98-20459. Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1999 Rates  

  • [Federal Register Volume 63, Number 147 (Friday, July 31, 1998)]
    [Rules and Regulations]
    [Pages 40954-41131]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 98-20459]
    
    
    
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    Part II
    
    
    
    
    
    Department of Health and Human Services
    
    
    
    
    
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    Health Care Financing Administration
    
    
    
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    42 CFR Parts 405, 412, and 413
    
    
    
    Medicare Program: Changes to the Hospital Inpatient Prospective Payment 
    Systems and Fiscal Year 1999 Rates; Final Rule
    
    Federal Register / Vol. 63, No. 147 / Friday, July 31, 1998 / Rules 
    and Regulations
    
    [[Page 40954]]
    
    
    
    DEPARTMENT OF HEALTH AND HUMAN SERVICES
    
    Health Care Financing Administration
    
    42 CFR Parts 405, 412, and 413
    
    [HCFA-1003-F]
    RIN 0938-AI22
    
    
    Medicare Program; Changes to the Hospital Inpatient Prospective 
    Payment Systems and Fiscal Year 1999 Rates
    
    AGENCY: Health Care Financing Administration (HCFA), HHS.
    
    ACTION: Final rule.
    
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    SUMMARY: We are revising the Medicare hospital inpatient prospective 
    payment systems for operating costs and capital-related costs to 
    implement applicable statutory requirements, including section 4407 of 
    the Balanced Budget Act of 1997 (BBA), as well as changes arising from 
    our continuing experience with the systems. In addition, in the 
    addendum to this final rule, we describe changes in the amounts and 
    factors necessary to determine rates for Medicare hospital inpatient 
    services for operating costs and capital-related costs. These changes 
    are applicable to discharges occurring on or after October 1, 1998. We 
    also set forth rate-of-increase limits as well as changes for hospitals 
    and hospital units excluded from the prospective payment systems. 
    Finally, we are implementing the provisions of section 4625 of the BBA 
    concerning payment for the direct costs of graduate medical education.
    
    DATES: The provisions of this final rule are effective October 1, 1998. 
    This rule is a major rule as defined in Title 5, United States Code, 
    section 804(2). Pursuant to 5 U.S.C. section 801(a)(1)(A), we are 
    submitting a report to the Congress on this rule on July 31, 1998.
    
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    FOR FURTHER INFORMATION CONTACT:
    Nancy Edwards, (410) 786-4531, Operating Prospective Payment, DRG, and 
    Wage Index Issues.
    Tzvi Hefter, (410) 786-4487, Capital Prospective Payment, Excluded 
    Hospitals, and Graduate Medical Education Issues.
    
    SUPPLEMENTARY INFORMATION:
    
    I. Background
    
    A. Summary
    
        Sections 1886(d) and (g) of the Social Security Act (the Act) set 
    forth a system of payment for the operating and capital costs of acute 
    care hospital inpatient stays under Medicare Part A (Hospital 
    Insurance) based on prospectively-set rates. Under these prospective 
    payment systems (PPS), Medicare payment for hospital inpatient 
    operating and capital-related costs is made at predetermined, specific 
    rates for each hospital discharge. Discharges are classified according 
    to a list of diagnosis-related groups (DRGs).
        Certain specialty hospitals are excluded from the prospective 
    payment systems. Under section 1886(d)(1)(B) of the Act, the following 
    hospitals and units are excluded from PPS: psychiatric hospitals or 
    units, rehabilitation hospitals or units, children's hospitals, long 
    term care hospitals, and cancer hospitals. For these hospitals and 
    units, Medicare payment for operating costs is based on reasonable 
    costs subject to certain limits.
        Under section 1886(a)(4) of the Act, costs incurred in connection 
    with approved graduate medical education (GME) programs are excluded 
    from the operating costs of inpatient hospital services. Hospitals with 
    approved GME programs are paid for the direct costs of GME in 
    accordance with section 1886(h) of the Act; the amount of payment for 
    direct GME costs for a cost reporting period is based on the number of 
    the hospital's residents in that period and the hospital's costs per 
    resident in a base year.
        The regulations governing the hospital inpatient prospective 
    payment system are located in 42 CFR part 412. The regulations 
    governing excluded hospitals are located in both parts 412 and 413, and 
    the graduate medical education regulations are found in part 413.
    
    B. Summary of the Provisions of the May 8, 1998 Proposed Rule
    
        On May 8, 1998, we published a proposed rule in the Federal 
    Register (63 FR 25576) setting forth proposed changes to the Medicare 
    hospital inpatient prospective payment systems for both operating costs 
    and capital-related costs, which would be effective for discharges 
    occurring on or after October 1, 1998. We also proposed changes in 
    payments for excluded hospitals and payments for graduate medical 
    education costs. The following is a summary of the major issues 
    addressed and changes we proposed to make:
         We proposed changes to the FY 1999 DRG classifications and 
    relative weights, as required by section 1886(d)(4)(C) of the Act.
         We proposed to update the hospital wage data for FY 1999. 
    We also proposed changes to the data categories included in the wage 
    index and revisions to the wage index based on hospital redesignations.
         We discussed several provisions of the regulations in 42 
    CFR parts 412 and 413 and set forth certain proposed changes concerning 
    definition of transfer cases, rural referral centers, disproportionate 
    share adjustment, bad debts, and direct graduate medical education 
    programs.
         We discussed several provisions of the regulations in 42 
    CFR Part 412 and set forth certain proposed changes and clarifications 
    concerning capital indirect medical education payments and payments to 
    new hospitals.
         We discussed the criteria governing excluded hospitals 
    including caps on the target amounts for FY 1999 and exceptions.
         In the addendum to the proposed rule, we set forth 
    proposed changes to the amounts and factors for determining the FY 1999 
    prospective payment rates for operating costs and capital-related 
    costs. We also proposed update factors for determining the rate-of-
    increase limits for cost reporting periods
    
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    beginning in FY 1999 for hospitals and hospital units excluded from the 
    prospective payment system.
         In Appendix A of the proposed rule, we set forth an 
    analysis of the impact that the proposed changes would have on affected 
    entities.
         In Appendix B of the proposed rule, we set forth the 
    technical appendix on the proposed FY 1999 capital cost model.
         In Appendix C, as required by section 1886(e)(3)(B) of the 
    Act, we set forth a report to Congress on our initial estimate of a 
    recommended update factor for FY 1999 for both hospitals included in 
    and hospitals excluded from the prospective payment systems.
         In Appendix D of the proposed rule, we set forth our 
    recommendation of the appropriate percentage change for FY 1999 for the 
    large urban area and other area average standardized amounts (and 
    hospital-specific rates applicable to sole community and Medicare-
    dependent, small rural hospitals) for hospital inpatient services paid 
    for under the prospective payment system for operating costs.
         In Appendix D of the proposed rule, we also set forth our 
    recommendation of the appropriate percentage change for FY 1999 for 
    target rate-of-increase limits to the allowable operating costs of 
    hospital inpatient services furnished by hospitals and hospital units 
    excluded from the prospective payment system.
         In the proposed rule, we discussed in detail the March 1, 
    1998 recommendations concerning hospital inpatient policies made by the 
    Medicare Payment Advisory Commission (MedPAC) as well as our responses 
    to those recommendations. Under section 1805(b) of the Act, MedPAC is 
    required to submit a report to Congress, not later than March 1 of each 
    year, that reviews and makes recommendations on Medicare payment 
    policies.
    
    C. Public Comments Received in Response to the Proposed Rule
    
        A total of 214 items of correspondence containing comments on the 
    proposed rule were received timely. The main areas of concern addressed 
    by the commenters were the change in the definition of transfer cases 
    and the revisions to the wage index. We also received a number of 
    comments on the proposal to pay qualified nonhospital providers for the 
    direct costs of graduate medical education.
        Summaries of the public comments received and our responses to 
    those comments are set forth below under the appropriate section.
    
    II. Changes to DRG Classifications and Relative Weights
    
    A. Background
    
        Under the prospective payment system, we pay for inpatient hospital 
    services on the basis of a rate per discharge that varies by the DRG to 
    which a beneficiary's stay is assigned. The formula used to calculate 
    payment for a specific case takes an individual hospital's payment rate 
    per case and multiplies it by the weight of the DRG to which the case 
    is assigned. Each DRG weight represents the average resources required 
    to care for cases in that particular DRG relative to the average 
    resources used to treat cases in all DRGs.
        Congress recognized that it would be necessary to recalculate the 
    DRG relative weights periodically to account for changes in resource 
    consumption. Accordingly, section 1886(d)(4)(C) of the Act requires 
    that the Secretary adjust the DRG classifications and relative weights 
    annually. These adjustments are made to reflect changes in treatment 
    patterns, technology, and any other factors that may change the 
    relative use of hospital resources. The changes to the DRG 
    classification system and the recalibration of the DRG weights for 
    discharges occurring on or after October 1, 1998 are discussed below.
    
    B. DRG Reclassification
    
    1. General
        Cases are classified into DRGs for payment under the prospective 
    payment system based on the principal diagnosis, up to eight additional 
    diagnoses, and up to six procedures performed during the stay, as well 
    as age, sex, and discharge status of the patient. The diagnosis and 
    procedure information is reported by the hospital using codes from the 
    International Classification of Diseases, Ninth Revision, Clinical 
    Modification (ICD-9-CM). The Medicare fiscal intermediary enters the 
    information into its claims system and subjects it to a series of 
    automated screens called the Medicare Code Editor (MCE). These screens 
    are designed to identify cases that require further review before 
    classification into a DRG can be accomplished.
        After screening through the MCE and any further development of the 
    claims, cases are classified by the GROUPER software program into the 
    appropriate DRG. The GROUPER program was developed as a means of 
    classifying each case into a DRG on the basis of the diagnosis and 
    procedure codes and demographic information (that is, sex, age, and 
    discharge status). It is used both to classify past cases in order to 
    measure relative hospital resource consumption to establish the DRG 
    weights and to classify current cases for purposes of determining 
    payment. The records for all Medicare hospital inpatient discharges are 
    maintained in the Medicare Provider Analysis and Review (MedPAR) file. 
    The data in this file are used to evaluate possible DRG classification 
    changes and to recalibrate the DRG weights.
        Currently, cases are assigned to one of 496 DRGs in 25 major 
    diagnostic categories (MDCs). Most MDCs are based on a particular organ 
    system of the body (for example, MDC 6, Diseases and Disorders of the 
    Digestive System); however, some MDCs are not constructed on this basis 
    since they involve multiple organ systems (for example, MDC 22, Burns).
        In general, cases are assigned to an MDC based on the principal 
    diagnosis, before assignment to a DRG. However, there are five DRGs to 
    which cases are directly assigned on the basis of procedure codes. 
    These are the DRGs for liver, bone marrow, and lung transplant (DRGs 
    480, 481, and 495, respectively) and the two DRGs for tracheostomies 
    (DRGs 482 and 483). Cases are assigned to these DRGs before 
    classification to an MDC.
        Within most MDCs, cases are then divided into surgical DRGs (based 
    on a surgical hierarchy that orders individual procedures or groups of 
    procedures by resource intensity) and medical DRGs. Medical DRGs 
    generally are differentiated on the basis of diagnosis and age. Some 
    surgical and medical DRGs are further differentiated based on the 
    presence or absence of complications or comorbidities (hereafter CC).
        Generally, GROUPER does not consider other procedures; that is, 
    nonsurgical procedures or minor surgical procedures generally not 
    performed in an operating room are not listed as operating room (OR) 
    procedures in the GROUPER decision tables. However, there are a few 
    non-OR procedures that do affect DRG assignment for certain principal 
    diagnoses, such as extracorporeal shock wave lithotripsy for patients 
    with a principal diagnosis of urinary stones.
        We proposed several changes to the DRG classification system for FY 
    1999. The proposed changes, the comments we received concerning them, 
    our responses to those comments, and the final DRG changes are set 
    forth below. Unless otherwise noted, our DRG analysis is based on the 
    full (100 percent) FY 1997 MedPAR file based on
    
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    bills received through September 30, 1997.
    2. MDC 5 (Diseases and Disorders of the Circulatory System)
        In the August 29, 1997 hospital inpatient final rule with comment 
    period (62 FR 45974), we noted that, because of the many recent changes 
    in heart surgery, we were considering conducting a comprehensive review 
    of the MDC 5 surgical DRGs. We have begun that review, and based upon 
    our analysis thus far, we proposed the following DRG changes.
        a. Coronary Bypass. There are two DRGs that capture coronary bypass 
    procedures: DRG 106 (Coronary Bypass with Cardiac Catheterization) and 
    DRG 107 (Coronary Bypass without Cardiac Catheterization). The 
    procedures that allow a coronary bypass case to be assigned to DRG 106 
    include percutaneous valvuloplasty, percutaneous transluminal coronary 
    angioplasty (PTCA), cardiac catheterization, coronary angiography, and 
    arteriography.
        In analyzing the FY 1997 MedPAR file, we noted that, of cases 
    assigned to DRG 106, the average standardized charges for coronary 
    bypass cases with PTCA were significantly higher than those cases 
    without PTCA. There were approximately 4,400 cases in DRG 106 where 
    PTCA is performed as a secondary procedure. These cases had an average 
    standardized charge of approximately $69,000. The average charge of the 
    approximately 95,000 cases in DRG 106 without PTCA was approximately 
    $52,000.
        Based on this analysis, we proposed to create a new DRG for 
    coronary bypass cases with PTCA. The cases currently in DRG 106 without 
    PTCA would be assigned to another DRG and the cases currently assigned 
    to DRG 107 would be unmodified. Because we would replace two DRGs with 
    three new DRGs, we proposed to revise the DRG numbers and titles 
    accordingly. The new DRGs and their titles are set forth below:
    
    DRG 106  Coronary Bypass with PTCA
    DRG 107  Coronary Bypass with Cardiac Catheterization
    DRG 109  Coronary Bypass without Cardiac Catheterization
    
    We note that DRG 109 has been an empty DRG for the last several years.
        We received several comments regarding this proposal.
        Comment: While the commenters supported the creation of a new DRG 
    to capture coronary bypass surgeries with PTCA, some of the commenters 
    were concerned about the renumbering of the current DRGs 106 and 107. 
    They believe splitting the cases currently assigned to DRG 106 into new 
    DRGs 106 and 107 and reassigning the cases currently assigned to DRG 
    107 to DRG 109 will make it difficult to conduct DRG trend analyses. 
    The commenters suggested that DRGs 106 and 107 should not be modified 
    and that DRG 109 be used to capture coronary bypass with PTCA. Two 
    commenters stated that a DRG that has been invalidated (109) should not 
    be reintroduced.
        Response: Although we understand the commenters' concern, we also 
    believe that the sequencing of surgical DRGs in hierarchy order is 
    appropriate. In this case, our alternative to the proposed revision 
    would have been to delete DRGs 106 and 107 and create three new DRGs 
    that would have been placed at the end of the DRG table, that is, after 
    current DRG 503. Because we did have an empty surgical DRG in MDC 5 and 
    it was numerically close to DRGs 106 and 107, we believed our proposed 
    retitling was the best alternative.
        We note that the surgical DRGs in MDC 5 have been renumbered and 
    retitled several times since they were first introduced in 1983. As 
    stated above, we are currently conducting a comprehensive review of the 
    MDC 5 surgical DRGs. If that review results in the reclassification of 
    procedures among the current DRGs, we will probably renumber and 
    retitle those DRGs.
        Comment: We received one comment requesting clarification of the 
    DRG assignment for PTCA and cardiac catheterization procedures when 
    performed in conjunction with coronary bypass. The commenter suggested 
    that we add the phrase ``without PTCA'' to the titles of DRGs 107 and 
    109 to more aptly describe the cases assigned to those DRGs.
        Response: Coronary bypass performed in conjunction with single or 
    multiple PTCA or percutaneous valvuloplasty will be assigned to DRG 
    106. The procedure codes for PTCA and percutaneous valvuloplasty are as 
    follows: 35.96, 36.01, 36.02, and 36.05. Procedures assigned to DRG 107 
    would include any coronary bypass with cardiac catheterization, 
    coronary angiography, or coronary arteriography, and DRG 109 is for 
    cases with the coronary bypass procedure only. We believe that the 
    proposed titles accurately describe the cases assigned to each of the 
    DRGs and that adding the phrase ``without PTCA'' to the titles of DRGs 
    107 and 109 is unnecessary. We are incorporating our proposed DRG 
    changes and DRG numbers and titles in the final DRG classifications.
        b. Implantable heart assist system and annuloplasty. In the August 
    29, 1997 final rule with comment period, we moved implant of an 
    implantable, pulsatile heart assist system (procedure code 37.66) from 
    DRGs 110 and 111 (Major Cardiovascular Procedures) 1 to DRG 
    108 (Other Cardiothoracic Procedures). Although this move improved 
    payment for these procedures, they were still much more expensive than 
    the other cases in DRG 108 ($96,000 for heart assist versus an average 
    of $54,000 for all other cases in the FY 1996 MedPAR file). We stated 
    that we would continue to review the MDC 5 surgical DRGs in an attempt 
    to find a DRG placement for these cases that would be more similar in 
    terms of resource use.
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        \1\ A single title combined with two DRG numbers is used to 
    signify pairs. Generally, the first DRG is for cases with CC and the 
    second DRG is for cases without CC. If a third number is included, 
    it represents cases with patients who are age 0-17. Occasionally, a 
    pair of DRGs is split between age >17 and age 0-17.
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        As discussed in the proposed rule, in reviewing the FY 1997 MedPAR 
    file, we noted that heart assist system implant continues to be the 
    most expensive procedure in DRG 108. In fact, other than heart 
    transplant, heart assist system implant is the most expensive procedure 
    in MDC 5. The average FY 1997 charge for these cases, when assigned to 
    DRG 108, is over $150,000 compared to about $53,000 for all cases in 
    DRG 108. Obviously, the charges for heart assist implant are increasing 
    at a much greater rate than the average charges for DRG 108. In 
    addition, the length of stay for cases coded with 37.66 is 
    approximately 32 days compared to about 11 days for all other DRG 108 
    cases.
        One possibility for improving payment for these cases is to move 
    them to DRGs 104 and 105 (Cardiac Valve Procedures). Those DRGs, which 
    split on the basis of the performance of cardiac catheterization, have 
    average charges of approximately $66,000 and $51,000, respectively. 
    While heart assist implant cases are still more expensive than the 
    average case in these DRGs, payment would be improved. Clinically, 
    placement of heart assist implant in DRGs 104 and 105 is not without 
    precedent. Effective with FY 1988, we placed implant of a total 
    automatic implantable cardioverter defibrillator (AICD) in these DRGs. 
    In addition, the vast majority of procedures assigned to DRG 108 
    involve surgically splitting open the sternum to perform the procedure. 
    However, implant of the heart assist device does not require this 
    approach.
        While reviewing the DRG 108 cases, we also noted that procedure 
    code 35.33
    
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    (annuloplasty) is assigned to this DRG. Annuloplasty is a valve 
    procedure and is clinically more similar to the cases assigned to DRGs 
    104 and 105 than it is to the cases assigned to DRG 108. In addition, 
    the average standardized charge for annuloplasty cases assigned to DRG 
    108 is about $67,000, well above the overall average charge of 
    approximately $53,000 for cases in DRG 108. Therefore, we proposed to 
    move annuloplasty from DRG 108 to DRGs 104 and 105.
        In order to more accurately reflect the cases assigned to DRGs 104 
    and 105, we proposed to retitle them as follows:
    
    DRG 104  Cardiac Valve and Other Major Cardiothoracic Procedures 
    with Cardiac Catheterization
    DRG 105  Cardiac Valve and Other Major Cardiothoracic Procedures 
    without Cardiac Catheterization.
    
        We received only supportive comments for our proposal to move 
    annuloplasty to DRGs 104 and 105; therefore, that change is included in 
    the final DRGs.
        Comment: Commenters generally appreciated any improvement in the 
    payment for heart assist devices. However, some of them continue to 
    urge HCFA to reclassify these cases to DRG 103 (Heart Transplant) or to 
    their own DRG. Two commenters were unsure if we had proposed a 
    classification change which was reflected in the proposed DRG weights 
    or had merely requested comment on such a change. Another commenter was 
    concerned that cases reassigned to DRG 105 (those in which there is no 
    cardiac catheterization performed) would receive a lower payment than 
    they currently do in DRG 108.
        Response: First, we note that the proposed DRG weights did include 
    this change; that is, we moved over 2,000 heart assist implant cases 
    from DRG 108 to DRGs 104 and 105 before recalibrating the proposed 
    weights. In addition, although the final FY 1999 weight for DRG 105 is 
    slightly lower than the weight for DRG 108 (5.7099 and 5.9764, 
    respectively), the much higher DRG 104 weight (7.3690) results in an 
    overall improvement in payment for these cases when reclassified. Using 
    the FY 1997 MedPAR cases, we estimate that at least 40 percent of the 
    heart assist implant cases will be assigned to DRG 104. Thus, as long 
    as a hospital treats a mix of heart assist implant cases, with and 
    without the cardiac catheterization procedure, its overall payment 
    should be higher under the revised classification. We presume this will 
    be the case for virtually all hospitals.
        With regard to the comments concerning reclassification of this 
    procedure to DRG 103 or a new DRG, we refer the reader to our response 
    to a similar comment in the August 29, 1997 final rule (62 FR 45967).
    3. MDC 22 (Burns)
        Under the current DRG system, burn cases are assigned to one of six 
    DRGs in MDC 22 (Burns), which have not been revised since 1986. In our 
    FY 1998 hospital inpatient proposed rule (June 2, 1997; 62 FR 29912), 
    in response to inquiries we had received, we indicated that we would 
    conduct a comprehensive review of MDC 22 to determine whether changes 
    in these DRGs could more appropriately capture the variation in 
    resource use associated with different classes of burn patients. We 
    solicited public comments on this issue, particularly asking for 
    recommendations on ways to categorize related diagnosis and procedure 
    codes to produce DRG groupings that would be more homogeneous in terms 
    of resource use.
        In our May 8, 1998 proposed rule (63 FR 25579), we discussed in 
    detail the results of our review of MDC 22. We received a proposal 
    (endorsed by the American Burn Association (ABA)) for restructuring the 
    DRGs based on several statistical and clinical criteria, including age, 
    severity of the burn, and the presence of complications or 
    comorbidities. Subsequently, we worked closely with representatives of 
    the ABA and with the clinicians who developed the proposal in order to 
    refine it for Medicare purposes. Based on this work, we proposed to 
    replace the six existing DRGs in MDC 22 with eight new DRGs. For ease 
    of reference and classification, the current DRGs in MDC 22, DRGs 456 
    through 460 and 472, would no longer be valid, and we would establish 
    new DRGs 504 through 511 to contain all cases that currently group to 
    MDC 22. (The complete titles of the new DRGs are set forth below.)
        In reviewing the Medicare burn cases, we found that the most 
    important distinguishing characteristic in terms of resource use was 
    the amount of body surface affected by the burn and how much of that 
    burn was a 3rd degree burn. The second most important factor was 
    whether or not the patient received a skin graft. Thus, a patient with 
    burns covering at least 20 percent of body area, with at least 10 
    percent of that a 3rd degree burn, consumed the most resources. 
    However, if a patient met these criteria and did not receive a skin 
    graft, then the case was much less expensive and the average length of 
    stay fell from over 30 days to 8 days. The first two proposed burn DRGs 
    reflect these distinctions (DRGs 504 and 505).
        After classifying the most extensive burn cases, we found that the 
    patients with 3rd degree burns that did not meet the criteria to be 
    assigned to DRGs 504 and 505 were the most expensive of the remaining 
    cases (that is, those patients whose burns did not meet the at least 20 
    percent body area or at least 10 percent 3rd degree criteria). These 
    burns are referred to clinically as ``full-thickness burns.'' A subset 
    of these full-thickness burn cases, those with skin graft or an 
    inhalation injury, were much more expensive than the other cases. After 
    dividing these patients into two groups, with or without skin graft or 
    inhalation injury, we examined whether other factors had an influence 
    on resource use. We found that patients who had a CC (complication or 
    comorbidity) or a concomitant significant trauma consumed more 
    resources whether or not they had a skin graft or inhalation injury. 
    Thus, the next four proposed DRGs were defined as full-thickness burns 
    with skin graft or inhalation injury with or without CC or significant 
    trauma, or full-thickness burns without skin graft or inhalation injury 
    with or without CC or significant trauma (DRGs 506 through 509).
        Finally, the last two proposed DRGs (510 and 511) were for cases 
    with nonextensive burns. These cases are also split on the basis of CCs 
    or concomitant significant trauma.
        Consistent with the recommendations of several commenters on last 
    year's proposed rule, the new burn DRGs would no longer include a 
    separate DRG for cases in which burn patients were transferred to 
    another acute care facility.
        The specific diagnosis and procedure codes that were included in 
    each of the eight proposed DRGs and their titles are as follows.
        DRGs 504 and 505--Extensive 3rd Degree Burns with and without Skin 
    Graft. DRGs 504 and 505 include all cases with burns involving at least 
    20 percent of body surface area combined with a 3rd degree burn 
    covering at least 10 percent of body surface area. Thus, these cases 
    have diagnosis codes of 948.xx, with a fourth digit of 2 or higher 
    (indicating that burn extends over 20 percent or more of body surface) 
    and a fifth digit of 1 or higher (indicating a 3rd degree burn 
    extending over 10 percent or more of body surface). Cases with the 
    appropriate diagnosis codes are classified into DRG 504 if one of the 
    following skin graft procedure codes is present:
    
    85.82  Split-thickness graft to breast
    85.83  Full-thickness graft to breast
    85.84  Pedicle graft to breast
    86.60  Free skin graft, NOS
    86.61  Full-thickness skin graft to hand
    
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    86.62  Other skin graft to hand
    86.63  Full-thickness skin graft to other sites
    86.65  Heterograft to skin
    86.66  Homograft to skin
    86.67  Dermal regenerative graft (new code in FY 1999--see Table 6A 
    in section VI. of the Addendum)
    86.69  Other skin graft to other sites
    86.70  Pedicle of flap graft, NOS
    86.71  Cutting and preparation of pedicle grafts or flaps
    86.72  Advancement of pedicle graft
    86.73  Attachment of pedicle or flap graft to hand
    86.74  Attachment of pedicle or flap graft to other sites
    86.75  Revision of pedicle or flap graft
    86.93  Insertion of tissue expander
    
        DRGs 506 and 507--Full Thickness Burn with Skin Graft or Inhalation 
    Injury with or without CC or Significant Trauma. These DRGs include all 
    other cases of 3rd degree burns that also have either a skin graft or 
    an inhalation injury. Thus, these cases have diagnosis codes of 941.xx 
    through 946.xx, and 949.xx, with a fourth digit of 3 or higher, as well 
    as cases with codes of 948.xx that did not group into DRGs 504 or 505 
    (that is, 948.00, 948.01, and 948.1x through 948.9x with a fifth digit 
    of 0). In addition, cases classified into DRGs 506 and 507 must have 
    either one of the skin graft procedure codes listed above or one of the 
    following diagnosis codes for inhalation injuries:
    
    518.5  Pulmonary insufficiency following trauma and surgery
    518.81  Respiratory failure
    518.84  Acute and chronic respiratory failure (new code in FY 1999--
    see Table 6A in section VI. of the Addendum)
    947.1  Burn of larynx, trachea, or lung
    987.9  Toxic effect of gas, fume, or vapor, NOS
    
    Cases that meet both of these coding criteria are assigned to DRG 506 
    if there is a diagnosis code indicating either a CC (based on the 
    standard DRG CC list) or concomitant significant trauma (based on the 
    significant trauma diagnosis codes, listed by body site, used for 
    classification in MDC 24).
        DRGs 508 and 509--Full Thickness Burn without Skin Graft or 
    Inhalation Injury with or without CC or Significant Trauma. These DRGs 
    include all other cases of 3rd degree burns. Thus, these DRGs include 
    all cases without a skin graft or inhalation injury that have diagnosis 
    codes of 941.xx through 946.xx, and 949.xx, with a fourth digit of 3 or 
    higher, as well as cases with codes of 948.xx that did not group into 
    DRGs 504 or 505. DRG 508 also requires a secondary diagnosis from the 
    standard CC list or the trauma list based on the significant trauma 
    diagnosis codes, listed by body site, used for classification in MDC 
    24.
        DRGs 510 and 511--Nonextensive Burns with and without CC or 
    Significant Trauma. The remaining burn cases would be classified into 
    one of these two proposed DRGs, depending on whether or not the claim 
    included a diagnosis code reflecting the presence of a CC or a 
    significant trauma, as explained above.
        Comment: We received five comments on this proposed change. In 
    general, the commenters, including the ABA, strongly supported the 
    proposed restructuring of MDC 22. The commenters agreed that the new 
    burn DRGs should bring about meaningful improvements to the clinical 
    coherency and payment equity for the cases assigned to the MDC 22 DRGs. 
    One commenter noted that under the new DRGs, diagnosis codes in the 
    948.xx series (that is, the codes used to identify the extent of body 
    surface involved in a burn and the percentage of the body surface with 
    a 3rd degree burn) would take on added importance and emphasized the 
    need for coder education in this area. Another commenter submitted 
    several suggestions for additional procedure codes that should be added 
    to the list of procedure codes that would result in assignment to DRG 
    504 and to DRGs 506 and 507. These codes include both additional codes 
    that the commenter believes should be considered as skin grafts (such 
    as procedure codes 08.61 through 08.69, reconstruction of eyelid with 
    flaps or grafts) as well as codes for other procedures (for example, 
    limb reattachments or eyeball enucleations) that, as the commenter 
    pointed out, are now considered a related operating room procedure 
    under existing DRG 472, Extensive Burns with Operating Room Procedure. 
    This commenter also suggested that DRGs 506 and 507 be identified as 
    surgical DRGs in Table 5 of the addendum to the final rule.
        Response: We appreciate the positive responses generated by this 
    proposal. We agree that our proposed changes will place greater 
    emphasis on the need for accurate use of the series 948.xx diagnosis 
    codes. We note that this issue has been addressed in the American 
    Hospital Association's quarterly publication, ``Coding Clinic for ICD-
    9-CM.'' In the 1994, 4th quarter issue, Coding Clinic stated ``It is 
    advisable to use category 948 as additional coding when needed to 
    provide data for evaluating burn mortality, such as that needed by burn 
    units. It is also advisable to use category 948 as an additional code 
    for reporting purposes when there is mention of a third-degree burn 
    involving 20 percent or more of the body surface.'' We believe the vast 
    majority of burn cases already include the 948.xx coding if 
    appropriate, especially those treated in burn centers. However, we will 
    be pleased to work with other hospital groups that are interested in 
    developing educational materials related to the accurate coding of burn 
    cases.
        In developing the coding classifications used to assign cases under 
    the burn DRGs, we worked closely with the ABA and its medical 
    consultants to identify the most significant distinguishing 
    characteristics in terms of resource use in burn cases. This process 
    involved both grouping cases that were clinically similar as well as 
    conducting a series of test runs to maximize the amount of variation in 
    resource use that could be explained using varying groups of diagnosis 
    and procedure codes. As stated in the May 8 proposed rule (63 FR 
    25579), we estimate that the proposed changes to the burn DRGs would 
    increase by more than 25 percent the amount of variation in resource 
    use explained by the DRGs in MDC 22, as well as improve the clinical 
    coherence of the cases within each DRG. As recommended by the ABA, the 
    procedure codes used to identify skin grafts coincide with the 
    procedure codes now in use under existing DRG 458, Non-Extensive Burns 
    with Skin Graft, and we believe that these codes represent the most 
    resource-intensive skin grafts. Therefore, we are not adding the codes 
    suggested by the commenter.
        We recognize that some procedures now listed under DRG 472 will no 
    longer affect DRG assignment under the restructured burn DRGs. However, 
    we believe that the substantially increased ability of the new DRGs to 
    explain the variation in resource use among burn cases clearly 
    indicates the appropriateness of narrowing the focus of the 
    classification system to emphasize the extent and severity of the burn, 
    in conjunction with skin grafts or inhalation injury. Our analysis 
    indicated that the presence of skin grafts or inhalation injuries had a 
    much more consistent effect on the consumption of hospital resources 
    than the presence of one of the numerous operating room procedures now 
    listed under DRG 472. We also note that, since the skin graft 
    procedures now classified to DRG 504 were classified to former DRG 472, 
    many DRG 472 cases will now be assigned to DRG 504, which has a higher 
    weight than 472 did (14.1153 versus 10.2429). When the FY 1999 cases 
    become available, we will review them to assess the revisions to MDC 22 
    and the possible need for the type of changes suggested by the 
    commenter.
    
    [[Page 40959]]
    
        Finally, we note that we do not classify DRGs 506 and 507 as 
    surgical DRGs because they include not only cases involving skin 
    grafts, which are considered surgical procedures, but also cases 
    involving inhalation injuries, which would not necessarily involve any 
    surgical procedures. Thus, in this final rule, we are adopting the 
    changes to the burn DRGs as proposed.
    4. Legionnaires' Disease
        Effective with discharges occurring on or after October 1, 1997, a 
    new diagnosis code was created for pneumonia due to Legionnaires' 
    disease (code 482.84). In the August 29, 1997 final rule with comment 
    period, we assigned this code to DRGs 79, 80, and 81 (Respiratory 
    Infections and Inflammations) (62 FR 46090). However, we did not 
    include this code as a human immunodeficiency virus (HIV) major related 
    condition in MDC 25 (HIV Infections). Because pneumonia due to 
    Legionnaires' disease is a serious respiratory condition that has a 
    deleterious effect on patients with HIV, we proposed to assign 
    diagnosis code 482.84 to DRG 489 (HIV with Major Related Condition) as 
    a major related condition. In addition, we did not assign the code as a 
    major problem in DRGs 387 (Prematurity with Major Problems) and 389 
    (Full Term Neonate with Major Problems). These DRGs are assigned to MDC 
    15 (Newborns and Other Neonates with Conditions Originating in the 
    Perinatal Period). Again, as a part of the proposed rule, we assigned 
    diagnosis code 482.84 as a major problem in DRGs 387 and 389 because of 
    its effect on resource use in treating newborns.
        Commenters supported these proposed revisions, and we are 
    incorporating them into the final DRGs.
    5. Surgical Hierarchies
        Some inpatient stays entail multiple surgical procedures, each one 
    of which, occurring by itself, could result in assignment of the case 
    to a different DRG within the MDC to which the principal diagnosis is 
    assigned. It is, therefore, necessary to have a decision rule by which 
    these cases are assigned to a single DRG. The surgical hierarchy, an 
    ordering of surgical classes from most to least resource intensive, 
    performs that function. Its application ensures that cases involving 
    multiple surgical procedures are assigned to the DRG associated with 
    the most resource-intensive surgical class.
        Because the relative resource intensity of surgical classes can 
    shift as a function of DRG reclassification and recalibration, we 
    reviewed the surgical hierarchy of each MDC, as we have for previous 
    reclassifications, to determine if the ordering of classes coincided 
    with the intensity of resource utilization, as measured by the same 
    billing data used to compute the DRG relative weights.
        A surgical class can be composed of one or more DRGs. For example, 
    in MDC 5, the surgical class ``heart transplant'' consists of a single 
    DRG (DRG 103) and the class ``major cardiovascular procedures'' 
    consists of two DRGs (DRGs 110 and 111). Consequently, in many cases, 
    the surgical hierarchy has an impact on more than one DRG. The 
    methodology for determining the most resource-intensive surgical class 
    involves weighing each DRG for frequency to determine the average 
    resources for each surgical class. For example, assume surgical class A 
    includes DRGs 1 and 2 and surgical class B includes DRGs 3, 4, and 5. 
    Assume also that the average charge of DRG 1 is higher than that of DRG 
    3, but the average charges of DRGs 4 and 5 are higher than the average 
    charge of DRG 2. To determine whether surgical class A should be higher 
    or lower than surgical class B in the surgical hierarchy, we would 
    weigh the average charge of each DRG by frequency (that is, by the 
    number of cases in the DRG) to determine average resource consumption 
    for the surgical class. The surgical classes would then be ordered from 
    the class with the highest average resource utilization to that with 
    the lowest, with the exception of ``other OR procedures'' as discussed 
    below.
        This methodology may occasionally result in a case involving 
    multiple procedures being assigned to the lower-weighted DRG (in the 
    highest, most resource-intensive surgical class) of the available 
    alternatives. However, given that the logic underlying the surgical 
    hierarchy provides that the GROUPER searches for the procedure in the 
    most resource-intensive surgical class this result is unavoidable.
        We note that, notwithstanding the foregoing discussion, there are a 
    few instances when a surgical class with a lower average relative 
    weight is ordered above a surgical class with a higher average relative 
    weight. For example, the ``other OR procedures'' surgical class is 
    uniformly ordered last in the surgical hierarchy of each MDC in which 
    it occurs, regardless of the fact that the relative weight for the DRG 
    or DRGs in that surgical class may be higher than that for other 
    surgical classes in the MDC. The ``other OR procedures'' class is a 
    group of procedures that are least likely to be related to the 
    diagnoses in the MDC but are occasionally performed on patients with 
    these diagnoses. Therefore, these procedures should only be considered 
    if no other procedure more closely related to the diagnoses in the MDC 
    has been performed.
        A second example occurs when the difference between the average 
    weights for two surgical classes is very small. We have found that 
    small differences generally do not warrant reordering of the hierarchy 
    since, by virtue of the hierarchy change, the relative weights are 
    likely to shift such that the higher-ordered surgical class has a lower 
    average weight than the class ordered below it.
        Based on the preliminary recalibration of the DRGs, we proposed to 
    modify the surgical hierarchy as set forth below. However, in 
    developing the proposed rule, we were unable to test the effects of the 
    proposed revisions to the surgical hierarchy and to reflect these 
    changes in the proposed relative weights due to the unavailability of 
    revised GROUPER software at the time the proposed rule was prepared. 
    Rather, we simulated most major classification changes to approximate 
    the placement of cases under the proposed reclassification and then 
    determined the average charge for each DRG. These average charges then 
    serve as our best estimate of relative resource use for each surgical 
    class. We test the proposed surgical hierarchy changes after the 
    revised GROUPER is received and reflect the final changes in the DRG 
    relative weights in the final rule.
        We proposed to revise the surgical hierarchy for MDC 3 (Diseases 
    and Disorders of the Ear, Nose, Mouth and Throat) as follows:
         We would reorder Sinus and Mastoid Procedures (DRGs 53-54) 
    above Myringotomy with Tube Insertion (DRGs 61-62).
         We would reorder Mouth Procedures (DRGs 168-169) above 
    Tonsil and Adenoid Procedure Except Tonsillectomy and/or Adenoidectomy 
    Only (DRGs 57-58).
        We received two comments in support of our surgical hierarchy 
    proposals. However, for this final rule, we tested the proposed changes 
    using the most recent MedPAR file and the revised GROUPER software, and 
    we found that the proposal to move Sinus and Mastoid Procedures (DRGs 
    53-54) above Myringotomy with Tube Insertion (DRGs 61-62) is not 
    supported. Therefore, this change will not be made in this final rule. 
    The proposed reordering of DRGs 53 and 54 above Cleft Lip and Palate 
    Repair (DRG 52) (DRG 52 is currently ordered below DRGs 61 and 62 but 
    above DRGs 53 and 54) is still supported and will be
    
    [[Page 40960]]
    
    incorporated in the final GROUPER, as will the proposed reordering of 
    DRGs 168 and 169 above DRGs 57 and 58.
    6. Refinement of Complications and Comorbidities List
        There is a standard list of diagnoses that are considered CCs. We 
    developed this list using physician panels to include those diagnoses 
    that, when present as a secondary condition, would be considered a 
    substantial complication or comorbidity. In previous years, we have 
    made changes to the standard list of CCs, either by adding new CCs or 
    deleting CCs already on the list. We did not propose to delete any of 
    the diagnosis codes on the CC list.
        In the September 1, 1987 final notice concerning changes to the DRG 
    classification system (52 FR 33143), we modified the GROUPER logic so 
    that certain diagnoses included on the standard list of CCs would not 
    be considered a valid CC in combination with a particular principal 
    diagnosis. Thus, we created the CC Exclusions List. We made these 
    changes to preclude coding of CCs for closely related conditions, to 
    preclude duplicative coding or inconsistent coding from being treated 
    as CCs, and to ensure that cases are appropriately classified between 
    the complicated and uncomplicated DRGs in a pair.
        In the May 19, 1987 proposed notice concerning changes to the DRG 
    classification system (52 FR 18877), we explained that the excluded 
    secondary diagnoses were established using the following five 
    principles:
         Chronic and acute manifestations of the same condition 
    should not be considered CCs for one another (as subsequently corrected 
    in the September 1, 1987 final notice (52 FR 33154)).
         Specific and nonspecific (that is, not otherwise specified 
    (NOS)) diagnosis codes for a condition should not be considered CCs for 
    one another.
         Conditions that may not co-exist, such as partial/total, 
    unilateral/bilateral, obstructed/unobstructed, and benign/malignant, 
    should not be considered CCs for one another.
         The same condition in anatomically proximal sites should 
    not be considered CCs for one another.
         Closely related conditions should not be considered CCs 
    for one another.
        The creation of the CC Exclusions List was a major project 
    involving hundreds of codes. The FY 1988 revisions were intended to be 
    only a first step toward refinement of the CC list in that the criteria 
    used for eliminating certain diagnoses from consideration as CCs were 
    intended to identify only the most obvious diagnoses that should not be 
    considered complications or comorbidities of another diagnosis. For 
    that reason, and in light of comments and questions on the CC list, we 
    have continued to review the remaining CCs to identify additional 
    exclusions and to remove diagnoses from the master list that have been 
    shown not to meet the definition of a CC. (See the September 30, 1988 
    final rule for the revision made for the discharges occurring in FY 
    1989 (53 FR 38485); the September 1, 1989 final rule for the FY 1990 
    revision (54 FR 36552); the September 4, 1990 final rule for the FY 
    1991 revision (55 FR 36126); the August 30, 1991 final rule for the FY 
    1992 revision (56 FR 43209); the September 1, 1992 final rule for the 
    FY 1993 revision (57 FR 39753); the September 1, 1993 final rule for 
    the FY 1994 revisions (58 FR 46278); the September 1, 1994 final rule 
    for the FY 1995 revisions (59 FR 45334); the September 1, 1995 final 
    rule for the FY 1996 revisions (60 FR 45782); the August 30, 1996 final 
    rule for the FY 1997 revisions (61 FR 46171); and the August 29, 1997 
    final rule for the FY 1998 revisions (62 FR 45966)).
        We proposed a limited revision of the CC Exclusions List to take 
    into account the changes that will be made in the ICD-9-CM diagnosis 
    coding system effective October 1, 1998. (See section II.B.8, below, 
    for a discussion of ICD-9-CM changes.) These proposed changes were made 
    in accordance with the principles established when we created the CC 
    Exclusions List in 1987. We received no comments on these proposed 
    changes and we are incorporating them as final changes.
        Tables 6F and 6G in section VI of the Addendum to this final rule 
    contain the revisions to the CC Exclusions List that would be effective 
    for discharges occurring on or after October 1, 1998. Each table shows 
    the principal diagnoses with changes to the excluded CCs. Each of these 
    principal diagnoses is shown with an asterisk and the additions or 
    deletions to the CC Exclusions List are provided in an indented column 
    immediately following the affected principal diagnosis.
        CCs that are added to the list are in Table 6F--Additions to the CC 
    Exclusions List. Beginning with discharges on or after October 1, 1998, 
    the indented diagnoses will not be recognized by the GROUPER as valid 
    CCs for the asterisked principal diagnosis.
        CCs that are deleted from the list are in Table 6G--Deletions from 
    the CC Exclusions List. Beginning with discharges on or after October 
    1, 1998 the indented diagnoses will be recognized by the GROUPER as 
    valid CCs for the asterisked principal diagnosis.
        Copies of the original CC Exclusions List applicable to FY 1988 can 
    be obtained from the National Technical Information Service (NTIS) of 
    the Department of Commerce. It is available in hard copy for $92.00 
    plus $6.00 shipping and handling and on microfiche for $20.50, plus 
    $4.00 for shipping and handling. A request for the FY 1988 CC 
    Exclusions List (which should include the identification accession 
    number, (PB) 88-133970) should be made to the following address: 
    National Technical Information Service; United States Department of 
    Commerce; 5285 Port Royal Road; Springfield, Virginia 22161; or by 
    calling (703) 487-4650.
        Users should be aware of the fact that all revisions to the CC 
    Exclusions List (FYs 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, 
    1997, and 1998) and those in Tables 6F and 6G of this document must be 
    incorporated into the list purchased from NTIS in order to obtain the 
    CC Exclusions List applicable for discharges occurring on or after 
    October 1, 1998.
        Alternatively, the complete documentation of the GROUPER logic, 
    including the current CC Exclusions List, is available from 3M/Health 
    Information Systems (HIS), which, under contract with HCFA, is 
    responsible for updating and maintaining the GROUPER program. Version 
    16.0 of this manual, which will include the final FY 1999 DRG changes, 
    will be available in October 1998 for $225.00, which includes $15.00 
    for shipping and handling. This manual may be obtained by writing 3M/
    HIS at the following address: 100 Barnes Road; Wallingford, Connecticut 
    06492; or by calling (203) 949-0303.
    7. Review of Procedure Codes in DRGs 468, 476, and 477
        Each year, we review cases assigned to DRG 468 (Extensive OR 
    Procedure Unrelated to Principal Diagnosis), DRG 476 (Prostatic OR 
    Procedure Unrelated to Principal Diagnosis), and DRG 477 (Nonextensive 
    OR Procedure Unrelated to Principal Diagnosis) in order to determine 
    whether it would be appropriate to change the procedures assigned among 
    these DRGs.
        DRGs 468, 476, and 477 are reserved for those cases in which none 
    of the OR procedures performed is related to the principal diagnosis. 
    These DRGs are intended to capture atypical cases, that is, those cases 
    not occurring with sufficient frequency to represent a
    
    [[Page 40961]]
    
    distinct, recognizable clinical group. DRG 476 is assigned to those 
    discharges in which one or more of the following prostatic procedures 
    are performed and are unrelated to the principal diagnosis.
    
    60.0  Incision of prostate
    60.12  Open biopsy of prostate
    60.15  Biopsy of periprostatic tissue
    60.18  Other diagnostic procedures on prostate and periprostatic 
    tissue
    60.21  Transurethral prostatectomy
    60.29  Other transurethral prostatectomy
    60.61  Local excision of lesion of prostate
    60.69  Prostatectomy NEC
    60.81  Incision of periprostatic tissue
    60.82  Excision of periprostatic tissue
    60.93  Repair of prostate
    60.94  Control of (postoperative) hemorrhage of prostate
    60.95  Transurethral balloon dilation of the prostatic urethra
    60.99  Other operations on prostate
    
        All remaining OR procedures are assigned to DRGs 468 and 477, with 
    DRG 477 assigned to those discharges in which the only procedures 
    performed are nonextensive procedures that are unrelated to the 
    principal diagnosis. The original list of the ICD-9-CM procedure codes 
    for the procedures we consider nonextensive procedures, if performed 
    with an unrelated principal diagnosis, was published in Table 6C in 
    section IV. of the Addendum to the September 30, 1988 final rule (53 FR 
    38591). As part of the final rules published on September 4, 1990, 
    August 30, 1991, September 1, 1992, September 1, 1993, September 1, 
    1994, September 1, 1995, August 30, 1996, and August 29, 1997, we moved 
    several other procedures from DRG 468 to 477, as well as moving some 
    procedures from DRG 477 to 468. (See 55 FR 36135, 56 FR 43212, 57 FR 
    23625, 58 FR 46279, 59 FR 45336, 60 FR 45783, 61 FR 46173, and 62 FR 
    45981, respectively.)
        a. Adding procedure codes to MDCs. We annually conduct a review of 
    procedures producing DRG 468 or 477 assignments on the basis of volume 
    of cases in these DRGs with each procedure. Our medical consultants 
    then identify those procedures occurring in conjunction with certain 
    principal diagnoses with sufficient frequency to justify adding them to 
    one of the surgical DRGs for the MDC in which the diagnosis falls. 
    Based on this year's review, we did not identify any necessary changes; 
    therefore, we did not propose to move any procedures from DRGs 468 and 
    477 to one of the surgical DRGs.
        b. Reassignment of procedures among DRGs 468, 476, and 477. We also 
    reviewed the list of procedures that produce assignments to DRGs 468, 
    476, and 477 to ascertain if any of those procedures should be moved 
    from one of these DRGs to another based on average charges and length 
    of stay. Generally, we move only those procedures for which we have an 
    adequate number of discharges to analyze the data. Based on our review 
    this year, we did not propose to move any procedures from DRG 468 to 
    DRGs 476 or 477, from DRG 476 to DRGs 468 or 477, or from DRG 477 to 
    DRGS 468 or 476.
    8. Changes to the ICD-9-CM Coding System
        As discussed above in section II.B.1 of this preamble, the ICD-9-CM 
    is a coding system that is used for the reporting of diagnoses and 
    procedures performed on a patient. In September 1985, the ICD-9-CM 
    Coordination and Maintenance Committee was formed. This is a Federal 
    interdepartmental committee charged with the mission of maintaining and 
    updating the ICD-9-CM. That mission includes approving coding changes, 
    and developing errata, addenda, and other modifications to the ICD-9-CM 
    to reflect newly developed procedures and technologies and newly 
    identified diseases. The Committee is also responsible for promoting 
    the use of Federal and non-Federal educational programs and other 
    communication techniques with a view toward standardizing coding 
    applications and upgrading the quality of the classification system.
        The Committee is co-chaired by the National Center for Health 
    Statistics (NCHS) and HCFA. The NCHS has lead responsibility for the 
    ICD-9-CM diagnosis codes included in the Tabular List and Alphabetic 
    Index for Diseases while HCFA has lead responsibility for the ICD-9-CM 
    procedure codes included in the Tabular List and Alphabetic Index for 
    Procedures.
        The Committee encourages participation in the above process by 
    health-related organizations. In this regard, the Committee holds 
    public meetings for discussion of educational issues and proposed 
    coding changes. These meetings provide an opportunity for 
    representatives of recognized organizations in the coding fields, such 
    as the American Health Information Management Association (AHIMA) 
    (formerly American Medical Record Association (AMRA)), the American 
    Hospital Association (AHA), and various physician specialty groups as 
    well as physicians, medical record administrators, health information 
    management professionals, and other members of the public to contribute 
    ideas on coding matters. After considering the opinions expressed at 
    the public meetings and in writing, the Committee formulates 
    recommendations, which then must be approved by the agencies.
        The Committee presented proposals for coding changes at public 
    meetings held on June 5 and December 4 and 5, 1997, and finalized the 
    coding changes after consideration of comments received at the meetings 
    and in writing within 30 days following the December 1997 meeting. The 
    initial meeting for consideration of coding issues for implementation 
    in FY 2000 was held on June 4, 1998. Copies of the minutes of the 1997 
    meetings can be obtained from the HCFA Home Page @ http://www.hcfa.gov/
    pubaffr.htm, under the ``What's New'' listing. Paper copies of these 
    minutes are no longer available and the mailing list has been 
    discontinued. We encourage commenters to address suggestions on coding 
    issues involving diagnosis codes to: Donna Pickett, Co-Chairperson; 
    ICD-9-CM Coordination and Maintenance Committee; NCHS; Room 1100; 6525 
    Belcrest Road; Hyattsville, Maryland 20782. Comments may be sent by E-
    mail to: dfp4@cdc.gov.
        Questions and comments concerning the procedure codes should be 
    addressed to: Patricia E. Brooks, Co-Chairperson; ICD-9-CM Coordination 
    and Maintenance Committee; HCFA, Center for Health Plans and Providers, 
    Plan and Provider Purchasing Policy Group, Division of Acute Care; C4-
    05-27; 7500 Security Boulevard; Baltimore, Maryland 21244-1850. 
    Comments may be sent by E-mail to: pbrooks@hcfa.gov.
        The ICD-9-CM code changes that have been approved will become 
    effective October 1, 1998. The new ICD-9-CM codes are listed, along 
    with their proposed DRG classifications, in Tables 6A and 6B (New 
    Diagnosis Codes and New Procedure Codes, respectively) in section VI. 
    of the Addendum to this proposed rule. As we stated above, the code 
    numbers and their titles were presented for public comment in the ICD-
    9-CM Coordination and Maintenance Committee meetings. Both oral and 
    written comments were considered before the codes were approved. 
    Therefore, we solicited comments only on the proposed DRG 
    classifications.
        Further, the Committee has approved the expansion of certain ICD-9-
    CM codes to require an additional digit for valid code assignment. 
    Diagnosis codes that have been replaced by expanded codes, other codes, 
    or have been deleted are in Table 6C (Invalid Diagnosis Codes). These 
    invalid diagnosis codes will not be recognized by the GROUPER beginning 
    with discharges occurring on or after October 1, 1998. The
    
    [[Page 40962]]
    
    corresponding new or expanded diagnosis codes are included in Table 6A. 
    Procedure codes that have been replaced by expanded codes, other codes, 
    or have been deleted are in Table 6D (Invalid Procedure Codes). 
    Revisions to diagnosis code titles are in Table 6E (Revised Diagnosis 
    Code Titles), which also include the proposed DRG assignments for these 
    revised codes. For FY 1999, there are no revisions to procedure code 
    titles.
        We received several comments about our proposed DRG assignments of 
    new and revised codes.
        Comment: One commenter believes that revised diagnosis code 518.81 
    (acute respiratory failure) should be assigned as a ``major 
    complication'' in DRG 121 since it was classified in this manner prior 
    to the code revision. In addition, new diagnosis codes 518.83 (chronic 
    respiratory failure) and 518.84 (acute and chronic respiratory failure) 
    each should also be classified as a ``major complication'' in DRG 121. 
    Several commenters stated that new procedure code 37.67 (implantation 
    of cardiomyostimulation system) should not be classified to DRGs 442, 
    443, and 486 since the procedure is not performed for either injuries 
    or trauma. Commenters also noted that the DRG assignments as set forth 
    in Tables 6A through 6E in the May 8, 1998 proposed rule (63 FR 22576) 
    were not always aligned properly with the appropriate MDC number.
        Response: We agree with the commenter that diagnosis codes 518.81, 
    518.83, and 518.84 should be included on the ``major complication'' 
    list for DRG 121. As noted in the comment, code 518.81 is currently 
    designated as a major complication and the assignment remains valid. In 
    addition, the expanded codes 518.83 and 518.84 should be assigned to 
    the major complication list because these conditions were formerly 
    assigned to code 518.81. We also agree that procedure code 37.67 should 
    not have been assigned to DRGs 442, 443, and 486 for the reasons cited 
    by the commenter. We have revised Tables 6A, 6C, and 6E to reflect 
    these changes. In addition, we have reformatted the tables to correct 
    any alignment problems. Finally, we note that in Table 6B, the DRG 
    assignment of procedure code 86.67 should list only DRGs 504, 506, and 
    507 under MDC 22. DRGs 458 and 472, which were listed in the proposed 
    rule, have been deleted as a result of our restructuring of the burn 
    DRGs (see section II.B.3 of this preamble).
    9. Other Issues
        a. Palliative care. Effective October 1, 1996 (FY 1997), we 
    introduced a diagnosis code to allow the identification of those cases 
    in which palliative care was delivered to a hospital inpatient. This 
    code, V66.7 (Encounter for palliative care), was unusual in that there 
    had been no previous code assignment that included the concept of 
    palliative care. Since this was a new concept, instructional materials 
    were developed and distributed by the AHA as well as specialty groups 
    on the use of this new code. With new codes, it sometimes takes several 
    years for physician documentation to improve and for coders to become 
    accustomed to looking for this type of information in order to assign a 
    code. There is an inclusion note listed under V66.7 which indicates 
    that this code should be used as a secondary diagnosis only; the 
    patient's medical problem would always be listed first. Currently, use 
    of diagnosis code V66.7 does not have an impact on DRG assignment. 
    Consistent with prior practice, we have waited until the FY 1997 data 
    became available for analysis before considering any possible 
    modifications to the DRGs.
        As discussed in the proposed rule, in analyzing the FY 1997 bills 
    received through September 1997, we found that 4,769 discharges 
    included V66.7 as a secondary diagnosis. These cases were widely 
    distributed throughout 199 DRGs. The vast majority of these DRGs 
    included five or fewer discharges with use of palliative care. Only 12 
    DRGs included more than 100 cases. These were the following:
    
    ------------------------------------------------------------------------
                                                                  Number of 
                   DRG                           Title              cases   
    ------------------------------------------------------------------------
    10...............................  Nervous System Neoplasms          144
                                        with CC.                            
    14...............................  Specific Cerebrovascular          272
                                        Disorders Except TIA.               
    79...............................  Respiratory Infections            139
                                        and Inflammations Age               
                                        >17 with CC.                        
    82...............................  Respiratory Neoplasms...          526
    89...............................  Simple Pneumonia and              200
                                        Pleurisy Age >17 with               
                                        CC.                                 
    127..............................  Heart Failure and Shock.          184
    172..............................  Digestive Malignancy              226
                                        with CC.                            
    203..............................  Malignancy of                     285
                                        Hepatobiliary System or             
                                        Pancreas.                           
    239..............................  Pathological Fractures            218
                                        and Musculosketal and               
                                        Connective Tissue                   
                                        Malignancy.                         
    296..............................  Nutritional and                   173
                                        Miscellaneous Metabolic             
                                        Disorders Age >17 with              
                                        CC.                                 
    403..............................  Lymphoma and Non-Acute            178
                                        Leukemia with CC.                   
    416..............................  Septicemia Age >17......          147
    ------------------------------------------------------------------------
    
        Six of these DRGs are cancer-related; however, the other DRGs are 
    quite diverse. Upon further analysis, we found that, for the most part, 
    discharges with code V66.7 do not significantly differ in length of 
    stay from the discharges in the same DRG without code V66.7. The length 
    of stay for discharges with code V66.7 are sometimes longer and 
    sometimes shorter and the comparative length of stay for a given DRG 
    tends to vary by only one day. In general, the average charges for a 
    palliative care case discharge with a secondary code of V66.7 were 
    lower than the charges for other discharges within the DRG. However, 
    these differences were relatively small and were well within the 
    standard variation of charges for cases in the DRG.
        One approach we could take to revise the DRGs would be to divide 
    those DRGs with a large number of cases coded with V66.7 into two 
    different DRGs, with and without palliative care. However, the 
    relatively small proportion of cases in each DRG argues against this 
    approach; no DRG has more than 1 percent of its cases coded with 
    palliative care and, in most cases, the percentage is well under 1 
    percent. An alternative approach would be to group all palliative care 
    cases, regardless of the underlying disease or condition, into one new 
    DRG. However, the charges of these cases are so varied that this is not 
    a logical choice. In addition, there is a lack of clinical coherence in 
    such an approach. The underlying diagnoses of these cases range from 
    respiratory conditions to heart failure to septicemia.
    
