Current CBSAs That Will Change CBSA Code or Title

Proposed CBSA code
Proposed CBSA title
Current CBSA code
Current CBSA title

10540
Albany-Lebanon, OR
10540
Albany, OR.

11500
Anniston-Oxford, AL
11500
Anniston-Oxford-Jacksonville, AL.

12060
Atlanta-Sandy Springs-Alpharetta, GA
12060
Atlanta-Sandy Springs-Roswell, GA.

12420
Austin-Round Rock-Georgetown, TX
12420
Austin-Round Rock, TX.

13460
Bend, OR
13460
Bend-Redmond, OR.

13980
Blacksburg-Christiansburg, VA
13980
Blacksburg-Christiansburg-Radford, VA.

14740
Bremerton-Silverdale-Port Orchard, WA
14740
Bremerton-Silverdale, WA.

15380
Buffalo-Cheektowaga, NY
15380
Buffalo-Cheektowaga-Niagara Falls, NY.

19430
Dayton-Kettering, OH
19380
Dayton, OH.

24340
Grand Rapids-Kentwood, MI
24340
Grand Rapids-Wyoming, MI.

24860
Greenville-Anderson, SC
24860
Greenville-Anderson-Mauldin, SC.

25060
Gulfport-Biloxi, MS
25060
Gulfport-Biloxi-Pascagoula, MS.

25540
Hartford-East Hartford-Middletown, CT
25540
Hartford-West Hartford-East Hartford, CT.

25940
Hilton Head Island-Bluffton, SC
25940
Hilton Head Island-Bluffton-Beaufort, SC.

28700
Kingsport-Bristol, TN-VA
28700
Kingsport-Bristol-Bristol, TN-VA.

31860
Mankato, MN
31860
Mankato-North Mankato, MN.

33340
Milwaukee-Waukesha, WI
33340
Milwaukee-Waukesha-West Allis, WI.

34940
Naples-Marco Island, FL
34940
Naples-Immokalee-Marco Island, FL.

35660
Niles, MI
35660
Niles-Benton Harbor, MI.

36084
Oakland-Berkeley-Livermore, CA
36084
Oakland-Hayward-Berkeley, CA.

36500
Olympia-Lacey-Tumwater, WA
36500
Olympia-Tumwater, WA.

38060
Phoenix-Mesa-Chandler, AZ
38060
Phoenix-Mesa-Scottsdale, AZ.

39150
Prescott Valley-Prescott, AZ
39140
Prescott, AZ.

23224
Frederick-Gaithersburg-Rockville, MD
43524
Silver Spring-Frederick-Rockville, MD.

44420
Staunton, VA
44420
Staunton-Waynesboro, VA.

44700
Stockton, CA
44700
Stockton-Lodi, CA.

45940
Trenton-Princeton, NJ
45940
Trenton, NJ.

46700
Vallejo, CA
46700
Vallejo-Fairfield, CA.

47300
Visalia, CA
47300
Visalia-Porterville, CA.

48140
Wausau-Weston, WI
48140
Wausau, WI.

48424
West Palm Beach-Boca Raton-Boynton Beach, FL
48424
West Palm Beach-Boca Raton-Delray Beach, FL.

In some cases, counties will shift between existing and new CBSAs, changing the constituent makeup of the CBSAs. We consider this type of change, where CBSAs are split into multiple new CBSAs, or a CBSA loses one or more counties to another urban CBSA, to be significant modifications.

Table 8 lists the urban counties that will move from one urban CBSA to another or to a newly proposed or modified CBSA due to the implementation of the new OMB delineations.