    [[Page 40963]]
    
    Because there are so few cases in the FY 1997 data and they are so 
    widely dispersed among different DRGs, we did not propose any DRG 
    modification. We will make a more detailed analysis of these cases over 
    the next year based on a more complete FY 1997 data file as well as 
    review of the FY 1998 cases that will be available later this year. As 
    time goes by, hospital coders and physicians should become more aware 
    of this code and we hope that more complete data will assist our 
    decision-making process.
        We received a few comments supporting our decision to make no DRG 
    changes at this time for palliative care cases. One commenter agreed 
    with our statement that it may take several years for use of this code 
    to spread through the medical community.
        b. PTCA. Effective with discharges occurring on or after October 1, 
    1997, we reassigned cases of PTCA with coronary artery stent implant 
    from DRG 112 (Percutaneous Cardiovascular Procedures) to DRG 116 (Other 
    Permanent Cardiac Pacemaker Implant or PTCA with Coronary Artery Stent 
    Implant). In the August 29, 1997 final rule with comment period, we 
    responded to several commenters who contended that PTCA cases treated 
    with platelet inhibitors were as resource intensive as the PTCA with 
    stent implant cases and that these cases should also be moved to DRG 
    116. However, there is currently no code that describes the infusion of 
    platelet inhibitors. Therefore, we were unable to make any changes in 
    the DRGs for FY 1998.
        As set forth in Table 6B, New Procedure Codes in section VI. of the 
    addendum to this final rule, a new procedure code for injection or 
    infusion of platelet inhibitors (code 99.20) will be effective with 
    discharges occurring on or after October 1, 1998. Our usual policy on 
    new codes is to assign them to the same DRG or DRGs as their 
    predecessor code. Because infusion of platelet inhibitors is currently 
    assigned to a non-OR procedure code, we followed our usual practice and 
    designated code 99.20 as a non-OR code that does not affect DRG 
    assignment.
        We will not have any data on this new code until we receive bills 
    for FY 1999. Thus, we would be unable to make any changes in DRG 
    assignment until FY 2001. We note, however, that the Conference Report 
    that accompanied the Balanced Budget Act of 1997 contained language 
    stating that ``* * * in order to ensure that Medicare beneficiaries 
    have access to innovative new drug therapies, the Conferees believe 
    that HCFA should consider, to the extent feasible, reliable, validated 
    data other than MedPAR data in annually recalibrating and reclassifying 
    the DRGs.'' (H.R. Rep. No. 105-217 at 734 (1997)). At the time the 
    proposed rule was published, we had received no data that would have 
    allowed us to make an appropriate modification of DRG 112 for PTCA 
    cases with platelet infusion therapy. In that rule, we stated that we 
    would review and analyze any data we received during the comment period 
    about the use of platelet inhibitors for Medicare beneficiaries.
        Since publication of the proposed rule, we received some data 
    concerning the use of GPIIb/IIIa platelet inhibitor drug therapy as 
    well as some comments on the issue. A discussion of the data and the 
    comments and our responses are set forth below.
        Comment: The data we received were provided by the pharmaceutical 
    company that manufactures a GPIIb/IIIa platelet inhibitor. In its 
    comment accompanying the data, the company states its belief that the 
    data conclusively demonstrate that procedure code 99.20 should be 
    assigned to DRG 116 effective for discharges occurring on or after 
    October 1, 1998. We received two other comments from hospitals 
    supporting this reassignment in order to improve payment for a 
    beneficial drug therapy. Another hospital urged HCFA not to make the 
    reassignment because the commenter believes that there is no evidence 
    that use of the drug decreases mortality or the risk of need for 
    emergency coronary bypass in patients undergoing stent implantation. In 
    addition, this commenter believes that the price charged for platelet 
    inhibitor is exorbitant and that HCFA should not directly subsidize a 
    pharmaceutical company through a DRG change. Finally, two commenters, a 
    drug company and a pharmaceutical association, were encouraged by 
    HCFA's willingness to consider data other than MedPAR data for 
    analyzing possible DRG changes.
        The data we received comprise two different sets of Medicare 
    beneficiaries who received PTCA, PTCA with implant of a coronary stent, 
    PTCA with platelet inhibitor therapy, or PTCA with both implant of a 
    stent and platelet inhibitor therapy. One set of data consists of just 
    under 500 patients who received treatment in seven hospitals during a 
    clinical trial conducted between January 1, 1996 and June 15, 1997. The 
    other set consists of just over 6,200 patients treated in 83 hospitals 
    between October 1, 1995 and December 31, 1996 (this is data from a 
    health care information company that, among other products and 
    services, performs clinical and financial analysis of data under 
    contract with hospitals). For the first set of data, the hospitals are 
    identified; however, for the second set of data, the hospital 
    identifying information is confidential and was not released to HCFA. 
    In order to provide HCFA with standardized charges, the information 
    company obtained the HCFA provider-specific file and standardized the 
    charges before providing them to HCFA.
        According to the commenter, based on the data provided the 
    approximate average standardized charges for the different classes of 
    patients are as follows:
    
         PTCA alone--$17,000.
         PTCA and stent--$22,000.
         PTCA and platelet inhibitor--$24,000.
         PTCA and both stent and platelet inhibitor--$29,000.
    
    Based on these data, the drug's manufacturer urges us to reassign 
    procedure code 99.20 to DRG 116. The commenter also argues that failure 
    to improve the payment for these cases may result in Medicare 
    beneficiaries being denied equal access to potentially life-saving 
    treatment.
        Response: We have reviewed the data submitted as well as considered 
    the comments we have received. Based on the data provided, it appears 
    that the cost of a PTCA case with platelet inhibitor drug therapy is at 
    least as expensive as a PTCA case with stent implant. However, the vast 
    majority of the cases (over 90 percent) cannot be linked to a hospital. 
    In addition, although the large data set does constitute a sample of 
    cases, as claimed by the commenter, it is not a random sample, but 
    rather a sample of those hospitals that contract with the health 
    information company. The pharmaceutical company states that the 83 
    hospitals are representative of all hospitals in the country, but we 
    have no way to verify that claim. Because the data cannot be verified, 
    and do not reflect a complete data set or a random sample, HCFA cannot 
    use the data to make a change in the DRG assignment.
        The language that Congress included in the Conference Report that 
    accompanied the Balanced Budget Act of 1997 stated that HCFA should ``* 
    * * consider, to the extent feasible, reliable, validated data other 
    than MedPAR data in annually recalibrating and reclassifying the 
    DRGs.'' The data we have been given does not meet these requirements. 
    We cannot validate whether the data are Medicare beneficiaries nor can 
    we verify which hospitals provided the treatment or the amount of 
    charges reported to Medicare. In addition, we do not believe that we
    
    [[Page 40964]]
    
    should base any DRG reclassification decisions that will increase 
    payment for a set of cases on data that would not meet HCFA's strict 
    requirements for making a DRG change that would lower the relative 
    weight for a set of cases (see discussion below concerning radiosurgery 
    procedures).
        As we have stated in several proposed and final rules (most 
    recently in the August 30, 1996 final rule in a discussion of the 
    coronary artery stent implant (61 FR 46170) and the August 29, 1997 
    final rule in response to a comment on the DRG assignment for new 
    diagnosis code 686.01) (62 FR 45982), our longstanding practice is to 
    assign a new code to the same DRG or DRGs as its predecessor code. Our 
    compelling reason for this practice is our inability to move the cases 
    associated with the new code to a new DRG assignment as part of the DRG 
    reclassification and recalibration process. Consequently, our policy is 
    to wait until we have a full year of Medicare data upon which to base 
    an analysis of what the most appropriate DRG assignment would be. We 
    can then move any cases that we would reassign so we can revise the DRG 
    relative weights accordingly. If we were to assign procedure code 99.20 
    to DRG 116 at this time, we would be unable to move the cases 
    associated with that code from DRG 112 into DRG 116 based on the data 
    provided. Thus, the relative weight of DRG 112 would still reflect the 
    cases with procedure code 99.20. Since these cases presumably have much 
    higher charges than the other PTCA cases, the relative weight for DRG 
    112 would be overstated, which means the payments to those cases would 
    be overstated. In addition, the charges for PTCA cases with platelet 
    inhibitor drug therapy would not be reflected in the DRG 116 relative 
    weight.
        Our practice of waiting until we have identifiable MedPAR data 
    applies to all DRG changes, that is, both those changes that would 
    enhance payment for a particular diagnosis or procedure, as well as, 
    those that would decrease payment for a particular diagnosis or 
    procedure. We note that, in FY 1996, when we created a new procedure 
    code for stereotactic radiosurgery (92.3), we assigned the code to DRGs 
    1, 2, and 3, because that is where the predecessor procedure code was 
    assigned. However, since code 92.3 is a nonoperating room procedure, we 
    were relatively sure that the code would not remain assigned to DRG 1, 
    2, and 3 (which are the highest weighted surgical DRGs in MDC 1) once 
    we had the actual charge data. As discussed in the August 29, 1997 
    final rule (62 FR 45971), procedure code 92.3 was reassigned to DRGs 7 
    and 8 once we had the FY 1996 data to analyze. Therefore, we 
    ``overpaid'' those cases for 2 years; that is, their charges were much 
    less than the average charges for DRGs 1, 2, and 3.
        We believe that any data we use to reclassify and recalibrate DRGs 
    must be comprehensive and valid, as well as verifiable by HCFA.
        Concerning the commenter's argument that failure to change the DRG 
    assignment for infusion of platelet inhibitor will compromise the 
    availability of this treatment for Medicare beneficiaries, we note, as 
    we have in several previous documents, that it is a violation of a 
    hospital's Medicare provider agreement to place restrictions on the 
    number of Medicare beneficiaries it accepts for treatment unless it 
    places the same restrictions on all other patients.
    c. Implantation of Muscle Stimulator
        Comment: We received one comment arguing that the current DRG 
    assignment for the implantation of a muscle stimulator and the 
    associated tendon transfer for quadriplegics is inappropriate. The 
    specific muscle stimulator device (an implanted neuroprosthesis that 
    restores functional hand motion in people with quadriplegia who are 24 
    months post-injury) was approved by the Food and Drug Administration in 
    August 1996. The device is designed to provide neuromuscular 
    stimulation for certain patients with quadriplegia so that they can 
    grasp with their hand and perform tasks such as holding eating utensils 
    and pens and brushing their teeth. In many cases, the patient also 
    undergoes a tendon transfer to the hand during the same admission or 
    during a prior admission. The commenter notes that when the tendon 
    transfer (procedure code 82.56 (other hand tendon transfer or 
    transplantation)) and the insertion of the muscle stimulator (procedure 
    code 83.92 (insertion or replacement of skeletal muscle stimulator)) 
    are performed during the same admission, the case is assigned to DRG 7 
    or 8 (Peripheral and Cranial Nerve and Other Nerve System Procedures). 
    However, when the procedures are performed during two separate 
    admissions, the tendon transfer is assigned to DRGs 7 and 8 and the 
    insertion of the muscle stimulator is assigned to DRG 468 (Extensive OR 
    Procedure Unrelated to Principal Diagnosis). The commenter stated that 
    although payment for DRGs 7, 8, and 468 are all significantly less than 
    the cost of the hospital stay and the device, DRG 468 pays more and 
    results in the hospital losing less money. The commenter noted that the 
    device alone costs $24,500 and hospitals report losses of $11,000 to 
    $26,000 when the device is inserted and a tendon transfer is performed 
    during the same admission (resulting in assignment to DRGs 7 and 8). 
    However, when the insertion of the device is performed in a separate 
    admission, the cases are assigned to DRG 468 and hospitals' losses are 
    limited to $4,000 to $18,000.
        The commenter believes that hospitals will refuse to perform this 
    very useful surgery unless the DRG assignment is revised. If the 
    insertion of the muscle stimulator were assigned to a surgical DRG in 
    MDC 1 where the diagnosis codes for quadriplegia are assigned, the 
    highest paying DRG assignment would be DRGs 1, 2, and 3 (Craniotomy). 
    Besides being clinically inappropriate, the commenter believes the 
    weights for these DRGs are too low to adequately pay for this 
    procedure.
        The commenter recommended both a short and a long-term solution for 
    this problem. For now, all cases with insertion of muscle stimulators 
    performed in conjunction with tendon transfer should be assigned to DRG 
    468. In the long term, HCFA should establish a new DRG for the 
    implantation of muscle stimulation devices and other stimulation 
    devices as they become available.
        Response: In examining the latest FY 1997 MedPAR file (bills 
    received through March 1998), we found only three cases for 
    implantation of muscle stimulators for quadriplegics. One case was 
    assigned to DRG 7 and the other two to DRG 8. The standardized charge 
    and length of stay for each case is set forth below.
    
    ------------------------------------------------------------------------
                                                                   Length of
                          DRG                        Standardized     stay  
                                                        charge       (days) 
    ------------------------------------------------------------------------
    7..............................................       $25,227          7
    8..............................................         8,849          2
    8..............................................        42,183          2
    ------------------------------------------------------------------------
    
    The average charge for all cases assigned to DRG 7 is approximately 
    $21,000 and the average charge for DRG 8 cases is about $11,500.
        With so few cases, we would prefer to review the data in the FY 
    1998 MedPAR file before making any reclassification. Therefore, we will 
    add these cases to our FY 2000 DRG reclassification analysis agenda. We 
    note that the charges reported for two of the three cases are 
    significantly less than the costs that the commenter believes would be 
    incurred for this surgery (approximately $35,000).
        It would be inappropriate to assign the muscle stimulator 
    insertions solely
    
    [[Page 40965]]
    
    to DRG 468. This DRG was created to capture a set of clinically 
    unrelated cases where the only operating room procedures performed are 
    unrelated to the patient's principal diagnosis. To permanently assign a 
    procedure code only to DRG 468 would be contrary to the basic design 
    and precepts of the DRG system.
    
    C. Recalibration of DRG Weights
    
        We proposed to use the same basic methodology for the FY 1999 
    recalibration as we did for FY 1998. (See the August 29, 1997 final 
    rule with comment (62 FR 45982).) That is, we recalibrated the weights 
    based on charge data for Medicare discharges. However, we used the most 
    current charge information available, the FY 1997 MedPAR file, rather 
    than the FY 1996 MedPAR file. The MedPAR file is based on fully-coded 
    diagnostic and surgical procedure data for all Medicare inpatient 
    hospital bills.
        The final recalibrated DRG relative weights are constructed from FY 
    1997 MedPAR data, based on bills received by HCFA through March 1998, 
    from all hospitals subject to the prospective payment system and short-
    term acute care hospitals in waiver States. The FY 1997 MedPAR file 
    includes data for approximately 11.3 million Medicare discharges.
        The methodology used to calculate the DRG relative weights from the 
    FY 1997 MedPAR file is as follows:
         All the claims were regrouped using the DRG classification 
    revisions discussed above in section II.B of this preamble.
         Charges were standardized to remove the effects of 
    differences in area wage levels, indirect medical education costs, 
    disproportionate share payments, and, for hospitals in Alaska and 
    Hawaii, the applicable cost-of-living adjustment.
         The average standardized charge per DRG was calculated by 
    summing the standardized charges for all cases in the DRG and dividing 
    that amount by the number of cases classified in the DRG.
         We then eliminated statistical outliers, using the same 
    criteria as was used in computing the current weights. That is, all 
    cases that are outside of 3.0 standard deviations from the mean of the 
    log distribution of both the charges per case and the charges per day 
    for each DRG.
         The average charge for each DRG was then recomputed 
    (excluding the statistical outliers) and divided by the national 
    average standardized charge per case to determine the relative weight. 
    A transfer case (including a postacute care transfer case as discussed 
    in section IV.A of this preamble) is counted as a fraction of a case 
    based on the ratio of its length of stay (plus one day to account for 
    the double per diem payment for the first day) to the geometric mean 
    length of stay of the cases assigned to the DRG. That is, a 5-day 
    length of stay transfer case assigned to a DRG with a geometric mean 
    length of stay of 10 days is counted as 0.6 of a total case. Transfers 
    from DRGs 209, 210, or 211 to postacute care are counted as a fraction 
    of a discharge based on the ratio determined by dividing the geometric 
    mean length of stay for the DRG by the sum of half the geometric mean 
    and half the length of stay for the case, plus one.
         We established the relative weight for heart and heart-
    lung, liver, and lung transplants (DRGs 103, 480, and 495) in a manner 
    consistent with the methodology for all other DRGs except that the 
    transplant cases that were used to establish the weights were limited 
    to those Medicare-approved heart, heart-lung, liver, and lung 
    transplant centers that have cases in the FY 1995 MedPAR file. 
    (Medicare coverage for heart, heart-lung, liver, and lung transplants 
    is limited to those facilities that have received approval from HCFA as 
    transplant centers.)
         Acquisition costs for kidney, heart, heart-lung, liver, 
    and lung transplants continue to be paid on a reasonable cost basis. 
    Unlike other excluded costs, the acquisition costs are concentrated in 
    specific DRGs (DRG 302 (Kidney Transplant); DRG 103 (Heart Transplant 
    for heart and heart-lung transplants); DRG 480 (Liver Transplant); and 
    DRG 495 (Lung Transplant)). Because these costs are paid separately 
    from the prospective payment rate, it is necessary to make an 
    adjustment to prevent the relative weights for these DRGs from 
    including the effect of the acquisition costs. Therefore, we subtracted 
    the acquisition charges from the total charges on each transplant bill 
    that showed acquisition charges before computing the average charge for 
    the DRG and before eliminating statistical outliers.
        When we recalibrated the DRG weights for previous years, we set a 
    threshold of 10 cases as the minimum number of cases required to 
    compute a reasonable weight. We proposed to use that same case 
    threshold in recalibrating the DRG weights for FY 1999. Using the FY 
    1997 MedPAR data set, there are 37 DRGs that contain fewer than 10 
    cases. We computed the weights for the 37 low-volume DRGs by adjusting 
    the FY 1998 weights of these DRGs by the percentage change in the 
    average weight of the cases in the other DRGs.
        The weights developed according to the methodology described above, 
    using the final DRG classification changes, result in an average case 
    weight that is different from the average case weight before 
    recalibration. Therefore, the new weights are normalized by an 
    adjustment factor, so that the average case weight after recalibration 
    is equal to the average case weight before recalibration. This 
    adjustment is intended to ensure that recalibration by itself neither 
    increases nor decreases total payments under the prospective payment 
    system.
        Comment: One commenter was concerned about the general trend in the 
    relative weights. This commenter calculated average relative weights 
    for each MDC as well as the overall average DRG weight. Based upon this 
    calculation, the commenter noted that the average weight for the pre-
    MDC DRGs and MDCs 8 (Diseases and Disorders of the Musculoskeletal 
    system and Connective Tissue) and 24 (Multiple Significant Trauma) are 
    decreasing. Concerning MDC 8, the commenter believes the average weight 
    is decreasing because of the use of postacute care for these DRGs, 
    noting that 4 of them are included in the list of 10 DRGs affected by 
    the transfer to postacute care provision (see section IV.A of this 
    preamble for a discussion of this provision). The commenter suggested 
    that we leave the FY 1998 weights intact for MDC 8 until we can assess 
    the effect of postacute care transfers on average standardized amounts. 
    For the pre-MDCs and MDC 24, the commenter believes that the cases 
    assigned to these categories are extremely resource-intensive and that 
    the average weights should not be decreasing. Finally, the commenter 
    noted that, although the total weight increased for MDC 22 (Burns), the 
    average weight decreased. The commenter believes this is inconsistent 
    with the statement in the proposed rule that the changes being made to 
    MDC 22 would improve the explanation of variation in resource use in 
    those DRGs (63 FR 25579).
        Response: We reviewed the table of average DRG weights presented in 
    the comment, both overall and within MDCs, and we found that the 
    commenter has mistakenly used a simple averaging methodology to 
    determine the mean weight rather than a weighted averaging methodology, 
    which is how the DRG relative weights are calculated. For example, 
    suppose an MDC has three DRGs and there are 3 cases assigned to DRG 1, 
    6 cases assigned to DRG 2, and 7 cases assigned to DRG 3. The weights 
    for the DRGs are
    
    [[Page 40966]]
    
    1.000, 2.000, and 3.000, respectively. The simple average weight for 
    the three DRGs would be calculated by adding the weights and dividing 
    by the number of DRGs as follows:
    [GRAPHIC] [TIFF OMITTED] TR31JY98.051
    
    However, the weighted average would be calculated by first multiplying 
    the weights of each DRG by the number of cases in that DRG and dividing 
    by the number of cases as follows:
    [GRAPHIC] [TIFF OMITTED] TR31JY98.052
    
        Because of this mistake in average weight calculation, the 
    commenter has made some incorrect conclusions. For example, the 
    commenter states that the average DRG weight for FY 1998 is 1.3681 and 
    the average of the proposed FY 1999 weights is 1.3895. In reality, the 
    average FY 1998 weight is 1.4606 and the average of the proposed FY 
    1999 weights is 1.4673.
    
        (Note: These average weights are based on the MedPAR cases used 
    to recalibrate the weights; that is, the FY 1998 weights are based 
    on FY 1996 cases reclassified into the FY 1998 DRGs and the proposed 
    FY 1999 weights are based on FY 1997 cases reclassified into the FY 
    1999 DRGS).
        The average weight of the final FY 1999 weights is 1.4679.
    
        Contrary to the commenter's assertion, the average weight of the 
    proposed FY 1999 MDC 22 DRGs did not decrease compared to the FY 1998 
    MDC 22 weights (4.6663 and 4.5234, respectively). In addition, although 
    all of the FY 1999 proposed pre-MDC DRG weights except DRG 483 
    decreased relative to FY 1998, the increase in DRG 483 was large enough 
    (coupled with an increase in cases) to result in an overall higher 
    average weight for the pre-MDC DRGs. We note that the weights for DRGs 
    481, 482, and 483 have increased between the proposed and final FY 1999 
    recalibrations. As we have noted in the past, the weights for the 
    transplant DRGs (481, 482, and 495) have gradually decreased over the 
    years. In addition, the transplant DRGs have a relatively small number 
    of cases with a large range of reported charges. A few very low or high 
    charge cases can make a relatively dramatic difference in the weights 
    from year to year (August 29, 1997; 62 FR 45983).
        Finally, with regard to the commenter's request that we set the FY 
    1999 MDC 8 weights equal to the FY 1998 weights, we could refer the 
    commenter to the discussion above concerning the steps we take in 
    recalibrating the weights. Each year, when we recalibrate the DRG 
    weights, we use charge data from the most recent Medicare cases 
    available. That is, we use the charges reported by hospitals to 
    establish the weights. In this way, we ensure that we are using the 
    most recent hospital charging practices and patterns to set the new 
    relative weights. Because each DRG weight is ``relative'' to all other 
    DRG weights, we cannot arbitrarily freeze a set of those DRGs at the 
    previous year's weights. In a relative system such as this, if some 
    weights increase, others must decrease. Finally, as discussed above, 
    when we recalibrate the weights, a transfer case is counted as a 
    fraction of a case rather than a whole case.
        Section 1886(d)(4)(C)(iii) of the Act requires that beginning with 
    FY 1991, reclassification and recalibration changes be made in a manner 
    that assures that the aggregate payments are neither greater than nor 
    less than the aggregate payments that would have been made without the 
    changes. Although normalization is intended to achieve this effect, 
    equating the average case weight after recalibration to the average 
    case weight before recalibration does not necessarily achieve budget 
    neutrality with respect to aggregate payments to hospitals because 
    payment to hospitals is affected by factors other than average case 
    weight. Therefore, as we have done in past years and as discussed in 
    section II.A.4.b of the Addendum to this final rule, we make a budget 
    neutrality adjustment to assure that the requirement of section 
    1886(d)(4)(C)(iii) of the Act is met.
    
    III. Changes to the Hospital Wage Index
    
    A. Background
    
        Section 1886(d)(3)(E) of the Act requires that, as part of the 
    methodology for determining prospective payments to hospitals, the 
    Secretary must adjust the standardized amounts ``for area differences 
    in hospital wage levels by a factor (established by the Secretary) 
    reflecting the relative hospital wage level in the geographic area of 
    the hospital compared to the national average hospital wage level.'' In 
    accordance with the broad discretion conferred under the Act, we 
    currently define hospital labor market areas based on the definitions 
    of Metropolitan Statistical Areas (MSAs), Primary MSAs (PMSAs), and New 
    England County Metropolitan Areas (NECMAs) issued by the Office of 
    Management and Budget (OMB). OMB also designates Consolidated MSAs 
    (CMSAs). A CMSA is a metropolitan area with a population of one million 
    or more, comprised of two or more PMSAs (identified by their separate 
    economic and social character). For purposes of the hospital wage 
    index, we use the PMSAs rather than CMSAs since they allow a more 
    precise breakdown of labor costs. If a metropolitan area is not 
    designated as part of a PMSA, we use the applicable MSA. Rural areas 
    are areas outside a designated MSA, PMSA, or NECMA.
        Effective April 1, 1990, the term Metropolitan Area (MA) replaced 
    the term Metropolitan Statistical Area (MSA) (which had been used since 
    June 30, 1983) to describe the set of metropolitan areas comprised of 
    MSAs, PMSAs, and CMSAs. The terminology was changed by OMB in the March 
    30, 1990 Federal Register to distinguish between the individual 
    metropolitan areas known as MSAs and the set of all metropolitan areas 
    (MSAs, PMSAs, and CMSAs) (55 FR 12154). For purposes of the prospective 
    payment system, we will continue to refer to these areas as MSAs.
        Section 1886(d)(3)(E) of the Act also requires that the wage index 
    be updated annually beginning October 1, 1993. Furthermore, this 
    section provides that the Secretary base the update on a survey of 
    wages and wage-related costs of short-term, acute care hospitals. The 
    survey should measure, to the extent feasible, the earnings and paid 
    hours of employment by occupational category, and must exclude the 
    wages and wage-related costs incurred in furnishing skilled nursing 
    services. We also adjust the wage index, as discussed below in section 
    III.F, to take into account the geographic reclassification of 
    hospitals in accordance with sections 1886(d)(8)(B) and 1886(d)(10) of 
    the Act.
    
    B. FY 1999 Wage Index Update
    
        The final FY 1999 wage index (effective for hospital discharges 
    occurring on or after October 1, 1998 and before October 1, 1999) is 
    based on the data collected from the Medicare cost reports submitted by 
    hospitals for cost reporting periods beginning in FY 1995 (the FY 1998 
    wage index was
    
    [[Page 40967]]
    
    based on FY 1994 wage data). The FY 1999 wage index includes the 
    following categories of data, which were also included in the FY 1998 
    wage index:
         Total salaries and hours from short-term, acute care 
    hospitals.
         Home office costs and hours.
         Direct patient care contract labor costs and hours.
    The wage index also continues to exclude the direct salaries and hours 
    for nonhospital services such as skilled nursing facility services, 
    home health services, or other subprovider components that are not 
    subject to the prospective payment system. Finally, as discussed in 
    detail in the August 29, 1997 final rule with comment period, we 
    calculate a separate Puerto Rico-specific wage index and apply it to 
    the Puerto Rico standardized amount. (See 62 FR 45984 and 46041) This 
    wage index is based solely on Puerto Rico's data.
        For FY 1999 we proposed two changes to the categories of data 
    included in the wage index: adding contract labor costs and hours for 
    top management positions and replacing the fringe benefit category with 
    the wage-related costs associated with hospital and home office 
    salaries category. These two changes reflect changes to the Medicare 
    cost report that were discussed in the September 1, 1994 final rule 
    with comment period (59 FR 45355). The changes were made to the cost 
    report for cost reporting periods beginning during FY 1995. Because we 
    are using wage data from the FY 1995 cost report for the FY 1999 wage 
    index, these two changes will be reflected in the wage index for the 
    first time in FY 1999.
        As discussed in detail in the September 1, 1994 final rule with 
    comment period (59 FR 45355), we expanded the definition of contract 
    services reported on the Worksheet S-3 to include the labor-related 
    costs associated with contract personnel in a hospital's top four 
    management positions: Chief Executive Officer/Hospital Administrator, 
    Chief Operating Officer, Chief Financial Officer, and Nursing 
    Administrator. We also revised the cost report to reflect a change in 
    terminology from ``fringe benefits'' to ``wage-related costs,'' to 
    promote the consistent reporting of these costs. (See September 1, 1994 
    final rule with comment period (59 FR 45356-45359).) We made this 
    change in terminology because we believed it would eliminate confusion 
    regarding those wage-related costs that are incorporated in the wage 
    index versus the broader definition of fringe benefits recognized under 
    the Medicare cost reimbursement principles. Wage-related costs, which 
    include core and other wage-related costs, are reported on the Form 
    HCFA-339, the Provider Cost Report Reimbursement Questionnaire.
        Finally, we analyzed the wage data for the following costs, which 
    were separately reported for the first time on the FY 1995 cost 
    reports:
         Physician Part A costs.
         Resident and Certified Registered Nurse Anesthetist (CRNA) 
    Part A costs.
         Overhead cost and hours by cost center.
    Our analyses and proposals concerning these data are set forth below in 
    section III.C.
        Comment: MedPAC submitted a general comment on the wage index. 
    First, the Commission stated that several of the issues raised in the 
    proposed rule stem from the failure of the wage index to account for 
    the mix of occupational categories employed by each hospital and that 
    if the wage index reflected this mix it would be more accurate. In 
    addition, MedPAC, noted that new measures are needed to implement each 
    new prospective system as well as for Medicare+Choice plans and 
    suggested that attention should be given to alternative strategies for 
    obtaining labor prices that could eliminate the need to collect data 
    separately for each type of provider affected. MedPac intends to 
    examine this issue during the upcoming year.
        Response: We have addressed the issue of occupational mix in the 
    past. In the May 27, 1994 Federal Register, we indicated we were not 
    proposing to collect occupational mix data due to a lack of support 
    from the hospital industry for an additional reporting burden with 
    uncertain impact (59 FR 27724). However, certain segments of the 
    industry continue to insist that an occupational mix would make the 
    wage index fairer. We will continue to evaluate all the data and 
    evidence that we receive on this issue. With respect to MedPAC's 
    interest in examining alternative data collection strategies, we look 
    forward to the results of its examination, and will provide whatever 
    assistance we can.
    
    C. Issues Relating to the FY 1999 Wage Index
    
    1. Physician Part A Costs
        Currently, if a hospital directly employs a physician, the Part A 
    portion of the physician's salary and wage-related costs (that is, 
    administrative and teaching services) is included in the calculation of 
    the wage index. However, the costs for contract physician Part A 
    services are not included. Our policy has been that, to be included in 
    the wage index calculation, a contracted service must be direct patient 
    care, or, beginning with the FY 1999 wage index, top level management 
    (see discussion above). Because some States have laws that prohibit 
    hospitals from directly hiring physicians, the hospitals in those 
    States have claimed that they are disadvantaged by the wage index's 
    exclusion of contract physician Part A costs. We began collecting 
    separate wage data for both direct and contract physician Part A 
    services on the FY 1995 cost report in order to analyze this issue. As 
    we discussed in the September 1, 1994 final rule with comment period 
    (59 FR 45354), our original purpose in collecting these data was to 
    exclude all physician Part A costs from the wage index.
        When we made the change to the cost report, there were five States 
    in which hospitals were prohibited from directly employing physicians. 
    We understand that only two States currently maintain this prohibition: 
    Texas and California. Thus, the number of hospitals affected by our 
    current policy has decreased. Nevertheless, the fact that hospitals in 
    these two States are still prohibited from directly employing 
    physicians for Part A services and, therefore, must enter into 
    contractual agreements with physicians for these services, perpetuates 
    the perceived inequity.
        The main reason we planned to exclude all Part A physician costs 
    rather than include the contract costs was our concern that it would be 
    difficult to accurately attribute the Part A costs and hours of these 
    contract physicians. In addition, we were concerned that including 
    these costs could inappropriately inflate the hospitals' average hourly 
    wages. That is, we anticipated that average costs for contract 
    physicians would be significantly higher than the costs for those 
    physicians directly employed by the hospital. However, our analysis of 
    the data shows that the average hourly wages for contract physician 
    Part A costs are very similar to, and, in fact slightly lower than, the 
    costs for salaried physician Part A services.
        Based on this result, we believe that continuing to include the 
    directly employed physician Part A costs and adding the costs for 
    contract physicians is the better policy. Thus, we proposed to 
    calculate the FY 1999 wage index including both direct and contract 
    physician Part A costs.
        Of the 5,070 hospitals included in the FY 1995 wage data file, 
    approximately 32 percent reported contract physician Part A costs. 
    Including these costs would raise the wage index values for
    
    [[Page 40968]]
    
    2 MSAs (4 hospitals) by more than 5 percent and 7 MSAs (43 hospitals) 
    by between 2 and 5 percent. Two MSAs and one Statewide rural area (74 
    hospitals) would experience a decrease between 2 and 5 percent. The 
    wage index values for the remaining 365 areas (4,949 hospitals) would 
    be relatively unaffected, experiencing changes of between -2 and 2 
    percent.
        We received several comments regarding the inclusion of contract 
    physician costs, and physician Part A costs generally. The specific 
    comments and our responses are set forth below.
        Comment: A national hospital association noted its concern about 
    the inclusion of teaching-related costs in the wage index because 
    Medicare pays separately for the salaries of teaching physicians 
    through direct graduate medical education (GME) payments. Nevertheless, 
    the commenter supports the inclusion of contract physician costs in the 
    FY 1999 wage index. The commenter indicated that it would work to 
    develop a consensus among hospital and health system representatives on 
    which physician salaries, if any, should be included in future wage 
    indexes. Another commenter supported the inclusion of contract 
    physician costs but recommended that HCFA take swift action to remove 
    teaching physician costs ``to achieve geographic equity in payments.''
        Several commenters believe that all physician Part A costs, 
    including teaching physician costs, should be recognized in calculating 
    the wage index. The commenters asserted that these are costs of doing 
    business, and including them in the wage index appropriately measures 
    the geographic variations in what hospitals pay for labor. However, 
    numerous commenters argued that it is inappropriate to include teaching 
    physician costs in the wage index because, in effect, it results in 
    double payment to teaching hospitals for these costs. Recognizing that 
    HCFA does not have the data available to separately identify the 
    portion of physician costs attributable to teaching physicians, these 
    commenters believe it would be preferable to remove all Part A 
    physician costs from the wage index calculation.
        Response: As a conceptual matter, we believe that physician Part A 
    costs other than teaching physician costs should be included in the 
    wage index because these costs are paid under the prospective payment 
    system. Further, in light of the data now available, we believe 
    including contract physician Part A costs improves equity in the wage 
    index by allowing hospitals that are prohibited by State law from 
    directly employing physicians to include their costs of contracted 
    physicians.
        With regard to teaching physician costs, the 1995 cost report does 
    not separate teaching physician costs from other physician Part A 
    costs. Consequently, we are unable to exclude teaching physician costs 
    from the FY 1999 wage index. We believe the optimal approach is to 
    consider this issue directly in developing the FY 2000 wage index. To 
    facilitate evaluation of this issue, we will instruct the fiscal 
    intermediaries to separate teaching physician costs from hospitals' FY 
    1996 wage data. We will carefully analyze those data, and any changes 
    we propose to make based on that analysis will be included in the FY 
    2000 proposed rule.
        We do not agree with the commenters' suggestion that, in lieu of 
    collecting data that would allow us to separately identify teaching 
    physician costs, we should remove all physician salaries from the wage 
    index. These physician Part A costs are incurred by the hospital for 
    services related to such positions as medical director and clinical 
    department heads. As such, they are legitimate labor costs included 
    under the prospective payment system. Based on our analysis of the FY 
    1995 cost reports, we believe that the data reported for physician Part 
    A costs are sufficiently reliable and complete that inclusion of 
    physician Part A costs (direct as well as contract costs) for FY 1999 
    results in a wage index that better reflects relative hospital labor 
    costs than a wage index that excludes all physician Part A costs. 
    Moreover, as stated above, we believe the addition of contract 
    physician Part A costs in the FY 1999 wage index improves the fairness 
    and accuracy of the wage index relative to the FY 1998 wage index 
    (which included direct physician Part A costs (salaries) but not 
    contract physician Part A costs). Thus, rather than excluding all 
    physician Part A costs, we believe the more responsible approach is to 
    collect the necessary data as expeditiously as possible in order to 
    analyze whether it is feasible to separate teaching physician costs 
    from other physician Part A costs.
        Comment: Several commenters favored not only including physician 
    salaries in the wage index, but also continuing to include teaching 
    physician salaries. Commenters believe that if Congress had known about 
    the payment redistributions that would result from eliminating teaching 
    physician salaries from the wage index before it had enacted the 
    reductions applicable to teaching hospitals in the Balanced Budget Act 
    of 1997, it may not have enacted such deep cuts. One commenter also 
    suggested that if we excluded physician salaries, we would need to 
    restandardize the large urban standardized amount to reflect the new 
    wage index.
        Another commenter stated that the costs of teaching physicians and 
    residents should be included in the wage index because Medicare 
    payments for GME are not sufficient to compensate hospitals for their 
    GME costs. This commenter compared hospitals' direct GME costs on the 
    Medicare cost report with the payments they receive and estimated a 
    shortfall of $900 million. The commenter further noted that reductions 
    in Medicare disproportionate share payments as a result of the Balanced 
    Budget Act would have the effect of increasing the empirical estimate 
    for the indirect graduate medical education adjustment, leading to a 
    further shortfall in payments for GME.
        Response: We cannot know what Congress would or would not have done 
    if it had known about the impacts of future changes to wage index 
    policy. Rather, refinements to the wage data should be evaluated on 
    their individual merits in terms of whether they contribute to or 
    detract from the fairness and accuracy of the wage index. We disagree 
    that changes to the wage index may require restandardization of the 
    large urban standardized amount. The large urban standardized amount 
    was not created by a separate standardization of the costs of hospitals 
    in large urban areas, but by applying differential update factors 
    established by Congress.
        We also disagree with the comment that the wage index should 
    continue to include costs related to teaching physicians and residents 
    because current and future GME payments are not fully compensating 
    hospitals for their GME costs. The adequacy of direct GME payments is a 
    separate issue by virtue of the fact that these costs are recognized 
    separately and paid for through Medicare outside the prospective 
    payment system. The amount Medicare pays for direct GME is based on 
    policy considerations related to the nature of GME, and reflects 
    Medicare's fair share of those costs. Similarly, indirect GME costs are 
    distinct from hospitals' labor costs, and the level of IME payments is 
    not relevant to the wage index.
        Comment: Many commenters referred to an analysis done by one 
    commenter showing the projected payment impacts by State of our 
    proposed policy of including physician (both direct and contract), 
    resident, and CRNA costs in the wage index. These commenters
    
    [[Page 40969]]
    
    referred to the large losses that, according to this analysis, certain 
    States will allegedly suffer because of this policy (California: $79 
    million; Florida: $36 million; Texas: $10 million). Corresponding gains 
    were cited among northeast hospitals. The suggestion of these comments 
    was that we should revise our proposed policy and exclude all of these 
    costs to redistribute these losses and gains.
        Response: We disagree with the characterization of this analysis. 
    With the exception of contract physician costs, all of these costs have 
    been included in prior wage indexes. Therefore, the commenter's 
    analysis does not reflect the impact of the proposed wage index 
    relative to the current wage index. With respect to the losses in 
    certain States cited by the commenter, our analysis indicates that, the 
    projected payment impacts of including contract physician costs 
    relative to a wage index without these costs are, respectively: a $13 
    million decrease, a $15 million decrease, and an $18 million increase. 
    We note that these figures do not reflect the impact of changes to the 
    wage indexes in these areas resulting from updating from the 1994 wage 
    data to 1995 wage data, or the exclusion of allocated overhead. They 
    do, however, present a clearer picture of the impacts in these States 
    of including contract physician costs relative to current policy.
        Comment: One commenter vigorously opposes the inclusion of contract 
    physician Part A costs, arguing we should instead exclude all physician 
    Part A costs. The commenter, a national association of health systems, 
    argued that this proposal contradicts the objectives we identified in 
    the May 27, 1994 proposed rule (59 FR 27720) and the September 1, 1994 
    final rule (59 FR 45354), where we discussed the need to separately 
    collect physician Part A costs. The commenter raises the following 
    points and ultimately recommends excluding all physician Part A costs 
    from the calculation of the wage index.
        First, the commenter contends that, by choosing to include 
    physician Part A contract costs rather than exclude all physician Part 
    A costs, we ``have expanded the unfair and unjustifiable policy tilt 
    enjoyed by teaching hospitals.'' To emphasize this point, the commenter 
    notes that over 70 percent of all contract physician costs stem from 
    teaching hospitals (90 percent of salaried physician costs are also 
    from teaching hospitals).
        Second, the commenter states that our rationale for proposing to 
    include contract physician costs focused narrowly on whether these 
    costs would inappropriately inflate the wage data. This narrow focus, 
    according to the commenter, left out any explanation of why it is 
    better to include contract physician costs rather than to exclude all 
    Part A physician costs.
        Third, the commenter quotes liberally from our discussion in the 
    proposed and final rules published in 1994, particularly our rationale 
    for providing for separate reporting of physician Part A costs on the 
    cost report. Referenced specifically are the three reasons why HCFA 
    believed at that time that eliminating physician Part A costs would be 
    preferable to including contracted physician costs. These reasons were: 
    (1) Physician costs are not driven by normal labor market situations; 
    (2) many hospitals indicated difficulties in accurately determining 
    hours for these physicians' services; and (3) some hospitals have 
    difficulty separating costs related to Part A from those related to 
    Part B. The commenter specifically asks HCFA why it has changed its 
    beliefs.
        Finally, the commenter surmises that one reason we proposed to 
    include contract physician costs is that few areas would experience a 
    significant change in their wage index values. To refute this, the 
    commenter describes the results of analysis of the impacts of the 
    proposed policy. The analysis found ``a dramatic and damaging impact on 
    California, the largest state in the nation in terms of hospitals and 
    number of Medicare discharges.'' The commenter believes that ``HCFA's 
    wage index policy should be based not on whether the outcome will 
    result in little change, but on whether it is the right policy in the 
    first place.''
        Response: We appreciate the considered arguments and detailed 
    analysis presented by the commenter and understand the importance of 
    this issue to the hospitals represented by the association. We agree 
    with the commenter that the primary consideration in developing and 
    refining the hospital wage index should be the ``right policy.'' In the 
    context of the hospital wage index, we believe we should promote the 
    fair and accurate measurement of relative hospital wage levels across 
    geographic areas. At the same time, we believe it is appropriate to 
    consider the potential impact of possible courses of action, though we 
    agree with the commenter that the potential impact should not be the 
    driving force in policy decisions.
        In the context of the hospital wage index, it is also critical to 
    keep in mind that developing the ``right policy'' is a function not 
    only of conceptual issues but also of data issues. If, for example, we 
    believe as a conceptual matter that a certain type of cost should be 
    included in the wage index, but the data on those costs are incomplete 
    and unreliable, then including the costs in the wage index (which are 
    conceptually right) could (because of the data problems) distort the 
    measure of relative wage levels across geographic areas, and thus 
    detract from the fairness and accuracy of the wage index; similarly, if 
    we believe as a conceptual matter that a certain type of cost should be 
    excluded from the wage index, but there is incomplete and unreliable 
    data to separate those costs from other costs, then excluding the costs 
    based on bad data could detract from the equity of the wage index. 
    Thus, our ability to implement a ``conceptually right'' policy depends 
    on the availability of reliable and complete data.
        As indicated above in the response to another comment, we believe 
    there is good reason to include all physician Part A costs, rather than 
    exclude all physician Part A costs as the commenter recommends. Among 
    other things, with the exception of teaching physician costs, physician 
    Part A costs are Part A costs that are paid under the prospective 
    payment system. In addition, physician Part A costs represent above-
    average costs, although only a small percentage of the total for most 
    hospitals; therefore, excluding all physician Part A costs might 
    understate the relative wages of some hospitals. Based on our analysis 
    of the FY 1995 cost reports, we believe that data reported for 
    physician Part A costs are sufficiently reliable and complete that 
    inclusion of the costs results in a wage index that is more fair and 
    accurate, relative to a wage index which would exclude all physician 
    Part A costs, even if the data are not perfect.
        As discussed above, although we have decided to adopt our proposal 
    to include contract physician Part A costs in the wage index, we intend 
    to direct the fiscal intermediaries to separately identify physician 
    Part A costs (salaried and contracted) related to teaching for cost 
    reports beginning during FY 1996. Although this information will not be 
    reported separately on the Worksheet S, Part III until FY 1997 cost 
    reports, we believe this issue merits undertaking a special auditing 
    effort of the FY 1996 cost reports.
        With regard to the high proportion of physician costs attributable 
    to teaching hospitals, although the distribution of costs seems 
    disproportionate (and this is a large part of the reason we are 
    expediting our efforts to separate teaching physician costs from other 
    physician costs), our analysis of these
    
    [[Page 40970]]
    
    data indicates that, among hospitals reporting these costs, there is 
    little difference between teaching and nonteaching hospitals in terms 
    of the relative impact of these costs on hospitals' average hourly 
    wages. That is, among both teaching and nonteaching hospitals reporting 
    physician Part A costs, these costs make up between 3 and 4 percent of 
    their total wage costs. Therefore, although more teaching hospitals 
    report these costs than nonteaching hospitals (47 percent of teaching 
    hospitals versus 30 percent of nonteaching hospitals), the average 
    hourly wages of teaching hospitals are not more heavily weighted by 
    these costs than they are for nonteaching hospitals.
        In fact, two of the MSAs that would be most negatively affected by 
    excluding all physician costs from the wage data, Pittsburgh, PA and 
    Rochester, NY, both have more nonteaching hospitals reporting physician 
    costs than teaching hospitals. We believe the commenter's perception 
    that we are tilting the wage index policy toward teaching hospitals is 
    misguided and reflects an oversimplification of the issue. Based on our 
    analysis of this issue, we are convinced the most prudent course is to 
    focus on specifically developing data to further improve the fairness 
    and accuracy of the wage index.
        In describing the perceived problems from our discussion of the 
    physician cost data in the May 27, 1994 proposed rule, the commenter 
    fails to acknowledge that the discussion was in relation to a proposed 
    change. In fact, it was in response to public comments on this proposed 
    change where we agreed to revise the cost report to collect data on 
    contract physician costs. In addition, the September 1, 1994 final rule 
    clearly stated that HCFA intended to evaluate the physician cost data 
    prior to proposing any changes for the FY 1999 wage index.
        Regarding the problems associated with contract labor discussed in 
    the FY 1995 proposed and final rules, we note that the separate 
    physician cost data were not available at that time, and therefore the 
    discussion was based on information provided from fiscal intermediaries 
    and industry sources. Based on our analysis of the data available now, 
    we believe that the problems are not as widespread as initially feared. 
    Rather, these costs are similar to those reported for contracted 
    medical providers that we do include, such as therapists and nursing 
    staff. The commenter did not allege that there were widespread problems 
    reporting these data.
        The commenter's characterization of the impact of this change on 
    California's hospitals is inaccurate. No California MSA experiences a 
    decrease in their wage index of more than 0.6 percent as a result of 
    this change. The dramatic impacts referenced by the commenter occur 
    only under the assumption that the comparative baseline excludes all 
    physician Part A costs, the course recommended by the commenter. While 
    excluding all physician Part A costs would result in a significant 
    redistribution of payments to certain States such as California, other 
    areas would experience dramatic payment decreases relative to last 
    year.
        Comment: One commenter believes that, because the hospital wage 
    index is used to adjust payments for various other types of providers, 
    the wage data should be expanded to be as comprehensive as possible. 
    Specifically, the commenter recommended that wage data related to 
    excluded distinct part units, as well as all physician data, be 
    included.
        Response: We have convened workgroups, both internally and 
    externally, to focus on future wage index policies, and we anticipate 
    that we will continue to focus on the appropriate scope of the wage 
    data in those workgroups. In addition, any significant changes in the 
    types of data to be included in the wage index will be implemented 
    through the annual rulemaking process with opportunity for public 
    comment, as has been our policy in the past. For the record, we believe 
    that the hospital wage index should reflect, to the greatest degree 
    possible, the wage costs associated with the prospective payment areas 
    of the hospital.
        Comment: One commenter believes that there are ``evident problems 
    with the quality and consistency of the physician contract labor 
    data,'' which is evidenced by California's ranking as the 7th lowest 
    State in terms of contract physician average hourly wage. This 
    commenter also recommended that we begin a more rigorous audit 
    mechanism of the wage data, stating that data reliability is still a 
    problem.
        Response: We do not include hospitals' data (other than wage-
    related costs) if either the salaries or hours reported for contract 
    labor are zero. Applying this edit to the wage data, California ranks 
    as the 12th highest State in terms of contract physician average hourly 
    wages. The analysis provided by the commenters did not include such an 
    edit; therefore, their results are different. We disagree with the 
    general point of this comment that there are quality problems with 
    these data. These data have been subjected to the same review and edit 
    process as are all wage data. We will continue to monitor the process 
    for collecting wage data in the future, and make improvements as 
    necessary. We also encourage hospitals and their associations to feel 
    free to provide specific recommendations for potential improvements.
        Comment: One commenter noted that hospitals that acquire their 
    physician Part A services through related organizations do not have an 
    appropriate line on Worksheet S-3 to record these wage costs. 
    Therefore, these hospitals are disadvantaged by the inclusion of costs 
    only for directly employed and contract physician Part A services in 
    the wage index calculation. The commenter recommended that we adjust 
    the FY 1999 wage index to include related organization physician Part A 
    costs for hospitals that were unable to include the costs on their 
    Worksheet S-3s.
        Response: The commenter's statements about Worksheet S-3 are 
    incorrect. The cost report instructions at section 2806.3 of the 
    Provider Reimbursement Manual, Part II, allow hospitals to include the 
    costs for physician Part A services from related organizations on line 
    33 of Worksheet S-3. These costs are also included on the trial 
    balance, Worksheet A, in column 2 (with any adjustments in column 6). 
    Regarding the commenter's recommendation, we cannot adjust the final FY 
    1999 wage index to include costs that hospitals did not properly report 
    on their cost reports.
    2. Resident and CRNA Part A Costs
        The wage index presently includes salaries and wage-related costs 
    for residents in approved medical education programs and for CRNAs 
    employed by hospitals under the rural pass-through provision. However, 
    Medicare pays for these costs outside the prospective payment system. 
    Removing these costs from the wage index calculation would be 
    consistent with our general policy to exclude costs that are not paid 
    through the prospective payment system, but, because they were not 
    separately reported, we could not remove them.
        In the September 1, 1994 final rule with comment period (59 FR 
    45355), we stated that we would begin collecting the resident and CRNA 
    wage data separately and would evaluate the data before proposing a 
    change in computing the wage index. However, there were data reporting 
    problems associated with these costs on the FY 1995 cost report. The 
    original instructions for reporting
    
    [[Page 40971]]
    
    resident costs on Line 6 of Worksheet   S-3, Part III, erroneously 
    included teaching physician salaries and other teaching program costs 
    from Worksheet A of the cost report. Although we issued revised 
    instructions to correct this error, we understand these revisions may 
    not have been uniformly instituted. Another issue relating to 
    residents' salaries stems from apparent underreporting of these costs 
    by hospitals and inconsistent treatment of the associated wage-related 
    costs.
        In addition, the original Worksheet   S-3 and reporting 
    instructions did not provide for the separate reporting of CRNA wage-
    related costs. We believe that much of the CRNA Part A costs are 
    reported under contract labor, rather than under salaried employee 
    costs, due to the heavy use of contract labor by rural hospitals. We do 
    not believe that it would be feasible at this time to try to remove 
    these CRNA Part A costs from the contract labor costs in the FY 1995 
    cost report data. We improved the reporting instructions for CRNA costs 
    on the FY 1996 cost report.
        Our analysis of the CRNA and resident wage data submitted on the FY 
    1995 cost report convinces us that these data are inaccurately and 
    incompletely reported by hospitals. For example, although there are 
    over 900 teaching hospitals receiving graduate medical education 
    payments, only about 800 hospitals reported resident cost data. Because 
    we do not want to make a relatively significant change in the wage 
    index data calculation without complete and accurate data upon which to 
    base our decision, we proposed to delay any decision regarding 
    excluding resident and CRNA costs from the wage index until at least 
    next year. In the May 8 proposed rule, we announced our intention to 
    review the FY 1996 data when it becomes available later this year and 
    present our analysis and any proposals in next year's proposed rule.
        Comment: Several commenters believe that HCFA should immediately 
    exclude intern and resident and CRNA wage costs for the same reasons 
    the commenters cited for excluding the teaching physician costs. One 
    commenter objected to our statement that problems with the reporting of 
    these data (stemming from inconsistent instructions) warranted a one-
    year delay. The commenter stated that ``it is better to exclude all 
    clearly identified costs now rather than waiting some indeterminate 
    time for all costs to be identified before excluding any of it.'' 
    Analysis purporting to show a negative impact of $24 million on 
    California due to including these data in the wage index was cited.
        Response: As we stated above, the instructions to the FY 1995 cost 
    report Worksheet S-3 for reporting resident costs did not specifically 
    separate teaching physician salaries and other GME program costs from 
    residents' costs. This may have inappropriately inflated resident costs 
    on Line 6 of Worksheet S-3. As a result, removing the costs reported on 
    Line 6 from the FY 1999 wage index calculation would distort the wage 
    index. Our reasoning with respect to retaining the CRNA costs is 
    similar; that is, if Line 2 was removed, it would result in distortions 
    since these costs were reported inconsistently. Therefore, because the 
    data for these costs are not sufficiently reliable and complete, we 
    maintain our position that the more responsible approach is to delay 
    removing these costs until more accurate data are available for the FY 
    2000 wage index. With regard to the negative impact on California, any 
    analysis based on this data will be skewed by the reporting flaws 
    noted. The FY 1999 wage index calculation will continue to include 
    intern and resident and CRNA wage costs.
        We also believe that several of the commenters are confused about 
    the issue of CRNA costs. Currently, only the Part A portion of these 
    costs are included in the wage index, and the only hospitals paid for 
    these costs are small rural hospitals who employ the equivalent of no 
    more than one full-time CRNA and are paid on the basis of reasonable 
    costs. Therefore, they do not contribute to the concentration of 
    physician costs in teaching hospitals.
        Comment: One commenter noted that the hourly wage rates for 
    residents are lower than the overall average hourly wage of the 
    hospitals that pay their salaries, and that the inclusion of residents' 
    salaries and wage-related costs actually results in a decrease in 
    teaching hospitals' average hourly wages rather than an increase, as 
    suggested by most other commenters. The commenter suggested that 
    removing residents from the data used to calculate the wage index would 
    increase the wage index values in areas with a high concentration of 
    teaching hospitals.
        Response: The FY 1995 data do not permit us to evaluate the 
    accuracy of this comment because residents' salaries are commingled 
    with teaching physicians' salaries for many hospitals. As with all 
    changes to the wage data, the impacts cannot be evaluated properly 
    until accurate data are available for all hospitals nationally.
    3. Overhead Allocation
        In the proposed rule, we discussed in detail our proposal to remove 
    from the calculation of the FY 1999 wage index the overhead costs 
    associated with certain subprovider components that are excluded from 
    the prospective payment system (63 FR 25586). Although the overall 
    impact on hospitals of this change is relatively small, we believe it 
    is an appropriate step toward improving the overall consistency of the 
    wage index. In addition, we believe this change will significantly 
    increase the accuracy of the wage data for individual hospitals, 
    especially hospitals that have a relatively small portion of their 
    facility devoted to acute inpatient care.
        We received several comments supporting this change, and none 
    expressing opposition to it. One commenter referred to it as a step 
    toward improving uniformity and overall consistency in the wage index 
    process. We have, therefore, incorporated our proposal in the final 
    wage index.
    