Table 8—Urban Counties that Will Move to a Newly Proposed or Modified CBSA

FIPS county code
County name
State
Current CBSA
Current CBSA name
Proposed CBSA code
Proposed CBSA name

17031
Cook
IL
16974
Chicago-Naperville-Arlington Heights, IL
16984
Chicago-Naperville-Evanston, IL.

17043
Du Page
IL
16974
Chicago-Naperville-Arlington Heights, IL
16984
Chicago-Naperville-Evanston, IL.

17063
Grundy
IL
16974
Chicago-Naperville-Arlington Heights, IL
16984
Chicago-Naperville-Evanston, IL.

17093
Kendall
IL
16974
Chicago-Naperville-Arlington Heights, IL
20994
Elgin, IL.

17111
Mc Henry
IL
16974
Chicago-Naperville-Arlington Heights, IL
16984
Chicago-Naperville-Evanston, IL.

17197
Will
IL
16974
Chicago-Naperville-Arlington Heights, IL
16984
Chicago-Naperville-Evanston, IL.

34023
Middlesex
NJ
35614
New York-Jersey City-White Plains, NY-NJ
35154
New Brunswick-Lakewood, NJ.

34025
Monmouth
NJ
35614
New York-Jersey City-White Plains, NY-NJ
35154
New Brunswick-Lakewood, NJ.

34029
Ocean
NJ
35614
New York-Jersey City-White Plains, NY-NJ
35154
New Brunswick-Lakewood, NJ.

34035
Somerset
NJ
35084
Newark, NJ-PA
35154
New Brunswick-Lakewood, NJ.

36027
Dutchess
NY
20524
Dutchess County-Putnam County, NY
39100
Poughkeepsie-Newburgh-Middletown, NY.

36071
Orange
NY
35614
New York-Jersey City-White Plains, NY-NJ
39100
Poughkeepsie-Newburgh-Middletown, NY.

36079
Putnam
NY
20524
Dutchess County-Putnam County, NY
35614
New York-Jersey City-White Plains, NY-NJ.

47057
Grainger
TN
28940
Knoxville, TN
34100
Morristown, TN.

54043
Lincoln
WV
26580
Huntington-Ashland, WV-KY-OH
16620
Charleston, WV.

72055
Guanica
PR
38660
Ponce, PR
49500
Yauco, PR.

72059
Guayanilla
PR
38660
Ponce, PR
49500
Yauco, PR.

72111
Penuelas
PR
38660
Ponce, PR
49500
Yauco, PR.

72153
Yauco
PR
38660
Ponce, PR
49500
Yauco, PR.

If providers located in these counties move from one CBSA to another under the new OMB delineations, there may be impacts, both negative and positive, upon their specific wage index values. We refer readers to section VI.D.3. of this final rule for a discussion of the wage index transition policy due to these changes.

We believe the revisions to the CBSA-based labor market area delineations as established in OMB Bulletin 18-04 would ensure that the IRF PPS area wage level adjustment most appropriately accounts for and reflects the relative wage levels in the geographic area of the IRF. Therefore, we proposed to adopt the revisions to the CSBA based labor market area delineations under the IRF PPS, effective October 1, 2020. Accordingly, the proposed FY 2021 IRF PPS wage index values (which are available on the CMS website at
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/IRF-Rules-and-Related-Files.html
) reflect the proposed revisions to the CBSA-based labor market area delineations.

Furthermore, consistent with the requirement at § 412.624(e)(1) that changes to area wage level adjustment are made in a budget neutral manner, we proposed to adopt these revisions to the CSBA based labor market area delineations in a budget neutral manner. The methodology for calculating the budget neutrality factor is discussed in section VI.D.4. of this final rule.

The comments we received on the proposal to adopt the new OMB delineations, effective beginning with the FY 2021 IRF PPS wage index are summarized below.

Comment:
Commenters were generally supportive of the adoption of the new delineations; however, two commenters disagreed with the creation of the new “New Brunswick-Lakewood, NJ” CBSA and requested that CMS delay implementing these revisions to the CBSAs until after the 2020 decennial census data is available.

Response:
We appreciate the commenters' concerns regarding the impact of implementing the New Brunswick-Lakewood, NJ CBSA designation on their specific counties. While we understand the commenters' concern regarding the potential financial impact, we believe that implementing the revised OMB delineations will create more accurate representations of labor market areas and result in IRF wage index values being more representative of the actual costs of labor in a given area. Moreover, to the extent that providers exist in a labor market area experiencing a decline in relation to the revised OMB delineations, this would mean that these providers were previously being paid in excess of what their reported wage and labor data would suggest is appropriate. We believe that the OMB standards for delineating Metropolitan and Micropolitan Statistical Areas are

appropriate for determining wage area differences and that the values computed under the revised delineations will result in more appropriate payments to providers by more accurately accounting for and reflecting the differences in area wage levels. Therefore, we believe that it is appropriate to implement the new OMB delineations without delay.

After consideration of the comments we received, we are finalizing our proposal to adopt the revised OMB delineations contained in OMB Bulletin 18-04.

3. Transition Policy

Overall, we believe that our proposal to adopt the revised OMB delineations for FY 2021 would result in wage index values being more representative of the actual costs of labor in a given area. However, we also recognize that approximately 5 percent of IRFs would experience decreases in their area wage index values as a result of our proposal to adopt the revised OMB delineations. We also realize that many IRFs would have higher area wage index values under our proposal.

To mitigate the potential impacts of revisions to the OMB delineations on IRFs, we have in the past provided for transition periods when adopting changes that have significant payment implications, particularly large negative impacts. For example, we proposed and finalized budget neutral transition policies to help mitigate negative impacts on IRFs following the adoption of the new CBSA delineations based on the 2010 decennial census data in the FY 2016 IRF PPS final rule (80 FR 47035). Specifically, we implemented a 1-year blended wage index for all IRFs due to our adoption of the revised delineations. This required calculating and comparing two wage indexes for each IRF since that blended wage index was computed as the sum of 50 percent of the FY 2016 IRF PPS wage index values under the FY 2015 CBSA delineations and 50 percent of the FY 2016 IRF PPS wage index values under the FY 2016 new OMB delineations. While we believe that using the new OMB delineations would create a more accurate payment adjustment for differences in area wage levels, we also recognize that adopting such changes may cause some short-term instability in IRF PPS payments, in particular for IRFs that would be negatively impacted by the proposed adoption of the updates to the OMB delineations. For example, IRF's currently located in CBSA 35614 (New York-Jersey City-White Plains, NY-NJ) that would be located in new CBSA 35154 (New Brunswick-Lakewood, NJ) under the proposed changes to the CBSA-based labor market area delineations would experience a nearly 17 percent decrease in the wage index as a result of the proposed change. Therefore, consistent with past practice we proposed a transition policy to help mitigate any significant negative impacts that IRFs may experience due to our proposal to adopt the revised OMB delineations under the IRF PPS. Specifically, for FY 2021 as a transition, we proposed to apply a 5 percent cap on any decrease in an IRF's wage index from the IRF's wage index from the prior FY. This transition would allow the effects of our proposed adoption of the revised OMB delineations to be phased in over 2 years, where the estimated reduction in an IRF's wage index would be capped at 5 percent in FY 2021 (that is, no cap would be applied to any reductions in the wage index for the second year (FY 2022)). We believe a 5 percent cap on the overall decrease in an IRF's wage index value would be an appropriate transition as it would effectively mitigate any significant decreases in an IRF's wage index for FY 2021.

Furthermore, consistent with the requirement at § 412.624(e)(1) that changes to area wage level adjustment are made in a budget neutral manner, we proposed that this transitional wage index would not result in any change in estimated aggregate IRF PPS payments by applying a budget neutrality factor to the standard payment conversion factor. Our proposed methodology for calculating this budget neutrality factor is discussed in section VI.D.4. of this final rule.

The comments we received on our proposed transition methodology to utilize a 5 percent cap on wage index decreases for FY 2021 are summarized below.