    D. Verification of Wage Data From the Medicare Cost Report
    
        The data for the FY 1999 wage index were obtained from Worksheet S-
    3, Parts III and IV of the FY 1995 Medicare cost reports. The data file 
    used to construct the final wage index includes FY 1995 data submitted 
    to the Health Care Provider Cost Report Information System (HCRIS). As 
    in past years, we performed an intensive review of the wage data, 
    mostly through the use of edits designed to identify aberrant data.
        As a part of the August 29, 1997 final rule with comment period, we 
    implemented a new timetable for requesting wage data corrections (62 FR 
    45990). We notified hospitals again of these changes through a February 
    1998 memorandum to the fiscal intermediaries and in the proposed rule. 
    As noted in the proposed rule, beginning this year with the FY 1999 
    wage index, the wage index published in the final rule incorporates all 
    corrections, including those to correct data entry or tabulation errors 
    of the final wage data by the intermediary or HCFA.
        To allow hospitals an opportunity to evaluate the wage data to be 
    used to construct the proposed and the final FY 1999 hospital wage 
    index, we made available to the public data files containing the FY 
    1995 hospital wage data. In memoranda dated February 2 and April 21, 
    1998, we instructed all Medicare intermediaries to inform the 
    prospective payment hospitals they serve of the availability of the 
    wage data files and the process and timeframe for requesting revisions. 
    The proposed and the final wage data files were made available February 
    6 and May 14, 1998,
    
    [[Page 40972]]
    
    through the Internet at HCFA's home page (http://www.hcfa.gov). The 
    intermediaries were also instructed to advise hospitals of the 
    alternative availability of these data through their representative 
    hospital organizations or directly from HCFA.
        Table 3C in the Addendum to this final rule, as in the proposed 
    rule, contains each hospital's adjusted average hourly wage used to 
    construct the wage index values. A hospital can verify its adjusted 
    average hourly wage, as calculated from Steps 4 and 5 of the 
    computation of the wage index (see section III.E of this preamble) 
    based on the wage data on the hospital's cost report (after taking into 
    account any adjustments made by the intermediary), by dividing the 
    adjusted average hourly wage in Table 3C by the applicable wage 
    adjustment factors as set forth in Step 5 of the computation of the 
    wage index. However, a hospital's average hourly wage using this 
    calculation will vary from the average hourly wage shown on Line 32 of 
    Worksheet S-3, Part III. (See Step 5 for a complete explanation.)
        We created the correction process, as detailed in the proposed 
    rule, to resolve all substantive wage data correction disputes before 
    finalizing the wage data for the FY 1999 payment rates. Hospitals had 
    until June 5, 1998, to submit requests to correct errors in the final 
    wage data (released May 14, 1998) due to data entry or tabulation 
    errors by the intermediary or HCFA. The correction requests considered 
    were limited to errors in the final wage data that the hospital could 
    not have known about prior to the availability of the final wage data 
    public use file. If hospitals availed themselves of these opportunities 
    to timely identify and bring errors in their wage data to their 
    intermediaries' attention, the wage index implemented on October 1 
    should be free of such errors. Nevertheless, in the unlikely event that 
    errors should arise after that date, we retain the right to make 
    midyear changes to the wage index under very limited circumstances.
        Specifically, in accordance with Sec. 412.63(w)(2), we may make 
    midyear corrections to the wage index only in those limited 
    circumstances where a hospital can show: (1) That the intermediary or 
    HCFA made an error in tabulating its data; and (2) that the hospital 
    could not have known about the error, or did not have an opportunity to 
    correct the error, before the beginning of FY 1999 (that is, by the 
    June 5, 1998 deadline). As indicated earlier, since a hospital will 
    have had the opportunity to verify its data, and the intermediary will 
    notify the hospital of any changes, we do not foresee any specific 
    circumstances under which midyear corrections would be made. However, 
    should a midyear correction be necessary, the wage index change for the 
    affected area will be effective prospectively from the date the 
    correction is made.
    
    E. Computation of the Wage Index
    
        The method used to compute the final wage index is as follows:
        Step 1--As noted above, we based the FY 1999 wage index on wage 
    data reported on the FY 1995 Medicare cost reports. We gathered data 
    from each of the non-Federal, short-term, acute care hospitals for 
    which data were reported on the Worksheet S-3, Parts III and IV of the 
    Medicare cost report for the hospital's cost reporting period beginning 
    on or after October 1, 1994 and before October 1, 1995. In addition, we 
    included data from a few hospitals that had cost reporting periods 
    beginning in September 1994 and reported a cost reporting period 
    exceeding 52 weeks. These data were included because no other data from 
    these hospitals would be available for the cost reporting period 
    described above, and particular labor market areas might be affected 
    due to the omission of these hospitals. However, we generally describe 
    these wage data as FY 1995 data.
        Step 2--For each hospital, we subtracted the excluded salaries 
    (that is, direct salaries attributable to skilled nursing facility 
    services, home health services, and other subprovider components not 
    subject to the prospective payment system) from gross hospital salaries 
    to determine net hospital salaries. To determine total salaries plus 
    wage-related costs, we added the costs of contract labor for direct 
    patient care, certain top management, and physician Part A services; 
    hospital wage-related costs, and any home office salaries and wage-
    related costs reported by the hospital, to the net hospital salaries. 
    The actual calculation is the sum of lines 2, 4, 6, 32, and 33 of 
    Worksheet S-3, Part III. This calculation differs from the one computed 
    on line 32 of Worksheet S-3, Part III. Therefore, a hospital's average 
    hourly wage calculated under this step will be different from the 
    average hourly wage shown on line 32, column 5.
        Step 3--For each hospital, we subtracted the reported excluded 
    hours from the gross hospital hours to determine net hospital hours. To 
    determine total hours, we increased the net hours by the addition of 
    home office hours and hours for contract labor attributable to direct 
    patient care, certain top management, and physician Part A salaries.
        Step 4--For each hospital reporting both total overhead salaries 
    and total overhead hours greater than zero, we then allocated overhead 
    costs. First, we determined the ratio of excluded area hours (Line 24 
    of Worksheet S-3, Part III) to revised total hours (Line 9 of Worksheet 
    S-3, Part III, adding back CRNA Part A, physician Part A, and resident 
    hours). Second, we computed the amounts of overhead salaries and hours 
    to be allocated to excluded areas by multiplying the above ratio by the 
    total overhead salaries and hours reported on Line 16 of Worksheet S-3, 
    Part IV. Finally, we subtracted the computed overhead salaries and 
    hours associated with excluded areas from the total salaries and hours 
    derived in Steps 2 and 3.
        Step 5--For each hospital, we adjusted the total salaries plus 
    wage-related costs to a common period to determine total adjusted 
    salaries plus wage-related costs. To make the wage inflation 
    adjustment, we estimated the percentage change in the employment cost 
    index (ECI) for compensation for each 30-day increment from October 14, 
    1994 through April 15, 1996, for private industry hospital workers from 
    the Bureau of Labor Statistics Compensation and Working Conditions. For 
    previous wage indexes, we used the percentage change in average hourly 
    earnings for hospital industry workers to make the wage inflation 
    adjustment. For FY 1999 we used the ECI for compensation for private 
    industry hospital workers because it reflects the price increase 
    associated with total compensation (salaries plus fringes) rather than 
    just the increase in salaries, which is what the average hourly 
    earnings category reflected. In addition, the ECI includes managers as 
    well as other hospital workers. We changed the methodology used to 
    compute the monthly update factors. This new methodology uses actual 
    quarterly ECI data to determine the monthly update factors. The 
    methodology assures that the update factors match the actual quarterly 
    and annual percent changes. The inflation factors used to inflate the 
    hospital's data were based on the midpoint of the cost reporting period 
    as indicated below.
    
                        Midpoint of Cost Reporting Period                   
    ------------------------------------------------------------------------
                                                                  Adjustment
                         After                         Before       factor  
    ------------------------------------------------------------------------
    10/14/94......................................     11/15/94     1.032882
    11/14/94......................................     12/15/94     1.030771
    12/14/94......................................     01/15/95     1.028721
    
    [[Page 40973]]
    
                                                                            
    01/14/95......................................     02/15/95     1.026731
    02/14/95......................................     03/15/95     1.024776
    03/14/95......................................     04/15/95     1.022827
    04/14/95......................................     05/15/95     1.020886
    05/14/95......................................     06/15/95     1.018901
    06/14/95......................................     07/15/95     1.016822
    07/14/95......................................     08/15/95     1.014649
    08/14/95......................................     09/15/95     1.012446
    09/14/95......................................     10/15/95     1.010279
    10/14/95......................................     11/15/95     1.008146
    11/14/95......................................     12/15/95     1.006047
    12/14/95......................................     01/15/96     1.003981
    01/14/96......................................     02/15/96     1.001950
    02/14/96......................................     03/15/96     1.000000
    03/14/96......................................     04/15/96     0.998181
    ------------------------------------------------------------------------
    
    For example, the midpoint of a cost reporting period beginning January 
    1, 1995 and ending December 31, 1995 is June 30, 1995. An inflation 
    adjustment factor of 1.016822 would be applied to the wages of a 
    hospital with such a cost reporting period. In addition, for the data 
    for any cost reporting period that began in FY 1995 and covers a period 
    of less than 360 days or greater than 370 days, we annualized the data 
    to reflect a 1-year cost report. Annualization is accomplished by 
    dividing the data by the number of days in the cost report and then 
    multiplying the results by 365.
        Step 6--Each hospital was assigned to its appropriate urban or 
    rural labor market area prior to any reclassifications under sections 
    1886(d)(8)(B) or 1886(d)(10) of the Act. Within each urban or rural 
    labor market area, we added the total adjusted salaries plus wage-
    related costs obtained in Step 5 for all hospitals in that area to 
    determine the total adjusted salaries plus wage-related costs for the 
    labor market area.
        Step 7--We divided the total adjusted salaries plus wage-related 
    costs obtained in Step 6 by the sum of the total hours (from Step 4) 
    for all hospitals in each labor market area to determine an average 
    hourly wage for the area.
        Step 8--We added the total adjusted salaries plus wage-related 
    costs obtained in Step 5 for all hospitals in the Nation and then 
    divided the sum by the national sum of total hours from Step 4 to 
    arrive at a national average hourly wage. Using the data as described 
    above, the national average hourly wage is $20.7325.
        Step 9--For each urban or rural labor market area, we calculated 
    the hospital wage index value by dividing the area average hourly wage 
    obtained in Step 7 by the national average hourly wage computed in Step 
    8. We note that in June, 1998, OMB announced the designation of the 
    Missoula, Montana MSA comprising Missoula, Montana.
        Step 10--Following the process set forth above, we developed a 
    separate Puerto Rico-specific wage index for purposes of adjusting the 
    Puerto Rico standardized amounts. We added the total adjusted salaries 
    plus wage-related costs (as calculated in Step 5) for all hospitals in 
    Puerto Rico and divided the sum by the total hours for Puerto Rico (as 
    calculated in Step 4) to arrive at an overall average hourly wage of 
    $9.5025 for Puerto Rico. For each labor market area in Puerto Rico, we 
    calculated the hospital wage index value by dividing the area average 
    hourly wage (as calculated in Step 7) by the overall Puerto Rico 
    average hourly wage.
        Step 11--Section 4410 of Public Law 105-33 provides that, for 
    discharges on or after October 1, 1997, the area wage index applicable 
    to any hospital that is not located in a rural area may not be less 
    than the area wage index applicable to hospitals located in rural areas 
    in that State. Furthermore, this wage index floor is to be implemented 
    in such a manner as to assure that aggregate prospective payments are 
    not greater or less than those which would have been made in the year 
    if this section did not apply. For FY 1999, this change affects 118 
    hospitals in 32 MSAs. The MSAs affected by this provision are 
    identified in Table 4A by a footnote.
    
    F. Revisions to the Wage Index Based on Hospital Redesignation
    
        Under section 1886(d)(8)(B) of the Act, hospitals in certain rural 
    counties adjacent to one or more MSAs are considered to be located in 
    one of the adjacent MSAs if certain standards are met. Under section 
    1886(d)(10) of the Act, the Medicare Geographic Classification Review 
    Board (MGCRB) considers applications by hospitals for geographic 
    reclassification for purposes of payment under the prospective payment 
    system.
        The methodology for determining the wage index values for 
    redesignated hospitals is applied jointly to the hospitals located in 
    those rural counties that were deemed urban under section 1886(d)(8)(B) 
    of the Act and those hospitals that were reclassified as a result of 
    the MGCRB decisions under section 1886(d)(10) of the Act. Section 
    1886(d)(8)(C) of the Act provides that the application of the wage 
    index to redesignated hospitals is dependent on the hypothetical impact 
    that the wage data from these hospitals would have on the wage index 
    value for the area to which they have been redesignated. Therefore, as 
    provided in section 1886(d)(8)(C) of the Act, the wage index values 
    were determined by considering the following:
         If including the wage data for the redesignated hospitals 
    would reduce the wage index value for the area to which the hospitals 
    are redesignated by 1 percentage point or less, the area wage index 
    value determined exclusive of the wage data for the redesignated 
    hospitals applies to the redesignated hospitals.
         If including the wage data for the redesignated hospitals 
    reduces the wage index value for the area to which the hospitals are 
    redesignated by more than 1 percentage point, the hospitals that are 
    redesignated are subject to that combined wage index value.
         If including the wage data for the redesignated hospitals 
    increases the wage index value for the area to which the hospitals are 
    redesignated, both the area and the redesignated hospitals receive the 
    combined wage index value.
         The wage index value for a redesignated urban or rural 
    hospital cannot be reduced below the wage index value for the rural 
    areas of the State in which the hospital is located.
         Rural areas whose wage index values would be reduced by 
    excluding the wage data for hospitals that have been redesignated to 
    another area continue to have their wage index values calculated as if 
    no redesignation had occurred.
         Rural areas whose wage index values increase as a result 
    of excluding the wage data for the hospitals that have been 
    redesignated to another area have their wage index values calculated 
    exclusive of the wage data of the redesignated hospitals.
         The wage index value for an urban area is calculated 
    exclusive of the wage data for hospitals that have been reclassified to 
    another area. However, geographic reclassification may not reduce the 
    wage index value for an urban area below the statewide rural wage index 
    value.
        We note that, except for those rural areas where redesignation 
    would reduce the rural wage index value, the wage index value for each 
    area is computed exclusive of the wage data for hospitals that have 
    been redesignated from the area for purposes of their wage index. As a 
    result, several urban areas listed in Table 4a have no hospitals 
    remaining in the area. This is because all the hospitals originally in 
    these urban areas have been reclassified to another area by the MGCRB. 
    These areas with no remaining hospitals receive the prereclassified 
    wage index value. The prereclassified wage index value will apply as 
    long as the area remains empty.
        The final wage index values for FY 1999 are shown in Tables 4A, 4B, 
    4C,
    
    [[Page 40974]]
    
    and 4F in the Addendum to this final rule. Hospitals that are 
    redesignated should use the wage index values shown in Table 4C. Areas 
    in Table 4C may have more than one wage index value because the wage 
    index value for a redesignated urban or rural hospital cannot be 
    reduced below the wage index value for the rural areas of the State in 
    which the hospital is located. When the wage index value of the area to 
    which a hospital is redesignated is lower than the wage index value for 
    the rural areas of the State in which the hospital is located, the 
    redesignated hospital receives the higher wage index value, that is, 
    the wage index value for the rural areas of the State in which it is 
    located, rather than the wage index value otherwise applicable to the 
    redesignated hospitals.
        Tables 4D and 4E list the average hourly wage for each labor market 
    area, prior to the redesignation of hospitals, based on the FY 1995 
    wage data. In addition, Table 3C in the Addendum to this final rule 
    includes the adjusted average hourly wage for each hospital based on 
    the FY 1995 data (as calculated from Steps 4 and 5, above). The MGCRB 
    will use the average hourly wage published in the final rule to 
    evaluate a hospital's application for reclassification for FY 2000, 
    unless that average hourly wage is later revised in accordance with the 
    wage data correction policy described in Sec. 412.63(w)(2). In such 
    cases, the MGCRB will use the most recent revised data used for 
    purposes of the hospital wage index.
        Although we did not propose any changes to the reclassification 
    guidelines, we received two comments on that issue.
        Comment: One commenter was concerned that the number of hospitals 
    participating in countywide reclassifications has declined over the 
    years. The commenter believes that this is an indication that the 
    criteria for hospitals in an urban county seeking reclassification to 
    another urban county should be adjusted.
        Response: When we implemented the MGCRB process, we anticipated 
    that, over the years, the number of hospitals that would continue to 
    qualify for reclassification would decrease due to better data 
    reporting and efforts by hospitals to constrain costs. The 
    reclassification process is an annual process in which a hospital or 
    group of hospitals must meet the defined criteria on an annual basis in 
    order to remain reclassified to an alternative area for either the wage 
    index, the standardized amount, or both. We note that hospitals that do 
    not meet the countywide criteria under Sec. 412.234 may apply on an 
    individual basis.
        Comment: One commenter supports the policy that allows rural 
    hospitals to reclassify to another area for purposes of the 
    disproportionate share adjustment even if the standardized amount is 
    the same for both areas. However, this commenter is also concerned that 
    separate criteria have not been developed for this type of 
    reclassification and that we continue to rely on the criteria set forth 
    in Sec. 412.230(d), which is the criteria for reclassification to 
    another area for purposes of the standardized amount.
        Response: Section 4203(a) of the Balanced Budget Act of 1997 
    provided that, for a limited period of time, a rural hospital may apply 
    for reclassification to another area for purposes of receiving 
    disproportionate share payments whether or not the standardized amount 
    is the same for both areas. Section 4203(b) provides that the MGCRB 
    will apply the guidelines for reclassification for purposes of the 
    standardized amount until the Secretary establishes other guidelines.
        We believe that the criteria in place for standardized amount 
    reclassification are appropriate for determining whether hospitals 
    should be reclassified for purposes of the disproportionate share 
    payment. The criteria address the extent to which a hospital warrants 
    reclassification by comparing the hospital's costs to its payments with 
    and without reclassification. Nevertheless, we welcome specific 
    suggestions for revising the DSH reclassification criteria.
    
    IV. Other Decisions and Changes to the Prospective Payment System 
    for Inpatient Operating Costs
    
    A. Definition of Transfers (Sec. 412.4)
    
        Pursuant to section 1886(d)(5)(I) of the Act, the prospective 
    payment system distinguishes between ``discharges,'' situations in 
    which a patient leaves an acute care (prospective payment) hospital 
    after receiving complete acute care treatment, and ``transfers,'' 
    situations in which the patient is transferred to another acute care 
    hospital for related care. If a full DRG payment were made to each 
    hospital involved in a transfer situation, irrespective of the length 
    of time the patient spent in the ``sending'' hospital prior to 
    transfer, a strong incentive to increase transfers would be created, 
    thereby unnecessarily endangering patients' health. Therefore, our 
    policy, which is set forth in the regulations at Sec. 412.4, provides 
    that, in a transfer situation, full payment is made to the final 
    discharging hospital and each transferring hospital is paid a per diem 
    rate for each day of the stay, not to exceed the full DRG payment that 
    would have been made if the patient had been discharged without being 
    transferred.
        Currently, the per diem rate paid to a transferring hospital is 
    determined by dividing the full DRG payment that would have been paid 
    in a nontransfer situation by the geometric mean length of stay for the 
    DRG into which the case falls. Hospitals receive twice the per diem for 
    the first day of the stay and the per diem for every following day up 
    to the full DRG amount. Transferring hospitals are also eligible for 
    outlier payments. Two exceptions to the current transfer payment policy 
    are transfer cases classified into DRG 385 (Neonates, Died or 
    Transferred to Another Acute Care Facility) and DRG 456 (Burns, 
    Transferred to Another Acute Care Facility), which receive the full DRG 
    payment instead of being paid on a per diem basis.
        Under section 1886(d)(5)(J) of the Act, which was added by section 
    4407 of the Balanced Budget Act of 1997, a ``qualified discharge'' from 
    one of 10 DRGs selected by the Secretary to a postacute care provider 
    will be treated as a transfer case beginning with discharges on or 
    after October 1, 1998. Section 1886(d)(5)(J)(iii) confers broad 
    authority on the Secretary to select 10 DRGs ``based upon a high volume 
    of discharges classified within such group and a disproportionate use 
    of'' certain postdischarge services. Section 1886(d)(5)(J)(ii) defines 
    a ``qualified discharge'' as a discharge from a prospective payment 
    hospital of an individual whose hospital stay is classified in one of 
    the 10 selected DRGs if, upon such discharge, the individual--
         Is admitted to a hospital or hospital unit that is not a 
    prospective payment system hospital;
         Is admitted to a skilled nursing facility; or
         Is provided home health services by a home health agency 
    if the services relate to the condition or diagnosis for which the 
    individual received inpatient hospital services and if these services 
    are provided within an appropriate period as determined by the 
    Secretary.
        The Conference Agreement that accompanied the law noted that 
    ``(t)he Conferees are concerned that Medicare may in some cases be 
    overpaying hospitals for patients who are transferred to a post acute 
    care setting after a very short acute care hospital stay. The Conferees 
    believe that Medicare's payment system should
    
    [[Page 40975]]
    
    continue to provide hospitals with strong incentives to treat patients 
    in the most effective and efficient manner, while at the same time, 
    adjust PPS [prospective payment system] payments in a manner that 
    accounts for reduced hospital lengths of stay because of a discharge to 
    another setting.'' (H.R. Rep. No. 105-217, 740.) In its March 1, 1997 
    report, ProPAC expressed similar concerns: ``* * * length of stay 
    declines have been greater in DRGs associated with substantial 
    postacute care use, suggesting a shift in care from hospital inpatient 
    to postacute settings' (pp. 21-22).
        In fact, based on the latest available data, overall Medicare 
    hospital costs per case have decreased during FYs 1994 and 1995. This 
    unprecedented real decline in costs per case has led to historically 
    high Medicare operating margins (over 10 percent on average). Along 
    with these declining lengths of stay and costs per case, there has been 
    an increase in the utilization of postacute care. In 1990, the rate of 
    skilled nursing facility services per 1,000 Medicare enrollees was 19. 
    By 1995, it had grown to 33. Corresponding numbers for home health 
    agency services are 58 per 1,000 Medicare enrollees during 1990 and 93 
    per 1,000 enrollees during 1995. Although home health services are not 
    always directly related to a hospitalization episode, there does appear 
    to be a trend toward increased use of home health for the provision of 
    postacute care rehabilitation services. Previous analysis of the 
    percentage of hospital discharges that receive postacute home health 
    care showed a 10.3 percent increase in 1994 compared to 1992.
        In the May 8, 1998 proposed rule, we discussed our proposals to 
    implement section 1886(d)(5)(J) of the Act. These proposals are set 
    forth below.
    1. Selection of 10 DRGs
        Section 1886(d)(5)(J)(iii)(I) of the Act provides that the 
    Secretary select 10 DRGs based on a high volume of discharges to 
    postacute care and a disproportionate use of postacute care services. 
    Therefore, in order to select the DRGs to be paid as transfers, we 
    first identified those DRGs with the highest percentage of postacute 
    care.
        We used the FY 1996 MedPAR file because the complete FY 1997 MedPAR 
    file was not available at the time we conducted our analysis. To 
    identify postacute care utilization, we merged hospital inpatient bill 
    files with postacute care bill files matching beneficiary 
    identification numbers and discharge and admission dates. We created 
    this file rather than depend on information concerning discharge 
    destination on the inpatient bill because we have found that the 
    discharge destination codes included on the hospital bills are often 
    inaccurate in identifying discharges to a facility other than another 
    prospective payment hospital.
        Section 1886(d)(5)(J)(ii)(III) of the Act requires the Secretary to 
    choose an appropriate window of days in which the home health services 
    start in order for the discharge to meet the definition of a transfer. 
    In order to include postdischarge home health utilization in our 
    analysis, we identified all hospital discharges for patients who 
    received any home health care within 7 days after the date of 
    discharge. (As described below in section IV.A.2., we ultimately 
    decided to propose 3 days as the window for home health services.)
        Starting with the DRG with the highest percentage of postacute care 
    discharges and continuing in descending order, we selected the first 20 
    DRG's that had a relatively large number of discharges to postacute 
    care (our lower limit was 14,000 cases). In order to select 10 DRG's 
    from the 20 DRG's on our list, for each of the DRG's we considered the 
    volume and percentage of discharges to postacute care that occurred 
    before the mean length of stay and whether the discharges occurring 
    early in the stay were more likely to receive postacute care. The 
    following table lists the 10 DRG's we proposed to include under our 
    expanded transfer definition, their percentage of postacute utilization 
    compared to total cases, and the total number of cases identified as 
    going to postacute care.
    
    ------------------------------------------------------------------------
                                                     Percent of   Number of 
            DRG            Title and type of DRG     postacute    postacute 
                           (surgical or medical)    utilization     cases   
    ------------------------------------------------------------------------
    14................  Specific Cerebrovascular           49.5      186,845
                         Disorders Except                                   
                         Transient Ischemic Attack                          
                         (Medical).                                         
    113...............  Amputation for Circulatory         59.0       28,402
                         System Disorders                                   
                         Excluding Upper Limb and                           
                         Toe (Surgical).                                    
    209...............  Major Joint Limb                   71.9      257,875
                         Reattachment Procedures                            
                         of Lower Extremity                                 
                         (Surgical).                                        
    210...............  Hip and Femur Procedures           77.8      111,799
                         Except Major Joint Age                             
                         >17 With CC (Surgical).                            
    211...............  Hip and Femur Procedures           74.2       19,548
                         Except Major Joint Age                             
                         >17 Without CC (Surgical).                         
    236...............  Fractures of Hip and               61.2       24,498
                         Pelvis (Medical).                                  
    263...............  Skin Graft and/or                  49.4       14,499
                         Debridement for Skin                               
                         Ulcer or Cellulitis With                           
                         CC (Surgical).                                     
    264...............  Skin Graft and/or                  39.3        1,328
                         Debridement for Skin                               
                         Ulcer or Cellulitis W/O                            
                         CC (Surgical).                                     
    429...............  Organic Disturbances and           45.4       19,314
                         Mental Retardation                                 
                         (Medical).                                         
    483...............  Tracheostomy Except for            45.3       18,254
                         Face, Mouth and Neck                               
                         Diagnoses (Surgical).                              
    ------------------------------------------------------------------------
    
        We included DRG 263 on the list because of its ranking in the top 
    20 DRG's in terms of postacute utilization and volume of discharges to 
    postacute care. DRG's 263 and 264 are paired DRG's; that is, the only 
    difference in the cases assigned to DRG 263 as opposed to DRG 264 is 
    that the patient has a complicating or comorbid condition. If we 
    included only DRG 263 in the list, it would be possible for a transfer 
    case with a relatively short length of stay that should be assigned to 
    DRG 263 and receive a relatively small transfer payment to be assigned 
    instead to DRG 264, and receive the full DRG payment, simply by failing 
    to include the CC diagnosis code on the bill. Therefore, our choice was 
    to either delete DRG 263 from the list or add DRG 264. We decided to 
    include DRG 264 in the proposed list because DRG 263 fully meets all 
    the conditions for inclusion on the list of 10 DRG's.
    2. Postacute Care Settings
        Section 1886(d)(5)(J)(ii) of the Act requires the Secretary to 
    define and pay as transfers cases from one of 10 DRG's selected by the 
    Secretary if the individual is discharged to one of the following 
    settings:
         A hospital or hospital unit that is not a subsection 
    [1886](d) hospital, that is, a hospital or unit excluded from the 
    inpatient prospective payment system.
         A skilled nursing facility, that is, a facility that meets 
    the definition of a skilled nursing facility set forth at section 1819 
    of the Act.
         Home health services provided by a home health agency, if 
    the services are
    
    [[Page 40976]]
    
    related to the condition or diagnosis for which the individual received 
    inpatient hospital services, and if the home health services are 
    provided within an appropriate period (as determined by the Secretary).
        Section 1886(d)(1)(B) of the Act defines the hospitals and hospital 
    units that are excluded from the prospective payment system as the 
    following: psychiatric, rehabilitation, childrens', long-term care, and 
    cancer hospitals and psychiatric and rehabilitation distinct part units 
    of a hospital. Therefore, any discharge from a prospective payment 
    hospital from one of the 10 proposed DRG's that is admitted to one of 
    these types of facilities on the date of discharge from the acute 
    hospital, on or after October 1, 1998, would be considered a transfer 
    and paid accordingly under the prospective payment systems (operating 
    and capital) for inpatient hospital services.
        We proposed that a discharge from a prospective payment hospital to 
    a skilled nursing facility would include cases discharged from one of 
    the 10 DRG's from an inpatient bed in the hospital to a bed in the same 
    hospital that has been designated for the provision of skilled nursing 
    care (a ``swing'' bed). The swing bed provision allows certain small 
    rural hospitals to furnish services in inpatient beds which, if 
    furnished by a skilled nursing facility, would constitute extended care 
    services. In addition, any patient who receives swing-bed services is 
    deemed to have received extended care services as if furnished by a 
    skilled nursing facility. Thus, if swing beds were not included in the 
    transfer policy, those hospitals with swing bed agreements could move 
    patients assigned to one of the 10 selected DRG's from an inpatient bed 
    to a swing bed and receive payment and receive the full DRG payment. In 
    the proposed rule, we stated that we did not believe that this would be 
    a fair policy in that it would create a payment advantage for swing bed 
    hospitals. Therefore, we proposed that a discharge to a swing bed would 
    be paid as a transfer when the patient is classified to one of the 10 
    selected DRG's.
        Section 1886(d)(5)(J)(ii)(III) of the Act states that the discharge 
    of an individual who receives home health services upon discharge will 
    be treated as a transfer if ``such services are provided within an 
    appropriate period (as determined by the Secretary) * * *.'' As 
    discussed above in section IV.A.1, we began our analysis using 7 days 
    (one week) as the time period we would consider. However, after 
    conducting further analysis, we proposed that 3 days after the date of 
    discharge would be a more appropriate timeframe. Based on our analysis 
    of the FY 1996 bills, approximately 90 percent of patients began 
    receiving home health care within 3 days.
        With regard to an appropriate definition of ``home health services 
    * * * relate[d] to the condition or diagnosis for which the individual 
    received inpatient hospital services * * *'', we considered several 
    possible approaches. Under one approach we could compare the principal 
    diagnosis of the inpatient stay to the diagnosis code indicated on the 
    home health bill, similar to our policy on the 3-day payment window for 
    preadmission services. However, we believe that such a policy is far 
    too restrictive in terms of qualifying discharges for transfer payment. 
    In addition, a hospital would not know when it discharges a patient to 
    home health what diagnosis code the home health agency will put on the 
    bill. Therefore, the hospital would not be able to correctly code the 
    inpatient bill as a transfer or discharge.
        We also considered proposing that any home health care that begins 
    within the designated timeframe be included ``as related'' in our 
    definition. However, this definition might be too broad and the 
    hospital would not be able to predict which cases should be coded as 
    transfers because the hospital often may not know about home health 
    services that are provided upon discharge but were not ordered or 
    planned for as part of the hospital discharge plan.
        We proposed that home health services would be considered related 
    to the hospital discharge if the patient is discharged from the 
    hospital with a written plan of care for the provision of home health 
    care services from a home health agency. In this way, the hospital 
    would be fully aware of the status of the patient when discharged and 
    could be held responsible for correctly coding the discharge as a 
    transfer on the inpatient bill. In general, this would mean that the 
    home health service would qualify as a Part A home health benefit under 
    section 1861(tt) of the Act as added by section 4611(b) of the BBA.
        In the proposed rule, we noted that we plan to compare inpatient 
    bills with home health service bills for care provided within 3 days 
    after discharge. If we find that home health services were provided 
    within the postdischarge window, the hospital will be notified and the 
    hospital payment adjusted unless the hospital can submit documentation 
    verifying the discharge status of the patient. This will alert 
    hospitals if there are problems with their discharge/transfer billing 
    and allow them to adjust their discharge planning process and billing 
    practices. If we find a continued pattern of a hospital billing for 
    cases from the 10 DRG's as discharges and our records indicate that the 
    patients are receiving postacute care services from an excluded 
    hospital, a skilled nursing facility, or within the 3-day home health 
    service window, the hospitals may be investigated for fraudulent or 
    abusive billing practices.
    3. Payment Methodology
        The statute does not dictate the payment methodology we must use 
    for these transfer cases. However, section 1886(d)(5)(J)(i) of the Act 
    provides that the payment amount for a case may not exceed the sum of 
    half the full DRG payment amount and half of the payment amount under 
    the current per diem payment methodology.
        Based on our analysis comparing the costs per case for the 
    transfers in the 10 DRG's with payments under our current transfer 
    payment methodology, we found that most of the 10 DRG's are 
    appropriately paid using our current methodology (that is, twice the 
    per diem for the first day and the per diem for each subsequent day). 
    In fact, this payment would, on average, slightly exceed costs. 
    However, this is not true of DRG's 209, 210, and 211. For those three 
    DRG's, a disproportionate percentage (about 50 percent) of the costs of 
    the case are incurred on the first day of the stay. Therefore, we 
    stated in the proposed rule that we would pay DRG's 209, 210, and 211 
    based on 50 percent of the DRG payment for the first day of the stay 
    and 50 percent of the per diem for the remaining days of the stay. The 
    other seven DRG's would be paid under the current transfer payment 
    methodology.
        We proposed to revise Sec. 412.4 to reflect these policies. In 
    addition, we proposed to delete the reference in Sec. 412.4(d)(2) to 
    DRG 456 (Burns, Transferred to Another Acute Care Facility) because we 
    proposed to replace that DRG and there would no longer be any burn DRG 
    with a transfer designation. As discussed in section II.B.3 of this 
    preamble, we have adopted that DRG change effective for FY 1999.
        We received a large number of comments concerning this proposal. In 
    general, commenters were opposed to the implementation of any postacute 
    care transfer policy. Acknowledging that the policy is required by 
    statute, most commenters also disagreed with the manner in which we 
    proposed to implement the policy. However, one association representing 
    postacute care providers was supportive of the proposed policy, in 
    general, and our
    
    [[Page 40977]]
    
    various policy proposals. As discussed in the specific comments and 
    responses that follow, we are implementing the discharge to postacute 
    care provision as set forth in the proposed rule except that we are not 
    including swing beds in the definition of a postacute care setting and 
    we are clarifying the payment methodology for DRGs 209, 210, and 211.
        Comment: Commenters believed that the postacute care transfer 
    provision penalizes hospitals for providing effective care and creates 
    a perverse incentive for hospitals to keep patients longer. Some 
    commenters suggested that this provision interferes with the practice 
    of medicine by overriding the clinical decision-making process by 
    physicians in determining the most appropriate level of care to provide 
    to their patients. Many commenters stated that the postacute care 
    transfer policy is contrary to the original intent of the prospective 
    payment system. Several commenters urged us either to repeal the entire 
    provision or to support efforts to have it repealed.
        Response: We disagree that this provision penalizes hospitals for 
    effective care. As noted in the May 8 proposed rule, the Conference 
    Agreement accompanying Public Law 105-33 states that ``Medicare's 
    payment system should continue to provide hospitals with strong 
    incentives to treat patients in the most effective and efficient 
    manner, while at the same time, adjust PPS payments in a manner that 
    accounts for reduced hospital lengths of stay because of a discharge to 
    another setting.'' The transfer provision adjusts payments to hospitals 
    to reflect the reduced lengths of stay arising from the shift of 
    patient care from the acute care setting to the postacute care setting. 
    In addition, because Medicare also often pays for the postacute care 
    portion of beneficiaries' care, the transfer provision appropriately 
    adjusts hospitals' payments to avoid duplicate payments for the care 
    provided during a patient's episode of care.
        With respect to the payment incentives created by this provision, 
    we would refer the reader to the tables set forth at Appendix D of this 
    final rule. These tables graphically demonstrate payments compared to 
    costs for transfer cases in each of the 10 selected DRGs. These tables 
    show that, across virtually all lengths of stay for each of the DRGs, 
    Medicare will pay in excess of costs even after the implementation of 
    this provision. Thus, the argument that this provision creates perverse 
    incentives and interferes with the appropriate practice of medicine is 
    not persuasive. This policy does not require a change in physician 
    clinical decision-making nor in the manner in which physicians and 
    hospitals practice medicine; it simply addresses the appropriate level 
    of payments once those decisions have been made.
        We believe a stronger argument can be made that the incentives of 
    the current policy, where hospitals receive the full DRG payment for 
    these DRGs regardless of how long patients remain in the acute care 
    hospital prior to being transferred for postacute care, potentially 
    have a greater impact on clinical decision-making. Simply put, as costs 
    rise with each additional acute care day and payments are fixed, 
    hospitals have a financial incentive to discharge patients as soon as 
    possible. The incentive is less clear, and can be argued to be neutral, 
    to the extent that the marginal payments for an additional acute 
    inpatient care day increase in proportion to the marginal costs of that 
    day. Thus, the postacute care transfer policy does not create perverse 
    incentives for hospitals to keep patients longer; instead, it addresses 
    current incentives to discharge patients as soon as possible.
        With respect to whether the provision is contrary to the original 
    intent of the prospective payment system, we believe it is entirely 
    consistent with the following statement made in the Federal Register 
    during the first year of the prospective payment system in response to 
    a comment concerning the hospital-to-hospital transfer policy: ``(t)he 
    rationale for per diem payments as part of our transfer policy is that 
    the transferring hospital generally provides only a limited amount of 
    treatment. Therefore, payment of the full prospective payment rate 
    would be unwarranted'' (49 FR 244). We also note that in its earliest 
    update recommendations, the Prospective Payment Assessment Commission 
    (MedPAC's predecessor organization) included what it called a site-of-
    service substitution adjustment to account for the shifting of portions 
    of inpatient care to other settings. We believe this provision is an 
    appropriate and consistent response to the changing treatment practice 
    of the hospital industry.
        Comment: A commenter observed that our estimate of the impact of 
    this transfer provision on hospitals' payments per case (a 0.6 percent 
    decrease in payments) results in an overall payment reduction of $600 
    million for FY 1999. The commenter stated that the Congressional Budget 
    Office (CBO) estimated the impact at $100 million for FY 1999. The 
    commenter believed that this disparity in estimates substantiates 
    claims that the new provision will have undesirable and unintended 
    consequences.
        Response: We believe the commenter's estimate of the impacts of 
    this provision are overstated. Based on the 0.6 percent decrease in 
    payment per case estimated in our impact analysis, the projected impact 
    of this transfer provision is approximately a $480 million decrease in 
    overall payments. Although this savings estimate is higher than CBO's 
    estimate, we would note that CBO assumed hospitals would change their 
    behavior by keeping patients longer. As we describe in our impact 
    analysis, we do not make any assumptions regarding changes in 
    hospitals' behavior. We would also note that the precision with which 
    one can estimate the savings associated with a provision such as this 
    is highly dependent on the specifications of the provision and the data 
    available to generate an estimate. Unlike the CBO estimate, our 
    estimate reflects the 10 actual DRGs to be included and the latest 
    discharge data to identify which cases would qualify as transfers.
        Comment: A large number of commenters objected to the inclusion of 
    swing beds as a postacute care setting. Many of these commenters stated 
    that they believed that Congress did not intend that discharges to 
    swing beds be included in the postacute transfer provision. In 
    addition, the commenters were concerned about the negative impact of 
    this policy on rural hospitals and rural health care in general. Two 
    commenters, including MedPAC, supported our proposal concerning swing 
    bed discharges.
        Response: We proposed to include discharges to swing beds because 
    the services provided in swing beds are exactly the same as the 
    services provided in skilled nursing facilities. That is, a swing-bed 
    hospital is equivalent to a skilled nursing facility when it provides a 
    swing-bed service. Thus, the policy rationale for including discharges 
    to skilled nursing facilities in the postacute care provision would 
    apply equally to discharges to swing beds.
        Although we are not persuaded by the commenters that, from a 
    payment policy perspective, our proposal to include swing beds in the 
    transfer provision was inappropriate, we understand the commenter's 
    concern that this policy could have an adverse impact on small rural 
    hospitals. Although our analysis shows that the impact on these 
    hospitals is negligible in the aggregate, the impact on individual 
    hospitals may be more significant. We have decided not to include 
    discharges to a swing bed in the expanded transfer definition at this
    
    [[Page 40978]]
    
    time. We will monitor these discharges closely and may reconsider this 
    decision in the future. We note that section 1886(d)(5)(J)(iv) of the 
    Act requires the Secretary to include a description of the effect of 
    the postacute care transfer policy in the FY 2001 hospital inpatient 
    prospective payment system proposed rule.
        Comment: Commenters requested clarification of our policy 
    concerning transfers to skilled nursing facilities. First, the 
    commenters questioned the Secretary's authority to include as transfers 
    those discharges to nursing homes that are not certified by Medicare. 
    In addition, the commenters believed that patients discharged to a 
    Medicare-certified skilled nursing facility for custodial care should 
    not be included. The commenters also urged us to limit application of 
    the transfer policy to discharges to skilled nursing facilities in 
    cases where the patient receives Medicare-covered postacute care.
        Response: Section 1886(d)(5)(J)(ii) of the Act defines a 
    ``qualified discharge'' in part as a discharge of an individual from a 
    prospective payment system hospital, if upon such discharge, the 
    individual is ``* * * admitted to a skilled nursing facility. * * *'' 
    There is no language in the statute that further defines skilled 
    nursing facility. In the proposed rule, we stated that a discharge to a 
    facility that meets the definition of a skilled nursing facility set 
    forth at section 1819 of the Act would be considered a transfer. 
    Discharges to nursing homes that are not certified by Medicare as 
    skilled nursing facilities, or distinct parts of nursing homes that are 
    not certified as skilled nursing facilities, would not be considered 
    transfers.
        However, we do not believe it would be appropriate from either a 
    legal or policy perspective to limit the transfer definition to 
    situations where a patient is transferred to a skilled nursing facility 
    for noncovered services. The statute does not limit application of the 
    transfer definition to ``covered'' skilled nursing facility services. 
    Moreover, there are several policy reasons why we would not adopt such 
    a policy. First, it would place an added administrative burden upon the 
    hospital to evaluate the patient's eligibility for covered skilled 
    nursing services. Second, it would create incentives for providing 
    noncovered postacute care that could potentially place beneficiaries at 
    medical and financial risk. Third, it would be inconsistent with 
    existing transfer policy (from one acute care hospital to another acute 
    care hospital), which does not limit the definition of a transfer to 
    those cases in which a patient receives Medicare-covered services at 
    the receiving hospital. Finally, the basic rationale for the transfer 
    policy (that is, adjusting hospital payments to reflect reduced 
    hospital costs due to discharge to a postacute care facility) applies 
    regardless of whether the postacute care is covered by Medicare. 
    Therefore, our final regulations provide that all discharges from the 
    10 specified DRGs admitted to a skilled nursing facility will be 
    defined as transfers, regardless of the coverage status of that 
    admission.
        Comment: One commenter believes that patients who were admitted to 
    a skilled nursing facility any time within 30 days after the date of 
    discharge (the so-called 30-day skilled nursing facility eligibility 
    window) and who received care related to the inpatient stay will be 
    considered a transfer under this policy. The commenter is concerned 
    that hospitals will be expected to track patients for this period of 
    time and be held accountable for their actions in such situations.
        Response: In order to be considered a transfer, the patient must be 
    admitted directly from the hospital to the skilled nursing facility. If 
    the patient is not admitted directly to a skilled nursing facility, it 
    would not constitute a transfer situation, even if care begins within 
    the 30-day eligibility window and is related to the acute care hospital 
    stay.
        Comment: One commenter suggested that the expanded transfer 
    definition should apply only in cases where the patient is transferred 
    within a hospital system, that is, the patient is discharged to an 
    entity that is related to or owned by the hospital. A transfer to an 
    independent postacute care entity would be defined as a discharge.
        Response: Section 1886(d)(5)(J)(ii) of the Act defines a qualified 
    discharge from a prospective payment hospital as one in which the 
    individual, upon discharge, ``* * * is admitted as an inpatient of a 
    hospital or hospital unit excluded that is not a subsection (d) 
    hospital * * * is admitted to a skilled nursing facility * * * is 
    provided home health services from a home health agency. * * *'' The 
    statute or the conference report does not limit the applicability of 
    this provision to postacute care providers that are owned by or related 
    to the discharging hospital. In addition, we do not believe that 
    ownership of or affiliation with the postacute care providers is the 
    overriding concern that led to the enactment of this provision. 
    Although a hospital that owns or is related to the postacute care 
    provider has an even greater financial incentive to transfer a patient 
    early in the hospital stay to that facility, the current incentive to 
    the hospital itself to discharge the patient as soon as possible is the 
    same whether or not it owns or is related to the postacute care 
    provider. Finally, if the transfer definition were based on a 
    hospital's affiliation with the postacute provider, it would create a 
    strong incentive to reconfigure the hospital's corporate structure to 
    avoid being included under the provision.
        Comment: One commenter suggested that psychiatric hospitals and 
    units be excluded from the provision because the postacute care 
    services furnished by these facilities are unrelated to a medical 
    hospitalization.
        Response: As a legal matter, section 1886(d)(5)(J)(ii)(I) of the 
    Act includes all hospitals and hospital units excluded from the 
    prospective payment system. This definition covers psychiatric 
    hospitals and units. As a policy matter, we also strongly believe that 
    transfers to psychiatric hospitals and units should be included under 
    this provision. Inpatient care furnished by hospitals is not limited to 
    diseases and disorders of the body, but is also furnished to patients 
    with mental diseases and disorders as evidenced by the nine DRGs 
    devoted solely to these conditions. Furthermore, exempting psychiatric 
    hospitals and units from the provision could create an incentive to 
    temporarily transfer patients who need postacute care to a psychiatric 
    hospital or unit setting as a way of avoiding the transfer payment, 
    thus delaying the appropriate medical care for the patient.
        Comment: Several commenters disagreed with our proposal to include 
    as transfers all discharges from the 10 specified DRGs to home health 
    care that begins within 3 days after the date of discharge. The 
    commenters argued that postacute care that begins 3 days after 
    discharge should not be considered a substitute for inpatient hospital 
    care. Although MedPAC agreed with these commenters that home health 
    services furnished after a delay of more than one day may not 
    necessarily be regarded as substituting for inpatient acute care, they 
    also noted that a 3-day window allows for the fact that most home 
    health patients do not receive care every day as well as those 
    occasions in which there may be a delay in arranging for the provision 
    of planned care. The Commission also stated that a shorter period may 
    create a stronger incentive to delay the provision of necessary 
    treatment beyond the window so the hospital can receive the full DRG 
    payment. Another commenter
    
    [[Page 40979]]
    
    supported 3 days as an appropriate period of time.
        Those commenters who recommended an alternative number of days for 
    the home health window universally stated that a discharge to home 
    health care should be considered a transfer only if the patients begin 
    to receive home health care on the day of discharge. One commenter 
    argued that a 3-day window would lead to either needlessly prolonged 
    hospital stays or delayed home health care. Another commenter 
    questioned why we would not want patients transferred to home health 
    care as soon as possible.
        Response: The statute defines ``qualified discharge'' to include 
    discharges where the individual is provided home health care ``within 
    an appropriate period (as determined by the Secretary).'' We continue 
    to believe a 3-day window for home health services is appropriate. Home 
    health care is a less-structured and more flexible means of providing 
    postacute care because it is provided not in an institutional setting 
    but rather in the patient's home. We believe that a 3-day window 
    provides flexibility in situations where home care may not be available 
    or medically appropriate immediately upon discharge. It is also of 
    sufficient length to discourage hospitals and physicians from delaying 
    the initiation of necessary postacute care, while being short enough to 
    avoid placing an undue burden upon hospitals that may want to delay 
    submitting the inpatient hospital claim until they verify whether or 
    not home health care has begun within the 3 days.
        We do not believe that it is appropriate to limit the transfer 
    definition to situations where home care begins on the same day as the 
    patient is discharged from the hospital. Our analysis indicates that 
    currently less than 8 percent of discharged patients who receive home 
    health services begin receiving those services on the date of 
    discharge. It is unreasonable to expect that patients who are 
    discharged in the late afternoon or evening would receive a home health 
    visit that same day. Furthermore, we believe the financial incentive to 
    delay needed home care for only a matter of hours would be overwhelming 
    if we limited the definition to the same day. As we noted in the 
    proposed rule, approximately 90 percent of patients who receive home 
    health services after an inpatient hospital stay began their treatment 
    within 3 days after the date of discharge. We believe 3 days 
    accommodates current practices, while also being sufficiently narrow to 
    allow hospitals to determine whether the care was actually delivered 
    prior to submitting the bill. We intend to monitor this aspect of the 
    policy through case review in order to track any changes in hospital 
    practices that may indicate that we need to revise our window 
    definition.
        Comment: One commenter argued that the best method to determine 
    whether postacute home health services are related to the inpatient 
    stay would be to match the principal diagnosis codes on the inpatient 
    and home health bills. The commenter believed this would alleviate 
    situations where the patient is discharged from the hospital with a 
    written plan for the provision of home health services, but the 
    services are related to a medical condition other than the condition 
    responsible for the inpatient stay. In addition, the commenter noted 
    that matching principal diagnosis codes would be consistent with 
    current policy for the 3-day window for preadmission services.
        Response: We disagree that the determination of whether home health 
    care is related to the acute hospitalization should be based on the 
    presence of identical diagnosis codes on the inpatient and home health 
    bills. This approach would rely on the coding practices of the 
    providers involved. Providers, especially postacute care providers, 
    frequently have the discretion to select from several possible 
    diagnosis codes. A common practice of postacute care providers is to 
    use the V57 diagnosis code category (care involving use of 
    rehabilitation procedures) as principal because those codes best 
    describe the reason for the postacute care. However, this code is 
    seldom used by hospitals for acute care discharges because they are 
    instructed by coding rules to code as principal the condition that 
    required the hospital admission as determined at the time of discharge. 
    In fact, if the hospitals coded discharges with the rehabilitation 
    codes as principal, the discharges would never be included in the 
    postacute care policy because those discharges would never be 
    classified to one of the 10 selected DRGs.
        We believe our proposed policy on this issue is preferable. We note 
    that hospitals that code a discharge to home health will be permitted 
    to indicate through a condition code on the inpatient bill that the 
    hospital's discharge plan does not call for home care related to the 
    hospitalization, but that other nonrelated home care is appropriate. 
    This way, the hospital will make a conscious selection that the home 
    care the patient is to receive is not related to the hospitalization, 
    and would be expected to have documentation in the patient's records to 
    that effect.
        Comment: In the context of discussing the home health window, 
    MedPAC questioned whether the same day requirement for admission to an 
    excluded hospital or unit or a skilled nursing facility was too 
    limited. The Commission suggested expanding the definition to account 
    for a 24-hour period following discharge.
        Response: In describing which discharges to excluded hospitals and 
    units or skilled nursing facilities should be treated as a transfer, 
    the statute states that the patient is admitted to the facility upon 
    discharge from the hospital. We believe that Congress intended that the 
    policy apply to situations when the patient moves from the hospital 
    directly to the excluded facility or the skilled nursing facility. 
    Therefore, unless a patient is being transported from the hospital to 
    the other facility in the middle of the night, the discharge and 
    admission should occur on the same calendar day. We note that a direct 
    transfer that spans midnight and results in a one-day difference in the 
    discharge and admission dates will be considered a transfer for 
    purposes of this policy.
        Comment: Many commenters indicated the discharge to postacute care 
    provision will be an administrative burden for hospitals. Because 
    Medicare beneficiaries are free to obtain services without a hospital 
    referral, hospitals are concerned that they will be subject to 
    allegations of fraud and abuse if they discharge a beneficiary to home 
    with no plan of care for home health services and the beneficiary 
    subsequently receives postacute care without the hospital's knowledge. 
    These hospitals believe that they may be forced to hold bills for the 
    10 DRGS when they discharge a patient to self-care at home so they can 
    follow-up and ensure that the patient did not receive postacute care.
        Another commenter is disturbed by our discussion in the proposed 
    rule concerning future actions we may take if we find continued 
    patterns of a hospital billing postacute transfer cases as discharges, 
    including the possibility that hospitals may be investigated for 
    fraudulent or abusive billing practices. The commenter believes that 
    our language was too strong and that we are not allowing a period of 
    transition in which hospitals may make honest billing errors as they 
    adjust to this new policy.
        Finally, commenters suggested that we clarify when hospitals are 
    responsible for knowing that a case is transferred for postacute care.
    