Comment:
Commenters were generally supportive of the proposed 5 percent cap transition policy to mitigate the impact of changes to the wage index values. A few commenters suggested the limit should apply to both increases and decreases in the wage index. Commenters also suggested a cap should be applied every year. One commenter requested that CMS incorporate a blended wage index into the transition, consisting of 50 percent of the FY 2020 delineations and 50 percent of the FY 2021 delineations.

Response:
We appreciate the comments supporting this transition methodology. Further, we appreciate the commenters' suggestion that the cap on wage index movements of more than 5 percent should also be applied to increases in the wage index. However, as we discussed in the proposed rule, the purpose of the proposed transition policy, as well as those we have implemented in the past, is to help mitigate the significant negative impacts of certain wage index changes, not to curtail the positive impacts of such changes, and thus we do not believe it would be appropriate to apply the 5 percent cap on wage index increases as well. Additionally, we believe that implementing a cap on wage index values each year would undermine the goal of the wage index, which is to improve the accuracy of IRF payments, and would only serve to further delay improving the accuracy of IRF payments. Therefore, while we believe that a transition is necessary to help mitigate some of the negative impact from the revised OMB delineations, we also believe this mitigation must be balanced against the importance of ensuring accurate payments.

Additionally, the use of a 50/50 blended wage index transition would affect all IRF providers. We believe it would be more appropriate to allow IRFs that would experience an increase in their wage index value to receive the full benefit of their increased wage index value, which is intended to reflect accurately the higher labor costs in that area. The utilization of a cap on negative impacts restricts the transition to only those with negative impacts and allows providers who would experience positive impacts to receive the full amount of their wage index increase. As such, we believe a 5 percent cap on the overall decrease in an IRF's wage index value would be an appropriate transition as it would effectively mitigate any significant decreases in an IRF's wage index for FY 2021.

Comment:
One commenter requested that CMS provide the data used to calculate the new wage indices.

Response:
The hospital wage data used to derive the IRF PPS wage index are available from the CMS IPPS wage index websites for each respective FY, which can be accessed from
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.
After consideration of the comments we received, we are finalizing the proposed transition methodology, which applies a 5 percent cap on any decrease in an IRF's wage index for FY 2021 from the IRF's wage index in FY 2020. This transitional wage index will not result in any change in estimated aggregate IRF PPS payments by applying a budget neutrality factor to the standard payment conversion factor. The methodology for calculating this budget

neutrality factor is discussed in section VI.D.4. of this final rule.

4. Wage Adjustment

To calculate the wage-adjusted facility payment for the payment rates set forth in this final rule, we multiply the unadjusted Federal payment rate for IRFs by the FY 2021 labor-related share based on the 2016-based IRF market basket relative importance (73.0 percent) to determine the labor-related portion of the standard payment amount. A full discussion of the calculation of the labor-related share is located in section VI.C. of this final rule. We then multiply the labor-related portion by the applicable IRF wage index. The wage index tables are available on the CMS website at
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/IRF-Rules-and-Related-Files.html.

Adjustments or updates to the IRF wage index made under section 1886(j)(6) of the Act must be made in a budget-neutral manner. We proposed to calculate a budget-neutral wage adjustment factor as established in the FY 2004 IRF PPS final rule (68 FR 45689), codified at § 412.624(e)(1), as described in the steps below. We proposed to use the listed steps to ensure that the FY 2021 IRF standard payment conversion factor reflects the update to the wage indexes (based on the FY 2017 hospital cost report data and taking into account the revisions to the OMB delineations and the transition policy) and the update to the labor-related share, in a budget-neutral manner:

Step 1.
Calculate the total amount of estimated IRF PPS payments using the labor-related share and the wage indexes from FY 2020 (as published in the FY 2020 IRF PPS final rule (84 FR 39054)).

Step 2.
Calculate the total amount of estimated IRF PPS payments using the FY 2021 wage index values (based on updated hospital wage data and taking into account the changes to geographic labor market area delineations and the transition policy) and the FY 2021 labor-related share of 73.0 percent.

Step 3.
Divide the amount calculated in step 1 by the amount calculated in step 2. The resulting quotient is the FY 2021 budget-neutral wage adjustment factor of 1.0013.

Step 4.
Apply the budget neutrality factor from step 3 to the FY 2021 IRF PPS standard payment amount after the application of the increase factor to determine the FY 2021 standard payment conversion factor.

We discuss the calculation of the standard payment conversion factor for FY 2021 in section VI.E. of this final rule.

We did not receive any comments on the proposed budget-neutral wage adjustment factor for FY 2021. Therefore, we are finalizing a budget-neutral wage adjustment factor of 1.0013 for FY 2021.

E. Description of the IRF Standard Payment Conversion Factor and Payment Rates for FY 2021

To calculate the standard payment conversion factor for FY 2021, as illustrated in Table 5, we begin by applying the increase factor for FY 2021, as adjusted in accordance with sections 1886(j)(3)(C) of the Act, to the standard payment conversion factor for FY 2020 ($16,489). Applying the 2.4 percent increase factor for FY 2021 to the standard payment conversion factor for FY 2020 of $16,489 yields a standard payment amount of $16,885. Then, we apply the budget neutrality factor for the FY 2021 wage index (taking into account the revisions to the CBSA delineations and the transition policy), and labor-related share of 1.0013, which results in a standard payment amount of $16,907. We next apply the budget neutrality factor for the CMG relative weights of 0.9970, which results in the standard payment conversion factor of $16,856 for FY 2021.

We did not receive any comments on the proposed calculation of the standard payment conversion factor for FY 2021. Therefore, we are finalizing the IRF standard payment conversion factor of $16,856 for FY 2021.

Table 9—Calculations To Determine the FY 2021 Standard Payment Conversion Factor

Explanation for adjustment
Calculations

Standard Payment Conversion Factor for FY 2020
$16,489

Market Basket Increase Factor for FY 2021 (2.4 percent), reduced by 0.0 percentage point for the productivity adjustment as required by section 1886(j)(3)(C)(ii)(I) of the Act
× 1.024

Budget Neutrality Factor for the Updates to the Wage Index and Labor-Related Share
× 1.0013

Budget Neutrality Factor for the Revisions to the CMG Relative Weights
× 0.9970

FY 2020 Standard Payment Conversion Factor
= 16,856

After the application of the CMG relative weights described in section V. of this final rule to the FY 2021 standard payment conversion factor ($16,856), the resulting unadjusted IRF prospective payment rates for FY 2021 are shown in Table 10.