    [[Page 40980]]
    
        Response: We recognize there may occasionally be cases where a 
    hospital believes it is discharging a patient to home or another 
    setting not included in the postacute transfer definition, and a 
    physician orders postacute care for the patient without notifying the 
    hospital. Although these cases would be considered transfers under this 
    provision, we do not believe that such instances, where they occur 
    truly without knowledge of the hospital, constitute fraudulent actions. 
    As we indicated in the proposed rule, we intend to monitor postacute 
    care cases to evaluate whether such situations occur with unlikely 
    frequency at specific hospitals and we will investigate the 
    circumstances in those instances.
        Although we recognize honest mistakes will occur, we do not believe 
    it is inappropriate to put hospitals on notice that we reserve the 
    right to investigate those with aberrant patterns of inaccurate billing 
    on these cases. While it is reasonable to assume there will be a 
    learning curve in terms of hospitals' billing practices as these 
    changes are implemented, we also take seriously our responsibility to 
    protect the Medicare trust fund. Our intention in including a 
    discussion of this issue in the proposed rule was an attempt to avoid 
    any misunderstanding in terms of our commitment to ensure the correct 
    implementation of this provision.
        In response to the request for clarification about the hospital's 
    responsibility for knowing when a transfer occurs, the hospital is 
    responsible for coding the bill based on its discharge plan for the 
    patient, or if it finds out subsequently that postacute care occurred, 
    it is responsible for either coding the original bill as a transfer or 
    submitting an adjustment bill. We have consulted with the National 
    Uniform Billing Committee (NUBC) to ensure that the appropriate changes 
    are made on the claims form to enable hospitals to accurately code 
    these cases and to submit corrections to them when additional 
    information affecting the patient's discharge status code becomes 
    available after the bill is submitted.
        Comment: One commenter recommended that we establish a hierarchical 
    decision process for determining whether a discharge to home health 
    services qualifies as a transfer. This commenter believed that the 
    overriding consideration should be whether the services are related to 
    the hospital stay. This commenter suggested that any home care ordered 
    in the discharge plan should constitute related home health care, 
    regardless of when it is provided.
        Response: Congress directed the Secretary to determine the 
    appropriate time period within which the provision of home health 
    services would trigger a transfer payment. Services provided outside 
    that window, even if related to the hospital stay, would not result in 
    the discharge being considered a transfer. In addition, we believe that 
    a time limit is consistent with the concern that these transfer cases 
    are predominantly situations where care is being shifted from the acute 
    setting to a postacute care setting. If a patient is discharged to home 
    and does not need home health care for several days, there may be 
    little, if any, shift of acute care services to the postacute care 
    setting.
        Comment: One commenter stated that we should specify that the 
    written plan of care for home health services should be defined clearly 
    as ``a specific order by the patient's physician in the hospital 
    medical record that directs the hospital to arrange for home health 
    services upon discharge.''
        Response: We do not believe that it is necessary to specify the 
    precise definition of what a written plan of care for home health 
    services must entail. We note that we would deem a case to be a 
    transfer if care related to the discharge was provided within 3 days 
    after the date of discharge even if the hospital had no written plan of 
    care.
        Comment: A representative of physical therapists expressed concern 
    that the 3-day window for home health services may influence hospitals 
    to wait until after the 3 days to initiate home health services. This 
    commenter is also concerned that our proposal to identify related home 
    health services based on the written plan of care by the hospital at 
    the time of discharge may discourage hospitals from planning for home 
    health, resulting in uncoordinated and delayed postacute care following 
    discharge.
        Response: We believe there are sufficient protections against 
    hospitals inappropriately delaying home health care. First, the 
    provision of home health care is ordered by the patient's physician 
    orders. We believe physicians will be reluctant to compromise their 
    patients' treatment by inappropriately delaying home health care. In 
    addition, we will monitor hospitals' discharge patterns to home health 
    for evidence that care is being routinely delayed until the fourth day 
    after discharge and intend to aggressively pursue situations where 
    abuse is evident. If evidence of a pattern of abuse is found, we will 
    address it through appropriate policy changes in the FY 2001 proposed 
    rule.
        With respect to the commenter's concern that identifying related 
    home health services based on the hospital's written plan of care may 
    create a disincentive to plan home care, we will also be able to 
    identify those cases where home health services were received within 3 
    days of discharge and the hospital indicated that the patient was 
    discharged home with no plan for home health services. As we noted 
    above, we recognize there will be a certain percentage of cases where 
    home care is arranged after release from the hospital; however, we 
    would expect such situations to be relatively rare.
        Comment: One commenter, representing medical rehabilitation 
    providers, expressed concern that this provision may change hospitals' 
    referral patterns, delaying the initiation of rehabilitation services. 
    The commenter suggested that we collect the following information from 
    prospective payment hospitals to monitor their referral patterns:
         Site of referral for cases in the 10 DRGs, including 
    discharge to home without postacute care.
         Date from onset and length of stay prior to referral, by 
    DRG.
         General medical condition and functional status of the 
    patient if the hospital normally collects functional information.
        In addition, HCFA should collect the following information from 
    postacute care providers:
         The DRG assigned to the acute care hospitalization.
         The date from onset and date of referral to the postacute 
    care provider.
         For patients referred for rehabilitation services to a 
    rehabilitation hospital or unit, the functional status of the patient 
    on admission to and at discharge from the rehabilitation provider.
        The commenter noted that over 90 percent of rehabilitation 
    providers already use functional assessment tools, therefore, this data 
    collection would not be excessively burdensome.
        Response: We appreciate this commenter's concerns regarding any 
    potentially adverse effects of this provision with respect to 
    beneficiaries' health. We already collect most of the hospital data 
    suggested by the commenter (with the exception of patients' functional 
    status and medical condition, though even this could be accessed on a 
    limited basis). Similarly, for postacute providers, the first two items 
    of data are already readily available in our system. As we have 
    described above, we intend to use these data to monitor providers' 
    behavior after implementation of this policy.
        Comment: Commenters requested that we require the fiscal 
    intermediaries to
    
    [[Page 40981]]
    
    automatically adjust the payments received by the hospital when the 
    hospital codes a case as a discharge and no bill is ever received for 
    postacute care services. In making this request, the commenters 
    referred to the process we described in the proposed rule in which we 
    would compare the discharge status coded on the hospital bills with 
    postacute care bills received to determine whether qualifying postacute 
    care was provided when the hospital billed the case as a discharge.
        Response: As noted above, hospitals will be able to submit 
    corrections to their discharge status codes when they determine that 
    previously submitted bills are incorrect. It would be impractical to 
    require the fiscal intermediaries to adjust payments for cases coded as 
    transfers when no matching postacute care bill is identified. Such a 
    requirement raises a potential scenario where a case may be 
    inappropriately adjusted upward because the matching postacute bill has 
    not entered the claims system at the time the bill comparison is made. 
    The prescribed period of time within which a provider may submit a bill 
    for Medicare payment is relatively long and we believe it would be 
    impractical for each intermediary to reprocess already paid bills based 
    solely on the absence of a matching postacute care bill. In addition, 
    we note that there may be occasions when no postacute care bill is 
    submitted even though the patient was discharged to that care. For 
    example, as we discussed above, if a patient is transferred to a 
    skilled nursing facility and receives noncovered care, there will be no 
    bill in the Medicare claims files. We believe it is preferable to 
    require hospitals to submit bill adjustments.
        Comment: One commenter was unclear about how postacute care 
    transfers will be identified in the billing process. Specifically, the 
    commenter questioned whether the hospital will indicate a transfer by 
    the discharge status code or whether the identification will occur by 
    matching the acute hospitalization bill against a postacute bill at the 
    fiscal intermediary.
        Response: Transfer cases will be identified based on the discharge 
    status code listed on the hospital claim form (the HCFA-1490, also 
    known as the UB-92). As noted above, we have consulted with the NUBC to 
    ensure that the appropriate changes are made on the claims form to 
    enable hospitals to accurately code these cases. The language in the 
    proposed rule concerning a process of matching the date of discharge 
    from the acute hospital stay with the date that postacute care services 
    begin was a description of the process that HCFA will use as a check to 
    verify the accuracy of the discharge codes.
        Comment: One commenter asked whether the discharge destination code 
    ``08,'' which is described as ``Discharged/transferred to home under 
    care of a Home IV (intravenous) provider,'' would be used to identify a 
    transfer. This commenter was also concerned about whether code ``05,'' 
    which is described as ``Discharged/transferred to another type of 
    institution for inpatient care or referred for outpatient services to 
    another institution'' would be sufficient to identify transfers to 
    excluded hospitals or units.
        Response: Discharge code ``08'' will not trigger a transfer payment 
    because it should not be used in situations where a patient is 
    receiving IV services under the Medicare home health benefit. Rather, 
    code ``06'' should be used to signify all care provided by a home 
    health agency under the Medicare home health benefit.
        With respect to discharge code ``05,'' the NUBC is discussing what 
    additional codes need to be added or what current codes may be revised 
    to allow for more specific coding to distinguish transfer situations 
    from nontransfers. Instructions on the discharge codes will be provided 
    to the fiscal intermediaries and, thereafter, to the hospitals before 
    the effective date of the postacute transfer provision (that is, 
    October 1, 1998).
        Comment: Several commenters suggested that DRG 483 should not be 
    included as one of the 10 DRGs under this provision. The commenters 
    believed that this DRG is not clinically homogeneous and includes many 
    different conditions with different expected lengths of stay. They also 
    stated that our analysis showed that transfers from this DRG would be 
    paid below costs for almost every day below the mean length of stay. 
    One commenter indicated it appeared this DRG was singled out for 
    specific treatment.
        MedPAC commented that the criteria we used to select the 10 DRGs 
    was reasonable, although it indicated that the list is fairly narrow in 
    the types of conditions or procedures represented. Therefore, when we 
    consider an expansion of this list, MedPAC recommended that we include 
    coronary surgery DRGs, such as the coronary bypass DRGs (106, 107, and 
    109), and the pneumonia DRGs (89, 90, or 91).
        Response: As described in the proposed rule and above in this 
    section of the preamble, the 10 DRGs were selected based on the 
    criteria specified in the statute, that is, the DRGs exhibit a high 
    volume and disproportionate percentage of postacute cases. None of the 
    10 DRGs were predetermined. With respect to DRG 483, a significant 
    percentage of discharges (over 45 percent are transferred to postacute 
    care. This places it in the top 25 DRGs in terms of postacute care 
    utilization. Of those 25 DRGs, it is ranked 9th in terms of the volume 
    of cases receiving postacute care. We believe these factors justify its 
    inclusion.
        In addition, contrary to the commenter's statement, our analysis of 
    payments and costs for transfers in this DRG shows that average 
    payments exceed average costs for all but those cases transferred very 
    early in the stay (before the 6th day in a DRG with an average length 
    of stay of 34 days). (See the table for DRG 483 in Appendix D of this 
    final rule.) The marginal costs per day for this DRG are consistent 
    with and are accommodated almost perfectly by the transfer per diem 
    payment methodology.
        We appreciate MedPAC's support regarding our selection criteria and 
    will take its recommendations regarding additional DRGs into 
    consideration in our future analysis.
        Comment: Some commenters believe that the process we used to select 
    the 10 DRGs did not reflect the intent of Congress. They suggested 
    that, in selecting the 10 DRGs, we should include an evaluation of 
    whether a DRG was prone to inappropriate use of postacute care.
        Response: Section 1886(d)(5)(J)(iii)(I) of the Act provides that 
    the affected DRGs are ``* * *10 diagnosis-related groups selected by 
    the Secretary based on a high-volume of discharges classified within 
    such groups and a disproportionate use of post discharge [sic] services 
    * * *.'' This language does not direct the Secretary to select the 10 
    DRGs based upon their vulnerability to inappropriate use of postacute 
    care. As stated earlier, the postacure care transfer provision adjusts 
    hospital payments to reflect the reduced lengths of stay arising from 
    the shift of care to the postacute care setting.
        Comment: One commenter was offended by the rationale stated in the 
    proposed rule for including DRG 264 (Skin Graft and/or Debridement for 
    Skin Ulcer or Cellulitis without complication or comorbidity (CC)) in 
    the list of 10 DRGs. The commenter argued that no medical record coder 
    would intentionally fail to list a CC in order to avoid the transfer 
    payment for a case that groups to DRG 263 (Skin Graft and/or 
    Debridement for Skin Ulcer or Cellulitis With CC). The commenter noted 
    that this would be an illegal,
    
    [[Page 40982]]
    
    fraudulent act on the part of the coder and should not be used as a 
    deciding factor in the methodology for selecting the 10 DRGs.
        Response: In making our selection of the 10 DRGs, we decided to 
    include paired DRGs if one of them met our criteria. While we do not 
    believe that medical record coders will exclude a CC code in their list 
    of diagnosis codes, the hospital claim is not generally submitted to 
    HCFA by the coder, but rather by a billing office where information 
    included on the claim is frequently subject to additional review. By 
    including DRG 264, we hope to avoid any questions or issues concerning 
    the accurate coding of a particular case involving skin graft and 
    debridement.
        Comment: Several commenters stated that the alternative payment 
    methodology for DRGs 209, 210, and 211 described in the proposed rule 
    would not pay the full DRG amount until one day after the geometric 
    mean length of stay for the DRG. This result is contrary to the usual 
    per diem payment methodology where the full DRG payment is received one 
    day before the geometric mean length of stay.
        Response: The alternative payment methodology in the proposed rule 
    was described as ``50 percent of the DRG payment for the first day of 
    the stay, and 50 percent of the per diem for the remaining days of the 
    stay.'' This wording imprecisely described our proposed policy. The 
    alternative payment methodology proposed for DRGs 209, 210, and 211 is 
    equal to 50 percent of the DRG payment plus 50 percent of the amount 
    which would be paid under our per diem methodology. Under this formula, 
    on day one of a postacute care transfer, hospitals would receive one-
    half the DRG payment amount plus the per diem payment for the DRG (one-
    half the usual transfer payment of double the per diem for day one). 
    For each subsequent day prior to transfer, hospitals receive one-half 
    the per diem up to the full DRG payment, which is reached one day prior 
    to the geometric mean length of stay for the DRG. We note that, 
    although we inaccurately described the methodology, we used the correct 
    formula in calculating the budget neutrality factors and outlier 
    thresholds in the proposed rule.
        Comment: One commenter believed that the alternative payment 
    methodology used for DRGs 209, 210, and 211 should be used for all 10 
    of the DRGs selected under the postacute care transfer provision. The 
    commenter argued that for postacute care transfers, unlike transfers 
    under our current transfer policy, the hospital provides all necessary 
    acute care services to the patient, regardless of length of stay, 
    before transferring the patient to postacute care.
        Response: As noted above, we believe care previously provided in 
    the acute care setting increasingly has been shifted to the postacute 
    setting. Therefore, we do not agree with the commenter's belief that 
    these cases are significantly different from those considered transfers 
    under our current definition of transfers; in both situations, the 
    length of stay is reduced and presumably a hospital furnished fewer 
    services and incurs lower costs relative to a typical discharge. 
    Furthermore, as demonstrated in the tables comparing average payments 
    and costs for these DRGs in Appendix D, the seven DRGs that will be 
    paid under the current per diem methodology have a gradual increase in 
    costs as length of stay rises, consistent with the gradual increase in 
    payments under our current per diem methodology. Therefore, we are not 
    expanding the application of the alternative payment methodology beyond 
    the three DRGs identified in the proposed rule.
        Comment: MedPAC suggested we may wish to evaluate whether the 
    alternative payment methodology for postacute transfers in DRGs 209, 
    210, and 211 should be expanded to our policy for transfers between two 
    acute care hospitals.
        Response: We have evaluated our transfer payment formula for our 
    current transfer policy in the past and revised it to pay double the 
    per diem amount for the first day of a transfer stay. Because the 
    majority of cases that are transferred from one acute care hospital to 
    another result in the case being assigned to a medical DRG, our 
    analysis indicated that the current per diem payment (with a double 
    payment on the first day) accurately reflects the costs of these cases, 
    as it does for the seven DRGs paid under the per diem methodology under 
    the postacute transfer provision. Although we do not plan further 
    changes in the payment methodology for transfers to another acute care 
    hospital, we will continue to evaluate the potential for further 
    refinements in this policy, particularly in light of the changes 
    introduced in this final rule.
        Comment: One commenter requested clarification of how the indirect 
    medical education (IME) and disproportionate share hospital (DSH) 
    adjustments are treated under the transfer payment methodology. This 
    commenter also requested clarification regarding the outlier payment 
    calculation for transfer cases and recommended that the transfer 
    payment rather than the DRG payment serve as the comparative basis for 
    determining whether a transfer case qualifies as an outlier.
        Commenters also indicated some confusion as to when full payment 
    would be made under the transfer methodology in situations where the 
    geometric mean length of stay for a DRG is not a whole number, for 
    example, 9.8 days.
        Response: The IME and DSH payments are determined in accordance 
    with Secs. 412.105(e) and 412.106(a)(2), respectively, by applying the 
    IME and DSH adjustment factors calculated under those sections to the 
    DRG revenue. In the case of a transfer occurring before the average 
    length of stay, the applicable IME or DSH factor would be applied to 
    the DRG revenue determined under the applicable transfer payment 
    methodology.
        With respect to outliers for transfer cases, the methodology 
    suggested by the commenter is actually the methodology we use to 
    determine outliers for these cases. In the September 1, 1995 Federal 
    Register, we described how the cost outlier threshold is calculated for 
    transfers (60 FR 45804). The outlier threshold for transfer cases 
    reflects the fact that transfer cases receive a reduced payment amount. 
    Specifically, the threshold for transfers paid under the current per 
    diem methodology is equal to the fixed loss outlier threshold for all 
    cases ($11,100 for FY 1999) divided by the geometric mean length of 
    stay for the DRG, multiplied by the length of stay prior to transfer, 
    plus one day. For postacute transfers in DRGs 209, 210, and 211, the 
    outlier threshold is determined by dividing the fixed loss outlier 
    threshold for all cases by the geometric mean length of stay for the 
    DRG, multiplied by the sum of half the geometric mean and half the 
    length of stay for the case, plus one. We note that we are making a 
    conforming change in Sec. 412.80(b), which describes outlier payments 
    for transfers, to incorporate the revisions we are making in the 
    transfer policy.
        Finally, in the case of a DRG with a geometric mean length of stay 
    of 9.8 days, full payment would be received on day 9. The following 
    table illustrates this point, using DRGs 209 and 236 with geometric 
    mean lengths of stay of 4.9 and 4.1 days, respectively.
    
    [[Page 40983]]
    
    
    
    ------------------------------------------------------------------------
                       DRG                          209             236     
    ------------------------------------------------------------------------
    Full DRG Payment Amount \1\.............       $8,400.32       $2,790.60
    Per Diem Amount.........................        2,048.86          680.63
    Payment for Transfer on Day 1 \2\.......        6,249.02        1,361.26
    Payment for Transfer on Day 2...........        7,273.45        2,041.89
    Payment for Transfer on Day 3...........        8,297.88        2,722.52
    Payment for Transfer on Day 4 \3\.......        8,400.32       2,790.60 
    ------------------------------------------------------------------------
    \1\ This amount is determined using the other areas national            
      standardized amount from Table 1A in Section VI of the addendum to    
      this final rule. The respective relative DRG weights are taken from   
      Table 5. For DRG 209, the relative weight is 2.1803, and for DRG 236  
      it is 0.7243. It assumes a wage index of 1.0, and no IME or DSH       
      payments. Any IME or DSH payments would be factored into the transfer 
      amount as described above.                                            
    \2\ For DRG 209, the payment amount is equal to one-half of the full DRG
      payment amount ($4,200.16) plus the per diem amount ($2,048.86). For  
      DRG 236, the payment amount is equal to double the per diem amount.   
    \3\ Total payment is limited to the full DRG amount (with the exception 
      of outlier cases), rather the result of an additional per diem amount 
      (or half the per diem).                                               
    
        Comment: A few commenters stated that because average lengths of 
    stay vary by geographic region, the transfer policy punishes those 
    regions with average lengths of stay less than the mean. They 
    recommended that an adjustment factor be developed to recognize this 
    disparity or that regional averages should be used to compute the per 
    diem amount.
        Response: We recognize that lengths of stay vary by region and are 
    generally lower in the west, particularly compared to the northeast. In 
    addition, regions with shorter lengths of stay tend to also have lower 
    average costs due to the fewer number of days that patients spend in 
    the hospital. One of the reasons for this variation is the greater 
    reliance on postacute care earlier in the stay in those areas with 
    lower average lengths of stay.
        We do not believe it would be appropriate to base the transfer 
    payment methodology on regional average lengths of stay. The national 
    standardized amounts, which apply across all regions, reflect costs and 
    lengths of stay across all regions. If a hospital in one region has a 
    case with certain patient characteristics and a hospital in another 
    region has a case with identical patient characteristics (including the 
    same length of stay), we see no reason to have a rule under which one 
    hospital would receive the full DRG payment but the other hospital 
    would receive a transfer payment.
        Comment: One commenter believed that, in lieu of expanding the 
    transfer definition, it would make more sense to recalibrate the 10 
    DRGs to better reflect the recent reductions in lengths of stay and 
    costs for these categories.
        Response: All of the DRGs are recalibrated annually, using the 
    latest available charge data for Medicare beneficiaries. Because of the 
    recalibration process, a reduction in the relative weights of certain 
    DRGs results in an increase in the weights of other DRGs. Therefore, 
    there are no overall reductions in Medicare payments to hospitals. That 
    is, although the hospital will receive a reduced payment through lower 
    weights for the DRGs affected by the shift toward greater utilization 
    of postacute care early in a stay, it will receive greater payment for 
    the DRGs in which the weight is increased because there is no reduction 
    in overall costs. In addition, any reduction in payment for the 
    selected DRGs is shared by all hospitals including those that have not 
    reduced their average length of stay and costs through the increased 
    use of postacute care. We believe that any change in Medicare payment 
    because of the early transfer of acute care patients to postacute care 
    should be targeted at those hospitals that have actually incorporated 
    this practice into their patient care.
        Comment: Another commenter noted that, if these cases are to be 
    treated as transfers for payment, they should be treated that way for 
    recalibration as well.
        Response: We agree. In the proposed rule, we did not revise the 
    discussion of the recalibration process to specifically mention the 
    postacute transfers, but we did treat these cases as transfers during 
    the recalibration process that resulted in the DRG weights set forth in 
    that rule. For purposes of the DRG recalibration, transfer cases, 
    including the postacute transfer cases, are counted as a fraction of a 
    discharge based on the length of stay, thereby reducing proportionately 
    the contribution of the charges for the case toward the average charges 
    for the DRG. This process effectively inflates the charges of a 
    transfer case to what they would have been had the patient's length of 
    stay been equal to the geometric mean length of stay. If we do not 
    perform this calculation, these cases would receive reduced payment 
    because they are transfers, but be treated as discharges in 
    recalibration, lowering the relative weights for affected DRGs.
        Comment: One commenter questioned whether the postacute care 
    transfer provision will have any effect on the payments made by 
    Medicare to the postacute providers.
        Response: The only payment implication of this provision is to 
    affect the prospective payment for the acute inpatient hospitalization. 
    Medicare payment to any postacute providers involved in the stay are 
    not affected by this policy.
    
    B. Rural Referral Centers (Sec. 412.96)
    
        Under the authority of section 1886(d)(5)(C)(I) of the Act, 
    Sec. 412.96 sets forth the criteria a hospital must meet in order to 
    receive special treatment under the prospective payment system as a 
    rural referral center. For discharges occurring before October 1, 1994, 
    rural referral centers received the benefit of payment based on the 
    other urban rather than the rural standardized amount. As of that date, 
    the other urban and rural standardized amounts were the same. However, 
    rural referral centers continue to receive special treatment under both 
    the disproportionate share hospital payment adjustment and the criteria 
    for geographic reclassification.
        One of the criteria under which a rural hospital may qualify as a 
    rural referral center is to have 275 or more beds available for use. A 
    rural hospital that does not meet the bed size criterion can qualify as 
    a rural referral center if the hospital meets two mandatory criteria 
    (specifying a minimum case-mix index and a minimum number of 
    discharges) and at least one of the three optional criteria (relating 
    to specialty composition of medical staff, source of inpatients, or 
    volume of referrals). With respect to the two mandatory criteria, a 
    hospital may be classified as a rural referral center if its--
         Case-mix index is at least equal to the lower of the 
    median case-mix index for urban hospitals in its census region, 
    excluding hospitals with approved teaching programs, or the median 
    case-mix index for all urban hospitals nationally; and
    
    [[Page 40984]]
    
         Number of discharges is at least 5,000 discharges per year 
    or, if fewer, the median number of discharges for urban hospitals in 
    the census region in which the hospital is located. (The number of 
    discharges criterion for an osteopathic hospital is at least 3,000 
    discharges per year.)
    1. Case-Mix Index
        Section 412.96(c)(1) provides that HCFA will establish updated 
    national and regional case-mix index values in each year's annual 
    notice of prospective payment rates for purposes of determining rural 
    referral center status. The methodology we use to determine the 
    proposed national and regional case-mix index values, is set forth in 
    regulations at Sec. 412.96(c)(1)(ii). The proposed national case-mix 
    index value included all urban hospitals nationwide, and the proposed 
    regional values were the median values of urban hospitals within each 
    census region, excluding those with approved teaching programs (that 
    is, those hospitals receiving indirect medical education payments as 
    provided in Sec. 412.105).
        These values were based on discharges occurring during FY 1997 
    (October 1, 1996 through September 30, 1997) and include bills posted 
    to HCFA's records through December 1997. Therefore, in addition to 
    meeting other criteria, for hospitals with fewer than 275 beds, we 
    proposed that to qualify for initial rural referral center status for 
    cost reporting periods beginning on or after October 1, 1998, a 
    hospital's case-mix index value for FY 1997 would have to be at least--
         1.3578; or
         Equal to the median case-mix index value for urban 
    hospitals (excluding hospitals with approved teaching programs as 
    identified in Sec. 412.105) calculated by HCFA for the census region in 
    which the hospital is located. (See the table set forth in the May 8, 
    1998 proposed rule at 63 FR 25593.)
        Based on the latest data available (FY 1997 bills received through 
    March 31, 1998), the final national case-mix value is 1.3590 and the 
    median case-mix values by region are set forth in the table below:
    
    ------------------------------------------------------------------------
                                                                    Case-mix
                                Region                               index  
                                                                     value  
    ------------------------------------------------------------------------
    1. New England (CT, ME, MA, NH, RI, VT)......................     1.2490
    2. Middle Atlantic (PA, NJ, NY)..............................     1.2519
    3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV).......     1.3474
    4. East North Central (IL, IN, MI, OH, WI)...................     1.2711
    5. East South Central (AL, KY, MS, TN).......................     1.3042
    6. West North Central (IA, KS, MN, MO, NE, ND, SD)...........     1.2325
    7. West South Central (AR, LA, OK, TX).......................     1.3326
    8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY).................     1.3726
    9. Pacific (AK, CA, HI, OR, WA)..............................     1.3427
    ------------------------------------------------------------------------
    
        For the benefit of hospitals seeking to qualify as referral centers 
    or those wishing to know how their case-mix index value compares to the 
    criteria, we are publishing each hospital's FY 1997 case-mix index 
    value in Table 3C in section VI. of the Addendum to this final rule. In 
    keeping with our policy on discharges, these case-mix index values are 
    computed based on all Medicare patient discharges subject to DRG-based 
    payment.
    2. Discharges
        Section 412.96(c)(2)(I) provides that HCFA will set forth the 
    national and regional numbers of discharges in each year's annual 
    notice of prospective payment rates for purposes of determining 
    referral center status. As specified in section 1886(d)(5)(C)(ii) of 
    the Act, the national standard is set at 5,000 discharges. However, we 
    proposed to update the regional standards. The proposed regional 
    standards were based on discharges for urban hospitals' cost reporting 
    periods that began during FY 1996 (that is, October 1, 1995 through 
    September 30, 1996). That is the latest year for which we have complete 
    discharge data available.
        Therefore, in addition to meeting other criteria, we proposed that 
    to qualify for initial rural referral center status for cost reporting 
    periods beginning on or after October 1, 1998, the number of discharges 
    a hospital must have for its cost reporting period that began during FY 
    1997 would have to be at least--
         5,000; or
         Equal to the median number of discharges for urban 
    hospitals in the census region in which the hospital is located. (See 
    the table set forth in the May 8, 1998 proposed rule at 63 FR 65594.)
        Based on the latest discharge data available for FY 1996, the final 
    median numbers of discharges for urban hospitals by census region areas 
    are as follows:
    
    ------------------------------------------------------------------------
                                                                   Number of
                               Region                             discharges
    ------------------------------------------------------------------------
    1. New England (CT, ME, MA, NH, RI, VT).....................       6,672
    2. Middle Atlantic (PA, NJ, NY).............................       8,676
    3. South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV)......       7,753
    4. East North Central (IL, IN, MI, OH, WI)..................       7,346
    5. East South Central (AL, KY, MS, TN)......................       6,741
    6. West North Central (IA, KS, MN, MO, NE, ND, SD)..........       5,346
    7. West South Central (AR, LA, OK, TX)......................       5,251
    8. Mountain (AZ, CO, ID, MT, NV, NM, UT, WY)................       7,992
    9. Pacific (AK, CA, HI, OR, WA).............................       5,993
    ------------------------------------------------------------------------
    
        We note that the number of discharges for hospitals in each census 
    region is greater than the national standard of 5,000 discharges. 
    Therefore, 5,000 discharges is the minimum criterion for all hospitals.
        We reiterate that, to qualify for rural referral center status for 
    cost reporting periods beginning on or after October 1, 1998, an 
    osteopathic hospital's number of discharges for its cost reporting 
    period that began during FY 1996 would have to be at least 3,000.
        We received no comments on the rural referral center criteria.
    
    C. Payments to Disproportionate Share Hospitals: Conforming Change 
    Regarding Interpretation of Medicaid Patient Days Included in 
    Disproportionate Patient Percentage (Sec. 412.106)
    
        Effective for discharges beginning on or after May 1, 1986, 
    hospitals that treat a disproportionately large number of low-income 
    patients receive additional payments through the disproportionate share 
    (DSH) adjustment. One means of determining a hospital's DSH payment 
    adjustment for a cost reporting period requires calculation of its 
    disproportionate patient percentage for the period. The 
    disproportionate patient percentage is the sum of a prescribed Medicare 
    fraction and a Medicaid fraction for the hospital's fiscal period. 
    Under clause (I) of section 1886(d)(5)(F)(vi) of the Act and 
    Sec. 412.106(b)(2), the Medicare fraction is determined by dividing the 
    number of the hospital's patient days for patients who were entitled 
    (for such days) to benefits under both Medicare Part A and Supplemental 
    Security Income (SSI) under Title XVI of the Act, by the total number 
    of the hospital's patient days for the patients who were entitled to 
    Medicare Part A. The Medicaid fraction is determined, in accordance 
    with clause (II) of section 1886(d)(5)(F)(vi) of
    
    [[Page 40985]]
    
    the Act and Sec. 412.106(b)(4), by dividing the number of the 
    hospital's patient days for patients who (for such days) were eligible 
    for medical assistance under a State Medicaid plan approved under Title 
    XIX of the Act but who were not entitled to Medicare Part A, by the 
    total number of the hospital's patient days for that period.
        Initially, HCFA calculated the Medicaid fraction by interpreting 
    section 1886(d)(5)(F)(vi)(II) of the Act to recognize as Medicaid 
    patient days only those days for which the hospital received Medicaid 
    payment for inpatient hospital services. See 51 Fed. Reg. 31454, 31460 
    (1986). The agency's interpretation was declared invalid by four 
    Federal circuit courts of appeals. See Cabell Huntington Hosp., Inc. v. 
    Shalala, 101 F.3d 984, 990-91 (4th Cir. 1996) (following three other 
    circuits). These courts held that the statute requires, for purposes of 
    calculating the Medicaid fraction, inclusion of each patient day of 
    service for which a patient was eligible on that day for medical 
    assistance under an approved State Medicaid plan. Specifically, the 
    statute requires inclusion of each hospital patient day for a patient 
    eligible for Medicaid on such day, regardless of whether particular 
    items or services were covered or paid under the State Medicaid plan.
        On February 27, 1997, the HCFA Administrator issued HCFA Ruling 97-
    2, which acquiesced in the four adverse appellate court decisions. The 
    Ruling changed the agency's statutory construction to comport with 
    those decisions, in order to facilitate nationwide uniformity in the 
    calculation of the Medicaid fraction. Like the court decisions, the 
    Ruling provides that a hospital's Medicaid patient days include each 
    patient day of service for which a patient was eligible on such day for 
    medical assistance under an approved State Medicaid plan, regardless of 
    whether particular items or services were covered or paid under the 
    State plan. The Ruling also reflects the hospital's burden of 
    furnishing data adequate to prove each claimed Medicaid patient day, 
    and of verifying with the State that a patient was eligible for 
    Medicaid during each day of the inpatient hospital stay.
        The Ruling further provides that the agency's new interpretation is 
    effective February 27, 1997 for each cost reporting period that: (1) 
    Begins on or after that effective date; (2) was not settled, as of that 
    date, on the Medicaid patient days issue, by means of an applicable 
    notice of program reimbursement (NPR) (see Sec. 405.1803); or (3) was 
    settled through such an NPR as of the Ruling's effective date and is 
    the subject of a pending administrative appeal or civil action that 
    satisfies all applicable jurisdictional requirements of the Medicare 
    statute and regulations. The Ruling also provides, however, that the 
    change in statutory interpretation effected by the Ruling is not a 
    basis for reopening a hospital cost reporting period (see 
    Secs. 405.1885-405.1889) that was finalized previously on the same 
    matter at issue.
        We proposed to revise Sec. 412.106(b)(4) in order to conform the 
    Medicare regulations to the new statutory construction issued in HCFA 
    Ruling 97-2. These revisions are necessary to ensure that the 
    regulations comport with the four appellate court decisions that 
    declared invalid the agency's prior interpretation and led to the 
    issuance of the HCFA Ruling. The proposed revisions would further 
    facilitate nationwide uniformity in the calculation of the Medicaid 
    fraction.
        Since the proposed revisions were intended simply to conform the 
    regulations to HCFA Ruling 97-2 (and hence to the four adverse court 
    decisions), revised Sec. 412.106(b)(4) would reiterate the Ruling's 
    change of interpretation that the Medicaid fraction under section 
    1886(d)(5)(F)(vi)(II) of the Act includes each hospital patient day for 
    a patient eligible for Medicaid on such day, regardless of whether 
    particular items or services were covered or paid under the State 
    Medicaid Plan. Our proposed revisions to Sec. 412.106(b)(4), like the 
    Ruling, would continue to place on the hospital the burdens of 
    production, proof, and verification as to each claimed Medicaid patient 
    day.
        Under our proposal, revised Sec. 412.106(b)(4) would apply to cost 
    reporting periods beginning on or after October 1, 1998. HCFA Ruling 
    97-2, which includes the same provisions as proposed 
    Sec. 412.106(b)(4), would continue to apply to any cost reporting 
    period beginning before October 1, 1998 provided that, as of February 
    27, 1997, there is for such period: no submitted cost report; no cost 
    report settled on the Medicaid patient days issue through an applicable 
    NPR; or a cost report settled on that issue, which is also the subject 
    of a jurisdictionally proper administrative appeal or civil action on 
    the issue.
        We received no comments in response to this proposal. Therefore, we 
    are incorporating the proposed conforming change in this final rule.
    
    D. Payment for Bad Debts (Sec. 413.80)
    
        Section 4451 of the Balanced Budget Act of 1997 reduces the payment 
    for enrollee bad debt for hospitals. Specifically, this provision 
    reduces the amount of bad debts otherwise treated as allowable costs, 
    attributable to the deductibles and coinsurance amounts under this 
    title, by 25 percent for cost reporting periods beginning during fiscal 
    year 1998, by 40 percent for cost reporting periods beginning during 
    fiscal year 1999, and by 45 percent for cost reporting periods 
    beginning during a subsequent fiscal year. We proposed to conform the 
    regulations to the statute.
        Section 4451 of the Balanced Budget Act of 1997 also provides that 
    in determining such reasonable costs for hospitals, any copayments 
    reduced under the election available for hospital outpatient services 
    under section 1833(t)(5)(B) of the Act will not be treated as a bad 
    debt. This provision will be implemented in the outpatient prospective 
    payment system regulation that implements sections 4521, 4522, and 4523 
    of the Balanced Budget Act of 1997, to be published later this year.
        We received one comment regarding the reduction in Medicare bad 
    debt reimbursement which is discussed below.
        Comment: One commenter requested that the regulations and/or cost 
    report forms (HCFA 2552-96) be modified to clarify that hospital-based 
    skilled nursing facility bad debts will continue to be 100 percent 
    reimbursable since freestanding skilled nursing facilities are not 
    subject to the reduction in reimbursement and skilled nursing 
    facilities are not mentioned in the law at section 1861(v)(1)(T). The 
    commenter believed that in the BBA committee reports describing changes 
    in reimbursement for Medicare bad debts, it seemed clear the changes 
    were to apply to all providers, yet the law clearly stated that 
    hospitals are the sole provider type subject to reductions in 
    reimbursement. The commenter also noted that in reviewing the new 
    hospital cost report forms, HCFA 2552-96, the commenter believed that 
    the forms would apply the reduction in reimbursement to hospital-based 
    skilled nursing facilities.
        Response: The HCFA 2552-96 hospital cost report forms do not apply 
    the reduction in bad debt reimbursement to hospital-based skilled 
    nursing facilities. Page 36-159, Line 26 and Page 36-164, Line 40 
    require entering the reduction for ``hospitals only''. Section 4451 of 
    the BBA, and these implementing regulations, apply only to hospitals 
    and any subprovider units settled through the hospital cost report, 
    whether or not they have a separate provider number. Included in this 
    are rehabilitation units, psychiatric
    
    [[Page 40986]]
    
    units, and childrens' hospitals, which are considered hospital 
    providers. Cost reports for skilled nursing facilities, home health 
    agencies, outpatient therapy, comprehensive outpatient rehabilitation 
    facilities, community mental health centers, federally qualified health 
    centers, and rural health clinics (after January 1, 1998) are 
    separately settled and bad debts for these providers are not reduced. 
    The bad debt reduction does not apply to ambulatory surgical centers 
    because they are paid on another basis (fee schedule). End stage renal 
    disease bad debts are computed separately and are not reduced.
    
    E. Payment for Direct Costs of Graduate Medical Education to Hospitals 
    and Qualified Nonhospital Providers (Secs. 405.2468, 413.85, and 
    413.86)
    
    1. Statutory Background
        Since its inception in 1965, Medicare has provided payment only to 
    hospitals for the costs of graduate medical education (GME) training. 
    The BBA allows for direct GME payment to qualified nonhospital 
    providers to encourage training of future physicians in nonhospital 
    settings.
        Under section 1886(k) of the Act, as added by section 4625 of the 
    BBA, the Secretary is now authorized, but not required, to pay 
    qualified nonhospital providers for the direct costs of GME training. 
    The Conference Report also notes that the Conferees believe this 
    authority may help alleviate physician shortages in underserved rural 
    areas. We believe that providing Medicare payment directly to qualified 
    nonhospital providers may facilitate more training and better quality 
    training in nonhospital sites.
        Section 1886(k) of the Act states: ``For cost reporting periods 
    beginning on or after October 1, 1997, the Secretary may establish 
    rules for payment to qualified nonhospital providers for their direct 
    costs of medical education, if those costs are incurred in the 
    operation of an approved medical residency training programs described 
    in subsection (h).'' The statute further provides that, to the extent 
    the Secretary exercises this broad discretionary authority, the rules 
    ``shall specify the amounts, form, and manner in which such payments 
    will be made and the portion of such payments that will be made from 
    each of the trust funds under this title.''
        a. Payments only to ``qualified nonhospital providers''. The 
    statute confers broad discretion on the Secretary regarding whether and 
    how to pay qualified nonhospital providers for direct GME costs. 
    However, the statute does specify the entities whom the Secretary can 
    pay--``qualified nonhospital providers.'' Section 1886(k)(2) of the Act 
    defines ``qualified nonhospital providers'' to include: Federally 
    Qualified Health Centers (FQHCs), as defined in section 1861(aa)(4); 
    Rural Health Centers (RHCs), as defined in section 1861(aa)(2); 
    Medicare+Choice organizations; and such other providers (other than 
    hospitals) as the Secretary determines to be appropriate.
        b. Payments only for the ``direct costs'' of training. The statute 
    also specifies the costs the Secretary can pay for under section 
    1886(k) of the Act. Medicare pays hospitals for both the direct and 
    indirect costs of medical education under sections 1886(h) and 
    1886(d)(5)(B) of the Act respectively, but section 1886(k) of the Act 
    provides for payment to qualified nonhospital providers only for the 
    direct costs of medical education. In addition, section 1886(k) of the 
    Act provides for payment for the direct costs of training medical 
    residents only if those costs are incurred in the operation of an 
    ``approved medical residency training program.'' Accordingly, the 
    statute authorizes Medicare payments to qualified nonhospital providers 
    only for the costs of training medical residents, not for the costs of 
    training other health professionals.
        In addition to adding section 1886(k) of the Act, section 4625 of 
    the BBA amends section 1886(h)(3)(B) of the Act to prohibit double 
    payments for direct GME to a hospital and a qualified nonhospital 
    provider. This prohibition on double payments requires that the 
    Secretary reduce a hospital's GME payments (the ``aggregate approved 
    amount'' as defined in section 1886(h)(3)(b) of the Act) to the extent 
    we pay a qualified nonhospital provider for GME under section 1886(k) 
    of the Act.
    2. Payment to Hospitals for GME
        Under sections 1886(d)(5)(B)(iv) and 1886(h)(4)(E) of the Act, a 
    hospital may include the time a resident spends in nonprovider settings 
    in its indirect medical education (IME) and direct GME full-time 
    equivalent count if it incurs ``all or substantially all'' of the costs 
    of training residents in the nonhospital site. Under Secs. 412.105(f) 
    and 413.86(f)(1)(iii), a hospital may count resident training time in 
    nonhospital sites for indirect and direct GME respectively if the 
    resident is involved in patient care and there is a written agreement 
    between the hospital and the nonhospital site that states that the 
    resident's compensation for training time spent outside the hospital 
    setting is to be paid by the hospital.
    3. Proposed Policies
        Pursuant to section 4625 of the BBA, we proposed to provide 
    Medicare payment to qualified nonhospital providers for the direct 
    costs of GME training, effective for portions of cost reporting periods 
    occurring on or after January 1, 1999. We proposed Medicare would make 
    GME payments to the following ``qualified nonhospital providers''--
    FQHCs, RHCs, and Medicare+Choice organizations. Under the authority of 
    section 1886(k)(2)(D) of the Act, the Secretary may expand the 
    definition of a ``qualified nonhospital provider'' to include such 
    other providers (other than hospitals) as the Secretary determines to 
    be appropriate. Once we have gained experience providing direct GME 
    payments to FQHCs, RHCs, and Medicare+Choice organizations, we may 
    consider including other types of nonhospital providers in the 
    definition of a ``qualified nonhospital provider.''
        Additionally, we proposed that, under certain circumstances, a 
    hospital may continue to receive GME payments for residents who train 
    in the nonhospital setting. In those instances where a hospital is 
    eligible to continue receiving GME payments for residents who train in 
    the nonhospital setting, the nonhospital site could receive payment 
    from the hospital for costs they incur in training medical residents. 
    Thus, our proposed policy would promote the intent of section 4625 of 
    the BBA to provide financial support, either directly from Medicare or 
    through the hospital, to qualified nonhospital providers for the direct 
    costs of training residents in the nonhospital site.
        a. ``All or substantially all'' of the costs of training. Similar 
    to our current policy of paying hospitals for training in nonhospital 
    sites, we proposed that a qualified nonhospital provider may receive 
    payment for the direct costs of GME if it incurs ``all or substantially 
    all'' of the training costs. Although we proposed to pay the qualified 
    nonhospital provider only when it incurred ``all or substantially all'' 
    of the costs of training, we solicited comment on possible methods for 
    allocating the GME payments for training in the nonhospital site where 
    neither the hospital nor the qualified nonhospital provider is 
    incurring ``all or substantially all'' of the costs of the training 
    program. Under the proposed system, we would pay either the hospital or 
    the qualified nonhospital provider for the cost of training in the 
    nonhospital site, depending on which
    
    [[Page 40987]]
    
    entity incurs ``all or substantially all'' of the costs of training in 
    the nonhospital site. We proposed to revise the definition of ``all or 
    substantially all'' of the costs, which currently applies only to 
    hospitals. Under the proposed redefinition, a hospital or qualified 
    nonhospital provider would incur ``all or substantially all'' of the 
    costs for the training program in the nonhospital setting if it pays 
    for, at a minimum: that portion of the costs of the teaching 
    physicians' salaries and fringe benefits that are related to the time 
    spent in teaching and supervision of residents; and residents' salaries 
    and fringe benefits (including travel and lodging expenses where 
    applicable).
        b. Definition of ``direct costs'' of medical education for 
    qualified nonhospital providers. Section 4625 of the BBA provides for 
    payment to qualified nonhospital providers only for the direct costs of 
    training residents. Our proposed definition of ``direct costs'' for 
    qualified nonhospital providers is comparable to the direct costs for 
    hospitals under section 1886(h) of the Act. Under our proposed policy, 
    direct GME costs include costs incurred by the nonhospital site for the 
    education and training of medical residents in approved programs. We 
    proposed to include the following costs in the definition of direct 
    costs:
         residents' salaries and fringe benefits (including related 
    travel and lodging expenses where applicable);
         that portion of costs of the teaching physicians' salaries 
    and fringe benefits that are related to the time spent in teaching and 
    supervision of residents; and
         other related GME overhead costs.
    