Table 10—FY 2021 Payment Rates

CMG

Payment
rate tier 1

Payment
rate tier 2

Payment
rate tier 3

Payment rate
no comorbidity

0101
$ 17,385.28
$ 14,863.62
$ 13,791.58
$ 13,198.25

0102
22,206.09
18,983.23
17,616.21
16,857.69

0103
28,395.62
24,274.33
22,524.67
21,557.14

0104
36,891.04
31,537.58
29,263.70
28,006.24

0105
41,851.76
35,778.55
33,199.58
31,773.56

0106
48,081.74
41,103.36
38,141.76
36,501.67

0201
19,375.97
15,842.95
14,231.52
13,301.07

0202
24,340.06
19,901.88
17,877.47
16,709.35

0203
29,347.98
23,994.52
21,553.77
20,146.29

0204
36,525.27
29,865.46
26,826.32
25,074.99

0205
46,133.19
37,718.67
33,882.25
31,669.05

0301
20,670.51
16,756.55
15,482.24
14,351.20

0302
26,482.46
21,469.49
19,836.14
18,386.52

0303
31,702.76
25,700.34
23,745.05
22,010.56

0304
35,567.85
28,832.19
26,640.91
24,694.04

0305
38,851.39
31,495.44
29,100.20
26,972.97

0401
23,065.75
19,573.19
17,631.38
16,380.66

0402
30,015.48
25,469.42
22,942.70
21,316.10

0403
36,022.96
30,568.36
27,535.96
25,582.35

0404
60,993.44
51,758.03
46,623.70
43,316.55

0405
46,259.61
39,254.25
35,360.52
32,852.34

0406
60,629.35
51,447.88
46,343.89
43,056.97

0407
69,227.59
58,743.16
52,917.73
49,162.21

0501
22,076.30
17,156.04
16,196.93
14,959.70

0502
27,429.77
21,316.10
20,124.38
18,588.80

0503
31,856.15
24,756.41
23,372.53
21,587.48

0504
37,936.11
29,482.83
27,834.31
25,708.77

0505
49,492.59
38,463.71
36,312.88
33,541.75

0601
23,047.21
17,349.88
16,264.35
14,782.71

0602
28,682.17
21,590.85
20,240.68
18,398.32

0603
34,072.72
25,648.09
24,043.40
21,853.80

0604
39,537.43
29,762.64
27,900.05
25,359.85

0701
21,024.49
17,049.84
16,156.48
14,851.82

0702
26,286.93
21,317.78
20,201.92
18,568.57

0703
31,952.23
25,912.73
24,555.82
22,570.18

0704
36,510.10
29,609.25
28,058.50
25,789.68

0801
18,993.34
15,285.02
13,688.76
12,749.88

0802
22,330.83
17,970.18
16,094.11
14,990.04

0803
24,945.19
20,073.81
17,978.61
16,744.75

0804
28,749.59
23,136.55
20,721.08
19,298.43

0805
33,499.61
26,959.49
24,144.53
22,487.59

0901
20,414.30
16,267.73
15,394.58
13,944.97

0902
25,415.48
20,252.48
19,166.96
17,363.37

0903
29,909.29
23,832.70
22,556.70
20,432.84

0904
34,340.73
27,365.72
25,899.24
23,460.18

1001
21,845.38
18,310.67
16,431.23
15,177.14

1002
26,986.46
22,619.07
20,298.00
18,748.93

1003
31,534.20
26,431.89
23,719.76
21,907.74

1004
37,165.79
31,151.57
27,955.68
25,820.02

1101
21,911.11
19,524.30
17,053.22
16,535.74

1102
29,273.82
26,086.35
22,784.26
22,093.16

1103
32,894.48
29,312.58
25,600.89
24,825.52

1201
24,021.49
16,004.77
16,004.77
14,695.06

1202
30,184.04
20,109.21
20,109.21
18,464.06

1203
35,085.76
23,374.22
23,374.22
21,464.43

1204
36,875.87
24,567.62
24,567.62
22,558.38

1301
19,008.51
15,694.62
14,899.02
13,226.90

1302
26,007.12
21,474.54
20,385.65
18,098.29

1303
29,980.08
24,754.72
23,498.95
20,862.67

1304
34,752.02
28,695.65
27,240.98
24,183.30

1305
35,188.59
29,054.69
27,581.47
24,486.71

1401
19,310.23
15,831.16
14,288.83
12,785.28

1402
24,257.47
19,888.39
17,951.64
16,062.08

1403
29,454.17
24,147.91
21,796.49
19,502.39

1404
34,595.25
28,363.59
25,600.89
22,907.30

1501
21,752.67
17,420.68
16,274.47
15,612.03

1502
26,822.95
21,481.29
20,068.75
19,251.24

1503
31,143.15
24,940.14
23,300.05
22,352.74

1504
36,107.24
28,914.78
27,015.11
25,916.10

1601
16,668.90
16,668.90
15,033.87
13,532.00

1602
18,673.08
18,673.08
16,840.83
15,156.92

1603
22,819.65
22,819.65
20,579.49
18,523.06

1604
28,994.01
28,994.01
26,148.71
23,536.03

1701
23,446.70
18,393.27
16,719.47
15,224.34

1702
28,634.97
22,465.68
20,421.04
18,593.85

1703
33,947.98
26,630.79
24,208.59
22,042.59

1704
37,553.48
29,460.92
26,780.81
24,383.89

1705
41,207.86
32,328.12
29,386.75
26,755.53

1801
20,869.41
16,554.28
14,866.99
13,788.21

1802
26,576.86
21,080.11
18,932.66
17,560.58

1803
32,607.93
25,863.85
23,229.25
21,545.34

1804
37,391.66
29,659.82
26,637.54
24,705.84

1805
44,646.49
35,414.46
31,805.59
29,499.69

1806
57,510.99
45,617.39
40,968.51
37,998.48

1901
20,279.45
15,770.47
15,551.35
14,728.77

1902
27,461.80
21,356.55
21,058.20
19,944.02

1903
43,722.78
34,001.92
33,526.58
31,753.33

1904
64,371.38
50,060.63
49,361.11
46,750.12

2001
20,426.10
16,574.50
15,178.83
13,960.14

2002
25,113.75
20,378.90
18,662.96
17,162.78

2003
29,723.87
24,119.25
22,089.79
20,314.85

2004
33,454.10
27,144.90
24,860.91
22,863.48

2005
35,967.33
29,186.16
26,730.24
24,581.10

2101
30,396.42
23,111.26
19,000.08
19,000.08

2102
40,547.11
30,827.94
25,344.68
25,344.68

5001
-
-
-
2,769.44

5101
-
-
-
12,240.83

5102
-
-
-
30,366.08

5103
-
-
-
14,250.06

5104
-
-
-
35,222.30

F. Example of the Methodology for Adjusting the Prospective Payment Rates

Table 11 illustrates the methodology for adjusting the prospective payments (as described in section VI. of this final rule). The following examples are based on two hypothetical Medicare beneficiaries, both classified into CMG 0104 (without comorbidities). The unadjusted prospective payment rate for CMG 0104 (without comorbidities) appears in Table 10.

Example:
One beneficiary is in Facility A, an IRF located in rural Spencer County, Indiana, and another beneficiary is in Facility B, an IRF located in urban Harrison County, Indiana. Facility A, a rural non-teaching hospital has a Disproportionate Share Hospital (DSH) percentage of 5 percent (which would result in a LIP adjustment of 1.0156), a wage index of 0.8354, and a rural adjustment of 14.9 percent. Facility B, an urban teaching hospital, has a DSH percentage of 15 percent (which would result in a LIP adjustment of 1.0454 percent), a wage index of 0.8697, and a teaching status adjustment of 0.0784.

To calculate each IRF's labor and non-labor portion of the prospective payment, we begin by taking the unadjusted prospective payment rate for CMG 0104 (without comorbidities) from Table 10. Then, we multiply the labor-related share for FY 2021 (73.0 percent) described in section VI.C. of this final rule by the unadjusted prospective payment rate. To determine the non-labor portion of the prospective payment rate, we subtract the labor portion of the Federal payment from the unadjusted prospective payment.

To compute the wage-adjusted prospective payment, we multiply the labor portion of the Federal payment by the appropriate wage index located in the applicable wage index table. This table is available on the CMS website at
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientRehabFacPPS/IRF-Rules-and-Related-Files.html.

The resulting figure is the wage-adjusted labor amount. Next, we compute the wage-adjusted Federal payment by adding the wage-adjusted labor amount to the non-labor portion of the Federal payment.

Adjusting the wage-adjusted Federal payment by the facility-level adjustments involves several steps. First, we take the wage-adjusted prospective payment and multiply it by the appropriate rural and LIP adjustments (if applicable). Second, to determine the appropriate amount of additional payment for the teaching status adjustment (if applicable), we multiply the teaching status adjustment (0.0784, in this example) by the wage-adjusted and rural-adjusted amount (if applicable). Finally, we add the additional teaching status payments (if applicable) to the wage, rural, and LIP-adjusted prospective payment rates. Table 11 illustrates the components of the adjusted payment calculation.