    Consistent with our policies on direct GME costs for hospitals, we 
    proposed direct GME costs for qualified nonhospital providers will not 
    include normal operating costs or the marginal increase in costs that 
    the nonhospital site experiences as a result of having an approved 
    medical residency training program. For example, a decrease in 
    productivity and increased intensity in treatment patterns as the 
    result of a training program do not constitute ``direct costs'' of 
    training residents in the nonhospital setting; rather, these are the 
    ``indirect costs'' of such training.
        Also consistent with our policies for direct GME payments to 
    hospitals, we proposed to pay qualified nonhospital providers only for 
    training that is related to the delivery of patient care services.
        We also proposed that direct GME costs for qualified nonhospital 
    providers, like direct GME costs for hospitals, would include only that 
    portion of costs of the teaching physicians' salaries and fringe 
    benefits associated with time spent in teaching and supervising 
    residents. Specifically, a physician's time spent on teaching of a 
    general nature would constitute a direct GME cost while activities 
    spent in direct patient care which involve residents do not constitute 
    direct costs. In addition, we proposed that direct costs in the 
    qualified nonhospital provider would include that portion of teaching 
    physicians' salaries and fringe benefits associated with time spent 
    developing resident schedules and evaluating or rating the residents. 
    Direct costs may also include the portion of a teaching physician's 
    office costs allocated to GME.
        We stated that direct GME costs for qualified nonhospital providers 
    would not include the following: a teaching physician's time spent in 
    the care of individual patients which results in billable services; 
    teaching physicians' activities that are related to the education of 
    other health professionals (i.e., classroom instruction in connection 
    with approved activities other than GME such as provider-operated 
    nursing programs); teaching physicians' time spent on administrative 
    and supervisory services to the qualified nonhospital provider that are 
    unrelated to approved educational activities (i.e. operating costs); 
    and teaching physician activities that involve nonallowable costs such 
    as research and medical school activities that are not related to 
    patient care in the nonhospital setting. Costs associated with the 
    providing teaching services to undergraduate medical students are also 
    not include in direct graduate medical education costs.
        GME overhead costs include only those costs that are allocable to 
    direct GME and that are not used in patient care. For example, a 
    portion of administrative and general costs could be appropriately 
    allocated to an RHC's or FQHC's GME cost center. Similarly, a 
    conference room that is dedicated specifically for the training of 
    residents could be appropriately allocated to an RHC or FQHC's GME cost 
    center. By contrast, patient care rooms added to an RHC or an FQHC 
    cannot be appropriately allocated to an RHC's or FQHC's GME cost 
    center.
        One of the advantages of the proposed definition of ``direct 
    costs'' is that it is administratively feasible. Our definition of 
    ``direct costs'' for qualified nonhospital providers is comparable to 
    the direct costs that are included in the per resident amount paid to 
    hospitals under section 1886(h) of the Act. At present, there is 
    limited information regarding the actual costs of training residents in 
    nonhospital sites. After we gain experience providing direct GME 
    payments to qualified nonhospital providers and have reviewed the GME 
    costs separately reported by these qualified nonhospital providers, we 
    may revise the definition of ``direct costs.'' We solicited comments on 
    other elements that may constitute direct costs of GME in the qualified 
    nonhospital provider that can be identified, reported, and verified as 
    directly attributable to GME activities through the cost reporting 
    process. We were interested in comments on whether we should include 
    other costs in the definition of ``direct costs'' for qualified 
    nonhospital providers and on the administrative feasibility of 
    identifying the GME portion of those costs.
        c. Determining direct costs. One of our major concerns in 
    developing policies for paying qualified nonhospital providers for the 
    direct costs of GME is the administrative feasibility of determining 
    the amount of direct costs incurred by the qualified nonhospital 
    provider. It is our understanding that, currently, hospitals and 
    nonhospital sites often share, to varying degrees, the costs of 
    training residents in the nonhospital site. Because of the difficulty 
    in apportioning costs between the hospital and the nonhospital for the 
    training in the nonhospital site, we believe that it is not 
    administratively feasible to pay both the hospital and the nonhospital 
    site for the cost of training in the nonhospital site. We have been 
    unable to devise a method for accurately apportioning costs between the 
    two entities.
        Furthermore, the potential for both the hospital and the qualified 
    nonhospital provider to be paid for the same direct GME expenses poses 
    a significant problem for complying with section 1886(h)(3)(B) of the 
    Act, as amended by the BBA, which specifically prohibits double 
    payments. Under this provision, the Secretary shall reduce the 
    hospital's GME payment (the ``aggregate approved amount'') to the 
    extent we pay the qualified nonhospital provider for GME costs under 
    section 1886(k) of the Act. Consequently, our policy must ensure that 
    Medicare does not pay two entities for the same training time in the 
    nonhospital site.
        Given that the hospital's per resident amount can include, but is 
    not necessarily based on the costs of training in the nonhospital site, 
    we were not able to devise an equitable way of reducing the hospital's 
    per resident payment to reflect payments made
    
    [[Page 40988]]
    
    under section 1886(k) of the Act. It may not be equitable to subtract 
    the exact amount of payment made to the qualified nonhospital provider 
    from the hospital's per resident payment because the payment made to 
    the nonhospital site may be unrelated to the hospital's per resident 
    amount. We believe that the residents' salaries, teaching physicians' 
    salaries, and overhead costs for the nonhospital setting will 
    constitute a different proportion of the total GME costs in the 
    nonhospital setting as compared with the hospital setting. Rather, it 
    may be more equitable to determine the proportion of costs incurred by 
    each entity and reduce the hospital's per resident payment by the 
    proportion of GME costs incurred by the nonhospital site; however, 
    since specific components of the per resident amount were not 
    identified in the hospital's GME base year (1984), we cannot accurately 
    determine the appropriate amount to reduce the current year hospital 
    per resident payment amount. Moreover, to reduce the hospital's GME 
    payments based solely on the amount paid to the qualified nonhospital 
    provider could result in inequitable payments to the hospital, which 
    has ongoing costs even when the resident is training in the nonhospital 
    site. In fact, it could leave the hospital at risk of receiving no 
    payment for the GME costs it has incurred.
        In order to encourage training in nonhospital sites, it is 
    important to develop a policy that, while providing payment to 
    qualified nonhospital providers, would also be equitable to hospitals. 
    We believe that paying only the qualified nonhospital provider for the 
    training costs could result in hospitals choosing not to rotate their 
    residents to the nonhospital site. We have been unable to devise an 
    equitable and accurate method for dividing the GME payment for training 
    in the nonhospital site if neither the hospital, nor the nonhospital 
    site incurs ``all or substantially all'' of the costs. As such, we 
    solicited comment on possible methods for allocating the GME payments 
    for training in the nonhospital site where neither the hospital nor the 
    qualified nonhospital provider agrees who is incurring ``all or 
    substantially all'' of the costs for the training program. We believe 
    that the policies discussed below are equitable to both hospital and 
    qualified nonhospital providers and will achieve Congress' objective of 
    encouraging and supporting training in the nonhospital setting.
        Given our concerns about administrative feasibility, the statutory 
    prohibition on double payments, and developing policies that are 
    equitable to hospitals as well as qualified nonhospital providers, we 
    believe the only feasible way to pay for training in nonhospital 
    settings is to pay either the hospital or the nonhospital provider. 
    Currently, hospitals may receive payment for the time residents spend 
    in the nonhospital setting if the hospital incurs ``all or 
    substantially all'' of the training costs. We proposed to adopt a 
    similar policy for qualified nonhospital providers; that is, a 
    qualified nonhospital provider may receive payment for the direct costs 
    of GME if it incurs ``all or substantially all'' of the training costs.
        d. Payment to FQHC's and RHC's. We proposed to pay FQHC's or RHC's 
    for direct GME costs based on reasonable costs if the FQHC or RHC 
    incurs ``all or substantially all'' of the costs of training the 
    resident in the nonhospital setting. The FQHC or RHC would have to 
    report direct GME costs in a reimbursable cost center on its cost 
    report under the proposal. Conversely, where an FQHC or RHC did not 
    incur ``all or substantially all'' of the costs of training residents 
    in the nonhospital site, the FQHC or RHC would report direct GME costs 
    in a nonreimbursable cost center on the cost report.
        We proposed that the FQHC's and RHC's allowable direct GME costs be 
    subject to reasonable cost principles in 42 CFR part 413 and other 
    relevant provisions referenced in part 413. In addition, the FQHC's and 
    RHC's direct GME costs would be subject to the Reasonable Compensation 
    Equivalency limits under Secs. 415.60 and 415.70.
        Also, Medicare would pay only for its share of the direct costs of 
    training in the qualified nonhospital provider. We proposed that the 
    FQHC's and RHC's Medicare share equal the qualified nonhospital 
    provider's ratio of Medicare visits to total visits. Thus, the amount 
    of Medicare payment would equal the product of the clinic's Medicare 
    allowed reasonable direct GME costs and the clinic's ratio of Medicare 
    visits to total visits.
        For FQHC's and RHC's that incur ``all or substantially all'' of the 
    costs for the training program in the nonhospital setting, we proposed 
    that the direct GME costs would not be subject to the existing per 
    visit payment caps for reimbursement under sections 505.1 and 505.2 of 
    the Medicare Rural Health Clinic and Federally Qualified Health Centers 
    Manual. We also proposed that, where payment is available under section 
    1886(k) of the Act for residents working in either an FQHC or an RHC, 
    the FQHC's and RHC's do not need to include residents as health care 
    staff in the calculation of productivity standards under section 503 of 
    the Manual.
        e. Payment to Medicare+Choice organizations. We proposed making 
    direct GME payment to Medicare+Choice organizations which incur ``all 
    or substantially all'' of the costs of training in a nonhospital site. 
    The Medicare+Choice organization would be eligible to receive payment 
    on a reasonable costs basis for residents' salaries and fringe benefits 
    only for the time that the resident spends in the nonhospital setting. 
    In addition, we proposed that the Medicare+Choice organization's 
    allowed costs include only that portion of the teaching physician 
    salaries and fringe benefits that is related to training in the 
    nonhospital setting. We proposed limiting payment to Medicare+Choice 
    organizations to residents' salaries and fringe benefits and 
    supervisory teaching physician compensation which can be allocated to 
    direct GME. We did not propose to pay Medicare+Choice organizations for 
    the costs of overhead that may be associated with a GME program. We 
    solicited suggestions for creating a methodology for allocating and 
    reporting overhead costs for Medicare+Choice organizations and 
    suggestions for mechanisms for the audit and review of the costs for 
    Medicare+Choice organizations.
        Similar to our proposed policy for paying FQHCs and RHCs for direct 
    costs of GME, we proposed that the Medicare+Choice organization's 
    reimbursement for residents' salaries and fringe benefits (including 
    related travel and lodging expenses where applicable) would be subject 
    to the reasonable cost principles in 42 CFR part 413 and any other 
    relevant provisions referenced in part 413. In addition, we proposed 
    the Medicare+Choice organization's GME reimbursement would also be 
    subject to the Reasonable Compensation Equivalency limits under 
    Secs. 415.60 and 415.70.
        We proposed to allow the Medicare+Choice organization to receive 
    direct GME payment only for the direct costs of training in the 
    nonhospital site that are associated with the delivery of patient care 
    services. In determining the amount of direct GME payments to 
    Medicare+Choice organizations, we proposed adjusting for Medicare's 
    share of those education costs. Medicare's share would equal the ratio 
    of the total number of Medicare enrollees in the Medicare+Choice 
    organization to total enrollees in the Medicare+Choice organization.
        We proposed that, in order to receive the direct GME payment, the
    
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    Medicare+Choice organization must produce a contractual agreement 
    between itself and the nonhospital sites. Medicare+Choice organizations 
    may contract with any nonhospital patient care site, including 
    freestanding clinics, nursing homes, and physicians' offices in 
    connection with approved programs. The contract between the 
    Medicare+Choice organization and the nonhospital site must indicate 
    that, for the time that residents spend in the nonhospital site, the 
    Medicare+Choice organization agrees to pay for the cost of residents' 
    salaries and fringe benefits. In addition, the contract must indicate 
    that the Medicare+Choice organization agrees to pay the portion of the 
    costs of teaching physicians' salaries and fringe benefits that is 
    related to the time spent in teaching and supervision of residents and 
    is unrelated to the volume of services provided by the physician. The 
    contract must stipulate the portion of each teaching physician's time 
    that will be spent training residents in the nonhospital setting. 
    Moreover, the contract must indicate that the Medicare+Choice 
    organization agrees to identify an amount for the cost of the teaching 
    physician's salary based on the time that the resident spends in the 
    nonhospital setting, not based upon a capitated rate for the delivery 
    of physician services.
        f. Payment to hospitals. A hospital may include a resident's 
    training time in a nonhospital setting in its FTE counts for direct GME 
    and for IME if the hospital incurs ``all or substantially all'' of the 
    costs for training in the nonhospital setting. We proposed that, in 
    order for a hospital to include residents' training time in a 
    nonhospital setting, the hospital and the nonhospital site must have a 
    written contract which indicates the hospital is assuming financial 
    responsibility for, at a minimum, the cost of residents' salaries and 
    fringe benefits (including travel and lodging expenses where 
    applicable) and the costs for that portion of teaching physicians' 
    salaries and fringe benefits related to the time spent in teaching and 
    supervision of residents.
        The contract must indicate that the hospital is assuming financial 
    responsibility for these costs directly or that the hospital agrees to 
    reimburse the nonhospital site for such costs. The contract must also 
    contain an acknowledgment on the part of the qualified nonhospital 
    provider if the nonhospital site is an FQHC or RHC that, since the 
    residents' time is being counted by the hospital, the nonhospital site 
    must report GME costs on the Medicare cost report in a nonreimbursable 
    GME costs center. In addition, in order to determine teaching physician 
    compensation that may be allocated to direct GME, the FQHC and RHC will 
    have to specify the portion of the teaching physicians' time that will 
    be spent training residents in the nonhospital setting. Under 
    Sec. 413.86(f)(1)(iii), hospitals may contract with any nonhospital 
    patient care site such as freestanding clinics, nursing homes, and 
    physicians' offices in connection with approved programs. Payment to 
    the hospital for the direct costs of GME training in the nonhospital 
    setting will continue to reflect Medicare's share, which equals the 
    hospital's ratio of Medicare inpatient days to total inpatient days.
    5. Trust Funds
        Under section 1886(k)(1) of the Act, the rules established by the 
    Secretary for paying qualified nonhospital providers for GME must 
    specify the portion of Medicare payments that will be made from each of 
    the Medicare trust funds. We proposed that GME payments made directly 
    to an FQHC, RHC, or Medicare+Choice organization would be made from the 
    Federal Supplementary Medical Insurance Trust Fund.
    6. Proposed Effective Dates
        We proposed that the effective date of these provisions for FQHCs, 
    RHCs, Medicare+Choice organizations, and hospitals would be January 1, 
    1999. Of the provisions affecting hospitals, the policies for IME 
    payments would apply to discharges occurring on or after January 1, 
    1999. The policies concerning medical education payments to FQHCs, 
    RHCs, and hospitals would apply to portions of cost reporting periods 
    occurring on or after January 1, 1999. We proposed that Medicare+Choice 
    organizations could begin receiving payments for direct GME costs 
    incurred on or after January 1, 1999.
    7. Responses to Comments Received on Proposed Policies and Final Rule 
    Provisions
        Below we are summarize the comments we received on the proposed 
    policies and provide our responses to those comments.
        a. Definition of qualified nonhospital provider. Comment: One 
    commenter stated that HCFA should expand the definition of a qualified 
    nonhospital provider to include preventive medicine residencies. This 
    commenter quoted the Conference Report statement:
    
        The Conferees also note that preventive medicine residency 
    training occurs most often in nonhospital settings and the Conferees 
    encourage the Secretary to examine carefully the opportunities to 
    provide support to such training programs.
    
    The commenter further noted that a small number of residency programs 
    would benefit if we adopted the suggestion.
        Response: Consistent with the direction of the Conference Report, 
    we have examined how to encourage preventive medicine training through 
    the Medicare program. We understand that preventive medicine training 
    consists of one year of clinical training, one year of academic study, 
    and a practicum year. To the extent that the one year of clinical 
    training is provided in patient care sites that qualify to receive 
    medical education payments, Medicare provides payment for training much 
    in the same way we provide payment for all other specialty programs. A 
    hospital can count a preventive medicine resident who receives training 
    in all areas of the hospital complex. The hospital may also count a 
    preventive medicine resident who receives training in a nonhospital 
    site if the resident is involved in direct patient care and there is a 
    written agreement between the hospital and the nonhospital site that 
    the hospital is incurring ``all or substantially all'' of the costs of 
    training the resident in the nonhospital site. FQHCs, RHCs, and 
    Medicare+Choice organizations can receive payment on a reasonable cost 
    basis for costs associated with training preventive medicine residents 
    if the entity incurs ``all or substantially all'' of the costs.
        Since the year of academic study does not involve direct patient 
    care, a hospital or qualified nonhospital provider cannot receive 
    Medicare payment for that year of preventive medicine training. A 
    fundamental principle of Medicare payment for education is that the 
    residents must participate in patient care services to patients at the 
    health care site. Although we believe that preventive medicine 
    residents are engaging in activities that will benefit all patients, 
    not just Medicare patients in general, the year of academic study does 
    not constitute patient care services which would qualify for Medicare 
    payment for GME.
        We understand the clinical training that preventive medicine 
    residents receive may also occur in patient care sites that do not 
    receive payments from Medicare, such as public health clinics. Even if 
    the clinics were included under the definition of qualified nonhospital 
    provider, Medicare payment to clinics for GME would likely still be 
    very low because it would reflect the share of services provided by the 
    clinic to
    
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    Medicare beneficiaries as compared to all services it provides. We do 
    not believe that Medicare beneficiaries make significant use of public 
    health clinics for Medicare covered services since these services are 
    also available through their regular doctor. If we were to provide 
    payments to public health clinics associated with the training of 
    preventive medicine residents, we would also have to resolve technical 
    problems related to providing payments to entities that have never had 
    a relationship with Medicare. As we stated above, where a hospital or 
    qualified nonhospital provider incurs ``all or substantially all'' of 
    the costs of the clinical training in that nonhospital site, Medicare 
    will make payments for GME costs associated with training preventive 
    medicine residents.
        Comment: One commenter urged HCFA to consider including nonhospital 
    dental clinics in the definition of qualified nonhospital providers. 
    One commenter urged us to expand the definition of a qualified 
    nonhospital provider to make payment of both direct and indirect GME 
    directly to nursing homes and hospices. One commenter requested 
    clarification as to whether our definition of a qualified nonhospital 
    provider includes community mental health centers. If not, the 
    commenter requested that we consider including community mental health 
    centers in the definition of qualified nonhospital provider.
        Response: As we stated in the proposed rule, we believe that it is 
    appropriate to have more experience with providing payments to the 
    qualified nonhospital providers listed in the statute before we expand 
    the definition to include other sites such as those stated by these 
    commenters. We note that even if nonhospital dental clinics were 
    included in the definition of a qualified nonhospital provider, a 
    dental clinic's low Medicare share means the benefit of the provision 
    would be small. Dental clinics are likely to have a low Medicare share 
    because Medicare covers few dental services.
        Currently, our definition of qualified nonhospital provider does 
    not include community mental health centers per se, but it may be 
    possible for a community mental health center to meet the criteria for 
    being designated as a rural health clinic under section 1861(aa)(2) of 
    the Act and section 405.2402.
        We would note that a hospital or Medicare+Choice organization may 
    receive payment associated with resident rotations through the 
    nonhospital sites suggested by these commenters if the hospital or 
    Medicare+Choice organization incurs ``all or substantially all'' of the 
    costs at the clinic. In this way the clinic will be paid by the 
    hospital for GME costs.
        Comment: One commenter argued that Congress specified that a 
    qualified nonhospital provider includes FQHC's, RHC's, and managed care 
    plans to ensure that these organizations were included but that 
    Congress did not intend to limit qualified nonhospital providers to 
    these organizations. The commenter believed that excluding other 
    nonhospital sites from the definition of a qualified nonhospital 
    provider is contrary to Congress' intent.
        Response: As we have stated, we will consider other nonhospital 
    sites in the definition of qualified nonhospital providers once we have 
    experience with these policies. We disagree that the proposal to limit 
    the definition of a qualified nonhospital provider at this time to the 
    entities listed in the statute is inconsistent with Congressional 
    intent. The statute defines qualified nonhospital provider to include 
    ``such other providers (other than hospitals) as the Secretary 
    determines to be appropriate.'' Thus, the statute authorizes but does 
    not require the inclusion of other entities.
        Comment: One commenter stated that educational consortia are 
    becoming important models for community-based graduate medical and 
    nursing training and suggested that we expand the definition of 
    qualified nonhospital provider to include consortia.
        Response: We are interested in learning more about the development 
    of GME programs through educational consortia. Section 4628 of the BBA 
    requires the Secretary to establish a demonstration project under which 
    GME payments will be made to consortia. We will consider changes to our 
    GME payment policies based on our evaluation of any future 
    demonstration projects.
        Comment: One commenter urged us to expand the definition of a 
    qualified nonhospital provider to include Osteopathic Postdoctoral 
    Training Institutions (OPTIs), community based health care consortia 
    consisting of one or more colleges accredited by the American 
    Osteopathic Association (AOA), one or more AOA accredited hospitals, 
    and other health care facilities such as nursing homes, ambulatory 
    clinics, community health centers, and managed care organizations. The 
    commenter suggested that payments be made directly to the OPTI based on 
    the number of residents participating in OPTI hospitals or a national 
    average payment. The commenter stated that the OPTI would distribute 
    the payments among the consortia members.
        Response: An OPTI includes hospital and nonhospital sites as well 
    as educational institutions and we believe an OPTI is a consortium. As 
    we stated above, we will be studying GME payments to consortia in a 
    demonstration project required by section 4628 of BBA.
        b. Definition of direct costs.
        Comment: One commenter suggested that direct costs of training in 
    nonhospital sites should include mileage associated with travel between 
    multiple clinic sites. The commenter also stated that direct costs 
    should include the costs of telemedicine, including telephone, fax, 
    videoconference, and the internet because these electronic 
    communication mechanisms enable primary care residents in nonhospital 
    sites to be trained for practice outside of the resource-rich, 
    multispecialty hospital setting.
        Response: We agree that travel costs may be an element of direct 
    costs when residents work in multiple nonhospital sites or when 
    residents travel from a hospital training site to remote clinics. We 
    disagree that the cost associated with telecommunication services 
    should be allowable as training costs. Although telecommunication 
    services may be integral to providing services to patients while 
    residents are training in nonhospital sites, these services are not 
    principally designed to be used as GME training tools. Rather, the 
    telecommunication services to which the commenter is referring, like 
    the use of a stethoscope or an examining room, are compensated as 
    operating costs through Medicare's payments for patient care services.
        Comment: Several commenters stated that the effect of training on 
    indirect costs is similar in nonhospital clinics and hospitals. One 
    commenter suggested that indirect costs are easily identifiable and 
    should be separately reimbursable in nonhospital settings.
        Response: The statute states that the ``Secretary may establish 
    rules for payment to qualified nonhospital providers for the direct 
    costs of medical education if those costs are incurred in operation of 
    an approved medical residency training program described in subsection 
    (h).'' The statute clearly limits payment to qualified nonhospital 
    providers under section 1886(k) of the Act for the direct costs of GME.
        Comment: One commenter stated that the proposed regulations fail to 
    reflect that FQHCs are eligible for Part B payments for allowable 
    teaching costs even without the new methodology
    
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    established pursuant to the new BBA provision. Because FQHCs are 
    governed by cost reimbursement principles that include teaching costs, 
    FQHCs are already allowed to claim all training-related costs, 
    including direct faculty and resident costs. This commenter suggested 
    that FQHCs that participate in teaching programs should be able to 
    recapture higher operating costs caused by lower productivity and 
    increased overhead. According to this commenter, we should consider 
    including the following in direct costs:
    
    --Slowdown in productivity;
    --Facilities and space for training;
    --Transportation and living costs for residents;
    --Availability of lab and radiology equipment and services;
    --Administrative overhead;
    --Increased intensity in treatment patterns used in training;
    --Equipment costs;
    --Library (either onsite or electronic access);
    --Capital costs for startup of residency program;
    --Increased complexity at teaching FQHCs; and
    --Increased social complexity of patient case mix.
    
        Response: The costs of resident salaries and fringe benefits and 
    supervising physicians may be allowable costs under Sec. 405.2470. If 
    the RHC or FQHC were to have a written agreement with a hospital where 
    the hospital provides compensation for these costs to the clinic, these 
    costs would become nonreimbursable costs. However, FQHCs and RHCs that 
    have an all-inclusive rate that exceeds the cap under sections 505.1 
    and 505.2 of the Medicare Rural Health Clinic and Federally Qualified 
    Health Centers Manual would still benefit from the proposed policy in 
    that costs above the cap that would otherwise be nonreimbursable by 
    Medicare can now be compensated as direct GME costs through the 
    agreement with the hospital. That is, if the FQHC or RHC incurs ``all 
    or substantially all'' of the costs and receives payment directly from 
    Medicare, these costs are GME costs that are treated separately in 
    applying the caps on the all-inclusive rate under sections 505.1 and 
    505.2 of the Medicare Rural Health Clinic and Federally Qualified 
    Health Centers Manual.
        An additional benefit in the situation where we pay the FQHC or RHC 
    directly for GME is that residents do not need to be included as health 
    care staff in the calculation of productivity standards under section 
    503 of the Manual. We further believe that residents should be excluded 
    from productivity standards in situations where the hospital is being 
    paid for training time and GME costs are not reimbursable costs for the 
    FQHC or RHC. We are adopting this policy in this final rule and will 
    modify section 503 of the Manual accordingly. Among the items listed in 
    this comment, we believe that costs which are directly related to the 
    operation of a medical residency training program (facilities and space 
    exclusively dedicated to training, resident travel costs between remote 
    clinic sites) in addition to facility overhead which can be allocated 
    to a medical education cost center constitute allowable direct GME 
    costs for which the FQHC or RHC can receive payment directly from 
    Medicare. We believe the remaining items listed are either indirect 
    costs of training or allowable cost for patient care services under 
    Sec. 405.2468(a) through (e) which can only be reimbursed as non-GME 
    operating costs.
        Comment: One commenter was opposed to the application of reasonable 
    compensation equivalents to physicians in FQHCs and RHCs. The commenter 
    stated that the BBA required HCFA to subject RHCs to productivity 
    standards and the per-visit cost limit. According to the commenter, if 
    Congress had intended for the RCE limits to be imposed on RHCs, the BBA 
    would have required such a policy. The commenter stated that, by 
    definition, RHCs and FQHCs are located in areas where it is difficult 
    to attract physicians and that the providers must pay compensation that 
    exceeds the RCE limits to attract qualified physicians. The commenter 
    requested that the limits not be imposed on FQHC and RHC services to 
    individual patients.
        Response: For purposes of making indirect GME payments to FQHCs and 
    RHCs, the RCE limits will only apply to the portion of a teaching 
    physician's compensation that is attributable to direct GME. We are not 
    applying the RCE limit to physician compensation that is related to 
    providing services to individual patients. Because we intend to pay for 
    these GME costs on a reasonable cost basis, it is necessary to apply 
    the RCE limits to assure that GME costs will be reasonable.
        Comment: One commenter stated that if HCFA intends to compute the 
    fixed cost for nonhospital training of all health professionals from 
    the cost reimbursement data received over the next few years from 
    qualified nonhospital providers, costs associated with training of 
    nonphysician health practitioners should also be reported. This 
    commenter stated that it will be difficult to collect these data at a 
    later date.
        Response: FQHCs and RHCs seeking payment from Medicare for direct 
    GME must appropriately classify those costs to a GME cost center on the 
    cost report. These payments are limited to the direct costs the FQHC or 
    RHC incurs for an approved medical residency training program as 
    described under section 1886(h) of the Act. Training of non-physician 
    health professionals are not included in these programs. Therefore, in 
    submitting costs reports, FQHCs and RHCs must clearly distinguish the 
    costs of training residents from the cost of training other health 
    professionals in nonhospital sites. Although FQHCs and RHCs will need 
    to document costs of approved medical residency programs to be 
    allocated to the GME cost center, we do not believe the information 
    benefit associated with obtaining data on training of other health 
    practitioners would justify imposing an additional administrative 
    burden on FQHCs and RHCs to report costs for which they will receive no 
    payment.
        c. Revised definition of ``all or substantially all'' of the costs. 
    Comment: A number of commenters felt the proposed redefinition of ``all 
    or substantially all'' of the costs will be counterproductive and 
    result in less training in nonhospital settings. One commenter stated 
    that the current standard of ``or substantially all'' has helped to 
    facilitate resident training in nonhospital sites. This commenter 
    stated that there is strong anecdotal evidence that resident training 
    in ambulatory sites has been increasing and recommended that any 
    changes to existing policies be tested for the likelihood that they 
    promote expanded ambulatory GME.
        Response: We disagree with the commenters who suggested that the 
    proposed redefinition of ``all or substantially all'' of the costs of 
    training residents in the nonhospital sites will result in less 
    training in nonhospital settings. First, we do not believe that 
    hospitals themselves will be discouraged from continuing to rotate 
    residents to nonhospital sites. Hospitals must consider accreditation 
    and other program requirements in addition to purely financial 
    considerations. We have reviewed the program requirements for residency 
    education in family practice and internal medicine in the 1997-1998 GME 
    Directory. The Directory specifies that family practice residents must 
    spend specified amounts of time and see a minimum number of patients in 
    the family practice center in each residency program year. Similarly, 
    the Directory specifies that at least 25
    
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    percent of the 3 year residency program for internal medicine must be 
    in an ambulatory care setting. Given these requirements for primary 
    care training programs, we do not believe that hospitals will respond 
    to the revised definition of ``all or substantially all'' of the costs 
    by rotating fewer residents to nonhospital sites. Moreover, a hospital 
    that meets the ``all or substantially all'' criterion may count the 
    resident's training time in the nonhospital site for direct GME as well 
    as IME.
        Second, we believe that our proposal will encourage more ambulatory 
    sites to participate in training. To the extent our policies would 
    allow qualified nonhospital providers to receive payments directly from 
    Medicare, more qualified nonhospital providers may be willing to become 
    training sites. In addition, the hospital may incur supervisory 
    teaching physician costs that previously might have been borne by the 
    nonhospital site. Therefore, the nonhospital site either will receive 
    revenues for costs that the site itself incurs or will no longer incur 
    those costs.
        Comment: Several commenters agreed that it is appropriate to 
    provide GME payment to the entity that incurs ``all or substantially 
    all'' of the costs whether it be the hospital or the qualified 
    nonhospital provider. Many of these commenters, however, believe that 
    ``all or substantially all'' of the costs should be limited to resident 
    salaries and fringe benefits.
        Response: We disagree. Section 1886(h)(4)(E) of the Act states that 
    hospitals may include residents in their FTE counts for direct GME if 
    the hospital incurs ``all or substantially all of the costs of the 
    training program in that setting.'' Section 1886(d)(5)(B)(iv) of the 
    Act allows hospitals to count residents for IME effective October 1, 
    1997 if the hospital ``incurs all or substantially all of the costs for 
    the training program in that setting.'' As we stated previously and in 
    the preamble to the proposed rule (63 FR 25597), we reviewed data on 
    resident costs from recent Medicare hospital cost reports and found 
    that, on average, resident salaries and fringe benefits account for 
    less than half of total direct GME costs. We believe that the revised 
    policy, which requires hospitals to incur a higher percentage of total 
    training costs in the nonhospital setting than are accounted for by 
    resident compensation reflect a better measure of ``all or 
    substantially all'' of the costs than current policy.
        Comment: One commenter argued that the rationale for the proposal 
    is insufficient to merit a change in current policy. This commenter 
    stated that our proposal focused only cost data from hospitals and not 
    nonhospital sites. This commenter believed that, because our proposal 
    addressed training in nonhospital sites, it would be more appropriate 
    to analyze resident salaries and fringe benefits as a share of overall 
    training costs at nonhospital sites. The commenter acknowledged that 
    these data are not available at the present time, but believed that 
    resident compensation is likely to be a substantial component of 
    overall training costs in nonhospital sites. The commenter noted that 
    the preamble to the proposed rule indicates that residents' salaries 
    and supervisory costs would likely ``constitute a different proportion 
    of the total GME costs in the nonhospital setting as compared with the 
    hospital setting.'' (63 FR 25597). The commenter added that direct GME 
    payments to hospitals are based on 1984 hospital costs that may not 
    accurately reflect current costs.
        Response: Our analysis is based on recent cost report data 
    submitted to us by hospitals. That data shows that resident salaries 
    and fringe benefits are less than half of total resident costs for 
    hospitals. At this time, based on available data as well as a desire to 
    treat hospitals and nonhospital sites equitably, we believe the 
    hospital cost report data is a useful proxy for purposes of applying a 
    standard of ``all or substantially all'' to nonhospital sites. We agree 
    that it would be appropriate to analyze data on the cost of training 
    from nonhospital sites and we will consider revisions to our policies 
    as we obtain cost data from nonhospital sites.
        We note that, if resident compensation is, in fact, a larger 
    percentage of total costs in the nonhospital site relative to the 
    hospital, as suggested by this commenter, this would mean that costs 
    other than resident compensation are a smaller proportion of total 
    costs. The hospital would have to assume relatively modest additional 
    costs through arrangements with nonhospital sites to continue counting 
    the residents for indirect and direct GME. We also note that 
    preliminary data by researchers studying costs incurred by a 
    nonhospital site to train residents has shown that resident salary and 
    fringe benefits are a smaller ratio of total costs at the nonhospital 
    site relative to the hospital. If this conclusion is accurate, it would 
    provide additional evidence that our revised definition is a better 
    measure of ``all or substantially all'' of the costs.
        Comment: One commenter acknowledged that we revised the definition 
    of ``all or substantially all'' to address a concern that nonhospital 
    sites do not have sufficient resources to support their medical 
    education activities, but argued that the proposed change in policy 
    will not improve the ability of nonhospital sites to support training 
    and may compromise existing and developing relationships between 
    hospital and nonhospital GME sites. This commenter stated that the 
    relationship between the hospital and nonhospital site should be 
    voluntary and that it is up to the parties to define the appropriate 
    parameters of their relationships, including how costs beyond the 
    resident stipend and benefits should be accommodated.
        Response: As we stated earlier, we do not believe that this revised 
    policy will compromise existing training relationships between 
    hospitals and nonhospital sites. We agree with the commenter that 
    arrangements between hospitals and nonhospital sites for training 
    should be voluntary and the entities should be responsible for 
    negotiating the parameters of their relationship. If a hospital and 
    nonhospital site cannot agree on an arrangement regarding costs, the 
    hospital may pursue an agreement with another nonhospital site for 
    training. Similarly, if a nonhospital site cannot reach agreement with 
    a hospital, it does not have to allow its facility to be used as a 
    training site and can pursue a training arrangement with another 
    hospital.
        Comment: One commenter asked why a nonhospital site would claim 
    costs, and report an offset to those costs, if the hospital incurs the 
    GME costs for training in the nonhospital site.
        Response: In response to this comment, in this final rule we are 
    modifying the requirements for both hospitals and qualified nonhospital 
    providers. As stated previously, hospitals are required to furnish a 
    written agreement between the hospital and the nonhospital site that 
    indicates that the hospital is incurring the cost of the resident's 
    compensation in the nonhospital site and that the hospital is providing 
    reasonable compensation for teaching activities to the nonhospital 
    site. The agreement must also indicate the amounts being furnished to 
    the nonhospital site for teaching activities. If the resident is 
    working at an FQHC or RHC and there is a written agreement that allows 
    the hospital to count the resident for indirect and direct GME, the 
    FQHC or RHC must report its direct GME costs in a nonreimbursable cost 
    center. The FQHC or RHC is not required to offset from those GME costs 
    revenues received from the hospital.
    
    [[Page 40993]]
    
        We are requiring the FQHC or RHC to report its direct GME costs in 
    a nonreimbursable cost center because these costs will no longer be 
    allowable costs under Sec. 405.2468(a) through (e). As stated earlier, 
    direct GME costs will not be subject to the cap on the all-inclusive 
    rate under section 503 of the RHC and FQHC Manual. The reporting of 
    direct GME costs in a separate cost center on the FQHC and RHC cost 
    report will also allow us to receive data on the costs of training in 
    nonhospital sites.
        Comment: Some commenters argued that our proposal would impose 
    undue administrative burden on hospitals and nonhospital sites by 
    requiring them to report all of the GME costs they incur. One commenter 
    stated that HCFA should retain the current definition of ``all or 
    substantially all'' of the costs because it is logical, 
    straightforward, and appropriate. This commenter asserted that it is 
    difficult to isolate and quantify costs other than resident salaries 
    and fringe benefits are incurred in nonhospital sites. According to 
    this commenter, resident salaries and fringe benefits are easy to 
    identify and their administration and recordkeeping can be monitored 
    uniformly across the GME community. The commenter suggested that in 
    assuming responsibility for resident compensation, the teaching 
    hospital assumes responsibility for assuring that all residents are 
    provided appropriate educational environments, supervision, and support 
    for their training.
        Another commenter argued that the proposed redefinition of ``all or 
    substantially all'' of the costs does not reflect certain services or 
    costs (e.g. house staff credentialing and related functions) just as 
    the per resident amounts do not reflect services or costs that are 
    included in the proposal (e.g. resident travel and lodging). These 
    commenters suggested that resident salaries and fringe benefits should 
    suffice as a proxy that appropriate educational services at an 
    appropriate cost are being delivered by the hospital for the 
    nonhospital training. Another commenter stated that it is a managed 
    care organization that pays the resident salaries and fringe benefits 
    and that this should be sufficient for receiving GME payment in the 
    nonhospital site. According to these commenters, the entity that incurs 
    the costs of the resident compensation should be considered to be 
    incurring ``all or substantially all'' of the costs and be eligible to 
    count the resident for direct and indirect GME.
        Response: We do not believe that we are establishing a burdensome 
    regulatory structure with tremendous documentation requirements. For 
    hospitals seeking to count the time of residents training in the 
    nonhospital site, we are requiring a written agreement between the 
    hospital and the nonhospital site stating that the hospital will incur 
    ``all or substantially all'' of the costs. The written agreement must 
    indicate that the hospital is incurring the cost of the resident 
    salaries and providing compensation for supervisory teaching physician 
    costs. The agreement must also specify the amounts paid to the 
    nonhospital site. These agreements and amounts paid by the hospital to 
    the nonhospital site may be the product of negotiation between the 
    hospital and nonhospital site. The hospital does not have to report the 
    nonhospital site's GME costs. We anticipate that in the course of any 
    negotiation between the hospital and nonhospital site, the nonhospital 
    site may need to identify its training costs. However, this is a matter 
    between the hospital and nonhospital.
        If a hospital seeks to count the time of residents training in 
    FQHC's and RHC's, the FQHC or RHC must identify its training costs in a 
    nonreimbursable GME cost center. FQHC's and RHC's must separately 
    report GME costs in order to distinguish these costs from other patient 
    care costs that are paid for by Medicare on the basis of reasonable 
    costs through the all inclusive rate. Under this final rule, we are not 
    requiring FQHC's and RHC's to report the offset to those costs for 
    payments received from the hospital. Requiring FQHC's and RHC's to 
    report costs without offsetting revenues received from the hospital 
    will allow us to obtain gross cost data on the costs of training in 
    nonhospital sites.
        RHC's and FQHC's must identify teaching physician costs and 
    allocate overhead to the direct GME cost center, in addition to the 
    current cost reporting requirements for these entities. These entities 
    are currently paid on the basis of costs, and we do not believe the 
    additional cost reporting requirements will be substantial.
        We disagree with the comment that resident compensation should 
    suffice as a proxy that appropriate educational services, at an 
    appropriate cost, are being delivered and should be the sole criterion 
    for determining which entity receives payment. Our concern in 
    developing this policy is not whether we are paying for appropriate 
    educational services but whether the entities that incur training costs 
    are appropriately paid. Regardless of which entity incurs the cost of 
    the resident's compensation, Medicare should only pay for appropriate 
    educational services. Other regulations independent of the ``all or 
    substantially all'' criterion ensure that Medicare pays for accredited 
    educational programs.
        Comment: One commenter stated that teaching physicians in 
    nonhospital sites may be remunerated through a variety of different 
    arrangements, including ``in kind'' compensation for continuing 
    education or through voluntary contributions. According to this 
    commenter, the proposed policies would require hospitals and 
    nonhospital sites to identify financial transactions which may not 
    exist. The commenter further stated that there is no established 
    methodology for defining or quantifying supervisory costs. The 
    commenter noted that even if the costs could be identified, the costs 
    would vary depending upon specialty and the year of residency training, 
    which would require a sophisticated accounting infrastructure. The 
    commenter also asserted that community-based physicians would be 
    discouraged from training residents because of the administrative 
    burden of documenting the precise number of hours they spend teaching 
    or supervising residents.
        Response: We recognize that there could be a variety of financial 
    arrangements between hospitals and nonhospital sites with regard to 
    training. The hospital and the nonhospital site can take into account 
    those types of arrangements in negotiating an agreement.
        Although there will be some additional cost reporting requirements 
    imposed on FQHC's and RHC's that receive payment for direct GME through 
    the hospital or directly from Medicare, there are established cost 
    reporting principles for identifying these costs in providers. 
    Medicare+Choice organizations, in addition to producing a written 
    agreement with nonhospital sites, will have to report GME costs when 
    they incur ``all or substantially all'' of the costs. We are developing 
    a modest one page cost statement that will allow the Medicare+Choice 
    organizations to claim direct GME costs that are eligible for payment. 
    If an FQHC or RHC incurs ``all or substantially all'' of the costs of 
    the program, and is therefore eligible to be paid directly for GME, we 
    do not believe the burden of documenting supervisory physician time 
    spent in GME activities will be substantial. Our expectation is that 
    physicians will need to estimate the number of hours they will spend in 
    GME and non-GME activities during the course of the year and verify the 
    estimates with a limited time study. This is similar to the 
    documentation that was required of hospitals to allocate teaching 
    physician costs between Part A
    
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    and Part B and between operating costs and direct medical education.
        Comment: Several commenters suggested that we initiate 
    demonstration projects addressing payment for GME in nonhospital sites. 
    One commenter suggested that we analyze our proposed revision to ``all 
    or substantially all'' of the costs through a demonstration project 
    before implementing the changes on a nationwide basis. Such a 
    demonstration project would indicate whether the proposed change would 
    encourage or discourage training in nonhospital sites. Another 
    commenter suggested that our proposed policy may adversely affect many 
    GME programs and should be tested prior to being implemented on a 
    national basis.
        Response: Congress established a provision in the BBA authorizing 
    the Secretary to provide payment to nonhospital sites and we do not 
    believe a demonstration project is necessary. Furthermore, since this 
    policy is more stringent than existing regulations, we are doubtful 
    that hospitals would participate voluntarily in a demonstration 
    project.
        Comment: One commenter objected to the revision of the ``all or 
    substantially all'' criteria and stated that the proposed policy would 
    constrain the ability of teaching hospitals and Medicare+Choice 
    organizations to develop reasonable rotations in hospitals and managed 
    care plans. The commenter suggested an alternative under which a 
    Medicare+Choice organization could submit a short application that 
    would contain agreements between hospitals and Medicare+Choice 
    organization addressing, among other things, the amount of time 
    residents would spend at each site.
        Under this approach, we would pay the qualified nonhospital 
    provider based on the product of a per resident amount, the number of 
    FTE residents, and the Medicare share. Each resident would be counted 
    as a partial FTE based for the hospital and for the qualified 
    nonhospital provider based on the percentage of time worked at each 
    site. A Medicare+Choice organization would be paid its FTE percentage 
    times a portion of the hospital per resident payment amount or a 
    national average per resident amount. This commenter argued that this 
    approach would meet the Congressional objective of allowing residents 
    to receive training in hospitals and Medicare+Choice organizations 
    while prohibiting double payment without establishing a cumbersome new 
    set of cost reporting requirements.
        Response: We considered the approach suggested by this commenter 
    but we believe it would not facilitate training in qualified 
    nonhospital providers. FQHC's, RHC's, and Medicare+Choice organizations 
    generally provide a low percentage of total services to Medicare 
    beneficiaries. The commenter's approach would to some extent substitute 
    the Medicare share of the qualified nonhospital provider for the 
    Medicare share of the hospital, and we believe this would result in 
    lower Medicare payments overall for training in nonhospital sites. 
    Also, we believe this approach would be inequitable to hospitals in 
    that they would lose both the direct and indirect medical education 
    payments for the proportion of time residents spend in the qualified 
    nonhospital provider even though they have ongoing training costs while 
    the residents train in the nonhospital site.
        We believe that it is reasonable to pay the hospital or qualified 
    nonhospital provider which incurs ``all or substantially all'' of the 
    costs. Furthermore, the revised definition reflects a better measure of 
    ``all or substantially all'' of the costs and will result in 
    appropriate payment to hospitals for training in qualified nonhospital 
    providers and other nonhospital sites.
        As we stated in the May 8 proposed rule (63 FR 25597), we also have 
    concerns that it would not be equitable to eliminate the hospital's 
    payment entirely for the time resident's spend in nonhospital sites 
    because the hospital may continue to incur some of the costs associated 
    with training residents in nonhospital sites. We believe that the 
    policies we are adopting are equitable to both hospital and nonhospital 
    sites and will achieve Congress' objective of encouraging training in 
    nonhospital sites.
        Comment: One commenter stated that there might be important 
    differences in the accounting and administrative systems of various 
    categories of qualified nonhospital providers that might present some 
    difficulties in identifying the cost data necessary to accurately 
    complete cost reporting forms. Other commenters stated that hospitals 
    will have difficulty obtaining the necessary data from the nonhospital 
    sites to complete the agreements or that the revised definition of 
    ``all or substantially all'' would impose undue administrative burden. 
    Another commenter stated that the revised definition of ``all or 
    substantially all'' creates a major problem in identifying the portion 
    of time office physicians spend in teaching and supervising residents 
    and is another administrative burden placed on physicians.
        Response: As stated before, we do not believe we are imposing undue 
    administrative burden. Direct GME costs for FQHC's and RHC's will have 
    to be separately identified and reported. Although this will require 
    the development of a mechanism for FQHC's and RHC's to allocate 
    overhead and supervisory physician costs to the GME costs center, we do 
    not believe that our policy will create significant administrative 
    difficulties for FQHC's and RHC's, which already prepare cost reports 
    for Medicare. As stated previously, we do not believe this process will 
    generate a substantial burden on supervising physicians in FQHC's and 
    RHC's beyond a written agreement between the clinic and the physician 
    regarding the amount of time the physician expects to spend in GME 
    activities and a time study verifying the allocation.
        The submission of a cost statement for GME will be a new 
    responsibility for Medicare+Choice organizations which do not have 
    experience with reporting costs. However, as stated above, we are 
    developing a one page cost statement of GME expenses to limit the 
    administrative burden on Medicare+Choice organizations.
        With regard to the concern expressed about creating a burdensome 
    set of new cost reporting requirements, we reiterate that a condition 
    of payment to the hospital for training in the nonhospital site is the 
    production of the written agreement between the hospital and the 
    nonhospital site. We are not requiring hospitals to submit cost data to 
    Medicare as a precondition to counting the resident for indirect and 
    direct GME.
        Comment: One commenter noted that some arrangements between 
    hospitals and nonhospital settings for the training of residents 
    predate the GME base year. This commenter stated that hospitals did not 
    compensate nonhospital sites for supervisory teaching physician costs 
    and it would not be fair to shift these costs to teaching hospitals. 
    The commenter also stated that teaching hospitals have already entered 
    into written agreements with nonhospital sites under the existing 
    rules. According to the commenter, the proposed rule would necessitate 
    renegotiation of thousands of agreements, imposing tremendous 
    transaction costs upon the academic medical community. The commenter 
    noted that if the agreements are not renegotiated prior to the 
    effective date, the hospital will be unable to count the residents for 
    direct and indirect GME, and this will have a lasting effect because of 
    the 3 year averaging rules. Another commenter stated that there are 
    many complex
    
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    contractual arrangements between hospital based programs and 
    nonhospital sites regarding the placement, training and patient service 
    utilization of residents, and any change in Medicare GME payment policy 
    could have significant and unknown impacts on these current training 
    structures.
        Response: The GME provisions of this final rule will be effective 
    January 1, 1999. All other provisions of this final rule are effective 
    October 1, 1998. By making a later effective date for the GME 
    provisions, hospitals and nonhospital sites will have 5 months 
    following publication of this final rule to negotiate agreements that 
    will allow hospitals to continue counting residents training in 
    nonhospital sites for indirect and direct GME. These agreements are 
    related solely to financial arrangements for training in nonhospital 
    sites. We do not believe that the agreements regarding these financial 
    transactions will necessitate changes in the placement and training of 
    residents.
        In response to the comment that it is unfair to shift costs to the 
    hospital, we believe it is appropriate to include supervisory costs in 
    the nonhospital site as part of ``all or substantially all'' of the 
    costs that hospitals must incur to count the resident. Currently, the 
    hospital is able to count the resident even though its costs for that 
    resident may be lower during the time the resident trains outside the 
    hospital. At the same time, the nonhospital site may have incurred 
    costs for which it received no compensation. We believe that requiring 
    the hospital to incur the costs associated with training in the 
    nonhospital site is equitable to both the hospital and nonhospital site 
    and is consistent with the statutory requirement that the hospital must 
    incur ``all or substantially all'' of the costs.
        Comment: One commenter argued that we should not use reasonable 
    costs as the basis for making payment to qualified nonhospital 
    providers. This commenter stated that Medicare+Choice organizations do 
    not submit cost reports and it would be extraordinarily expensive and 
    cumbersome to report accounting costs. Several commenters also objected 
    to our proposal to the extent we would allow overhead costs for FQHCs, 
    RHCs, and hospitals but not Medicare+Choice organizations. These 
    commenters believed that the policy cannot be justified on the basis 
    that Medicare+Choice organizations do not submit cost reports. One 
    commenter suggested that HCFA use predetermined payment amounts that do 
    not require the subsequent submission of cost reports. The commenter 
    noted that the proposed rule itself notes that direct GME payments are 
    based on average per resident costs from 1984 that might bear little or 
    no relation to accounting costs in 1998. Another commenter suggested 
    that Medicare+Choice organizations should be paid an overhead factor 
    for direct GME costs based on square footage of the clinic and a number 
    of other factors. Alternatively, this commenter suggested use of an 
    average overhead factor based on the number of residents trained until 
    actual overhead expenses for Medicare+Choice organizations can be 
    identified.
        Response:  Medicare+Choice organizations will typically contract 
    with clinics for the provision of services to beneficiaries. In these 
    situations, we can make payment directly to the Medicare+Choice 
    organization if the plan produces a written agreement with the clinics 
    where training occurs that the plan will incur ``all or substantially 
    all'' of the costs associated with training in the nonhospital site. We 
    are requiring a written agreement between the Medicare+Choice 
    organization and the nonhospital sites. We believe that the primary 
    components of GME costs are resident compensation and supervisory 
    teaching physician costs and that facility overhead costs which can be 
    allocated to direct GME are a smaller component of direct GME costs. 
    Nevertheless, we agree that we should not limit allowable direct GME 
    costs for Medicare+Choice organizations to resident compensation and 
    supervisory physician costs. If the Medicare+Choice organization can 
    document other direct GME costs that directly relate to a training 
    program, we will allow these costs. We note that, at this time, it is 
    not feasible to develop an average overhead factor which can be paid to 
    Medicare+Choice organizations that incur ``all or substantially all'' 
    of the costs of a training program in a nonhospital site. This is 
    because our data systems on hospital GME costs do not distinguish 
    between supervisory teaching physician costs and overhead costs 
    attributable to direct GME.
        In response to the comment that we use square footage or other 
    mechanisms as a basis for allocating overhead to GME costs for 
    Medicare+Choice organizations, we are concerned about developing a 
    sophisticated cost allocation process for determining Medicare+Choice 
    allowable direct GME costs since Medicare+Choice organizations do not 
    submit cost reports. However, we are revising our proposal to require 
    the written agreement to state that the Medicare+Choice organization 
    will incur the costs of residents' salaries and fringe benefits and 
    provide reasonable compensation for the remaining costs of the training 
    program in the nonhospital site. Based on the statement of costs, the 
    Medicare+Choice organization will report its costs to HCFA and we will 
    provide payment based on the lower of the Medicare+Choice 
    organization's cost per resident or a national average of the hospital 
    per resident amounts.
        Comment: Several commenters were concerned that if neither the 
    hospital or nonhospital site incurs ``all or substantially all'' of the 
    costs, neither setting would receive payment even though each entity 
    incurs a portion of the training costs. One commenter suggested that 
    there will be difficulty allocating costs under our proposed definition 
    of ``incurring costs'' and stated that we should encourage affiliations 
    and provide simpler and clearer guidance for institutions.
        Response: Under this final rule, an entity must incur ``all or 
    substantially all'' of the costs to receive payments for the time the 
    resident spends in the nonhospital site. Since we do not conduct cost-
    finding to determine who bears ``all or substantially all'' of the 
    graduate medical education costs, we are generally dependent on 
    hospital and non-hospital provider agreements to determine who bears 
    them. As stated earlier in this final rule as well as in the proposed 
    rule, we do not believe it would be administratively feasible to 
    apportion payments appropriate to the hospital and nonhospital site in 
    situations where neither the hospital or nonhospital site agree on who 
    incurs ``all or substantially all'' of the costs. We must also consider 
    the statutory prohibition on double payments in these situations. 
    Furthermore, although it may be appropriate to provide payment for GME 
    costs where the nonhospital site incurs only a portion of the training 
    costs, we do not believe it would be equitable to allow a nonhospital 
    site to be paid where it was incurring only a portion of the costs but 
    only allow payment to a hospital when it incurs ``all or substantially 
    all'' of the costs.
        In response to the commenter who suggested that we should encourage 
    ``affiliations,'' we believe the revised definition of ``all or 
    substantially all'' of the costs provides incentives for hospitals and 
    nonhospital sites to reach agreement with regard to financial 
    arrangements for training in nonhospital sites to avoid the situation 
    where neither entity receives payment for GME.
        Comment: One commenter asked whether hospitals would be eligible to 
    receive payments in situations where the teaching faculty volunteers 
    their
    
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    services and neither the hospital or nonhospital entity incurs costs 
    for supervisory teaching physicians, but the hospital incurs the costs 
    of resident salaries and fringe benefits (including travel and lodging 
    expenses where applicable). The commenter asked whether the contract 
    should state that there are no teaching physician costs incurred and 
    the remainder of the costs represent ``all or substantially all'' of 
    the costs. Another commenter stated that the ``all or substantially 
    all'' definition creates special problems where community physicians 
    voluntarily serve in a teaching capacity without compensation. The 
    commenter stated that the implication of the proposed policy is that 
    some portion of the community physician's earnings must be included in 
    the calculation and asked that we either delete the proposed change or 
    specify that voluntary supervision of training residents does not need 
    to be included in the definition of ``all or substantially all'' of the 
    costs.
        Response: We have received anecdotal information that some 
    supervisory teaching physicians participate in teaching activities 
    without compensation in nonhospital clinics. Although there may be 
    situations where a supervising physician is participating in teaching, 
    we do not believe that lack of explicit compensation for teaching 
    activities means that physicians are necessarily volunteering their 
    time. Rather, we believe that the physician's compensation in the 
    clinic encompasses both teaching and nonteaching activities. 
    Nevertheless, for purposes of satisfying the requirement of a written 
    agreement, the written agreement between a hospital and a nonhospital 
    site may specify that there is no payment to the clinic for supervisory 
    activities because the clinic does not have these costs.
        Comment: One commenter stated that a hospital was permitted to 
    include, within in its GME base period costs, teaching physician costs 
    related to the hospital by common ownership or control under 
    Sec. 413.17. Citing the GME consistency principle at 
    Sec. 412.113(b)(3), this commenter requested that we clarify that the 
    same policy applies in the context of GME payment to nonhospital sites. 
    That is, the regulation should include specific language which states 
    that costs incurred by an organization related to the hospital under 
    Sec. 413.17 will be recognized as if incurred by the hospital in 
    applying the expanded definition of ``all or substantially all'' of the 
    costs.
        Response: The consistency principle under Sec. 412.113(b)(3) 
    required consistent treatment of medical education costs during the 
    transition to the inpatient hospital PPS during the 1980s. This rule 
    was intended to prevent medical education costs from being included in 
    hospital payments for operating costs and also being paid on a 
    reasonable costs basis to hospitals as GME during the early years of 
    the PPS. We do not see a relationship between the consistency rule and 
    our proposed policies with regard to payment for GME training in 
    nonhospital sites.
        With regard to the costs of related parties under Sec. 413.17, our 
    policy was not to include costs associated with training in nonhospital 
    clinics in the per resident amount even though certain direct GME costs 
    of related parties could have been allowable. We also do not believe 
    that Sec. 413.17 has applicability to our proposed policy. We are 
    requiring a written agreement between hospitals and nonhospital sites 
    for purposes of this final rule, even where the hospital and 
    nonhospital site are related organizations under Sec. 413.17. In 
    practice, since we are requiring an agreement between hospitals and 
    nonhospital sites that are under common ownership or control, the 
    agreements should be a formality.
        Comment: One commenter stated that the necessary statutory and 
    regulatory incentives do not exist for teaching hospitals to provide 
    compensation to nonhospital sites for their GME costs.
        Response: We disagree. The proposed rule requires a written 
    agreement between the hospital and nonhospital site that the hospital 
    will provide compensation to the nonhospital site for certain types of 
    GME costs. Without this agreement, the hospital will be unable to count 
    the resident for indirect and direct GME. As stated earlier, the 
    agreements must also indicate the amounts the hospital will actually 
    pay to the nonhospital site for GME training.
        Comment: One commenter stated the definition of ``all or 
    substantially all'' of the costs should not include residents' travel 
    and lodging costs. This commenter stated that there is no rationale for 
    this change and that the criteria imposes significant reporting burdens 
    with no offsetting benefits. The commenter also stated that the phrase 
    ``where applicable'' is vague and requires additional definition 
    language (related to distance, means of travel) if entities are to 
    understand their reporting obligations.
        Response: Our intent in adding the phrase ``including residents 
    travel and lodging costs, where applicable'' was to provide for the 
    inclusion of direct GME costs that may be more prevalent in a 
    nonhospital setting than in the hospital setting. The phrase ``where 
    applicable'' means that depending on the specific arrangement in some 
    cases, residents will be responsible for paying their own travel and 
    lodging costs while serving at the nonhospital site. In other cases, it 
    is possible that the site will pay for the residents to travel to the 
    site and for lodging while at the site. This is basically a fringe 
    benefit paid by the site for the resident. Therefore, in situations 
    where travel and lodging is an expense of the nonhospital site while 
    the resident is training there, the written agreement must indicate 
    that the hospital will incur these costs. In determining whether the 
    hospital has incurred ``all or substantially all'' of the costs of the 
    program, the hospital must include this ``unique'' fringe benefit if it 
    was paid for by the nonhospital site.
        Comment: One commenter stated that the proposed regulations 
    effectively deny payments to FQHC's unless they incur ``all or 
    substantially all'' of the costs of the program. The commenter stated 
    that since the FQHC does not typically pay the residents' salaries, the 
    proposed rule does not significantly increase the ability of the FQHC 
    to recover GME costs. This commenter stated that it is eminently 
    possible to devise a method under which hospitals that utilize 
    qualified nonhospital providers would report costs showing allowable 
    FQHC costs. In these situations, costs would be apportioned to the 
    proper cost center.
        Response: We disagree. The FQHC can recover its GME costs either 
    directly from Medicare if it incurs ``all or substantially all'' of the 
    costs, or from the hospital through the written agreement. Without a 
    written agreement that specifies the amounts the hospital will pay the 
    nonhospital site for training in the nonhospital site, the hospital 
    will be unable to count the resident for indirect and direct GME.
        d. Medicare share. Comment: One commenter stated that the 
    limitation of direct GME payments to FQHC's based on Medicare's share 
    at the FQHC will seriously constrain participation because only 8 
    percent of FQHC patients are Medicare patients. The commenter quoted 
    the Conference Report which states that ``the Conferees believe this 
    authority may help alleviate physician shortages in rural areas.'' 
    According to this commenter, the combination of requiring the FQHC to 
    incur ``all or substantially all'' of the costs in order to receive 
    payment and the limitation to Medicare share does little to provide 
    sufficient resources to allow FQHC's to train physicians in underserved 
    rural areas. The commenter believed the limitation of payments based on 
    Medicare's share is not
    
    [[Page 40997]]
    
    required by the BBA provision authorizing GME to qualified nonhospital 
    providers and is contrary to the intent of the law.
        Response: It is a fundamental and longstanding principle that, to 
    the extent Medicare pays for certain types of costs, the Medicare 
    program should pay only its fair share. This principle applies not only 
    in the context of Medicare payment for medical education, but also to 
    Medicare payment in general.
        Comment: One commenter stated that Medicare enrollees use 3.5 times 
    the number of outpatient services as non-enrollees. The commenter 
    suggested that it would be more equitable to base Medicare's share for 
    Medicare+Choice organizations on the ratio of outpatient expenses for 
    Medicare enrollees to total enrollees. As an alternative, this 
    commenter suggested using Medicare visits to total visits to calculate 
    Medicare share, consistent with the calculation in the inpatient 
    setting of Medicare inpatient days to total inpatient days.
        Response: We believe that either of the proposals suggested by this 
    commenter would impose significant additional reporting 
    responsibilities on Medicare+Choice organizations which receive payment 
    from Medicare for direct GME. Basing the Medicare share calculation on 
    the ratio of outpatient expenses attributable to Medicare beneficiaries 
    to total expenses would require Medicare+Choice organizations to 
    provide a sophisticated report of expenses not unlike the Medicare cost 
    report. In situations where the Medicare+Choice organization is 
    contracting for services provided in a clinic, this would require the 
    Medicare+Choice organization to document costs which are not even its 
    own. We considered using the ratio of Medicare enrollee to total 
    enrollee visits in the Medicare share calculation, but have concerns 
    that this approach would also be burdensome in that it would require 
    Medicare+Choice organizations to furnish utilization data for clinics 
    or physician offices that they do not own or control.
        e. National average per resident amounts. Comment: One commenter 
    argued that national average per resident amounts are not appropriate 
    for the nonhospital setting. According to the commenter, residency 
    training differs from other types of services because it involves 
    complicated transactions with nongovernmental entities such as medical 
    schools that may sponsor a hospital's programs and compensate 
    physicians directly, and accreditation bodies that may require a 
    certain content and curriculum in training programs.
        Response: We did not propose the use of national average per 
    resident amounts in the nonhospital setting but will consider whether a 
    national average per resident amount is appropriate after we have 
    experience with the provision and have reliable data on the costs of 
    training in the nonhospital setting.
    
    f. Technical errors concerning GME policy published in the May 12, 1998 
    final rule.
    
        In the May 12, 1998 final rule for the FY 1998 inpatient hospital 
    prospective payment system, we set forth certain policies on GME. The 
    portion of the May 12, 1998 final rule concerning counting residents 
    for direct medical education (beginning at (63 FR 26327)) contained the 
    following technical errors:
         Merged Hospitals--On page 26329, third column, we stated 
    that the FTE cap of merged hospitals would be the aggregation of the 
    FTE cap for each hospital participating in the merger. We stated that 
    Sec. 413.86 would be modified to reflect this policy, but we did not 
    modify the regulations text. We do not believe a change to the 
    regulations text is necessary.
         Application of the FTE Cap--There is a discrepancy between 
    the methodologies described in the August 29, 1997 final rule with 
    comment period (62 FR 46005) and the May 12, 1998 final rule (63 FR 
    26330) for application of the FTE cap in situations where a hospital 
    has more residents than the cap. The methodology described in the May 
    12, 1998 final rule is incorrect. The correct methodology is described 
    in the August 29, 1997 final rule with comment period.
         New Medical Residency Training Program--On page 26332, in 
    the first column, we stated, ``for these reasons, we believe it is 
    appropriate to consider a medical residency training program to be 
    newly established if the program received initial accreditation or 
    began training residents on or after January 1, 1995.'' We are 
    clarifying that, for hospitals that trained residents prior to January 
    1, 1995, we will adjust the FTE caps for programs were accredited or 
    began training residents on or after January 1, 1995 and prior to 
    August 5, 1997.
         Application of the FTE Cap to an Affiliated Group--On page 
    26341, in the third column, we stated, ``If the combined FTE counts for 
    the individual hospitals do not exceed the aggregate cap, we will pay 
    each hospital based on its FTE cap as adjusted per agreements.'' That 
    sentence should have read as follows: ``If the combined FTE counts for 
    the individual hospitals exceed the aggregate cap, we will pay each 
    hospital based on its FTE cap as adjusted per agreements.''
    
    V. Changes to the Prospective Payment System for Capital-Related 
    Costs
    
    A. Cap on the Capital Indirect Medical Education Adjustment Ratio 
    (Sec. 417.322)
    
        Under section 1886(g) of the Act, the Secretary has broad 
    discretion in implementing the capital prospective payment system. 
    Section 412.322 of the regulations specifies the formula for the 
    capital indirect medical education (IME) adjustment factor. The capital 
    IME adjustment is intended to pay the Medicare capital prospective 
    payment system share of the indirect costs of medical education to 
    teaching hospitals. The formula was incorporated in the August 30, 1991 
    final rule for the capital prospective payment system (56 FR 43380), 
    and uses the ratio of interns and residents to average daily census 
    (defined as total inpatient days divided by the number of days in the 
    cost reporting period). Section 1886(d)(5)(B) of the Act requires the 
    use of the ratio of residents-to-beds to calculate the IME adjustment 
    for the operating prospective payment system. However, pursuant to our 
    authority under section 1886(g) of the Act, we adopted the resident to 
    average daily census ratio for the capital prospective payment system 
    because we believed it was a more appropriate method for measuring 
    teaching intensity, and because we believed it was less subject to 
    manipulation.
        The IME adjustment factor increases by approximately 2.8 percentage 
    points for each 0.10 increase in the hospital's ratio of residents to 
    average daily census. The IME adjustment for inpatient capital-related 
    costs for hospitals paid under the prospective payment system takes the 
    form of [e raised to the power (.2822 x ratio of interns and residents 
    to average daily census)-1] where e is the natural antilog of 1, based 
    on the total cost regression results. In order to determine the Federal 
    rate portion of the hospital's payment, the IME adjustment factor is 
    multiplied by the standard Federal rate, the DRG weight, the geographic 
    adjustment factor, and any other relevant payment adjustments such as 
    the DSH adjustment or the large urban add-on. The formula is as 
    follows: (Standard Federal Rate) x (DRG weight) x (GAF) x (Large Urban 
    Add-on, if applicable) x (COLA adjustment for hospitals located in 
    Alaska and Hawaii) x (1 + Disproportionate Share Adjustment Factor + 
    IME Adjustment Factor, if applicable).
    
    [[Page 40998]]
    
        In the May 8, 1998 proposed rule (63 FR 25600) we indicated that it 
    had come to our attention that because of the application of the 
    capital IME adjustment, one hospital would receive a capital IME 
    payment greater than its total hospital costs. We also stated that of 
    the approximately 1,200 teaching hospitals in the United States, based 
    on December 1997 data, 8 hospitals had a resident to average daily 
    census ratio of more than 1.5. A resident to average daily census ratio 
    of 1.5 results in a capital IME adjustment factor of 0.53, which 
    increases the Federal rate portion of the hospital's capital payment by 
    53 percent.
        To address this unintended effect of the capital IME methodology, 
    we proposed capping the capital IME ratio at 1.5. A ratio greater than 
    1.5 means a hospital has, on average, considerably more residents than 
    inpatients. Capping the ratio at 1.5 would allow for one resident per 
    patient on the inpatient side plus some outpatient training, and would 
    keep capital IME payments more consistent with the costs incurred. 
    Because the operating IME ratio is based on the number of beds, it has 
    only slightly exceeded 1.0 in two cases. This change would ensure that 
    the capital IME adjustment is more in line with hospital costs.
        We received no comments on our proposed change. We have decided to 
    implement this policy as proposed. Effective October 1, 1998, the 
    capital IME ratio will be capped at 1.5.
    
    B. Payment Methodology for Mergers Involving New Hospitals 
    (Sec. 412.331)
    
        The August 30, 1991 final rule (56 FR 43418), which implemented the 
    capital prospective payment system, established special payment 
    provisions for new hospitals. Under Sec. 412.324(b), a new hospital is 
    paid 85 percent of its allowable Medicare capital-related costs through 
    its first cost reporting period ending at least 2 years after the 
    hospital accepts its first patient. The first cost reporting period 
    beginning at least 1 year after the hospital accepts its first patient 
    is the hospital's base year for purposes of determining its hospital-
    specific rate. Section 412.302(b) defines a new hospital's old capital 
    costs as allowable capital-related costs for land and depreciable 
    assets that were put in use for patient care on or before the last day 
    of the hospital's base year cost reporting period. Beginning with the 
    third year, the hospital is paid under the fully prospective or hold-
    harmless payment methodology, as appropriate. If the hospital is paid 
    under the hold-harmless payment methodology, the hospital's hold-
    harmless payments for its old capital costs can continue for up to 8 
    years.
        In the August 30, 1991 final rule, we defined a new hospital as one 
    that had operated (under previous or present ownership) for less than 2 
    years and did not have a 12-month cost reporting period that ended on 
    or before December 31, 1990. In the September 1, 1992 final rule (57 FR 
    39789), as a result of situations brought to our attention after 
    publication of the original prospective payment system final rule, we 
    clarified that the new hospital exemption would not apply in situations 
    where the facility was not truly a new hospital.
        In the May 8, 1998 proposed rule (63 FR 25600), we indicated that 
    questions had arisen regarding application of our rules for payment of 
    new hospitals in merger situations. We stated that consistent with our 
    previously stated policy, we were proposing to further clarify the new 
    hospital payment provisions. We proposed that, if during the period it 
    is eligible for payment as a new hospital (as defined at 
    Sec. 412.300(b) and Sec. 412.328(b)), a new hospital merges with one or 
    more existing hospitals, and the merger meets the existing capital-
    related reasonable cost rules regarding the criteria for recognizing a 
    merger at Sec. 413.134 and the new hospital is the surviving 
    corporation (as defined in Sec. 413.134(l)(2)), we would treat as old 
    capital only those assets of the existing hospital that met the 
    definition of old capital (as defined in Sec. 412.302(b)) prior to the 
    merger, for purposes of determining payments after the merger.
        Any assets of the existing hospital that were considered new 
    capital prior to the merger would still be considered new capital after 
    the merger. However, the merger cannot be used to convert the existing 
    hospital's new capital into old capital. After the merger, the 
    discharges of each campus of the merged entity would maintain their 
    pre-merger payment methodology until the end of the 2-year period that 
    the new hospital campus is eligible for reasonable cost reimbursement 
    as defined at Sec. 412.324(b). That is, the discharges at the new 
    hospital would be paid based on 85 percent of its allowable Medicare 
    hospital capital-related costs, while discharges from the existing 
    hospital would continue to be paid under that hospital's methodology, 
    that is, fully prospective or hold-harmless. At the end of this period, 
    the intermediary would calculate a hospital specific rate for the 
    ``new'' campus of the merged hospital. Finally, the calculation 
    methodology for hospital mergers at new Sec. 412.331(a)(1) and (2) 
    would be performed and a combined hospital-specific rate would be 
    determined and a payment methodology selected for the merged hospital 
    as a whole.
        The calculation at Sec. 412.331(a)(1) and (2) uses each hospital's 
    base year old capital costs. Any new capital of the previously existing 
    hospital would not be used in the determination. If the merged entity 
    qualifies for the hold-harmless payment methodology, only the capital 
    which meets the definition of old capital at Sec. 412.302(b) would be 
    eligible for hold-harmless payments.
        We received one comment on our proposal.
        Comment: One hospital association commented on the policy that only 
    the assets of the existing hospital that met the definition of old 
    capital prior to the merger would be treated as old capital after the 
    merger, even if all of the capital had been acquired and put into use 
    during the new hospital's base year. They also stated that the proposal 
    changes the regulatory definition of a new hospital's old capital, 
    revises its payment methodology determination, and creates special 
    payment rules for new hospitals that merge with existing hospitals. The 
    commenter also states that a hospital in a situation similar to that 
    described in our example was told that after a merger between a new 
    hospital and an existing hospital, all assets acquired by the new 
    hospital in the base year would become old capital costs. The commenter 
    suggests that if HCFA will not reconsider the proposed change, at least 
    it should not be applied retroactively.
        Response: As indicated in the proposed rule, we addressed this 
    issue because questions have arisen regarding application of our rules 
    for payment for new hospitals in merger situations. Accordingly, we 
    proposed to clarify the application of our rules in merger situations. 
    Before the proposed rule, we had not specifically addressed in the 
    Federal Register the issue of mergers between an ``existing'' hospital 
    and a ``new'' hospital, but our clarification is consistent with 
    existing rules; the clarification does not reflect new policy or a 
    change in policy that can only be applied prospectively.
        The commenter is correct that with regard to the capital of the 
    existing hospital that merges with a new hospital, our proposal would 
    treat as old capital only capital that qualified as old capital prior 
    to the merger. Any capital that was new capital of the existing 
    hospital prior to the merger would remain new capital after the merger. 
    The new hospital will be paid 85 percent of its allowable Medicare 
    inpatient hospital capital-related costs through its
    
    [[Page 40999]]
    
    cost reporting period ending at least two years after the hospital 
    accepts its first patient. In our September 1, 1992 final rule (57 FR 
    39789), we clarified that the new hospital exemption under the capital 
    prospective payment system would not apply to a facility that opened as 
    an acute care hospital if that hospital had previously operated under 
    current or prior ownership and had a historic asset base. We also 
    clarified that even a hospital that replaced its entire facility (with 
    or without a change of ownership) would not qualify for a new hospital 
    exemption and that a previously existing PPS-excluded hospital (paid 
    under section 1886(b) of the Act) that became an acute care hospital 
    (paid under section 1886(d)) of the Act would not qualify as a new 
    hospital. With this current proposal we are clarifying our rules as 
    they apply to a new hospital which merges with an existing hospital.
        When a new hospital merges with an existing hospital that has 
    already had the benefit of reasonable cost reimbursement prior to the 
    inception of capital PPS, on October 1, 1991, we believe it would be 
    inappropriate for all of the capital assets of a previously existing 
    hospital to be eligible for payment as old capital simply because it 
    merged with a new hospital. As with the other situations that we 
    clarified in 1992, this current clarification of the regulation at 
    Sec. 412.331(a)(3) is consistent with the principle that the new 
    hospital exemption should only be available to those hospitals that had 
    not received reasonable cost payments in the past and needed special 
    payment protection during their initial period of operation. Our policy 
    seeks to ensure that when a new hospital acquires the assets of an 
    existing hospital through a merger, any assets of the existing hospital 
    that were previously considered new capital prior to the merger are not 
    transformed to old capital, as a result of the merger. The new hospital 
    will still be paid 85 percent of its allowable Medicare capital-related 
    costs for all other assets it acquires through the end of its base 
    period.
        The commenter fails to note that our current payment rules at 
    Sec. 412.331(a)(3) for merger situations already provide that only the 
    existing capital-related costs related to the assets of each merged or 
    consolidated hospital as of December 31, 1990 are recognized as old 
    capital costs during the transition period. If the merged hospital is 
    paid under the hold-harmless methodology after merger or consolidation, 
    only that original base year old capital is eligible for hold-harmless 
    payments. These rules mean that in cases of a merger between two 
    existing hospitals, only the capital assets which were recognized as 
    old capital prior to December 31, 1990 are eligible for payment as old 
    capital after the merger. We are clarifying that this principle would 
    also apply to the situation of merger between an existing hospital and 
    a new hospital. The regulation that defines a new hospital's old 
    capital was not intended to apply to capital acquired through merger 
    with an existing hospital subject to capital PPS.
        Finally, the commenter is mistaken that HCFA has previously ruled 
    that the new capital assets of an existing hospital could be paid as 
    old capital after a merger with a new hospital. In fact, our policy is 
    consistent with our regulation at Sec. 412.331(a)(3) cited above, in 
    that only the existing capital-related costs related to the assets of 
    each merged or consolidated hospital as of December 31, 1990 are 
    recognized as old capital costs during the transition period.
        We are implementing this clarification as proposed. For an example 
    of how our policy works, see the May 8, 1998 proposed rule (63 FR 
    25601).
    
    C. Special Exceptions Process
    
        As described in Sec. 412.348(g) of the regulations, an additional 
    payment may be made for up to 10 years beyond the end of the capital 
    PPS transition period for eligible hospitals that meet: (1) a project 
    need requirement, (2) a project size requirement, and, (3) in the case 
    of certain urban hospitals, an excess capacity test. The regulation 
    establishing this special exceptions provision, and describing the 
    criteria by which eligible hospitals qualify, was published on 
    September 1, 1994 (59 FR 45385). At that time we described the purpose 
    of the special exceptions process as ``* * * narrowly defined, focusing 
    on a small group of hospitals who found themselves in a disadvantaged 
    position. The target hospitals were those who had an immediate and 
    imperative need to begin major renovations or replacements just after 
    the beginning of the capital prospective payment system. These 
    hospitals would not be eligible for protection under the old capital 
    and obligated capital provisions, and would not have been allowed any 
    time to accrue excess capital prospective payments to fund these 
    projects.''
        The special exceptions process is available to certain classes of 
    hospitals that meet the eligibility criteria described at 
    Sec. 412.348(g)(1). The eligible classes of hospitals are sole 
    community hospitals; urban hospitals with at least 100 beds that either 
    have a disproportionate share percentage of 20.2 percent or receive at 
    least 30 percent of their revenue from State or local funds for 
    indigent care; and hospitals with a combined inpatient Medicare and 
    Medicaid utilization of at least 70 percent.
        Eligible hospitals must satisfy a project need requirement as 
    described at Sec. 412.348(g)(2) and a project size requirement as 
    described at Sec. 412.348(g)(5). For hospitals in States with 
    Certificate of Need (CON) requirements, the project need requirement is 
    satisfied by obtaining CON approval. For other hospitals, the project 
    need requirement is satisfied by meeting an age of assets test. The 
    project size requirement is satisfied if the hospital completes the 
    qualifying project during the period beginning on or after its first 
    cost reporting period beginning on or after October 1, 1991 to the end 
    of its last cost reporting period beginning before October 1, 2001, and 
    the project meets certain cost thresholds specified in the regulations.
        The minimum payment level for qualifying hospitals is 70 percent of 
    allowable capital-related costs. A qualifying hospital may receive 
    payments for up to ten years from the year which it completes a 
    qualifying project. Finally, the regulations at Sec. 412.348(g)(8) 
    describe the cumulative payment comparison and offsetting amounts which 
    are used to determine a qualifying hospital's exception payment.
        A few hospitals have expressed concern with the required completion 
    date of October 1, 2001, and other qualifying criteria for the special 
    exceptions. When we established the special exceptions process, we 
    selected the hospital's cost reporting period beginning before October 
    1, 2001 as the project completion date, because hospitals are eligible 
    to receive special exceptions payments for up to ten years from the 
    year in which they complete their project. If a project is completed by 
    September 30, 2001, then exceptions payments could continue up to 
    October 30, 2011. We intended to limit cost-based exceptions payments 
    to the period not more than ten years beyond the end of the transition 
    to fully prospective payment for capital. When we adopted the criteria 
    for the special exceptions process, we selected the project completion 
    date with the goal of not extending this transition unnecessarily. In 
    addition, we believed that eligible hospitals will not have had the 
    opportunity to reserve prior year capital PPS payments for financing 
    projects begun in the early years of PPS.
    
    [[Page 41000]]
    
        In order for us to analyze the impact of potential changes in the 
    special exceptions policies, we are soliciting the following 
    information on major capital construction projects as defined at 
    Sec. 412.348(g)(5) that will be put to use for patient care on or after 
    October 1, 1996:
        (1) Name, address, phone number and provider number of hospital;
        (2) Cost of capital project;
        (3) Date of CON approval, if required;
        (4) Start date of project; and
        (5) Anticipated completion date.
        Please forward this information by September 30, 1998 to the 
    Division of Acute Care, Attention: Cassandra Black at the following 
    address: HCFA, C4-01-26, 7500 Security Blvd., Baltimore, Md. 21244-
    1850. We will analyze the data to determine whether any changes in the 
    special exceptions policies are necessary. Any changes, if necessary, 
    would be included in next year's FY 2000 proposed rule for hospital 
    PPS.
    
    VI. Changes for Hospitals and Units Excluded From the Prospective 
    Payment System
    
    Limits on and Adjustments to the Target Amounts for Excluded Hospitals 
    and Units (Sec. 413.40(g))
    
    1. Updated Caps
        Section 1886(b)(3) of the Act as amended by section 4414 of the BBA 
    established caps on the target amounts for excluded hospitals and units 
    for cost reporting periods beginning on or after October 1, 1997, 
    through September 30, 2002. The caps on the target amounts apply to the 
    following three categories of excluded hospitals: psychiatric hospitals 
    and units, rehabilitation hospitals and units, and long-term care 
    hospitals. For purposes of calculating the caps, the statute requires 
    the Secretary to first calculate the 75th percentile of the target 
    amounts for each class of hospital (psychiatric, rehabilitation, or 
    long-term care) for cost reporting periods ending during FY 1996. The 
    resulting amounts are updated by the market basket percentage to the 
    applicable fiscal year.
        A discussion of how the caps on the target amounts were calculated 
    for cost reporting periods beginning during FY 1998 can be found in the 
    August 29, 1997, final rule with comment period (62 FR 46018). On March 
    6, 1998, we published a correction notice correcting the caps for FY 
    1998 (63 FR 11148).
        In the May 8 proposed rule for FY 1999, we published proposed caps 
    for cost reporting periods beginning during FY 1999 (63 FR 25601); 
    however, the caps that we published inadvertently reflected updates to 
    the amounts published on August 29, 1997, rather than the corrected 
    amounts published on March 6, 1998 (see May 13, 1998 correction notice, 
    63 FR 26565). Thus, as corrected, the proposed caps for FY 1999 were as 
    follows:
    
    (1) Psychiatric hospitals and units: $10,797
    (2) Rehabilitation hospitals and units: $19,582
    (3) Long-term care hospitals: $38,630
    
    These proposed caps reflected an update of 2.5 percent, the projected 
    market basket percentage increase at the time we developed the proposed 
    rule.
        The final projection of the market basket percentage for excluded 
    hospitals and units for FY 1999, based on the most recent data 
    available, is 2.4 percent. Accordingly, the final caps on the target 
    amounts for existing hospitals for cost reporting periods beginning 
    during FY 1999 are as follows:
    
    (1) Psychiatric hospitals and units: $10,787
    (2) Rehabilitation hospitals and units: $19,562
    (3) Long-term care hospitals: $38,593
    2. New Excluded Hospitals and Units (Sec. 413.40(f))
        Section 1886(b)(7) of the Act establishes a new statutory payment 
    methodology for new psychiatric hospitals and units, rehabilitation 
    hospitals and units, and long-term care hospitals. Under the statutory 
    methodology, for a hospital that is within a class of hospitals 
    specified in the statute and which first receives payments on or after 
    October 1, 1997, the amount of payment will be determined as follows. 
    For each of the first two cost reporting periods, the amount of payment 
    is lesser of (1) the operating costs per case, or (2) 110 percent of 
    the national median of target amounts for the same class of hospitals 
    for cost reporting periods ending during FY 1996, updated and adjusted 
    for differences in area wage levels.
        In the August 29, 1997 final rule with comment period, we published 
    the figures for 110 percent of the national median of target amounts 
    for each class of hospital (62 FR 46020). In the May 12, 1998 final 
    rule for FY 1998, we revised the figure for long-term care hospitals to 
    $21,494 (63 FR 26347).
        The table below lists 110 percent of the wage neutral national 
    median target amounts for each class of excluded hospitals for cost 
    reporting periods beginning during FY 1999. These figures reflect 
    updates to the final FY 1998 figures by the projected market basket 
    increase of 2.4 percent. For a new provider, the labor-related share of 
    the target amount should be multiplied by the appropriate geographic 
    area wage index and added to the nonlabor-related share in order to 
    determine the limit on payment under the statutory payment methodology 
    for new providers.
    
    ------------------------------------------------------------------------
                                                          Labor-   Nonlabor-
                           Total                         related    related 
                                                          share      share  
    ------------------------------------------------------------------------
    (1) Psychiatric...................................     $6,214     $2,472
    (2) Rehabilitation................................     12,219      4,858
    (3) Long-Term Care................................     15,749      6,261
    ------------------------------------------------------------------------
    
        3. Classification of Hospitals and Units (Sec. 413.40(c))
        In the May 8 proposed rule, we stated that, after publication of 
    the August 29, 1997 final rule with comment period, some excluded 
    facilities had suggested that if they are currently excluded as one 
    class of hospital or unit but also qualify for exclusion as another 
    class of hospital, they should be permitted to choose which 
    classification applies for purposes of applying the cap on target 
    amounts. For example, some hospitals that participate in Medicare as 
    psychiatric hospitals (defined under section 1861(f) of the Act, and 
    the special conditions of participation in 42 CFR part 482 subpart E) 
    have noted that they have average lengths of stay greater than 25 days. 
    Those hospitals have asked to be ``reclassified'' as long-term care 
    hospitals and given the benefit of the higher cap on target amounts 
    applicable to that hospital class.
        In the proposed rule, we indicated that we had considered these 
    hospitals' suggestions but, for reasons explained in that document, 
    believed it would not be appropriate to adopt them. Accordingly, in the 
    May 8 proposed rule, we proposed to revise Sec. 413.40(c)(4)(iii) to 
    specify that, for purposes of that paragraph, the classification of a 
    hospital that was excluded from the prospective payment system for its 
    cost reporting period ending in FY 1996 would be determined by its 
    classification (that is, the basis on which it was excluded) in FY 
    1996. If a hospital or unit was not excluded for a cost reporting 
    period ending in FY 1996, but could be excluded on more than one basis 
    (for example, as either a rehabilitation or long-term care hospital) in 
    a given cost reporting period, it would be assigned to the 
    classification group with the lowest limit.
        Comment: One commenter agreed that psychiatric hospitals should not 
    be allowed the higher cap on target amounts that is applicable to long-
    term care hospitals, even if they also have average lengths of 
    inpatient stay greater than 25 days. The commenter pointed out that 
    psychiatric hospitals participate in Medicare under a provision of the 
    law (section 1861(f) of the Act) that is separate from the provision 
    applicable
    
    [[Page 41001]]
    
    to other excluded hospitals (section 1861(e) of the Act), and that the 
    exclusion criteria for psychiatric hospitals differ from those for 
    other hospitals. The commenter stated that because of these 
    differences, a psychiatric hospital could not qualify for exclusion as 
    another type of hospital or be eligible for the cap that applies to 
    another type of hospital. The commenter suggested that it is 
    unnecessary to specify that a psychiatric hospital cannot qualify for 
    the cap on target amounts applicable to long-term care or other types 
    of excluded hospitals.
        Response: If a hospital qualifies under more than one of the 
    exclusion criteria pursuant to section 1886(d)(1)(B) of the Act, we 
    would apply the lowest applicable cap to the hospital. For example, 
    where a hospital qualifies as both a rehabilitation and long-term care 
    hospital, we will apply the lower rehabilitation hospital cap to the 
    hospital. Since this rule applies to all PPS-excluded hospitals, 
    whether a psychiatric hospital can qualify as another type of hospital 
    or not, the policy of applying the lowest cap is still needed.
        Comment: One commenter pointed out that some non-psychiatric 
    (section 1861(e) of the Act) hospitals might be able to qualify for 
    exclusion either as rehabilitation or as long-term care hospitals. The 
    commenter stated that in many cases such facilities are excluded as 
    long-term care hospitals. Therefore, the commenter recommended that any 
    hospital in this category be given the benefit of the long-term care 
    hospital cap.
        Response: We understand that some hospitals may simultaneously be 
    able to qualify for exclusion on more than one basis. If a hospital is 
    excluded from PPS as a certain type of hospital, we believe the 
    hospital should be subject to the cap applicable for that class of 
    hospital, even if it qualifies for exclusion on another basis. Thus, if 
    a hospital qualifies for exclusion on more than one basis, then it is 
    subject to all applicable caps, which in turn means the hospital's 
    target amount cannot exceed the lowest of the applicable caps. We 
    believe this policy not only is appropriate, but also provides greater 
    incentives for efficient and cost-effective operation.
        Comment: Two commenters stated that if a hospital is classified as 
    one type of hospital in any period to which the limits apply, and does 
    not simultaneously qualify for exclusion on any other basis, the law 
    (section 1886(b)(3) of the Act) does not authorize application of any 
    cap other than the one applicable to the exclusion category to which 
    the hospital is assigned. One commenter stated that this is the case 
    even if the basis for the hospital's exclusion in a given cost 
    reporting period is different than the basis for its exclusion for the 
    cost reporting period ending during FY 1996 (for example, a hospital 
    may have been excluded as a rehabilitation hospital during that period 
    and later qualified for exclusion as a long-term care hospital).
        Response: We agree with the commenter that, if the basis for a 
    hospital's exclusion for a given cost reporting period is different 
    than the basis for the hospital's exclusion for the cost reporting 
    period ending during FY 1996, the earlier basis of exclusion should not 
    control which cap applies. We are revising Sec. 413.40(c)(4)(iv) 
    accordingly. Thus, in applying the caps to excluded hospitals (or 
    units), we will consider only the current basis (or bases) for 
    exclusion. As stated above, if a hospital qualifies for more than one 
    type of exclusion, its target amount may not exceed the lowest of the 
    applicable caps.
        We note that, for the reasons explained in the proposed rule, we 
    continue to be concerned that hospitals and units may seek changes in 
    their basis of exclusion solely to take advantage of a higher cap, and 
    that the resulting changes could compromise the effectiveness of the 
    caps. We will monitor this situation carefully and may seek further 
    legislative changes to the extent necessary to preserve the 
    effectiveness of the caps.
        Comment: One commenter recommended that the regulations be revised 
    to state that where two hospitals who are subject to different caps on 
    TEFRA limits merge, the TEFRA cap that applies is the cap of the 
    surviving hospital.
        Response: If two hospitals merge, the cap that applies depends on 
    the status of the surviving entity. However, we do not believe that the 
    regulations as described above, can be interpreted in any other way. 
    Therefore, we do not agree that the regulations need to be revised to 
    specifically address this situation.
        Comment: One commenter suggested that if a new hospital subject to 
    the limits revised under Sec. 413.40(f)(2)(ii) changes the basis on 
    which it is excluded from the PPS (for example, from being a 
    rehabilitation hospital to a long-term care hospital), the cap applied 
    for purposes of the comparison should be the cap applicable to the 
    hospital's ``current'' exclusion category, not the hospital's previous 
    exclusion category.
        Response: We agree that the cap applied should be based on the 
    exclusion category for which the hospital currently qualifies. In light 
    of the changes made in response to comments described above, we do not 
    believe the regulations need to be further revised.
    4. Exceptions
        The August 29, 1997 final rule with comment period (62 FR 46018) 
    specified that a hospital that has a target amount that is capped at 
    the 75th percentile, would not be granted an adjustment payment to the 
    target amount (also referred to as an exception payment) as governed by 
    Sec. 413.40(g)(3) based solely on a comparison of its costs or patient 
    mix in its base year to its costs or patient mix in the payment year. 
    Since the hospital's target amount would not be determined based on its 
    own experience in a base year, any comparison of costs or patient mix 
    in its base year to costs or patient mix in the payment year would be 
    irrelevant.
        In addition, in the May 8, 1998 proposed rule, we proposed to 
    clarify that, to the extent we grant an exception in accordance with 
    Sec. 413.40(g)(3) to a hospital not affected by the cap, the amount of 
    the exception would be limited to the cap on the hospital's target 
    amount. By establishing caps on TEFRA target amounts, Congress has 
    limited payments to individual hospitals based on amounts that reflect 
    the cost experience of other hospitals. Therefore, in determining the 
    extent of any adjustment paid to a hospital as an exception under our 
    regulations at Sec. 413.40(g)(3), we believe it is consistent with 
    Congressional intent to limit the extent of the adjustment to the 
    hospital's cap on its target amount.
        We proposed to revise Sec. 413.40(g)(1) in order to set forth the 
    limitation on the adjustment payments.
        Comment: One commenter stated that the proposed rule conflicts with 
    section 1886(b)(4)(A)(i) of the Act, which requires HCFA to provide for 
    adjustments to providers who exceed their TEFRA ceiling. The commenter 
    also believed that our proposed provision limiting the TEFRA exception 
    to the TEFRA cap is inconsistent with HCFA's past TEFRA adjustment 
    processing practices. The commenter also stated that the proposed rule 
    would adversely affect beneficiaries by limiting the scope and extent 
    of services that hospitals in high wage areas are financially able to 
    deliver. For these reasons, the commenter requested that HCFA modify 
    the proposed rule to permit the granting of exceptions to the TEFRA 
    cap.
        Response: Section 1886(b)(4)(A)(i) of the Act provides that the 
    Secretary
    
    [[Page 41002]]
    
    ``shall provide'' for exceptions and adjustments ``where events beyond 
    the hospital's control or extraordinary circumstances, including 
    changes in the case mix of such hospital, create a distortion in the 
    increase in costs for a cost reporting period.'' Prior to the enactment 
    of Public Law 105-33, the payment for each excluded hospital was 
    limited by a hospital-specific target amount, which was updated each 
    year. The exceptions and adjustments provision provided for payments 
    above the hospital's target amount if the hospital experienced ``a 
    distortion in the increase in costs'' for a given period. Thus, a 
    hospital could receive an exception based on its cost experience.
        The BBA enacted a system of caps which significantly changed the 
    TEFRA payment system. Under the new system of TEFRA caps, a hospital's 
    payments are not based solely on its own cost experience; instead, a 
    hospital is now subject to a cap based on the cost experience of other 
    hospitals.
        We believe our policies harmonize the exceptions provision and the 
    cap provision. Under our policies, a hospital whose target amount is 
    below the cap may receive an exception up to the cap. Thus, consistent 
    with the mandate of section 1886(b)(4) of the Act, we continue to 
    provide for exceptions, contrary to the assertion of the commenter. 
    However, by establishing caps on TEFRA target amounts, Congress has 
    limited payments to individual hospitals based on amounts that reflect 
    the cost experience of other hospitals. Therefore, in determining the 
    extent of any adjustment paid to a hospital as an exception under our 
    regulations, we believe it is consistent with Congressional intent to 
    limit the extent of the adjustment to the hospital's cap on its target 
    amount. If a hospital's otherwise applicable target amount is above the 
    cap, it cannot receive an exception based solely on a comparison of its 
    current year costs or patient mix to base year costs or patient mix.
    
    VII. MedPAC Recommendations
    
        As required by law, we have reviewed the March 1998 report 
    submitted by MedPAC to Congress and gave its recommendations careful 
    consideration in conjunction with the proposals set forth in the 
    proposed rule. We also responded to the individual recommendations in 
    the proposed rule. The comments we received on the treatment of the 
    MedPAC recommendations are set forth below along with our responses to 
    those comments. However, if we received no comments from the public 
    concerning a MedPAC recommendation or our response to that 
    recommendation, we have not repeated the recommendation and response in 
    the discussion below. Recommendations concerning the update factors for 
    inpatient operating costs and for hospitals and hospital distinct-part 
    units excluded from the prospective payment system are discussed in 
    Appendix C, of this final rule.
    
    Potential Effects of Target Amount Caps
    
        Recommendation: The wage-related portion of the excluded hospital 
    target amount caps should be adjusted by the appropriate hospital wage 
    index to account for geographic differences in wages. (For more 
    information see Volume 1, chapter 7, page 71 of the March 1998 report.)
        Response in the Proposed Rule: As MedPAC indicated in its 
    recommendation, legislation would be required to adjust the target 
    amount caps in such a substantial manner as to adjust for differences 
    in area labor costs.
        Comment: Several commenters believed that the caps on the target 
    amounts should be wage adjusted in order to recognize the different 
    labor markets. They believe to do otherwise would be unfair and 
    inequitable and may cause hospitals to cut back on services they 
    provide to their Medicare beneficiaries.
        Response: We previously addressed this issue in the final rule 
    published in the Federal Register on May 12, 1998 (63 FR 26345). Our 
    decision, as expressed in our response in that final rule, remains 
    unchanged.
    
    VIII. Other Required Information
    
    Requests for Data From the Public
    
        In order to respond promptly to public requests for data related to 
    the prospective payment system, we have set up a process under which 
    commenters can gain access to the raw data on an expedited basis. 
    Generally, the data are available in computer tape format or 
    cartridges; however, some files are available on diskette, and on the 
    Internet at HTTP://WWW.HCFA.GOV/STATS/PUBFILES.HTML. In our May 8 
    proposed rule, we published a list of data files that are available for 
    purchase (63 FR 25603).
    
    List of Subjects
    
    42 CFR Part 405
    
        Administrative practice and procedure, Health facilities, Health 
    professions, Kidney diseases, Medicare, Reporting and recordkeeping 
    requirements, Rural areas, X-rays.
    
    42 CFR Part 412
    
        Administrative practice and procedure, Health facilities, Medicare, 
    Puerto Rico, Reporting and recordkeeping requirements.
    
    42 CFR Part 413
    
        Health facilities, Kidney diseases, Medicare, Puerto Rico, 
    Reporting and recordkeeping requirements.
    
        42 CFR Chapter IV is amended as set forth below:
        A. Part 405 is amended as follows:
    
    PART 405--FEDERAL HEALTH INSURANCE FOR THE AGED AND DISABLED
    
        1. The authority citation for part 405 is revised to read as 
    follows:
    
        Authority: Secs. 1102, 1861, 1862(a), 1871, 1874, 1881, and 
    1886(k) of the Social Security Act (42 U.S.C. 1302, 1395x, 1395y(a), 
    1395hh, 1395kk, 1395rr and 1395ww(k)), and sec. 353 of the Public 
    Health Service Act (42 U.S.C. 263a), unless otherwise noted.
    
    Subpart X--Rural Health Clinic and Federally Qualified Health 
    Center Services
    
        2. In Sec. 405.2468, a new paragraph (f) is added to read as 
    follows:
    
    
    Sec. 405.2468  Allowable costs
    
    * * * * *
        (f) Graduate medical education. (1) Effective for that portion of 
    cost reporting periods occurring on or after January 1, 1999, if an RHC 
    or an FQHC incurs ``all or substantially all'' of the costs for the 
    training program in the nonhospital setting as defined in 
    Sec. 413.86(b) of this chapter, the RHC or FQHC may receive direct 
    graduate medical education payment for those residents.
        (2) Direct graduate medical education costs are not included as 
    allowable cost under Sec. 405.2466(b)(1)(i); and therefore, are not 
    subject to the limit on the all-inclusive rate for allowable costs.
        (3) Allowable graduate medical education costs must be reported on 
    the RHC's or the FQHC's cost report under a separate cost center.
        (4) Allowable graduate medical education costs are non-reimbursable 
    if payment for these costs are received from a hospital or a 
    Medicare+Choice organization.
        (5) Allowable direct graduate medical education costs under 
    paragraphs (f)(6) and (f)(7)(i) of this section, are subject to 
    reasonable cost principles under part 413 and the reasonable 
    compensation equivalency limits in Secs. 415.60 and 415.70 of this 
    chapter.
        (6) The allowable direct graduate medical education costs are those 
    costs
    
    [[Page 41003]]
    
    incurred by the nonhospital site for the educational activities 
    associated with patient care services of an approved program, subject 
    to the redistribution and community support principles in 
    Sec. 413.85(c).
        (i) The following costs are allowable direct graduate medical 
    education costs to the extent that they are reasonable--
        (A) The costs of the residents' salaries and fringe benefits 
    (including travel and lodging expenses where applicable).
        (B) The portion of teaching physicians' salaries and fringe 
    benefits that are related to the time spent teaching and supervising 
    residents.
        (C) Facility overhead costs that are allocated to direct graduate 
    medical education.
        (ii) The following costs are not allowable graduate medical 
    education costs--
        (A) Costs associated with training, but not related to patient care 
    services.
        (B) Normal operating and capital-related costs.
        (C) The marginal increase in patient care costs that the RHC or 
    FQHC experiences as a result of having an approved program.
        (D) The costs associated with activities described in 
    Sec. 413.85(d) of this chapter.
        (7) Payment is equal to the product of--
        (i) The RHC's or the FQHC's allowable direct graduate medical 
    education costs; and
        (ii) Medicare's share, which is equal to the ratio of Medicare 
    visits to the total number of visits (as defined in Sec. 405.2463).
        (8) Direct graduate medical education payments to RHCs and FQHCs 
    made under this section are made from the Federal Supplementary Medical 
    Insurance Trust Fund.
        B. Part 412 is amended as set forth below:
    
    PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
    SERVICES
    
        1. The authority citation for part 412 continues to read as 
    follows:
    
        Authority: Secs. 1102 and 1871 of the Social Security Act (42 
    U.S.C. 1302 and 1895hh).
    
    Subpart A--General Provisions
    
        2. Section 412.4 is revised to read as follows:
    
    
    Sec. 412.4  Discharges and transfers.
    
        (a) Discharges. Subject to the provisions of paragraphs (b) and (c) 
    of this section, a hospital inpatient is considered discharged from a 
    hospital paid under the prospective payment system when--
        (1) The patient is formally released from the hospital; or
        (2) The patient dies in the hospital.
        (b) Transfer--Basic rule. A discharge of a hospital inpatient is 
    considered to be a transfer for purposes of payment under this part if 
    the discharge is made under any of the following circumstances:
        (1) From a hospital to the care of another hospital that is--
        (i) Paid under the prospective payment system; or
        (ii) Excluded from being paid under the prospective payment system 
    because of participation in an approved Statewide cost control program 
    as described in subpart C of part 403 of this chapter.
        (2) From one inpatient area or unit of a hospital to another 
    inpatient area or unit of the hospital that is paid under the 
    prospective payment system.
        (c) Transfers--Special 10 DRG rule. For discharges occurring on or 
    after October 1, 1998, a discharge of a hospital inpatient is 
    considered to be a transfer for purposes of this part when the 
    patient's discharge is assigned, as described in Sec. 412.60(c), to one 
    of the qualifying diagnosis-related groups (DRGs) listed in paragraph 
    (d) of this section and the discharge is made under any of the 
    following circumstances--
        (1) To a hospital or distinct part hospital unit excluded from the 
    prospective payment system under subpart B of this part.
        (2) To a skilled nursing facility.
        (3) To home under a written plan of care for the provision of home 
    health services from a home health agency and those services begin 
    within 3 days after the date of discharge.
        (d) Qualifying DRGs. The qualifying DRGs for purposes of paragraph 
    (c) of this section are DRGs 14, 113, 209, 210, 211, 236, 263, 264, 
    429, and 483.
        (e) Payment for discharges. The hospital discharging an inpatient 
    (under paragraph (a) of this section) is paid in full, in accordance 
    with Sec. 412.2(b).
        (f) Payment for transfers. (1) General rule. Except as provided in 
    paragraph (f)(2) or (f)(3) of this section, a hospital that transfers 
    an inpatient under the circumstances described in paragraph (b) or (c) 
    of this section, is paid a graduated per diem rate for each day of the 
    patient's stay in that hospital, not to exceed the amount that would 
    have been paid under subparts D and M of this part if the patient had 
    been discharged to another setting. The per diem rate is determined by 
    dividing the appropriate prospective payment rate (as determined under 
    subparts D and M of this part) by the geometric mean length of stay for 
    the specific DRG to which the case is assigned. Payment is graduated by 
    paying twice the per diem amount for the first day of the stay, and the 
    per diem amount for each subsequent day, up to the full DRG payment.
        (2) Special rule for DRGs 209, 210, and 211. A hospital that 
    transfers an inpatient under the circumstances described in paragraph 
    (c) of this section and the transfer is assigned to DRGs 209, 210 or 
    211 is paid as follows:
        (i) 50 percent of the appropriate prospective payment rate (as 
    determined under subparts D and M of this part) for the first day of 
    the stay; and
        (ii) 50 percent of the amount calculated under paragraph (f)(1) of 
    this section for each day of the stay, up to the full DRG payment.
        (3) Transfer assigned to DRG 385. If a transfer is classified into 
    DRG 385 (Neonates, died or transferred) the transferring hospital is 
    paid in accordance with Sec. 412.2(e).
        (4) Outliers. Effective with discharges occurring on or after 
    October 1, 1984, a transferring hospital may qualify for an additional 
    payment for extraordinarily high-cost cases that meet the criteria for 
    cost outliers as described in subpart F of this part.
    
    Subpart F--Payment for Outlier Cases
    
        3. In Sec. 412.80, paragraph (b) is revised to read as follows:
    
    
    Sec. 412.80  General provisions
    
    * * * * *
        (b) Outlier cases in transferring hospitals. HCFA provides cost 
    outlier payments to a transferring hospital for cases paid in 
    accordance with Sec. 412.4(f), if the hospital's charges for covered 
    services furnished to the beneficiary, adjusted to costs by applying 
    cost-to-charge ratios as described in Sec. 412.84(h), exceed the DRG 
    payment for the case plus a fixed dollar amount (adjusted for 
    geographic variation in costs) as specified by HCFA, divided by the 
    geometric mean length of stay for the DRG, and multiplied by an 
    applicable factor determined as follows:
        (1) For transfer cases paid in accordance with Sec. 412.4(f)(1), 
    the applicable factor is equal to the length of stay plus 1 day.
        (2) For transfer cases paid in accordance with Sec. 412.4(f)(2), 
    the applicable factor is equal to 0.5 plus the product of the length of 
    stay plus 1 day multiplied by 0.5.
    * * * * *
    
    [[Page 41004]]
    
    Subpart G--Special Treatment of Certain Facilities Under the 
    Prospective Payment System for Inpatient Operating Costs
    
    
    Sec. 412.105  [Amended]
    
        4. In Sec. 412.105(f)(1)(ii)(C), the reference to 
    ``413.86(f)(1)(iii)'' is revised to read ``413.86(f)(4).''
        5. In Sec. 412.106, paragraph (b)(4) is revised to read as follows:
    
    
    Sec. 412.106  Special treatment: Hospitals that serve a 
    disproportionate share of low-income patients.
    
    * * * * *
        (b) * * *
        (4) Second computation. The fiscal intermediary determines, for the 
    same cost reporting period used for the first computation, the number 
    of the hospital's patient days of service for which patients were 
    eligible for Medicaid but not entitled to Medicare Part A, and divides 
    that number by the total number of patient days in the same period. For 
    purposes of this second computation, the following requirements apply:
        (i) A patient is deemed eligible for Medicaid on a given day if the 
    patient is eligible for medical assistance under an approved State 
    Medicaid plan on such day, regardless of whether particular items or 
    services were covered or paid under the State plan.
        (ii) The hospital has the burden of furnishing data adequate to 
    prove eligibility for each Medicaid patient day claimed under this 
    paragraph, and of verifying with the State that a patient was eligible 
    for Medicaid during each claimed patient hospital day.
    * * * * *
    
    Subpart M--Prospective Payment System for Inpatient Hospital 
    Capital Costs
    
        6. In Sec. 412.322, paragraph (a)(3) is revised to read as follows:
    
    
    Sec. 412.322  Indirect medical education adjustment factor.
    
        (a) * * *
        (3) The measurement of teaching activity is the ratio of the 
    hospital's full-time equivalent residents to average daily census. This 
    ratio cannot exceed 1.5.
    * * * * *
        7. In Sec. 412.331, paragraphs (a) and (b) are redesignated as 
    paragraphs (b) and (c) respectively, a new paragraph (a) is added and 
    the first sentence of the introductory text of newly redesignated 
    paragraph (b) is revised to read as follows:
    
    
    Sec. 412.331  Determining hospital-specific rates in cases of hospital 
    merger, consolidation, or dissolution.
    
        (a) New hospital merger or consolidation. If, after a new hospital 
    accepts its first patient but before the end of its base year, it 
    merges with one or more existing hospitals, and two or more separately 
    located hospital campuses are maintained, the hospital-specific rate 
    and payment determination for the merged entity are determined as 
    follows--
        (1) Post-merger base year payment methodology. The new campus is 
    paid based on reasonable costs until the end of its base year. The 
    existing campus remains on its previous payment methodology until the 
    end of the new campus' base year. Effective with the first cost 
    reporting period beginning after the the end of the new campus' base 
    year, the intermediary determines a hospital-specific rate applicable 
    to the new campus in accordance with Sec. 412.328, and then determines 
    a revised hospital-specific rate for the merged entity in accordance 
    with paragraph (a)(2) of this section.
        (2) Revised hospital-specific rate. Using each hospital's base 
    period data, the intermediary determines a combined average discharge-
    weighted hospital-specific rate.
        (3) Post-base year payment determination. To determine the 
    applicable payment methodology under Sec. 412.336 and for payment 
    purposes under Sec. 412.340 or Sec. 412.344, the discharge-weighted 
    hospital-specific rate determined by the intermediary is compared to 
    the Federal rate. The revised payment methodology is effective on the 
    first day of the cost reporting period beginning after the end of the 
    new campus' base year.
        (b) Existing hospital merger or consolidation. If, after the base 
    year, two or more hospitals merge or consolidate into one hospital as 
    provided for under Sec. 413.134(k) of this chapter and the provisions 
    of paragraph (a) of this section do not apply, the intermediary 
    determines a revised hospital-specific rate applicable to the combined 
    facility under Sec. 412.328, which is effective beginning with the date 
    of merger or consolidation. * * *
    * * * * *
        C. Part 413 is amended as set forth below:
    
    PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
    END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
    PAYMENT FOR SKILLED NURSING FACILITIES
    
        1. The authority citation for part 413 is revised to read as 
    follows:
    
        Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i) and 
    (n), 1861(v), 1871, 1881, 1883, and 1866 of the Social Security Act 
    (42 U.S.C. 1302, 1395f(b), 1395g, 1395l, 1395l(a), (i) and (n), 
    1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww).
    