Table 11—Example of Computing the FY 2021 IRF Prospective Payment

Steps

Rural facility A (Spencer Co., IN)
Urban facility B (Harrison Co., IN)

1
Unadjusted Payment

$28,006.24

$28,006.24

2
Labor Share
×
0.730
×
0.730

3
Labor Portion of Payment
=
$20,444.56
=
$20,444.56

4
CBSA-Based Wage Index\
×
0.8354
×
0.8697

5
Wage-Adjusted Amount
=
$17,079.38
=
$17,780.63

6
Non-Labor Amount
+
$7,561.68
+
$7,561.68

7
Wage-Adjusted Payment
=
$24,641.06
=
$25,342.31

8
Rural Adjustment
×
1.149
×
1.000

9
Wage- and Rural-Adjusted Payment
=
$28,312.58
=
$25,342.31

10
LIP Adjustment
×
1.0156
×
1.0454

11
Wage-, Rural- and LIP-Adjusted Payment
=
$28,754.25
=
$26,492.85

12
Wage- and Rural-Adjusted Payment

$28,312.59

$25,342.31

13
Teaching Status Adjustment
×
0
×
0.0784

14
Teaching Status Adjustment Amount
=
$0.00
=
$1,986.84

15
Wage-, Rural-, and LIP-Adjusted Payment
+
$28,754.25
+
$26,492.85

16
Total Adjusted Payment
=
$28,754.25
=
$28,479.69

Thus, the adjusted payment for Facility A would be $28,754.25, and the adjusted payment for Facility B would be $28,479.69.

VII. Update to Payments for High-Cost Outliers Under the IRF PPS for FY 2021

A. Update to the Outlier Threshold Amount for FY 2021

Section 1886(j)(4) of the Act provides the Secretary with the authority to make payments in addition to the basic IRF prospective payments for cases incurring extraordinarily high costs. A case qualifies for an outlier payment if the estimated cost of the case exceeds the adjusted outlier threshold. We calculate the adjusted outlier threshold by adding the IRF PPS payment for the case (that is, the CMG payment adjusted by all of the relevant facility-level adjustments) and the adjusted threshold amount (also adjusted by all of the relevant facility-level adjustments). Then, we calculate the estimated cost of a case by multiplying the IRF's overall CCR by the Medicare allowable covered charge. If the estimated cost of the case is higher than the adjusted outlier threshold, we make an outlier payment for the case equal to 80 percent of the difference between the estimated cost of the case and the outlier threshold.

In the FY 2002 IRF PPS final rule (66 FR 41362 through 41363), we discussed our rationale for setting the outlier threshold amount for the IRF PPS so that estimated outlier payments would equal 3 percent of total estimated payments. For the FY 2002 IRF PPS final rule, we analyzed various outlier policies using 3, 4, and 5 percent of the total estimated payments, and we concluded that an outlier policy set at 3 percent of total estimated payments would optimize the extent to which we could reduce the financial risk to IRFs of caring for high-cost patients, while still providing for adequate payments for all other (non-high cost outlier) cases.

Subsequently, we updated the IRF outlier threshold amount in the FYs 2006 through 2020 IRF PPS final rules and the FY 2011 and FY 2013 notices (70 FR 47880, 71 FR 48354, 72 FR 44284, 73 FR 46370, 74 FR 39762, 75 FR 42836, 76 FR 47836, 76 FR 59256, 77 FR 44618, 78 FR 47860, 79 FR 45872, 80 FR 47036, 81 FR 52056, 82 FR 36238, 83 FR 38514, and 84 FR 39054, respectively) to maintain estimated outlier payments at 3 percent of total estimated payments. We also stated in the FY 2009 final rule (73 FR 46370 at 46385) that we would continue to analyze the estimated outlier payments for subseq

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2020-17209. Public record. Not legal advice.