    Subpart C--Limits on Cost Reimbursement
    
        2. In Sec. 413.40, paragraph (c)(4)(iv) is redesignated as 
    paragraph (c)(4)(v), a new paragraph (c)(4)(iv) is added, and paragraph 
    (g)(1) is revised to read as follows:
    
    
    Sec. 413.40  Ceiling on the rate of increase in hospital inpatient 
    costs.
    
    * * * * *
        (c) * * *
        (4) * * *
        (iv) For purposes of the limits on target amounts established under 
    paragraph (c)(4)(iii) of this section, each hospital or unit that 
    qualifies for exclusion as a member of only one class of excluded 
    facility (psychiatric hospital or unit, rehabilitation hospital or 
    unit, or long-term care hospital) will be subject to the limit 
    applicable to that class. If a hospital or unit qualifies to be 
    classified in more than one way under the exclusion criteria in subpart 
    B of part 412 of this chapter, the hospital's or unit's target amount 
    may not exceed the lowest applicable limit.
    * * * * *
        (g) Adjustments--(1) General rule. HCFA may adjust the amount of 
    the operating costs considered in establishing the rate-of-increase 
    ceiling for one or more cost reporting periods, including both periods 
    subject to the ceiling and the hospital's base period, under the 
    circumstances specified in paragraphs (g)(2), (g)(3), and (g)(4) of 
    this section. When an adjustment is requested by the hospital, HCFA 
    makes an adjustment only to the extent that the hospital's operating 
    costs are reasonable, attributable to the circumstances specified 
    separately identified by the hospital, and verified by the 
    intermediary. HCFA may grant an adjustment requested by the hospital 
    only if the hospital's operating costs exceed the rate-of-increase 
    ceiling imposed under this section. In the case of a psychiatric 
    hospital or unit,
    
    [[Page 41005]]
    
    rehabilitation hospital or unit, or long-term care hospital, the amount 
    of payment made to a hospital after an adjustment under paragraph 
    (g)(3) of this section may not exceed the applicable limit based on 
    75th percentile of the target amounts for hospitals of the same class 
    as described in Sec. 413.40(c)(4)(iii).
    * * * * *
    
    Subpart F--Specific Categories of Costs
    
        3. In Sec. 413.80, paragraph (h) is redesignated as paragraph (i), 
    and a new paragraph (h) is added to read as follows:
    
    
    Sec. 413.80  Bad debts, charity, and courtesy allowances.
    
    * * * * *
        (h) Limitations on bad debts. In determining reasonable costs for 
    hospitals, the amount of bad debts otherwise treated as allowable costs 
    (as defined in paragraph (e) of this section) is reduced--
        (1) For cost reporting periods beginning during fiscal year 1998, 
    by 25 percent;
        (2) For cost reporting periods beginning during fiscal year 1999, 
    by 40 percent; and
        (3) For cost reporting periods beginning during a subsequent fiscal 
    year, by 45 percent.
    * * * * *
        4. In Sec. 413.85, a new paragraph (h) is added to read as follows:
    
    
    Sec. 413.85  Cost of educational activities.
    
    * * * * *
        (h) Medicare+Choice organizations. (1) Effective January 1, 1999, 
    Medicare+Choice organizations may receive direct graduate medical 
    education payments for the time that residents spend in nonhospital 
    provider settings such as freestanding clinics, nursing homes, and 
    physicians' offices in connection with approved programs.
        (2) Medicare+Choice organizations may receive direct graduate 
    medical education payments if all of the following conditions are met:
        (i) The resident spends his or her time in patient care activities.
        (ii) The Medicare+Choice organization incurs ``all or substantially 
    all'' of the costs for the training program in the nonhospital setting 
    as defined in Sec. 413.86(b).
        (iii) There is a written agreement between the Medicare+Choice 
    organization and the nonhospital site that indicates the 
    Medicare+Choice organization will incur the costs of the resident's 
    salary and fringe benefits and provide reasonable compensation to the 
    nonhospital site for teaching activities.
        (3) A Medicare+Choice organization's allowable direct graduate 
    medical education costs, subject to the redistribution and community 
    support principles in Sec. 413.85(c), consist of--
        (i) Residents' salaries and fringe benefits (including travel and 
    lodging where applicable); and
        (ii) Reasonable compensation to the nonhospital site for teaching 
    activities related to the training of medical residents.
        (4) The direct graduate medical education payment is equal to the 
    product of--
        (i) The lower of--
        (A) The Medicare+Choice organization's allowable direct graduate 
    medical education costs per resident as defined in paragraph (h)(3) of 
    this section; or
        (B) The national average per resident amount; and
        (ii) Medicare's share, which is equal to the ratio of the number of 
    Medicare beneficiaries enrolled to the total number of individuals 
    enrolled in the Medicare+Choice organization.
        (5) Direct graduate medical education payments made to 
    Medicare+Choice organizations under this section are made from the 
    Federal Supplementary Medical Insurance Trust Fund.
        5. In Sec. 413.86, the introductory text of paragraph (b) is 
    republished, a new definition in alphabetical order is added to 
    paragraph (b), paragraphs (i) and (j) are redesignated as paragraphs 
    (j)and (k) respectively, paragraph (f)(2) is redesignated as new 
    paragraph (i), paragraphs (f)(2)(i) through (vii) are redesignated as 
    paragraphs (i)(1) through (7) respectively, the introductory text of 
    paragraph (f)(1) is redesignated as the introductory text of paragraph 
    (f), paragraphs (f)(1)(i) through (iii) are redesignated as paragraphs 
    (f)(1) through (3) respectively, paragraphs (f)(1)(iii)(A) and (B) are 
    redesignated as (f)(3)(i) and (ii) respectively, new paragraphs (f)(2) 
    and (f)(3) introductory text are revised, and a new paragraph (f)(4) is 
    added to read as follows:
    
    
    Sec. 413.86  Direct graduate medical education payments.
    
    * * * * *
        (b) Definitions. For purposes of this section, the following 
    definitions apply:
    * * * * *
        All or substantially all of the costs for the training program in 
    the nonhospital setting means the residents' salaries and fringe 
    benefits (including travel and lodging where applicable) and the 
    portion of the cost of teaching physicians' salaries and fringe 
    benefits attributable to direct graduate medical education.
    * * * * *
        (f) * * *
        (2) No individual may be counted as more than one FTE. Except as 
    provided in paragraphs (f)(3) and (4) of this section, if a resident 
    spends time in more than one hospital or, in a nonprovider setting, the 
    resident counts as partial FTE based on the proportion of time worked 
    at the hospital to the total time worked. A part-time resident counts 
    as a partial FTE based on the proportion of allowable time worked 
    compared to the total time necessary to fill a full-time internship or 
    residency slot.
        (3) On or after July, 1, 1987 and for portions of cost reporting 
    periods occurring before January 1, 1999, the time residents spend in 
    nonprovider settings such as freestanding clinics, nursing homes, and 
    physicians' offices in connection with approved programs is not 
    excluded in determining the number of FTE residents in the calculation 
    of a hospital's resident count if the following conditions are met--
    * * * * *
        (4) For portions of cost reporting periods occurring on or after 
    January 1, 1999, the time residents spend in nonprovider settings such 
    as freestanding clinics, nursing homes, and physicians' offices in 
    connection with approved programs may be included in determining the 
    number of FTE residents in the calculation of a hospital's resident 
    count if the following conditions are met--
        (i) The resident spends his or her time in patient care activities.
        (ii) The written agreement between the hospital and the nonhospital 
    site must indicate that the hospital will incur the cost of the 
    resident's salary and fringe benefits while the resident is training in 
    the nonhospital site and the hospital is providing reasonable 
    compensation to the nonhospital site for supervisory teaching 
    activities. The agreement must indicate the compensation the hospital 
    is providing to the nonhospital site for supervisory teaching 
    activities.
    * * * * *
    (Catalog of Federal Domestic Assistance Program No. 93.773, 
    Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
    Supplementary Medical Insurance)
    
    
    [[Page 41006]]
    
    
        Dated: July 23, 1998.
    Nancy-Ann Min DeParle,
    Administrator, Health Care Financing Administration.
    
        Dated: July 27, 1998.
    Donna E. Shalala,
    Secretary.
        [Editorial Note: The following addendum and appendixes will not 
    appear in the Code of Federal Regulations.]
    
    Addendum--Schedule of Standardized Amounts Effective With 
    Discharges Occurring On or After October 1, 1998, Payment Amounts 
    for Blood Clotting Factor Effective for Discharges Occurring On or 
    After October 1, 1998, and Update Factors and Rate-of-Increase 
    Percentages Effective With Cost Reporting Periods Beginning On or 
    After October 1, 1998
    
    I. Summary and Background
    
        In this addendum, we set forth the amounts and factors for 
    determining prospective payment rates for Medicare inpatient operating 
    costs and Medicare inpatient capital-related costs. In addition, we set 
    forth the updated add-on payment amounts for blood clotting factors. We 
    also set forth rate-of-increase percentages for updating the target 
    amounts for hospitals and hospital units excluded from the prospective 
    payment system.
        For discharges occurring on or after October 1, 1998, except for 
    sole community hospitals, Medicare-dependent, small rural hospitals, 
    and hospitals located in Puerto Rico, each hospital's payment per 
    discharge under the prospective payment system will be based on 100 
    percent of the Federal national rate.
        Sole community hospitals are paid based on whichever of the 
    following rates yield the greatest aggregate payment: the Federal 
    national rate, the updated hospital-specific rate based on FY 1982 cost 
    per discharge, or the updated hospital-specific rate based on FY 1987 
    cost per discharge. Medicare-dependent, small rural hospitals are paid 
    based on the Federal national rate or, if higher, the Federal national 
    rate plus 50 percent of the difference between the Federal national 
    rate and the updated hospital-specific rate based on FY 1982 or FY 1987 
    cost per discharge, whichever is higher. For hospitals in Puerto Rico, 
    the payment per discharge is based on the sum of 50 percent of a Puerto 
    Rico rate and 50 percent of a national rate.
        As discussed below in section II, we are making changes in the 
    determination of the prospective payment rates for Medicare inpatient 
    operating costs. The changes, to be applied prospectively, affect the 
    calculation of the Federal rates. In section III, we are updating the 
    payments per unit for blood clotting factor provided to hospital 
    inpatients who have hemophilia. In section IV of this addendum, we 
    discuss our changes for determining the prospective payment rates for 
    Medicare inpatient capital-related costs. Section V of this addendum 
    sets forth our changes for determining the rate-of-increase limits for 
    hospitals excluded from the prospective payment system. The tables to 
    which we refer in the preamble to this final rule are presented at the 
    end of this addendum in section VI.
    
    II. Changes to Prospective Payment Rates For Inpatient Operating 
    Costs for FY 1999
    
        The basic methodology for determining prospective payment rates for 
    inpatient operating costs is set forth at Sec. 412.63 for hospitals 
    located outside of Puerto Rico. The basic methodology for determining 
    the prospective payment rates for inpatient operating costs for 
    hospitals located in Puerto Rico is set forth at Secs. 412.210 and 
    412.212. Below, we discuss the factors used for determining the 
    prospective payment rates. The Federal and Puerto Rico rate changes 
    will be effective with discharges occurring on or after October 1, 
    1998. As required by section 1886(d)(4)(C) of the Act, we must also 
    adjust the DRG classifications and weighting factors for discharges in 
    FY 1999.
        In summary, the standardized amounts set forth in Tables 1A and 1C 
    of section VI of this addendum reflect--
         Updates of 0.5 percent for all areas (that is, the market 
    basket percentage increase of 2.4 percent minus 1.9 percentage points);
         An adjustment to ensure budget neutrality as provided for 
    in sections 1886(d)(4)(C)(iii) and (d)(3)(E) of the Act by applying new 
    budget neutrality adjustment factors to the large urban and other 
    standardized amounts;
         An adjustment to ensure budget neutrality as provided for 
    in section 1886(d)(8)(D) of the Act by removing the FY 1998 budget 
    neutrality factor and applying a revised factor; and
         An adjustment to apply the revised outlier offset by 
    removing the FY 1998 outlier offset and applying a new offset.
        The standardized amounts set forth in Tables 1E and 1F of section 
    VI of this addendum, which apply to ``temporary relief'' hospitals (see 
    62 FR 46001 for a discussion of these hospitals), reflect updates of 
    0.8 percent for all areas but otherwise reflect the same adjustments as 
    the national standardized amounts. As described in Sec. 412.107, these 
    hospitals receive an update that is 0.3 percentage points more than the 
    update factor applicable to all other prospective payment hospitals for 
    FY 1999.
    
    A. Calculation of Adjusted Standardized Amounts
    
    1. Standardization of Base-Year Costs or Target Amounts
        Section 1886(d)(2)(A) of the Act required the establishment of 
    base-year cost data containing allowable operating costs per discharge 
    of inpatient hospital services for each hospital. The preamble to the 
    September 1, 1983 interim final rule (48 FR 39763) contains a detailed 
    explanation of how base-year cost data were established in the initial 
    development of standardized amounts for the prospective payment system 
    and how they are used in computing the Federal rates.
        Section 1886(d)(9)(B)(i) of the Act required that Medicare target 
    amounts be determined for each hospital located in Puerto Rico for its 
    cost reporting period beginning in FY 1987. The September 1, 1987 final 
    rule contains a detailed explanation of how the target amounts were 
    determined and how they are used in computing the Puerto Rico rates (52 
    FR 33043, 33066).
        The standardized amounts are based on per discharge averages of 
    adjusted hospital costs from a base period or, for Puerto Rico, 
    adjusted target amounts from a base period, updated and otherwise 
    adjusted in accordance with the provisions of section 1886(d) of the 
    Act. Sections 1886(d)(2) (B) and (C) of the Act required that the base-
    year per discharge costs be updated for FY 1984 and then standardized 
    in order to remove from the cost data the effects of certain sources of 
    variation in cost among hospitals. These include case mix, differences 
    in area wage levels, cost of living adjustments for Alaska and Hawaii, 
    indirect medical education costs, and payments to hospitals serving a 
    disproportionate share of low-income patients.
        Under sections 1886(d)(2)(H) and (d)(3)(E) of the Act, in making 
    payments under the prospective payment system, the Secretary estimates 
    from time to time the proportion of costs that are wages and wage-
    related costs. Since October 1, 1997, when the market basket was last 
    revised, we have considered 71.1 percent of costs to be labor-related 
    for purposes of the prospective payment system. For the Puerto Rico 
    standardized amounts, the labor share is 71.3 percent. We are revising 
    the discharge-weighted national standardized amount for Puerto Rico to 
    reflect the proportion of discharges in large urban and other areas 
    from the FY 1997 MedPAR file.
    
    [[Page 41007]]
    
    2. Computing Large Urban and Other Area Averages
        Sections 1886(d)(2)(D) and (3) of the Act require the Secretary to 
    compute two average standardized amounts for discharges occurring in a 
    fiscal year: one for hospitals located in large urban areas and one for 
    hospitals located in other areas. In addition, under sections 
    1886(d)(9)(B)(iii) and (C)(i) of the Act, the average standardized 
    amount per discharge must be determined for hospitals located in urban 
    and other areas in Puerto Rico. Hospitals in Puerto Rico are paid a 
    blend of 50 percent of the applicable Puerto Rico standardized amount 
    and 50 percent of a national standardized payment amount.
        Section 1886(d)(2)(D) of the Act defines ``urban area'' as those 
    areas within a Metropolitan Statistical Area (MSA). A ``large urban 
    area'' is defined as an urban area with a population of more than 
    1,000,000. In addition, section 4009(i) of Public Law 100-203 provides 
    that a New England County Metropolitan Area (NECMA) with a population 
    of more than 970,000 is classified as a large urban area. As required 
    by section 1886(d)(2)(D) of the Act, population size is determined by 
    the Secretary based on the latest population data published by the 
    Bureau of the Census. Urban areas that do not meet the definition of a 
    ``large urban area'' are referred to as ``other urban areas.'' Areas 
    that are not included in MSAs are considered ``rural areas'' under 
    section 1886(d)(2)(D) of the Act. Payment for discharges from hospitals 
    located in large urban areas will be based on the large urban 
    standardized amount. Payment for discharges from hospitals located in 
    other urban and rural areas will be based on the other standardized 
    amount.
        Based on 1997 population estimates published by the Bureau of the 
    Census, 61 areas meet the criteria to be defined as large urban areas 
    for FY 1999. These areas are identified by a footnote in Table 4A. We 
    note that on June 23, 1998, the Office of Management and Budget 
    announced the designation of the Missoula, Montana MSA. We have 
    incorporated this change in this final rule.
    3. Updating the Average Standardized Amounts
        Under section 1886(d)(3)(A) of the Act, we update the area average 
    standardized amounts each year. In accordance with section 
    1886(d)(3)(A)(iv) of the Act, we are updating the large urban and the 
    other areas average standardized amounts for FY 1999 using the 
    applicable percentage increases specified in section 1886(b)(3)(B)(i) 
    of the Act. Section 1886(b)(3)(B)(i)(XIV) of the Act specifies that, 
    for hospitals in all areas, the update factor for the standardized 
    amounts for FY 1999 is equal to the market basket percentage increase 
    minus 1.9 percentage points. The ``temporary relief'' provision under 
    section 4401 of Public Law 105-33 provides for an update equal to the 
    market basket percentage increase minus 1.6 percentage points for 
    hospitals that are not Medicare-dependent, small rural hospitals, that 
    receive no IME or DSH payments, that are located in a state in which 
    aggregate Medicare operating payments for such hospitals were less than 
    their aggregate allowable Medicare operating costs for their cost 
    reporting periods beginning during FY 1995, and whose Medicare 
    operating payments are less than their allowable Medicare operating 
    costs for their cost reporting period beginning during FY 1999.
        The percentage change in the market basket reflects the average 
    change in the price of goods and services purchased by hospitals to 
    furnish inpatient care. The most recent forecast of the hospital market 
    basket increase for FY 1999 is 2.4 percent. Thus, for FY 1999, the 
    update to the average standardized amounts equals 0.5 percent (0.8 
    percent for those hospitals qualifying under the ``temporary relief'' 
    provision of Public Law 105-33).
        As in the past, we are adjusting the FY 1998 standardized amounts 
    to remove the effects of the FY 1998 geographic reclassifications and 
    outlier payments before applying the FY 1999 updates. That is, we are 
    increasing the standardized amounts to restore the reductions that were 
    made for the effects of geographic reclassification and outliers. We 
    then apply the new offsets to the standardized amounts for outliers and 
    geographic reclassifications for FY 1999.
        Although the update factor for FY 1999 is set by law, we are 
    required by section 1886(e)(4)(A) of the Act to report to Congress on 
    our final recommendation of update factors for FY 1999 for both 
    prospective payment hospitals and hospitals excluded from the 
    prospective payment system. We have included our final recommendations 
    in Appendix C to this final rule.
    4. Other Adjustments to the Average Standardized Amounts
        a. Recalibration of DRG Weights and Updated Wage Index--Budget 
    Neutrality Adjustment. Section 1886(d)(4)(C)(iii) of the Act specifies 
    that beginning in FY 1991, the annual DRG reclassification and 
    recalibration of the relative weights must be made in a manner that 
    ensures that aggregate payments to hospitals are not affected. As 
    discussed in section II of the preamble, we normalized the recalibrated 
    DRG weights by an adjustment factor, so that the average case weight 
    after recalibration is equal to the average case weight prior to 
    recalibration.
        Section 1886(d)(3)(E) of the Act specifies that the hospital wage 
    index must be updated on an annual basis beginning October 1, 1993. 
    This provision also requires that any updates or adjustments to the 
    wage index must be made in a manner that ensures that aggregate 
    payments to hospitals are not affected by the change in the wage index.
        To comply with the requirement of section 1886(d)(4)(C)(iii) of the 
    Act that DRG reclassification and recalibration of the relative weights 
    be budget neutral, and the requirement in section 1886(d)(3)(E) of the 
    Act that the updated wage index be budget neutral, and the requirement 
    in section 4410 of Public law 105-33 that application of the floor on 
    the wage index be budget neutral, we used historical discharge data to 
    simulate payments and compared aggregate payments using the FY 1998 
    relative weights and wage index to aggregate payments using the FY 1999 
    relative weights and wage index. The same methodology was used for the 
    FY 1998 budget neutrality adjustment. (See the discussion in the 
    September 1, 1992 final rule (57 FR 39832).) Based on this comparison, 
    we computed a budget neutrality adjustment factor equal to 0.999006. We 
    adjust the Puerto Rico-specific standardized amounts for the effect of 
    DRG reclassification and recalibration. We computed a budget neutrality 
    adjustment factor for Puerto Rico-specific standardized amounts equal 
    to 0.998912. These budget neutrality adjustment factors are applied to 
    the standardized amounts without removing the effects of the FY 1998 
    budget neutrality adjustments. We do not remove the prior budget 
    neutrality adjustment because estimated aggregate payments after the 
    changes in the DRG relative weights and wage index should equal 
    estimated aggregate payments prior to the changes. If we removed the 
    prior year adjustment, we would not satisfy this condition.
        In addition, we will continue to apply the same FY 1999 adjustment 
    factor to the hospital-specific rates that are effective for cost 
    reporting periods beginning on or after October 1, 1998, in
    
    [[Page 41008]]
    
    order to ensure that we meet the statutory requirement that aggregate 
    payments neither increase nor decrease as a result of the 
    implementation of the FY 1999 DRG weights and updated wage index. (See 
    the discussion in the September 4, 1990 final rule (55 FR 36073).)
        b. Reclassified hospitals--budget neutrality adjustment. Section 
    1886(d)(8)(B) of the Act provides that certain rural hospitals are 
    deemed urban effective with discharges occurring on or after October 1, 
    1988. In addition, section 1886(d)(10) of the Act provides for the 
    reclassification of hospitals based on determinations by the Medicare 
    Geographic Classification Review Board (MGCRB). Under section 
    1886(d)(10) of the Act, a hospital may be reclassified for purposes of 
    the standardized amount or the wage index, or both.
        Under section 1886(d)(8)(D) of the Act, the Secretary is required 
    to adjust the standardized amounts so as to ensure that total aggregate 
    payments under the prospective payment system after implementation of 
    the provisions of sections 1886(d)(8)(B) and (C) and 1886(d)(10) of the 
    Act are equal to the aggregate prospective payments that would have 
    been made absent these provisions. To calculate this budget neutrality 
    factor, we used historical discharge data to simulate payments, and 
    compared total prospective payments (including IME and DSH payments) 
    prior to any reclassifications to total prospective payments after 
    reclassifications. In the proposed rule, we applied an adjustment 
    factor of 0.994019 to ensure that the effects of reclassification are 
    budget neutral. The final budget neutrality adjustment factor is 
    0.993433.
        The adjustment factor is applied to the standardized amounts after 
    removing the effects of the FY 1998 budget neutrality adjustment 
    factor. We note that the proposed FY 1999 adjustment reflected wage 
    index and standardized amount reclassifications approved by the MGCRB 
    or the Administrator as of February 27, 1998. The effects of any 
    additional reclassification changes resulting from appeals and reviews 
    of the MGCRB decisions for FY 1999 or from a hospital's request for the 
    withdrawal of a reclassification request are reflected in the final 
    budget neutrality adjustment that is required under section 
    1886(d)(8)(D) of the Act and that is published in this final rule.
        c. Outliers. Section 1886(d)(5)(A) of the Act provides for payments 
    in addition to the basic prospective payments for ``outlier'' cases, 
    cases involving extraordinarily high costs (cost outliers). Section 
    1886(d)(3)(B) of the Act requires the Secretary to adjust both the 
    large urban and other area national standardized amounts by the same 
    factor to account for the estimated proportion of total DRG payments 
    made to outlier cases. Similarly, section 1886(d)(9)(B)(iv) of the Act 
    requires the Secretary to adjust the large urban and other standardized 
    amounts applicable to hospitals in Puerto Rico to account for the 
    estimated proportion of total DRG payments made to outlier cases. 
    Furthermore, under section 1886(d)(5)(A)(iv) of the Act, outlier 
    payments for any year must be projected to be not less than 5 percent 
    nor more than 6 percent of total payments based on DRG prospective 
    payment rates.
        i. FY 1999 Outlier Thresholds. For FY 1998, the fixed loss cost 
    outlier threshold is equal to the prospective payment for the DRG plus 
    the IME and DSH payments plus $11,050 ($10,080 for hospitals that have 
    not yet entered the prospective payment system for capital-related 
    costs). The marginal cost factor for cost outliers (the percent of 
    costs paid after costs for the case exceed the threshold) is 80 
    percent. We applied an outlier adjustment to the FY 1998 standardized 
    amounts of 0.948840 for the large urban and other areas rates and 
    0.9382 for the capital Federal rate.
        We proposed to establish a fixed loss cost outlier threshold for FY 
    1999 equal to the prospective payment rate for the DRG plus the IME and 
    DSH payments plus $11,350 ($10,355 for hospitals that have not yet 
    entered the prospective payment system for capital-related costs). In 
    addition, we proposed to maintain the marginal cost factor for cost 
    outliers at 80 percent. In setting the final FY 1999 outlier 
    thresholds, we used updated data and a revised cost inflation factor. 
    In this final rule, we are establishing a fixed loss cost outlier 
    threshold for FY 1999 equal to the prospective payment rate for the DRG 
    plus IME and DSH payments plus $11,100 ($10,129 for hospitals that have 
    not yet entered the prospective payment system for capital-related 
    costs). In addition, we are maintaining the marginal cost factor for 
    cost outliers at 80 percent. In FY 1994, we began using a cost 
    inflation factor rather than a charge inflation factor to update billed 
    charges for purposes of estimating outlier payments. This refinement 
    was made to improve our estimation methodology. For FY 1998, we used a 
    cost inflation factor of minus 2.005 percent (a cost per case decrease 
    of 2.005 percent). In the proposed rule, based on data then available, 
    we used a cost inflation factor of minus 1.831 percent to set outlier 
    thresholds for FY 1999. Based on the most recent data available, we are 
    using a cost inflation factor of minus 1.724 percent to set the final 
    FY 1999 outlier thresholds.
        ii. Other changes concerning outliers. In accordance with section 
    1886(d)(5)(A)(iv) of the Act, we calculated outlier thresholds so that 
    outlier payments are projected to equal 5.1 percent of total payments 
    based on DRG prospective payment rates. In accordance with section 
    1886(d)(3)(E), we reduced the FY 1999 standardized amounts by the same 
    percentage to account for the projected proportion of payments paid to 
    outliers.
        As stated in the September 1, 1993 final rule (58 FR 46348), we 
    establish outlier thresholds that are applicable to both inpatient 
    operating costs and inpatient capital-related costs. When we modeled 
    the combined operating and capital outlier payments, we found that 
    using a common set of thresholds resulted in a higher percentage of 
    outlier payments for capital-related costs than for operating costs. We 
    project that the thresholds for FY 1999 will result in outlier payments 
    equal to 5.1 percent of operating DRG payments and 6.1 percent of 
    capital payments based on the Federal rate.
        The proposed outlier adjustment factors applied to the standardized 
    amounts for FY 1999 were as follows:
    
    ------------------------------------------------------------------------
                                                       Operating    Capital 
                                                     standardized   federal 
                                                        amounts       rate  
    ------------------------------------------------------------------------
    National.......................................      0.948819     0.9378
    Puerto Rico....................................      0.972962     0.9626
    ------------------------------------------------------------------------
    
        The final outlier adjustment factors applied to the standardized 
    amounts for FY 1999 are as follows:
    
    ------------------------------------------------------------------------
                                                       Operating    Capital 
                                                     standardized   federal 
                                                        amounts       rate  
    ------------------------------------------------------------------------
    National.......................................      0.948740     0.9392
    Puerto Rico....................................      0.972959     0.9634
    ------------------------------------------------------------------------
    
        As in the proposed rule, we apply the outlier adjustment factors 
    after removing the effects of the FY 1998 outlier adjustment factors on 
    the standardized amounts.
        Table 8A in section VI of this addendum contains the updated 
    Statewide average operating cost-to-charge ratios for urban hospitals 
    and for rural hospitals to be used in calculating cost outlier payments 
    for those hospitals for which the intermediary is unable to compute a 
    reasonable hospital-specific cost-to-charge ratio. These Statewide
    
    [[Page 41009]]
    
    average ratios would replace the ratios published in the August 29, 
    1997 final rule with comment period (62 FR 46113), effective October 1, 
    1998. Table 8B contains comparable Statewide average capital cost-to-
    charge ratios. These average ratios would be used to calculate cost 
    outlier payments for those hospitals for which the intermediary 
    computes operating cost-to-charge ratios lower than 0.217484 or greater 
    than 1.27282 and capital cost-to-charge ratios lower than 0.01313 or 
    greater than 0.17490. This range represents 3.0 standard deviations 
    (plus or minus) from the mean of the log distribution of cost-to-charge 
    ratios for all hospitals. We note that the cost-to-charge ratios in 
    Tables 8A and 8B will be used during FY 1999 when hospital-specific 
    cost-to-charge ratios based on the latest settled cost report are 
    either not available or outside the three standard deviations range.
        iii. FY 1997 and FY 1998 outlier payments. In the August 29, 1997 
    final rule with comment period (62 FR 46041), we stated that, based on 
    available data, we estimated that actual FY 1997 outlier payments would 
    be approximately 4.8 percent of actual total DRG payments. This was 
    computed by simulating payments using actual FY 1996 bill data 
    available at the time. That is, the estimate of actual outlier payments 
    did not reflect actual FY 1997 bills but instead reflected the 
    application of FY 1997 rates and policies to available FY 1996 bills. 
    Our current estimate, using available FY 1997 bills, is that actual 
    outlier payments for FY 1997 were approximately 5.5 percent of actual 
    total DRG payments. We note that the MedPAR file for FY 1997 discharges 
    continues to be updated.
        We currently estimate that actual outlier payments for FY 1998 will 
    be approximately 5.4 percent of actual total DRG payments, slightly 
    higher than the 5.1 percent we projected in setting outlier policies 
    for FY 1998. This estimate is based on simulations using the March 1998 
    update of the provider-specific file and the March 1998 update of the 
    FY 1997 MedPAR file (discharge data for FY 1997 bills). We used these 
    data to calculate an estimate of the actual outlier percentage for FY 
    1998 by applying FY 1998 rates and policies to available FY 1997 bills.
        We received one comment on outliers, which commended us for 
    improving our outlier estimation methodology.
    5. FY 1999 Standardized Amounts
        The adjusted standardized amounts are divided into labor and 
    nonlabor portions. Table 1A (Table 1E for ``temporary relief'' 
    hospitals) contains the two national standardized amounts that are 
    applicable to all hospitals, except for hospitals in Puerto Rico. Under 
    section 1886(d)(9)(A)(ii) of the Act, the Federal portion of the Puerto 
    Rico payment rate is based on the discharge-weighted average of the 
    national large urban standardized amount and the national other 
    standardized amount (as set forth in Table 1A and 1E). The labor and 
    nonlabor portions of the national average standardized amounts for 
    Puerto Rico hospitals are set forth in Table 1C (Table 1F for 
    ``temporary relief'' hospitals). These tables also include the Puerto 
    Rico standardized amounts.
    
    B. Adjustments for Area Wage Levels and Cost of Living
    
        Tables 1A, 1C, 1E and 1F, as set forth in section VI of this 
    addendum, contain the labor-related and nonlabor-related shares used to 
    calculate the prospective payment rates for hospitals located in the 50 
    States, the District of Columbia, and Puerto Rico. This section 
    addresses two types of adjustments to the standardized amounts that are 
    made in determining the prospective payment rates as described in this 
    addendum.
    1. Adjustment for Area Wage Levels
        Sections 1886(d)(3)(E) and 1886(d)(9)(C)(iv) of the Act require 
    that an adjustment be made to the labor-related portion of the 
    prospective payment rates to account for area differences in hospital 
    wage levels. This adjustment is made by multiplying the labor-related 
    portion of the adjusted standardized amounts by the appropriate wage 
    index for the area in which the hospital is located. In section III of 
    the preamble, we discuss certain revisions we are making to the wage 
    index. The wage index is set forth in Tables 4A through 4F of this 
    addendum.
    2. Adjustment for Cost of Living in Alaska and Hawaii
        Section 1886(d)(5)(H) of the Act authorizes an adjustment to take 
    into account the unique circumstances of hospitals in Alaska and 
    Hawaii. Higher labor-related costs for these two States are taken into 
    account in the adjustment for area wages described above. For FY 1999, 
    we are adjusting the payments for hospitals in Alaska and Hawaii by 
    multiplying the nonlabor portion of the standardized amounts by the 
    appropriate adjustment factor contained in the table below.
    
     Table of Cost-of-Living Adjustment Factors, Alaska and Hawaii Hospitals
    ------------------------------------------------------------------------
                                                                            
    ------------------------------------------------------------------------
    Alaska--All areas.............................................     1.25 
    Hawaii:                                                         ........
      County of Honolulu..........................................     1.225
      County of Hawaii............................................     1.15 
      County of Kauai.............................................     1.225
      County of Maui..............................................     1.225
      County of Kalawao...........................................     1.225
    ------------------------------------------------------------------------
    
        (The above factors are based on data obtained from the U.S. 
    Office of Personnel Management.)
    
    C. DRG Relative Weights
    
        As discussed in section II of the preamble, we have developed a 
    classification system for all hospital discharges, assigning them into 
    DRGs, and have developed relative weights for each DRG that reflect the 
    resource utilization of cases in each DRG relative to Medicare cases in 
    other DRGs. Table 5 of section VI of this addendum contains the 
    relative weights that we will use for discharges occurring in FY 1999. 
    These factors have been recalibrated as explained in section II.C of 
    the preamble.
    
    D. Calculation of Prospective Payment Rates for FY 1999 General Formula 
    for Calculation of Prospective Payment Rates for FY 1999
    
        Prospective payment rate for all hospitals located outside of 
    Puerto Rico except sole community hospitals and Medicare-dependent, 
    small rural hospitals = Federal rate.
        Prospective payment rate for sole community hospitals = Whichever 
    of the following rates yields the greatest aggregate payment: 100 
    percent of the Federal rate, 100 percent of the updated FY 1982 
    hospital-specific rate, or 100 percent of the updated FY 1987 hospital-
    specific rate.
        Prospective payment rate for Medicare-dependent, small rural 
    hospitals = 100 percent of the Federal rate plus, if the greater of the 
    updated FY 1982 hospital-specific rate or the updated FY 1987 hospital-
    specific rate is higher than the Federal rate, 50 percent of the 
    difference between the applicable hospital-specific rate and the 
    Federal rate.
        Prospective payment rate for Puerto Rico = 50 percent of the Puerto 
    Rico rate + 50 percent of a discharge-weighted average of the national 
    large urban standardized amount and the national other standardized 
    amount.
    1. Federal Rate
        For discharges occurring on or after October 1, 1998 and before 
    October 1,
    
    [[Page 41010]]
    
    1999, except for sole community hospitals, Medicare-dependent, small 
    rural hospitals, and hospitals in Puerto Rico, the hospital's payment 
    is based exclusively on the Federal national rate.
        The payment amount is determined as follows:
        Step 1--Select the appropriate national standardized amount 
    considering the type of hospital and designation of the hospital as 
    large urban or other (see Table 1A or 1E, in section VI of this 
    addendum).
        Step 2--Multiply the labor-related portion of the standardized 
    amount by the applicable wage index (see Tables 4A, 4B, and 4C in 
    section VI of this addendum).
        Step 3--For hospitals in Alaska and Hawaii, multiply the nonlabor-
    related portion of the standardized amount by the appropriate cost-of-
    living adjustment factor.
        Step 4--Add the amount from Step 2 and the nonlabor-related portion 
    of the standardized amount (adjusted if appropriate under Step 3).
        Step 5--Multiply the final amount from Step 4 by the relative 
    weight corresponding to the appropriate DRG (see Table 5 in section VI 
    of this addendum).
    2. Hospital-Specific Rate (Applicable Only to Sole Community Hospitals 
    and Medicare-Dependent, Small Rural Hospitals)
        Sections 1886(d)(5)(D)(i) and (b)(3)(C) of the Act provide that 
    sole community hospitals are paid based on whichever of the following 
    rates yields the greatest aggregate payment: the Federal rate, the 
    updated hospital-specific rate based on FY 1982 cost per discharge, or 
    the updated hospital-specific rate based on FY 1987 cost per discharge.
        Sections 1886(d)(5)(G) and (b)(3)(D) of the Act provide that 
    Medicare-dependent, small rural hospitals are paid based on whichever 
    of the following rates yields the greatest aggregate payment: the 
    Federal rate or the Federal rate plus 50 percent of the difference 
    between the Federal rate and the greater of the updated hospital-
    specific rate based on FY 1982 and FY 1987 cost per discharge.
        Hospital-specific rates have been determined for each of these 
    hospitals based on both the FY 1982 cost per discharge and the FY 1987 
    cost per discharge. For a more detailed discussion of the calculation 
    of the FY 1982 hospital-specific rate and the FY 1987 hospital-specific 
    rate, we refer the reader to the September 1, 1983 interim final rule 
    (48 FR 39772); the April 20, 1990 final rule with comment (55 FR 
    15150); and the September 4, 1990 final rule (55 FR 35994).
        a. Updating the FY 1982 and FY 1987 hospital-specific rates for FY 
    1999. We are increasing the hospital-specific rates by 0.5 percent (the 
    hospital market basket percentage increase of 2.4 percent minus 1.9 
    percentage points) for sole community hospitals and Medicare-dependent, 
    small rural hospitals located in all areas for FY 1999. Section 
    1886(b)(3)(C)(iv) of the Act provides that the update factor applicable 
    to the hospital-specific rates for sole community hospitals equals the 
    update factor provided under section 1886(b)(3)(B)(iv) of the Act, 
    which, for FY 1999, is the market basket rate of increase minus 1.9 
    percentage points. Section 1886(b)(3)(D) of the Act provides that the 
    update factor applicable to the hospital-specific rates for Medicare-
    dependent, small rural hospitals equals the update factor provided 
    under section 1886(b)(3)(B)(iv) of the Act, which, for FY 1999, is the 
    market basket rate of increase minus 1.9 percentage points.
        b. Calculation of hospital-specific rate. For sole community 
    hospitals and Medicare-dependent, small rural hospitals, the applicable 
    FY 1999 hospital-specific rate would be calculated by increasing the 
    hospital's hospital-specific rate for the preceding fiscal year by the 
    applicable update factor (0.5 percent), which is the same as the update 
    for all prospective payment hospitals except ``temporary relief'' 
    hospitals. In addition, the hospital-specific rate would be adjusted by 
    the budget neutrality adjustment factor (that is, 0.999006) as 
    discussed in section II.A.4.a of this Addendum. This resulting rate 
    would be used in determining under which rate a sole community hospital 
    or Medicare-dependent, small rural hospital is paid for its discharges 
    beginning on or after October 1, 1998, based on the formula set forth 
    above.
    3. General Formula for Calculation of Prospective Payment Rates for 
    Hospitals Located in Puerto Rico Beginning on or After October 1, 1998 
    and Before October 1, 1999
        a. Puerto Rico rate. The Puerto Rico prospective payment rate is 
    determined as follows:
        Step 1--Select the appropriate adjusted average standardized amount 
    considering the large urban or other designation of the hospital (see 
    Table 1C or 1F of section VI of this addendum).
        Step 2--Multiply the labor-related portion of the standardized 
    amount by the appropriate Puerto Rico-specific wage index (see Table 4F 
    in section VI of this addendum).
        Step 3--Add the amount from Step 2 and the nonlabor-related portion 
    of the standardized amount.
        Step 4--Multiply the result in Step 3 by 50 percent.
        Step 5--Multiply the amount from Step 4 by the appropriate DRG 
    relative weight (see Table 5 in section VI of this addendum).
        b. National rate. The national prospective payment rate is 
    determined as follows:
        Step 1--Multiply the labor-related portion of the national average 
    standardized amount (see Table 1C or 1F of section VI of the addendum) 
    by the appropriate national wage index (see Tables 4A and 4B in section 
    VI of this addendum).
        Step 2--Add the amount from Step 1 and the nonlabor-related portion 
    of the national average standardized amount.
        Step 3--Multiply the result in Step 2 by 50 percent.
        Step 4--Multiply the amount from Step 3 by the appropriate DRG 
    relative weight (see Table 5 in section VI of this addendum).
        The sum of the Puerto Rico rate and the national rate computed 
    above equals the prospective payment for a given discharge for a 
    hospital located in Puerto Rico.
    
    III. Changes to the Payment Rates for Blood Clotting Factor for 
    Hemophilia Inpatients
    
        As discussed in our August 29, 1997 final rule with comment period 
    (62 FR 46002) and our May 12, 1998 final rule (63 FR 26327), section 
    4452 of Public Law 105-33 amended section 6011(d) of Public Law 101-239 
    to reinstate the add-on payment for the costs of administering blood 
    clotting factor to Medicare beneficiaries who have hemophilia and who 
    are hospital inpatients for discharges occurring on or after October 1, 
    1997.
        We are calculating the add-on payment for FY 1999 using the same 
    methodology we described in the August 29, 1997 and May 12, 1998 final 
    rules. That is, we are establishing a price per unit of clotting factor 
    based on the average wholesale price (AWP). To identify the AWP, we are 
    using the most recent data available from First Databank. The add-on 
    payment amount for each clotting factor, as described by HCFA's Common 
    Procedure Coding System (HCPCS), is based on the median AWP of the 
    several products available in that category of factor, discounted by 15 
    percent.
    
    [[Page 41011]]
    
        Based on this methodology, the prices per unit of factor for FY 
    1999 are as follows:
    
    J7190 Factor VIII (antihemophilic factor, human)...............     0.78
    J7192 Factor VIII (antihemophilic factor, recombinant).........     1.00
    J7194 Factor IX (complex)......................................     0.38
    J7196 Other hemophilia clotting factors (e.g., anti-inhibitors)     1.10
    Q0160 Factor IX (antihemophilic factor, purified,                       
     nonrecombinant)...............................................     0.93
    Q0161 Factor IX (antihemophilic factor, purified, recombinant).     1.00
                                                                            
    
        These prices for blood clotting factor administered to inpatients 
    who have hemophilia will be effective for discharges beginning on or 
    after October 1, 1998 through September 30, 1999. Payment will be made 
    for blood clotting factor only if there is an ICD-9-CM diagnosis code 
    for hemophilia included on the bill.
    
    IV. Changes to Payment Rates for Inpatient Capital-Related Costs 
    for FY 1999
    
        The prospective payment system for hospital inpatient capital-
    related costs was implemented for cost reporting periods beginning on 
    or after October 1, 1991. Effective with that cost reporting period and 
    during a 10-year transition period extending through FY 2001, hospital 
    inpatient capital-related costs are paid on the basis of an increasing 
    proportion of the capital prospective payment system Federal rate and a 
    decreasing proportion of a hospital's historical costs for capital.
        The basic methodology for determining Federal capital prospective 
    rates is set forth at Secs. 412.308 through 412.352. Below we discuss 
    the factors that we used to determine the Federal rate and the 
    hospital-specific rates for FY 1999. The rates will be effective for 
    discharges occurring on or after October 1, 1998.
        For FY 1992, we computed the standard Federal payment rate for 
    capital-related costs under the prospective payment system by updating 
    the FY 1989 Medicare inpatient capital cost per case by an actuarial 
    estimate of the increase in Medicare inpatient capital costs per case. 
    Each year after FY 1992 we update the standard Federal rate, as 
    provided in Sec. 412.308(c)(1), to account for capital input price 
    increases and other factors. Also, Sec. 412.308(c)(2) provides that the 
    Federal rate is adjusted annually by a factor equal to the estimated 
    proportion of outlier payments under the Federal rate to total capital 
    payments under the Federal rate. In addition, Sec. 412.308(c)(3) 
    requires that the Federal rate be reduced by an adjustment factor equal 
    to the estimated proportion of payments for exceptions under 
    Sec. 412.348. Furthermore, Sec. 412.308(c)(4)(ii) requires that the 
    Federal rate be adjusted so that the annual DRG reclassification and 
    the recalibration of DRG weights and changes in the geographic 
    adjustment factor are budget neutral. For FYs 1992 through 1995, 
    Sec. 412.352 required that the Federal rate also be adjusted by a 
    budget neutrality factor so that aggregate payments for inpatient 
    hospital capital costs were projected to equal 90 percent of the 
    payments that would have been made for capital-related costs on a 
    reasonable cost basis during the fiscal year. That provision expired in 
    FY 1996. Section 412.308(b)(2) describes the 7.4 percent reduction to 
    the rate made in FY 1994, and Sec. 412.308(b)(3) describes the 0.28 
    percent reduction to the rate made in FY 1996 as a result of the 
    revised policy of paying for transfers. In the FY 1998 final rule with 
    comment period (62 FR 45966) we implemented section 4402 of the BBA, 
    which required that for discharges occurring on or after October 1, 
    1997 and before October 1, 2002, the unadjusted standard Federal rate 
    is reduced by 17.78 percent. A small part of that reduction will be 
    restored effective October 1, 2002.
        For each hospital, the hospital-specific rate was calculated by 
    dividing the hospital's Medicare inpatient capital-related costs for a 
    specified base year by its Medicare discharges (adjusted for 
    transfers), and dividing the result by the hospital's case mix index 
    (also adjusted for transfers). The resulting case-mix adjusted average 
    cost per discharge was then updated to FY 1992 based on the national 
    average increase in Medicare's inpatient capital cost per discharge and 
    adjusted by the exceptions payment adjustment factor and the budget 
    neutrality adjustment factor to yield the FY 1992 hospital-specific 
    rate. Since FY 1992, the hospital-specific rate has been updated 
    annually for inflation and for changes in the exceptions payment 
    adjustment factor. For FYs 1992 through 1995, the hospital-specific 
    rate was also adjusted by a budget neutrality adjustment factor. In the 
    FY 1998 final rule with comment period (62 FR 46012) we implemented 
    section 4402 of the BBA, which required that for discharges occurring 
    on or after October 1, 1997 and before October 1, 2002, the unadjusted 
    hospital-specific rate is reduced by 17.78 percent. A small part of 
    that reduction will also be restored effective October 1, 2002.
        To determine the appropriate budget neutrality adjustment factor 
    and the exceptions payment adjustment factor, we developed a dynamic 
    model of Medicare inpatient capital-related costs, that is, a model 
    that projects changes in Medicare inpatient capital-related costs over 
    time. With the expiration of the budget neutrality provision, the model 
    is still used to estimate the exceptions payment adjustment and other 
    factors. The model and its application are described in greater detail 
    in Appendix B of this final rule.
        In accordance with section 1886(d)(9)(A) of the Act, under the 
    prospective payment system for inpatient operating costs, hospitals 
    located in Puerto Rico are paid for operating costs under a special 
    payment formula. Prior to FY 1998, hospitals in Puerto Rico were paid a 
    blended rate that consisted of 75 percent of the applicable 
    standardized amount specific to Puerto Rico hospitals and 25 percent of 
    the applicable national average standardized amount. However, effective 
    October 1, 1997, as a result of section 4406 of the BBA, operating 
    payments to hospitals in Puerto Rico are based on a blend of 50 percent 
    of the applicable standardized amount specific to Puerto Rico hospitals 
    and 50 percent of the applicable national average standardized amount. 
    In conjunction with this change to the operating blend percentage, 
    effective with discharges on or after October 1, 1997, we compute 
    capital payments to hospitals in Puerto Rico based on a blend of 50 
    percent of the Puerto Rico rate and 50 percent of the Federal rate. 
    Section 412.374 provides for the use of this blended payment system for 
    payments to Puerto Rico hospitals under the prospective payment system 
    for inpatient capital-related costs. Accordingly, for capital-related 
    costs we compute a separate payment rate specific to Puerto Rico 
    hospitals using the same methodology used to compute the national 
    Federal rate for capital.
    
    A. Determination of Federal Inpatient Capital-Related Prospective 
    Payment Rate Update
    
        For FY 1998, the Federal rate was $371.51. In the proposed rule, we 
    stated that the proposed FY 1999 Federal rate was $377.25. In this 
    final rule, we are establishing a FY 1999 Federal rate of $378.05.
        In the discussion that follows, we explain the factors that were 
    used to determine the FY 1999 Federal rate. In particular, we explain 
    why the FY 1999 Federal rate has increased 1.76 percent compared to the 
    FY 1998 Federal rate. Even though we estimate that Medicare hospital 
    inpatient discharges will decline by approximately 2.25 percent between 
    FY 1998 and FY 1999, we also estimate that aggregate capital payments
    
    [[Page 41012]]
    
    will increase by 2.78 percent during this same period. This aggregate 
    increase is primarily due to the change in the federal rate blend 
    percentage from 70 percent to 80 percent, the 1.76 percent increase in 
    the rate, and a projected increase in case mix.
        The major factor contributing to the increase in the capital 
    Federal rate for FY 1999 relative to FY 1998 is that the FY 1999 
    exceptions reduction factor is 1.28 percent higher than the factor for 
    FY 1998. The exceptions reduction factor equals 1 minus the projected 
    percentage of exceptions payments. We estimate that the projected 
    percentage of exceptions payments for FY 1999 will be lower than the 
    projected percentage for FY 1998; accordingly, the FY 1999 rate 
    reflects less of a reduction to account for exceptions than the FY 1998 
    rate.
        Total payments to hospitals under the prospective payment system 
    are relatively unaffected by changes in the capital prospective 
    payments. Since capital payments constitute about 10 percent of 
    hospital payments, a 1 percent change in the capital Federal rate 
    yields only about 0.1 percent change in actual payments to hospitals. 
    Aggregate payments under the capital prospective payment transition 
    system are estimated to increase in FY 1999 compared to FY 1998.
    1. Standard Federal Rate Update
        a. Description of the update framework. Under section 
    412.308(c)(1), the standard Federal rate is updated on the basis of an 
    analytical framework that takes into account changes in a capital input 
    price index (CIPI) and other factors. The update framework consists of 
    a CIPI and several policy adjustment factors. Specifically, we have 
    adjusted the projected CIPI rate of increase as appropriate each year 
    for case-mix index related changes, for intensity, and for errors in 
    previous CIPI forecasts. The proposed rule reflected an update factor 
    of 0.2 percent, based on data available at that time. Under the update 
    framework the final update factor for FY 1999 is 0.1 percent. This 
    update factor is based on a projected 0.7 percent increase in the CIPI, 
    policy adjustment factors of -0.2, and a forecast error correction of 
    -0.4 percent. We explain the basis for the FY 1999 CIPI projection in 
    section D of this addendum. Here we describe the policy adjustments 
    that have been applied.
        The case-mix index is the measure of the average DRG weight for 
    cases paid under the prospective payment system. Because the DRG weight 
    determines the prospective payment for each case, any percentage 
    increase in the case-mix index corresponds to an equal percentage 
    increase in hospital payments.
        The case-mix index can change for any of several reasons:
         The average resource use of Medicare patients changes 
    (``real'' case-mix change);
         Changes in hospital coding of patient records result in 
    higher weight DRG assignments (``coding effects''); and
         The annual DRG reclassification and recalibration changes 
    may not be budget neutral (``reclassification effect'').
        We define real case-mix change as actual changes in the mix (and 
    resource requirements) of Medicare patients as opposed to changes in 
    coding behavior that result in assignment of cases to higher-weighted 
    DRGs but do not reflect higher resource requirements. In the update 
    framework for the prospective payment system for operating costs, we 
    adjust the update upwards to allow for real case-mix change, but remove 
    the effects of coding changes on the case-mix index. We also remove the 
    effect on total payments of prior changes to the DRG classifications 
    and relative weights, in order to retain budget neutrality for all 
    case-mix index-related changes other than patient severity. (For 
    example, we adjusted for the effects of the FY 1992 DRG 
    reclassification and recalibration as part of our FY 1994 update 
    recommendation.) The operating adjustment consists of a reduction for 
    total observed case-mix change, an increase for the portion of case-mix 
    change that we determine is due to real case-mix change rather than 
    coding modifications, and an adjustment for the effect of prior DRG 
    reclassification and recalibration changes. We have adopted this case-
    mix index adjustment in the capital update framework as well.
        For FY 1999, we are projecting a 1.0 percent increase in the case-
    mix index. We estimate that real case-mix increase will equal 0.8 
    percent in FY 1999. Therefore, the net adjustment for case-mix change 
    in FY 1999 is--0.2 percentage points.
        We estimate that DRG reclassification and recalibration result in a 
    0.0 percent change in the case mix when compared with the case-mix 
    index that would have resulted if we had not made the reclassification 
    and recalibration changes to the DRGs.
        The capital update framework contains an adjustment for forecast 
    error. The input price index forecast is based on historical trends and 
    relationships ascertainable at the time the update factor is 
    established for the upcoming year. In any given year there may be 
    unanticipated price fluctuations that may result in differences between 
    the actual increase in prices faced by hospitals and the forecast used 
    in calculating the update factors. In setting a prospective payment 
    rate under the framework, we make an adjustment for forecast error only 
    if our estimate of the capital input price index rate of increase for 
    any year is off by 0.25 percentage points or more. There is a 2-year 
    lag between the forecast and the measurement of the forecast error. We 
    estimate a forecast error of -0.4 percentage points in the update for 
    FY 1997. That is, current data indicate that the FY 1997 CIPI used in 
    calculating the FY 1997 update factor overstated price increases by 0.4 
    percent. Therefore we are making a -0.4 percent adjustment for forecast 
    error in the update for FY 1999.
        Under the capital prospective payment system framework, we also 
    make an adjustment for changes in intensity. We calculate this 
    adjustment using the same methodology and data as in the framework for 
    the operating prospective payment system. The intensity factor for the 
    operating update framework reflects how hospital services are utilized 
    to produce the final product, that is, the discharge. This component 
    accounts for changes in the use of quality-enhancing services, changes 
    in within-DRG severity, and expected modification of practice patterns 
    to remove cost-ineffective services.
        We calculate case-mix constant intensity as the change in total 
    charges per admission, adjusted for price level changes (the CPI 
    hospital component), and changes in real case mix. The use of total 
    charges in the calculation of the intensity factor makes it a total 
    intensity factor, that is, charges for capital services are already 
    built into the calculation of the factor. We have, therefore, 
    incorporated the intensity adjustment from the operating update 
    framework into the capital update framework. Without reliable estimates 
    of the proportions of the overall annual intensity increases that are 
    due, respectively, to ineffective practice patterns and to the 
    combination of quality-enhancing new technologies and within-DRG 
    complexity, we assume, as in the revised operating update framework, 
    that one-half of the annual increase is due to each of these factors. 
    The capital update framework thus provides an add-on to the input price 
    index rate of increase of one-half of the estimated annual increase in 
    intensity to allow for within-DRG severity increases and the adoption 
    of quality-enhancing technology.
    
    [[Page 41013]]
    
        For FY 1999, we have developed a Medicare-specific intensity 
    measure based on a 5-year average using FY 1993-1997 data. In 
    determining case-mix constant intensity, we found that observed case-
    mix increase was 0.9 percent in FY 1993, 0.8 percent in FY 1994, 1.7 
    percent in FY 1995, 1.6 percent in FY 1996, and 0.3 percent in FY 1997. 
    For FY 1995 and FY 1996, we estimate that real case-mix increase was 
    1.0 to 1.4 percent each year. The estimate for those years is supported 
    by past studies of case-mix change by the RAND Corporation. The most 
    recent study was ``Has DRG Creep Crept Up? Decomposing the Case Mix 
    Index Change Between 1987 and 1988'' by G. M. Carter, J. P. Newhouse, 
    and D. A. Relles, R-4098-HCFA/ProPAC (1991). The study suggested that 
    real case-mix change was not dependent on total change, but was usually 
    a fairly steady 1.0 to 1.5 percent per year. We use 1.4 percent as the 
    upper bound because the RAND study did not take into account that 
    hospitals may have induced doctors to document medical records more 
    completely in order to improve payment. Following that study, we 
    consider up to 1.4 percent of observed case-mix change as real for FY 
    1992 through FY 1997. Based on this analysis, we believe that all of 
    the observed case-mix increase for FY 1993, FY 1994 and FY 1997 is 
    real.
        We calculate case-mix constant intensity as the change in total 
    charges per admission, adjusted for price level changes (the CPI 
    hospital component), and changes in real case-mix. Given estimates of 
    real case mix of 0.9 percent for FY 1993, 0.8 percent for FY 1994, 1.0 
    percent for FY 1995, and 1.0 percent for FY 1996, and 0.3 percent for 
    FY 1997, we estimate that case-mix constant intensity declined by an 
    average 1.5 percent during FYs 1993 through 1997, for a cumulative 
    decrease of 7.3 percent. If we assume that real case-mix increase was 
    0.9 percent for FY 1993, 0.8 percent for FY 1994, 1.4 percent for FY 
    1995, 1.4 percent for FY 1996 and 0.3 percent for FY 1997, we estimate 
    that case-mix constant intensity declined by an average 1.6 percent 
    during FYs 1993 through 1997, for a cumulative decrease of 7.7 percent. 
    Since we estimate that intensity has declined during that period, we 
    are making a 0.0 percent intensity adjustment for FY 1999.
        In summary, the FY 1999 final update under our framework is 0.1 
    percent. This update factor is based on a projected 0.7 percent 
    increase in the CIPI, policy adjustment factors of -0.2, and a forecast 
    error correction of -0.4 percent.
        b. Comparison of HCFA and MedPAC update recommendations. As 
    discussed in the proposed rule, MedPAC recommended a 0.0 to 0.7 percent 
    update to the standard Federal rate and we recommended a 0.2 percent 
    update. (See the May 8, 1998 proposed rule for a discussion of the 
    differences between the MedPAC and HCFA update frameworks (63 FR 
    25615)). In this final rule, as discussed in the previous section, we 
    are implementing a 0.1 percent update to the capital Federal rate.
        Comment: MedPAC noted our update recommendation of 0.2 percent was 
    within the range of the 0.0 percent to 0.7 percent update which they 
    had recommended. They also restated a comment from their March report, 
    that although the operating and capital payment rates are determined 
    separately, they are related to the costs generated by providing 
    hospital services to the same Medicare patients, and distinguishing 
    between them for payment purposes is arbitrary and does not foster 
    efficient hospital decision-making about resource allocation. Since the 
    transition to fully prospective payment for capital will end on 
    September 30, 2001, the objective of combining the two payment systems 
    should be kept in mind.
        Response: Several years ago ProPAC made a similar comment 
    recommending the adoption of a single update framework for adjusting 
    operating and capital prospective payment rates when the transition to 
    full Federal rate capital payments is complete. In the September 1, 
    1995 prospective payment system final rule (60 FR 45816) we responded 
    that our long term goal was to develop a single update framework and 
    that we would begin development of a unified framework. We stated that 
    in the meantime we would maintain as much consistency as possible with 
    the current operating framework in order to facilitate the eventual 
    development of a unified framework. We believe that because of the 
    similarities in the operating and capital update frameworks, they could 
    be combined without too much difficulty. We maintain our goal of 
    combining the update frameworks at the end of the capital transition 
    period and may examine combining the payment systems post transition.
    2. Outlier Payment Adjustment Factor
        Section 412.312(c) establishes a unified outlier methodology for 
    inpatient operating and inpatient capital-related costs. A single set 
    of thresholds is used to identify outlier cases for both inpatient 
    operating and inpatient capital-related payments. Outlier payments are 
    made only on the portion of the Federal rate that is used to calculate 
    the hospital's inpatient capital-related payments (for example, 80 
    percent for cost reporting periods beginning in FY 1999 for hospitals 
    paid under the fully prospective methodology). Section 412.308(c)(2) 
    provides that the standard Federal rate for inpatient capital-related 
    costs be reduced by an adjustment factor equal to the estimated 
    proportion of outlier payments under the Federal rate to total 
    inpatient capital-related payments under the Federal rate. The outlier 
    thresholds are set so that operating outlier payments are projected to 
    be 5.1 percent of total operating DRG payments. The inpatient capital-
    related outlier reduction factor reflects the inpatient capital-related 
    outlier payments that would be made if all hospitals were paid 100 
    percent of the Federal rate. For purposes of calculating the outlier 
    thresholds and the outlier reduction factor, we model payments as if 
    all hospitals were paid 100 percent of the Federal rate because, as 
    explained above, outlier payments are made only on the portion of the 
    Federal rate that is included in the hospital's inpatient capital-
    related payments.
        In the August 29, 1997 final rule with comment period, we estimated 
    that outlier payments for capital in FY 1998 would equal 6.18 percent 
    of inpatient capital-related payments based on the Federal rate. 
    Accordingly, we applied an outlier adjustment factor of 0.9382 to the 
    Federal rate. For FY 1999, we estimate that outlier payments for 
    capital will equal 6.08 percent of inpatient capital-related payments 
    based on the Federal rate. We are, therefore, establishing an outlier 
    adjustment factor of 0.9392 to the Federal rate. Thus, estimated 
    capital outlier payments for FY 1999 represent a smaller percentage of 
    total capital standard payments than in FY 1998.
        The outlier reduction factors are not built permanently into the 
    rates; that is, they are not applied cumulatively in determining the 
    Federal rate. Therefore, the net change in the outlier adjustment to 
    the Federal rate for FY 1999 is 1.0011 (0.9392/0.9382). Thus, the 
    outlier adjustment increases the FY 1999 Federal rate by 0.11 percent 
    (1.0011-1) compared with the FY 1998 outlier adjustment.
    3. Budget Neutrality Adjustment Factor for Changes in DRG 
    Classifications and Weights and the Geographic Adjustment Factor
        Section 412.308(c)(4)(ii) requires that the Federal rate be 
    adjusted so that
    
    [[Page 41014]]
    
    aggregate payments for the fiscal year based on the Federal rate after 
    any changes resulting from the annual DRG reclassification and 
    recalibration and changes in the GAF are projected to equal aggregate 
    payments that would have been made on the basis of the Federal rate 
    without such changes. We use the actuarial model, described in Appendix 
    B, to estimate the aggregate payments that would have been made on the 
    basis of the Federal rate without changes in the DRG classifications 
    and weights and in the GAF. We also use the model to estimate aggregate 
    payments that would be made on the basis of the Federal rate as a 
    result of those changes. We then use these figures to compute the 
    adjustment required to maintain budget neutrality for changes in DRG 
    weights and in the GAF.
        For FY 1998, we calculated a GAF/DRG budget neutrality factor of 
    0.9989. In the proposed rule for FY 1999, we proposed a GAF/DRG budget 
    neutrality factor of 1.0032. In this final rule, based on calculations 
    using updated data, we are applying a factor of 1.0027. The GAF/DRG 
    budget neutrality factors are built permanently into the rates; that 
    is, they are applied cumulatively in determining the Federal rate. This 
    follows from the requirement that estimated aggregate payments each 
    year be no more than they would have been in the absence of the annual 
    DRG reclassification and recalibration and changes in the GAF. The 
    incremental change in the adjustment from FY 1998 to FY 1999 is 1.0027. 
    The cumulative change in the rate due to this adjustment is 1.0028 (the 
    product of the incremental factors for FY 1993, FY 1994, FY 1995, FY 
    1996, FY 1997, FY 1998, and FY 1999: 0.9980 x 1.0053 x 0.9998 x 0.9994 
    x 0.9987 x 0.9989 x 1.0027 = 1.0028).
        This factor accounts for DRG reclassifications and recalibration 
    and for changes in the GAF. It also incorporates the effects on the GAF 
    of FY 1999 geographic reclassification decisions made by the MGCRB 
    compared to FY 1998 decisions. However, it does not account for changes 
    in payments due to changes in the disproportionate share and indirect 
    medical education adjustment factors or in the large urban add-on.
    4. Exceptions Payment Adjustment Factor
        Section 412.308(c)(3) requires that the standard Federal rate for 
    inpatient capital-related costs be reduced by an adjustment factor 
    equal to the estimated proportion of additional payments for exceptions 
    under Sec. 412.348 relative to total payments under the hospital-
    specific rate and Federal rate. We use an actuarial model described in 
    Appendix B to determine the exceptions payment adjustment factor.
        For FY 1998, we estimated that exceptions payments would equal 3.41 
    percent of aggregate payments based on the Federal rate and the 
    hospital-specific rate. Therefore, we applied an exceptions reduction 
    factor of 0.9659 (1--0.0341) in determining the Federal rate. In the 
    May 8, 1998 proposed rule, we estimated that exceptions payments for FY 
    1999 would equal 2.39 percent of aggregate payments based on the 
    Federal rate and the hospital-specific rate. Therefore, we proposed an 
    exceptions payment reduction factor of 0.9761 to the Federal rate for 
    FY 1999. For this final rule, based on updated data, we estimate that 
    exceptions payments for FY 1999 will equal 2.17 percent of aggregate 
    payments based on the Federal rate and the hospital-specific rate. We 
    are, therefore, applying an exceptions payment reduction factor of 
    0.9783 (1--0.0217) to the Federal rate for FY 1999. The final 
    exceptions reduction factor for FY 1999 is 1.28 percent higher than the 
    factor for FY 1998 and .23 percent higher than the factor in the FY 
    1999 proposed rule.
        The exceptions reduction factors are not built permanently into the 
    rates; that is, the factors are not applied cumulatively in determining 
    the Federal rate. Therefore, the net adjustment to the FY 1999 Federal 
    rate is 0.9783/0.9659, or 1.0128.
    5. Standard Capital Federal Rate for FY 1999
        For FY 1998, the capital Federal rate was $371.51. With the changes 
    we proposed to the factors used to establish the Federal rate, we 
    proposed that the FY 1999 Federal rate would be $377.25. In this final 
    rule, we are establishing a FY 1999 Federal rate of $378.05. The 
    Federal rate for FY 1999 was calculated as follows:
         The FY 1999 update factor is 1.0010, that is, the update 
    is 0.10 percent.
         The FY 1999 budget neutrality adjustment factor that is 
    applied to the standard Federal payment rate for changes in the DRG 
    relative weights and in the GAF is 1.0027.
         The FY 1999 outlier adjustment factor is 0.9392.
         The FY 1999 exceptions payments adjustment factor is 
    0.9783.
        Since the Federal rate has already been adjusted for differences in 
    case mix, wages, cost of living, indirect medical education costs, and 
    payments to hospitals serving a disproportionate share of low-income 
    patients, we have made no additional adjustments in the standard 
    Federal rate for these factors other than the budget neutrality factor 
    for changes in the DRG relative weights and the GAF.
        We are providing a chart that shows how each of the factors and 
    adjustments for FY 1999 affected the computation of the FY 1999 Federal 
    rate in comparison to the FY 1998 Federal rate. The FY 1999 update 
    factor has the effect of increasing the Federal rate by 0.10 percent 
    compared to the rate in FY 1998, while the final geographic and DRG 
    budget neutrality factor has the effect of increasing the Federal rate 
    by 0.27 percent. The FY 1999 outlier adjustment factor has the effect 
    of increasing the Federal rate by 0.11 percent compared to FY 1998. The 
    FY 1999 exceptions reduction factor has the effect of increasing the 
    Federal rate by 1.27 percent compared to the exceptions reduction 
    factor for FY 1998. The combined effect of all the changes is to 
    increase the Federal rate by 1.76 percent compared to the Federal rate 
    for FY 1998.
    
                  Comparison of Factors and Adjustments--FY 1998 Federal Rate and FY 1999 Federal Rate              
    ----------------------------------------------------------------------------------------------------------------
                                                                                                           Percent  
                                                                    FY 98         FY 99        Change       change  
    ----------------------------------------------------------------------------------------------------------------
    Update factor \1\.........................................        1.0090        1.0010       1.0010         0.10
    GAF/DRG Adjustment Factor \1\.............................        0.9989        1.0027       1.0027         0.27
    Outlier Adjustment Factor \2\.............................        0.9382        0.9392       1.0011         0.11
    Exceptions Adjustment Factor \2\..........................        0.9659        0.9783       1.0128         1.28
    Federal Rate..............................................     $371.51       $378.05         1.0176        1.76 
    ----------------------------------------------------------------------------------------------------------------
    \1\ The update factor and the GAF/DRG budget neutrality factors are built permanently into the rates. Thus, for 
      example, the incremental change from FY 1998 to FY 1999 resulting from the application of the GAF/DRG budget  
      neutrality factor for FY 1999 is 1.0027.                                                                      
    
    [[Page 41015]]
    
                                                                                                                    
    \2\ The outlier reduction factor and the exceptions reduction factor are not built permanently into the rates;  
      that is, these factors are not applied cumulatively in determining the rates. Thus, for example, the net      
      change resulting from the application of the FY 1999 outlier reduction factor is 0.9392/0.9382, or 1.0011.    
    
        We are also providing a chart that shows how the final FY 1999 
    Federal rate differs from the proposed FY 1999 Federal rate.
    
           Comparison of Factors and Adjustments--FY 1999 Proposed Federal Rate and FY 1999 Final Federal Rate      
    ----------------------------------------------------------------------------------------------------------------
                                                                 Proposed FY                               Percent  
                                                                     99        Final FY 99     Change       change  
    ----------------------------------------------------------------------------------------------------------------
    Update factor.............................................        1.0020        1.0010       0.9990        -0.10
    GAF/DRG Adjustment Factor.................................        1.0032        1.0027       0.9995        -0.05
    Outlier Adjustment Factor.................................        0.9378        0.9392       1.0015         0.15
    Exceptions Adjustment Factor..............................        0.9761        0.9783       1.0023         0.23
    Federal Rate..............................................     $377.25       $378.05         1.0021         0.21
    ----------------------------------------------------------------------------------------------------------------
    
    6. Special Rate for Puerto Rico Hospitals
        As explained at the beginning of this section, hospitals in Puerto 
    Rico are paid based on 50 percent of the Puerto Rico rate and 50 
    percent of the Federal rate. The Puerto Rico rate is derived from the 
    costs of Puerto Rico hospitals only, while the Federal rate is derived 
    from the costs of all acute care hospitals participating in the 
    prospective payment system (including Puerto Rico). To adjust 
    hospitals' capital payments for geographic variations in capital costs, 
    we apply a geographic adjustment factor (GAF) to both portions of the 
    blended rate. The GAF is calculated using the operating PPS wage index 
    and varies depending on the MSA or rural area in which the hospital is 
    located. We use the Puerto Rico wage index to determine the GAF for the 
    Puerto Rico part of the capital blended rate and the national wage 
    index to determine the GAF for the national part of the blended rate.
        Since we implemented a separate GAF for Puerto Rico, we applied 
    separate budget neutrality adjustments for the national GAF and for the 
    Puerto Rico GAF. We applied the same budget neutrality factor for DRG 
    reclassifications and recalibration nationally and for Puerto Rico. 
    Separate adjustments were unnecessary for FY 1998 since the Puerto Rico 
    specific GAF was implemented that year. For FY 1999 the Puerto Rico GAF 
    budget neutrality factor is 0.9988, while the DRG adjustment is 1.0034, 
    for a combined cumulative adjustment of 1.0022. (For a more detailed 
    explanation of this change see Appendix B.)
        In computing the payment for a particular Puerto Rico hospital, the 
    Puerto Rico portion of the rate (50%) is multiplied by the Puerto Rico-
    specific GAF for the MSA in which the hospital is located, and the 
    national portion of the rate (50%) is multiplied by the national GAF 
    for the MSA in which the hospital is located (which is computed from 
    national data for all hospitals in the United States and Puerto Rico). 
    In FY 1998, we implemented a 17.78 percent reduction to the Puerto Rico 
    rate as a result of the BBA.
        For FY 1998, before application of the GAF, the special rate for 
    Puerto Rico hospitals was $177.57. With the changes we proposed to the 
    factors used to determine the rate, the proposed FY 1999 special rate 
    for Puerto Rico was $180.73. In this final rule, the FY 1999 capital 
    rate for Puerto Rico is $181.10.
    
    B. Determination of Hospital-Specific Rate Update
    
        Section 412.328(e) of the regulations provides that the hospital-
    specific rate for FY 1999 be determined by adjusting the FY 1998 
    hospital-specific rate by the following factors:
    1. Hospital-Specific Rate Update Factor
        The hospital-specific rate is updated in accordance with the update 
    factor for the standard Federal rate determined under 
    Sec. 412.308(c)(1). For FY 1999, we are updating the hospital-specific 
    rate by a factor of 1.0010.
    2. Exceptions Payment Adjustment Factor
        For FYs 1992 through FY 2001, the updated hospital-specific rate is 
    multiplied by an adjustment factor to account for estimated exceptions 
    payments for capital-related costs under Sec. 412.348, determined as a 
    proportion of the total amount of payments under the hospital-specific 
    rate and the Federal rate. For FY 1999, we estimated in the proposed 
    rule that exceptions payments would be 2.39 percent of aggregate 
    payments based on the Federal rate and the hospital-specific rate. 
    Therefore, we proposed that the updated hospital-specific rate be 
    adjusted by a factor of 0.9761. In this final rule, we estimate that 
    exceptions payments will be 2.17 percent of aggregate payments based on 
    the Federal rate and the hospital-specific rate. Accordingly, for FY 
    1999, we are applying an exceptions reduction factor of 0.9783 to the 
    hospital-specific rate. The exceptions reduction factors are not built 
    permanently into the rates; that is, the factors are not applied 
    cumulatively in determining the hospital-specific rate. The net 
    adjustment to the FY 1999 hospital-specific rate is 0.9783/0.9659, or 
    1.0128.
    3. Net Change to Hospital-Specific Rate
        We are providing a chart to show the net change to the hospital-
    specific rate. The chart shows the factors for FY 1998 and FY 1999 and 
    the net adjustment for each factor. It also shows that the cumulative 
    net adjustment from FY 1998 to FY 1999 is 1.0138, which represents a 
    increase of 1.38 percent to the hospital-specific rate. For each 
    hospital, the FY 1999 hospital-specific rate is determined by 
    multiplying the FY 1998 hospital-specific rate by the cumulative net 
    adjustment of 1.0138.
    
                                FY 1999 Update and Adjustments to Hospital-Specific Rates                           
    ----------------------------------------------------------------------------------------------------------------
                                                                                                Net        Percent  
                                                                     FY 98        FY 99      adjustment     change  
    ----------------------------------------------------------------------------------------------------------------
    Update Factor...............................................       1.0090       1.0010       1.0010         0.10
    Exceptions Payment Adjustment Factor........................       0.9659       0.9783       1.0128         1.28
    
    [[Page 41016]]
    
                                                                                                                    
    Cumulative Adjustments......................................       0.9746       0.9880       1.0138        1.38 
    ----------------------------------------------------------------------------------------------------------------
    Note: The update factor for the hospital-specific rate is applied cumulatively in determining the rates. Thus,  
      the incremental increase in the update factor from FY 1998 to FY 1999 is 1.0020. In contrast, the exceptions  
      payment adjustment factor is not applied cumulatively. Thus, for example, the incremental increase in the     
      exceptions reduction factor from FY 1998 to FY 1999 is 0.9783/0.9659, or 1.0128.                              
    
    C. Calculation of Inpatient Capital-Related Prospective Payments for FY 
    1999
    
        During the capital prospective payment system transition period, a 
    hospital is paid for the inpatient capital-related costs under one of 
    two payment methodologies--the fully prospective payment methodology or 
    the hold-harmless methodology. The payment methodology applicable to a 
    particular hospital is determined when a hospital comes under the 
    prospective payment system for capital-related costs by comparing its 
    hospital-specific rate to the Federal rate applicable to the hospital's 
    first cost reporting period under the prospective payment system. The 
    applicable Federal rate was determined by making adjustments as 
    follows:
         For outliers by dividing the standard Federal rate by the 
    outlier reduction factor for that fiscal year; and,
         For the payment adjustment factors applicable to the 
    hospital (that is, the hospital's GAF, the disproportionate share 
    adjustment factor, and the indirect medical education adjustment 
    factor, when appropriate).
        If the hospital-specific rate is above the applicable Federal rate, 
    the hospital is paid under the hold-harmless methodology. If the 
    hospital-specific rate is below the applicable Federal rate, the 
    hospital is paid under the fully prospective methodology.
        For purposes of calculating payments for each discharge under both 
    the hold-harmless payment methodology and the fully prospective payment 
    methodology, the standard Federal rate is adjusted as follows: 
    (Standard Federal Rate) x (DRG weight) x (GAF) x (Large Urban Add-on, 
    if applicable) x (COLA adjustment for hospitals located in Alaska and 
    Hawaii) x (1 + Disproportionate Share Adjustment Factor + IME 
    Adjustment Factor, if applicable). The result is the adjusted Federal 
    rate.
        Payments under the hold-harmless methodology are determined under 
    one of two formulas. A hold-harmless hospital is paid the higher of the 
    following:
         100 percent of the adjusted Federal rate for each 
    discharge; or
         An old capital payment equal to 85 percent (100 percent 
    for sole community hospitals) of the hospital's allowable Medicare 
    inpatient old capital costs per discharge for the cost reporting period 
    plus a new capital payment based on a percentage of the adjusted 
    Federal rate for each discharge. The percentage of the adjusted Federal 
    rate equals the ratio of the hospital's allowable Medicare new capital 
    costs to its total Medicare inpatient capital-related costs in the cost 
    reporting period.
        Once a hospital receives payment based on 100 percent of the 
    adjusted Federal rate in a cost reporting period beginning on or after 
    October 1, 1994 (or the first cost reporting period after obligated 
    capital that is recognized as old capital under Sec. 412.302(c) is put 
    in use for patient care, if later), the hospital continues to receive 
    capital prospective payment system payments on that basis for the 
    remainder of the transition period.
        Payment for each discharge under the fully prospective methodology 
    is the sum of the following:
         The hospital-specific rate multiplied by the DRG relative 
    weight for the discharge and by the applicable hospital-specific 
    transition blend percentage for the cost reporting period; and
         The adjusted Federal rate multiplied by the Federal 
    transition blend percentage.
        The blend percentages for cost reporting periods beginning in FY 
    1999 are 80 percent of the adjusted Federal rate and 20 percent of the 
    hospital-specific rate.
        Hospitals may also receive outlier payments for those cases that 
    qualify under the thresholds established for each fiscal year. Section 
    412.312(c) provides for a single set of thresholds to identify outlier 
    cases for both inpatient operating and inpatient capital-related 
    payments. Outlier payments are made only on that portion of the Federal 
    rate that is used to calculate the hospital's inpatient capital-related 
    payments. For fully prospective hospitals, that portion is 80 percent 
    of the Federal rate for discharges occurring in cost reporting periods 
    beginning during FY 1999. Thus, a fully prospective hospital will 
    receive 80 percent of the capital-related outlier payment calculated 
    for the case for discharges occurring in cost reporting periods 
    beginning in FY 1999. For hold-harmless hospitals paid 85 percent of 
    their reasonable costs for old inpatient capital, the portion of the 
    Federal rate that is included in the hospital's outlier payments is 
    based on the hospital's ratio of Medicare inpatient costs for new 
    capital to total Medicare inpatient capital costs. For hold-harmless 
    hospitals that are paid 100 percent of the Federal rate, 100 percent of 
    the Federal rate is included in the hospital's outlier payments.
        The outlier thresholds for FY 1999 are in section II.A.4.c of this 
    Addendum. For FY 1999, a case qualifies as a cost outlier if the cost 
    for the case (after standardization for the indirect teaching 
    adjustment and disproportionate share adjustment) is greater than the 
    prospective payment rate for the DRG plus $11,100.
        During the capital prospective payment system transition period, a 
    hospital may also receive an additional payment under an exceptions 
    process if its total inpatient capital-related payments are less than a 
    minimum percentage of its allowable Medicare inpatient capital-related 
    costs. The minimum payment level is established by class of hospital 
    under Sec. 412.348. The minimum payment levels for portions of cost 
    reporting periods beginning in FY 1999 are:
         Sole community hospitals (located in either an urban or 
    rural area), 90 percent;
         Urban hospitals with at least 100 beds and a 
    disproportionate share patient percentage of at least 20.2 percent; and
         Urban hospitals with at least 100 beds that qualify for 
    disproportionate share payments under Sec. 412.106(c)(2), 80 percent; 
    and
         All other hospitals, 70 percent.
        Under Sec. 412.348(d), the amount of the exceptions payment is 
    determined by comparing the cumulative payments made to the hospital 
    under the capital prospective payment system to the cumulative minimum 
    payment levels applicable to the hospital for each cost reporting 
    period subject to that system.
    
    [[Page 41017]]
    
    Any amount by which the hospital's cumulative payments exceed its 
    cumulative minimum payment is deducted from the additional payment that 
    would otherwise be payable for a cost reporting period.
        New hospitals are exempted from the capital prospective payment 
    system for their first 2 years of operation and are paid 85 percent of 
    their reasonable costs during that period. A new hospital's old capital 
    costs are its allowable costs for capital assets that were put in use 
    for patient care on or before the later of December 31, 1990 or the 
    last day of the hospital's base year cost reporting period, and are 
    subject to the rules pertaining to old capital and obligated capital as 
    of the applicable date. Effective with the third year of operation, we 
    will pay the hospital under either the fully prospective methodology, 
    using the appropriate transition blend in that Federal fiscal year, or 
    the hold-harmless methodology. If the hold-harmless methodology is 
    applicable, the hold-harmless payment for assets in use during the base 
    period would extend for 8 years, even if the hold-harmless payments 
    extend beyond the normal transition period.
    
    D. Capital Input Price Index
    
    1. Background
        Like the prospective payment hospital operating input price index, 
    the Capital Input Price Index (CIPI) is a fixed-weight price index that 
    measures the price changes associated with costs during a given year. 
    The CIPI differs from the operating input price index in one important 
    aspect--the CIPI reflects the vintage nature of capital, which is the 
    acquisition and use of capital over time. Capital expenses in any given 
    year are determined by the stock of capital in that year (that is, 
    capital that remains on hand from all current and prior capital 
    acquisitions). An index measuring capital price changes needs to 
    reflect this vintage nature of capital. Therefore, the CIPI was 
    developed to capture the vintage nature of capital by using a weighted-
    average of past capital purchase prices up to and including the current 
    year.
        Using Medicare cost reports, AHA data, and Securities Data 
    Corporation data, a vintage-weighted price index was developed to 
    measure price increases associated with capital expenses. We 
    periodically update the base year for the operating and capital input 
    prices to reflect the changing composition of inputs for operating and 
    capital expenses. Currently, the CIPI is based to FY 1992 and was last 
    rebased in 1997. The most recent explanation of the CIPI was discussed 
    in the final rule with comment period for FY 1998 published in the 
    August 29, 1997 Federal Register (62 FR 46050). The following Federal 
    Register documents also describe development and revisions of the 
    methodology involved with the construction of the CIPI: September 1, 
    1992 (57 FR 40016), May 26, 1993 (58 FR 30448), September 1, 1993 (58 
    FR 46490), May 27, 1994 (59 FR 27876), September 1, 1994 (59 FR 45517), 
    June 2, 1995 (60 FR 29229), and September 1, 1995 (60 FR 45815), May 
    31, 1996 (61 FR 27466), August 30, 1996 (61 FR 46196), and June 2, 1997 
    (62 FR 29953), August 29, 1997 (67 FR 46050), and May 8, 1998 (63 FR 
    25619).
    2. Forecast of the CIPI for Federal Fiscal Year 1999
        DRI forecasts a 0.7 percent increase in the CIPI for FY 1999. This 
    is the outcome of a projected 1.9 percent increase in vintage-weighted 
    depreciation prices (building and fixed equipment, and movable 
    equipment) and a 2.9 percent increase in other capital expense prices 
    in FY 1999, partially offset by a 3.0 percent decline in vintage-
    weighted interest rates in FY 1999. The weighted average of these three 
    factors produces the 0.7 percent increase for the CIPI as a whole.
    
    V. Changes to Payment Rates for Excluded Hospitals and Hospital 
    Units: Rate-of-Increase Percentages
    
    A. Rate-of-Increase Percentages for Excluded Hospitals and Hospital 
    Units
    
        The inpatient operating costs of hospitals and hospital units 
    excluded from the prospective payment system are subject to rate-of-
    increase limits established under the authority of section 1886(b) of 
    the Act, which is implemented in Sec. 413.40 of the regulations. Under 
    these limits, an annual target amount (expressed in terms of the 
    inpatient operating cost per discharge) is set for each hospital, based 
    on the hospital's own historical cost experience trended forward by the 
    applicable rate-of-increase percentages (update factors). In the case 
    of a psychiatric hospital or unit, rehabilitation hospital or unit, or 
    long-term care hospital, the target amount may not exceed the 75th 
    percentile of target amounts for hospitals and units in the same class 
    (psychiatric, rehabilitation, and long-term care). The target amount is 
    multiplied by the number of Medicare discharges in a hospital's cost 
    reporting period, yielding the ceiling on aggregate Medicare inpatient 
    operating costs for the cost reporting period.
        Each hospital's target amount is adjusted annually, at the 
    beginning of its cost reporting period, by an applicable update factor. 
    Section 1886(b)(3)(B) of the Act provides that for cost reporting 
    periods beginning on or after October 1, 1998 and before October 1, 
    1999, the update factor is the market basket less a percentage point 
    between 0 and 2.5 depending on the hospital's or unit's costs in 
    relation to the ceiling. For hospitals with costs exceeding the ceiling 
    by 10 percent or more, the update factor is the market basket increase. 
    For hospitals with costs exceeding the ceiling by less than 10 percent, 
    the update factor is the greater of 0 percent or the market basket 
    minus .25 percent for each percentage point by which costs are less 
    than 10 percent over the ceiling. For hospitals with costs equal to or 
    less than the ceiling but greater than 66.7 percent of the ceiling, the 
    update factor is the greater of 0 percent or the market basket minus 
    2.5 percent. For hospitals with costs that do not exceed 66.7 percent 
    of the ceiling, the update factor is 0.
        The most recent forecast of the market basket increase for FY 1999 
    for hospitals and hospital units excluded from the prospective payment 
    system is 2.4 percent; therefore, the update to a hospital's target 
    amount for its cost reporting period beginning in FY 1999 would be 
    between 0 and 2.4 percent.
        In addition, section 1886(b)(3)(H) of the Act provides that for 
    cost reporting periods beginning on or after October 1, 1998 and before 
    October 1, 1999, the target amount for psychiatric hospitals and units, 
    rehabilitation hospitals and units, and long-term care hospitals may 
    not exceed an updated cap that is based on the 75th percentile of 
    target amounts for hospitals in the same class for cost reporting 
    periods ending during FY 1996. The FY 1998 75th percentile target 
    amounts were $10,534 for psychiatric hospitals and units, $19,104 for 
    rehabilitation hospital and units, and $37,688 for long-term care 
    hospitals. As discussed in detail in section VII. of the preamble, for 
    purposes of calculating the caps, the statute requires the Secretary to 
    first calculate the 75th percentile of the target amounts for each 
    class of hospital (psychiatric, rehabilitation, or long-term care) for 
    cost reporting periods ending during FY 1996. The resulting amounts are 
    updated by the market basket percentage to the applicable fiscal year.
    
    B. Wage Index Exceptions for Excluded Hospitals and Units
    
        In the August 30, 1991 final rule (56 FR 43232), we set forth our 
    policy for target amount adjustments for
    
    [[Page 41018]]
    
    significant wage increases. Effective with cost reporting periods 
    beginning on or after April 1, 1990, significant increases in wages 
    since the base period are recognized as a basis for an adjustment in 
    the target amount under Sec. 413.40(g).
        To qualify for an adjustment, the excluded hospital or hospital 
    unit must be located in a labor market area for which the average 
    hourly wage increased significantly more than the national average 
    hourly wage between the hospital's base period and the period subject 
    to the ceiling. We use the hospital wage index for prospective payment 
    hospitals to determine the rate of increase in the average hourly wage 
    in the labor market area. For a hospital to qualify for an adjustment, 
    the wage index value for the cost reporting period subject to the 
    ceiling must be at least 8 percent higher than the wage index based on 
    wage survey data collected for the base year cost reporting period. If 
    survey data are not available for one (or both) of the cost reporting 
    periods used in the comparison, the wage index based on the latest 
    available survey data collected before that cost reporting period will 
    be used. For example, to make the comparison between a 1983 base period 
    and a hospital's cost reporting period beginning in FY 1996, we would 
    use the rate of increase between the wage index based on 1982 wage data 
    and the wage index based on the FY 1995 data, since the FY 1995 data 
    are the most recent data currently available. Further, the comparison 
    is made without regard to geographic reclassifications made by the 
    MGCRB under sections 1886(d) (8) and (10) of the Act. Therefore, the 
    comparison is made based on the wage index value of the labor market 
    area in which the hospital is actually located.
        We determine the amount of the adjustment for wage increases by 
    considering three factors for the time between the base period and the 
    period for which an adjustment is requested: The rate of increase in 
    the hospital's average hourly wage; the rate of increase in the average 
    hourly wage in the labor market area in which the hospital is located; 
    and, the rate of increase in the national average hourly wage for 
    hospital workers. The adjustment is limited to the amount by which the 
    lower of the hospital's or the labor market area's rate of increase in 
    average hourly wages significantly exceeds the national increase (that 
    is, exceeds the national rate of increase by more than 8 percent). For 
    purposes of computing the adjustment, the relative rate of increase in 
    the average hourly wage for the labor market area is assumed to have 
    been the same over each of the intervening years between the wage 
    surveys.
        To determine the rate of increase in the national average hourly 
    wage, we use the average hourly earnings (AHE) for hospital workers 
    produced by the Bureau of Labor Statistics.
        The average hourly earnings for hospital workers show the following 
    increases:
    
    1992=4.8 percent
    1993=3.6 percent
    1994=2.7 percent
    1995=3.3 percent
    1996=3.1 percent
    1997=2.0 percent
    1998=2.6 percent
    1999=2.7 percent
    
        We note that this section merely provides updated information with 
    respect to areas that would qualify for the wage index adjustment under 
    Sec. 413.30(g). This information was calculated in accordance with 
    established policy and does not reflect any change in that policy. The 
    geographic areas in which the percentage difference in wage indexes was 
    sufficient to qualify for a wage index adjustment are listed in Table 
    10 of section VI of the addendum to this final rule.
    
    VI. Tables
    
        This section contains the tables referred to throughout the 
    preamble to this final rule and in this Addendum. For purposes of this 
    final rule, and to avoid confusion, we have retained the designations 
    of Tables 1 through 5 that were first used in the September 1, 1983 
    initial prospective payment final rule (48 FR 39844). Tables 1A, 1C, 
    1D, 1E, 1F, 3C, 4A, 4B, 4C, 4D, 4E, 4F, 5, 6A, 6B, 6C, 6D, 6E, 6F, 6G, 
    7A, 7B, 8A, 8B, and 10 are presented below. The tables presented below 
    are as follows:
    
    Table 1A--National Adjusted Operating Standardized Amounts, Labor/
    Nonlabor
    Table 1C--Adjusted Operating Standardized Amounts for Puerto Rico, 
    Labor/Nonlabor
    Table 1D--Capital Standard Federal Payment Rate
    Table 1E--National Adjusted Operating Standardized Amounts for 
    ``Temporary Relief'' Hospitals, Labor/Nonlabor
    Table 1F--Adjusted Operating Standardized Amounts for ``Temporary 
    Relief'' Hospitals in Puerto Rico, Labor/Nonlabor
    Table 3C--Hospital Case Mix Indexes for Discharges Occurring in Federal 
    Fiscal Year 1997 and Hospital Average Hourly Wage for Federal Fiscal 
    Year 1999 Wage Index
    Table 4A--Wage Index and Capital Geographic Adjustment Factor (GAF) for 
    Urban Areas
    Table 4B--Wage Index and Capital Geographic Adjustment Factor (GAF) for 
    Rural Areas
    Table 4C--Wage Index and Capital Geographic Adjustment Factor (GAF) for 
    Hospitals That Are Reclassified
    Table 4D--Average Hourly Wage for Urban Areas
    Table 4E--Average Hourly Wage for Rural Areas
    Table 4F--Puerto Rico Wage Index and Capital Geographic Adjustment 
    Factor (GAF)
    Table 5--List of Diagnosis Related Groups (DRGs), Relative Weighting 
    Factors, Geometric Mean Length of Stay, and Arithmetic Mean Length of 
    Stay Points Used in the Prospective Payment System
    Table 6A--New Diagnosis Codes
    Table 6B--New Procedure Codes
    Table 6C--Invalid Diagnosis Codes
    Table 6D--Invalid Procedure Codes
    Table 6E--Revised Diagnosis Code Titles
    Table 6F--Additions to the CC Exclusions List
    Table 6G--Deletions to the CC Exclusions List
    Table 7A--Medicare Prospective Payment System Selected Percentile 
    Lengths of Stay FY 97 MEDPAR Update 03/98 GROUPER V15.0
    Table 7B--Medicare Prospective Payment System Selected Percentile 
    Lengths of Stay FY 97 MEDPAR Update 03/98 GROUPER V16.0
    Table 8A--Statewide Average Operating Cost-to-Charge Ratios for Urban 
    and Rural Hospitals (Case Weighted) July 1998
    Table 8B--Statewide Average Capital Cost-to-Charge Ratios (Case 
    Weighted) July 1998
    Table 10--Percentage Difference on Wage Indexes for Areas that Qualify 
    for a Wage Index Exception for Excluded Hospitals and Units
    
    [[Page 41019]]
    
    
    
                       Table 1A.--National Adjusted Operating Standardized Amounts, Labor/Nonlabor                  
    ----------------------------------------------------------------------------------------------------------------
                        Large urban areas                                           Other areas                     
    ----------------------------------------------------------------------------------------------------------------
           Labor-related               Nonlabor-related              Labor-related             Nonlabor-related     
    ----------------------------------------------------------------------------------------------------------------
    2,783.42...................                   1,313.41                    2,739.36                    1,113.47  
    ----------------------------------------------------------------------------------------------------------------
    
    
                   Table 1C.--Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor               
    ----------------------------------------------------------------------------------------------------------------
                                                                      Large urban areas            Other areas      
                                                                 ---------------------------------------------------
                                                                     Labor       Nonlabor      Labor       Nonlabor 
    ----------------------------------------------------------------------------------------------------------------
    National....................................................     2,760.01     1,121.87     2,760.01     1,121.87
    Puerto Rico.................................................     1,327.81       534.48     1,306.79       526.01
    ----------------------------------------------------------------------------------------------------------------
    
    
                Table 1D.--Capital Standard Federal Payment Rate            
    ------------------------------------------------------------------------
                                                                       Rate 
    ------------------------------------------------------------------------
    National.......................................................   378.05
    Puerto Rico....................................................   181.10
    ------------------------------------------------------------------------
    
    
     Table 1E.--National Adjusted Operating Standardized Amounts for ``Temporary Relief'' Hospitals, Labor/Nonlabor 
    ----------------------------------------------------------------------------------------------------------------
                        Large urban areas                                           Other areas                     
    ----------------------------------------------------------------------------------------------------------------
           Labor-related               Nonlabor-related              Labor-related             Nonlabor-related     
    ----------------------------------------------------------------------------------------------------------------
    2,791.73...................                   1,134.76                    2,747.54                    1,116.79  
    ----------------------------------------------------------------------------------------------------------------
    
    
      Table 1F.--Adjusted Operating Standardized Amounts for ``Temporary Relief'' Hospitals in Puerto Rico, Labor/  
                                                        Nonlabor                                                    
    ----------------------------------------------------------------------------------------------------------------
                                                                      Large urban areas            Other areas      
                                                                 ---------------------------------------------------
                                                                     Labor       Nonlabor      Labor       Nonlabor 
    ----------------------------------------------------------------------------------------------------------------
    National....................................................     2,768.25     1,125.22     2,768.25     1,125.22
    Puerto Rico.................................................     1,331.77       536.08     1,310.69       527.58
    ----------------------------------------------------------------------------------------------------------------
    
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    BILLING CODE 4120-01-C
    
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    Table 4A.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                                   Urban Areas                              
    ------------------------------------------------------------------------
                                                            Wage            
              Urban area (Constituent counties)             index      GAF  
    ------------------------------------------------------------------------
    0040  Abilene, TX...................................    0.8083    0.8644
      Taylor, TX                                                            
    0060  Aguadilla, PR.................................    0.4738    0.5996
      Aguada, PR                                                            
      Aguadilla, PR                                                         
      Moca, PR                                                              
    0080  Akron, OH.....................................    0.9954    0.9968
      Portage, OH                                                           
      Summit, OH                                                            
    0120  Albany, GA....................................    0.7993    0.8578
      Dougherty, GA                                                         
      Lee, GA                                                               
    0160  Albany-Schenectady-Troy, NY...................    0.8629    0.9040
      Albany, NY                                                            
      Montgomery, NY                                                        
      Rensselaer, NY                                                        
      Saratoga, NY                                                          
      Schenectady, NY                                                       
      Schoharie, NY                                                         
    0200  Albuquerque, NM...............................    0.8632    0.9042
      Bernalillo, NM                                                        
      Sandoval, NM                                                          
      Valencia, NM                                                          
    0220  Alexandria, LA................................    0.8544    0.8978
      Rapides, LA                                                           
    0240  Allentown-Bethlehem-Easton, PA................    1.0226    1.0154
      Carbon, PA                                                            
      Lehigh, PA                                                            
      Northampton, PA                                                       
    0280  Altoona, PA...................................    0.9355    0.9554
      Blair, PA                                                             
    0320  Amarillo, TX..................................    0.8509    0.8953
      Potter, TX                                                            
      Randall, TX                                                           
    0380  Anchorage, AK.................................    1.3007    1.1973
      Anchorage, AK                                                         
    0440  Ann Arbor, MI.................................    1.1057    1.0712
      Lenawee, MI                                                           
      Livingston, MI                                                        
      Washtenaw, MI                                                         
    0450  Anniston, AL..................................    0.8676    0.9073
      Calhoun, AL                                                           
    0460  Appleton-Oshkosh-Neenah, WI...................    0.8844    0.9193
      Calumet, WI                                                           
      Outagamie, WI                                                         
      Winnebago, WI                                                         
    0470  Arecibo, PR...................................    0.4878    0.6117
      Arecibo, PR                                                           
      Camuy, PR                                                             
      Hatillo, PR                                                           
    0480  Asheville, NC.................................    0.8960    0.9276
      Buncombe, NC                                                          
      Madison, NC                                                           
    0500  Athens, GA....................................    0.8692    0.9085
      Clarke, GA                                                            
      Madison, GA                                                           
      Oconee, GA                                                            
    0520  \1\ Atlanta, GA...............................    0.9936    0.9956
      Barrow, GA                                                            
      Bartow, GA                                                            
      Carroll, GA                                                           
      Cherokee, GA                                                          
      Clayton, GA                                                           
      Cobb, GA                                                              
      Coweta, GA                                                            
      DeKalb, GA                                                            
      Douglas, GA                                                           
      Fayette, GA                                                           
      Forsyth, GA                                                           
      Fulton, GA                                                            
      Gwinnett, GA                                                          
      Henry, GA                                                             
      Newton, GA                                                            
      Paulding, GA                                                          
      Pickens, GA                                                           
      Rockdale, GA                                                          
      Spalding, GA                                                          
      Walton, GA                                                            
    0560  Atlantic-Cape May, NJ.........................                    
      Atlantic, NJ                                                          
      Cape May, NJ                                          1.0377    1.0257
    0600  Augusta-Aiken, GA-SC..........................    0.9253    0.9482
      Columbia, GA                                                          
      McDuffie, GA                                                          
      Richmond, GA                                                          
      Aiken, SC                                                             
      Edgefield, SC                                                         
    0640  \1\ Austin-San Marcos, TX.....................    0.8442    0.8905
      Bastrop, TX                                                           
      Caldwell, TX                                                          
      Hays, TX                                                              
      Travis, TX                                                            
      Williamson, TX                                                        
    0680  \2\ Bakersfield, CA...........................    0.9959    0.9972
      Kern, CA                                                              
    0720  \1\ Baltimore, MD.............................    0.9663    0.9768
      Anne Arundel, MD                                                      
      Baltimore, MD                                                         
      Baltimore City, MD                                                    
      Carroll, MD                                                           
      Harford, MD                                                           
      Howard, MD                                                            
      Queen Anne's, MD                                                      
    0733  Bangor, ME....................................    0.9495    0.9651
      Penobscot, ME                                                         
    0743  Barnstable-Yarmouth, MA.......................    1.5415    1.3449
      Barnstable, MA                                                        
    0760  Baton Rouge, LA...............................    0.8891    0.9227
      Ascension, LA                                                         
      East Baton Rouge, LA                                                  
      Livingston, LA                                                        
      West Baton Rouge, LA                                                  
    0840  Beaumont-Port Arthur, TX......................    0.9071    0.9354
      Hardin, TX                                                            
      Jefferson, TX                                                         
      Orange, TX                                                            
    0860  Bellingham, WA................................    1.1459    1.0978
      Whatcom, WA                                                           
    0870  \2\ Benton Harbor, MI.........................    0.8903    0.9235
      Berrien, MI                                                           
    0875  \1\ Bergen-Passaic, NJ........................    1.1774    1.1183
      Bergen, NJ                                                            
      Passaic, NJ                                                           
    0880  Billings, MT..................................    0.9162    0.9418
      Yellowstone, MT                                                       
    0920  Biloxi-Gulfport-Pascagoula, MS................    0.8294    0.8798
      Hancock, MS                                                           
      Harrison, MS                                                          
      Jackson, MS                                                           
    0960  Binghamton, NY................................    0.9078    0.9359
      Broome, NY                                                            
      Tioga, NY                                                             
    1000  Birmingham, AL................................    0.9092    0.9369
      Blount, AL                                                            
      Jefferson, AL                                                         
      St. Clair, AL                                                         
      Shelby, AL                                                            
    1010  Bismarck, ND..................................    0.8042    0.8614
      Burleigh, ND                                                          
      Morton, ND                                                            
    1020  Bloomington, IN...............................    0.8984    0.9293
      Monroe, IN                                                            
    1040  Bloomington-Normal, IL........................    0.8870    0.9212
      McLean, IL                                                            
    1080  Boise City, ID................................    0.9209    0.9451
      Ada, ID                                                               
      Canyon, ID                                                            
    1123  \1\ Boston-Worcester-Lawrence-Lowell-Brockton,                    
     MA-NH..............................................    1.1307    1.0878
      Bristol, MA                                                           
      Essex, MA                                                             
      Middlesex, MA                                                         
      Norfolk, MA                                                           
      Plymouth, MA                                                          
      Suffolk, MA                                                           
      Worcester, MA                                                         
      Hillsborough, NH                                                      
      Merrimack, NH                                                         
      Rockingham, NH                                                        
      Strafford, NH                                                         
    1125  Boulder-Longmont, CO..........................    1.0059    1.0040
      Boulder, CO                                                           
    1145  Brazoria, TX..................................    0.8925    0.9251
      Brazoria, TX                                                          
    1150  Bremerton, WA.................................    1.1079    1.0727
      Kitsap, WA                                                            
    1240  Brownsville-Harlingen-San Benito, TX..........    0.8255    0.8769
      Cameron, TX                                                           
    1260  Bryan-College Station, TX.....................    0.8084    0.8645
      Brazos, TX                                                            
    1280  \1\ Buffalo-Niagara Falls, NY.................    0.9607    0.9729
      Erie, NY                                                              
      Niagara, NY                                                           
    1303  Burlington, VT................................    0.9616    0.9735
      Chittenden, VT                                                        
      Franklin, VT                                                          
      Grand Isle, VT                                                        
    1310  Caguas, PR....................................    0.4419    0.5716
      Caguas, PR                                                            
      Cayey, PR                                                             
      Cidra, PR                                                             
      Gurabo, PR                                                            
      San Lorenzo, PR                                                       
    1320  Canton-Massillon, OH..........................    0.8827    0.9181
    
    [[Page 41053]]
    
                                                                            
      Carroll, OH                                                           
      Stark, OH                                                             
    1350  Casper, WY....................................    0.9170    0.9424
      Natrona, WY                                                           
    1360  Cedar Rapids, IA..............................    0.8833    0.9185
      Linn, IA                                                              
    1400  Champaign-Urbana, IL..........................    0.8789    0.9154
      Champaign, IL                                                         
    1440  Charleston-North Charleston, SC...............    0.9134    0.9399
      Berkeley, SC                                                          
      Charleston, SC                                                        
      Dorchester, SC                                                        
    1480  Charleston, WV................................    0.9009    0.9310
      Kanawha, WV                                                           
      Putnam, WV                                                            
    1520  \1\ Charlotte-Gastonia-Rock Hill, NC-SC.......    0.9562    0.9698
      Cabarrus, NC                                                          
      Gaston, NC                                                            
      Lincoln, NC                                                           
      Mecklenburg, NC                                                       
      Rowan, NC                                                             
      Stanly, NC                                                            
      Union, NC                                                             
      York, SC                                                              
    1540  Charlottesville, VA...........................    1.0294    1.0200
      Albemarle, VA                                                         
      Charlottesville City, VA                                              
      Fluvanna, VA                                                          
      Greene, VA                                                            
    1560  Chattanooga, TN-GA............................    0.9093    0.9370
      Catoosa, GA                                                           
      Dade, GA                                                              
      Walker, GA                                                            
      Hamilton, TN                                                          
      Marion, TN                                                            
    1580  \2\ Cheyenne, WY..............................    0.8787    0.9153
      Laramie, WY                                                           
    1600  \1\ Chicago, IL...............................    1.0469    1.0319
      Cook, IL                                                              
      DeKalb, IL                                                            
      DuPage, IL                                                            
      Grundy, IL                                                            
      Kane, IL                                                              
      Kendall, IL                                                           
      Lake, IL                                                              
      McHenry, IL                                                           
      Will, IL                                                              
    1620  Chico-Paradise, CA............................    1.0167    1.0114
      Butte, CA                                                             
    1640  \2\ Cincinnati, OH-KY-IN......................    0.9615    0.9735
      Dearborn, IN                                                          
      Ohio, IN                                                              
      Boone, KY                                                             
      Campbell, KY                                                          
      Gallatin, KY                                                          
      Grant, KY                                                             
      Kenton, KY                                                            
      Pendleton, KY                                                         
      Brown, OH                                                             
      Clermont, OH                                                          
      Hamilton, OH                                                          
      Warren, OH                                                            
    1660  Clarksville-Hopkinsville, TN-KY...............    0.8231    0.8752
      Christian, KY                                                         
      Montgomery, TN                                                        
    1680  \1\ Cleveland-Lorain-Elyria, OH...............    0.9907    0.9936
      Ashtabula, OH                                                         
      Cuyahoga, OH                                                          
      Geauga, OH                                                            
      Lake, OH                                                              
      Lorain, OH                                                            
      Medina, OH                                                            
    1720  Colorado Springs, CO..........................    0.9410    0.9592
      El Paso, CO                                                           
    1740  Columbia, MO..................................    0.8961    0.9276
      Boone, MO                                                             
    1760  Columbia, SC..................................    0.9310    0.9522
      Lexington, SC                                                         
      Richland, SC                                                          
    1800  Columbus, GA-AL...............................                    
      Russell, AL.......................................    0.8529    0.8968
      Chattahoochee, GA                                                     
      Harris, GA                                                            
      Muscogee, GA                                                          
    1840  \1\ Columbus, OH..............................    0.9802    0.9864
      Delaware, OH                                                          
      Fairfield, OH                                                         
      Franklin, OH                                                          
      Licking, OH                                                           
      Madison, OH                                                           
      Pickaway, OH                                                          
    1880  Corpus Christi, TX............................    0.8549    0.8982
      Nueces, TX                                                            
      San Patricio, TX                                                      
    1900  \2\ Cumberland, MD-WV (Maryland Hospitals)....    0.8574    0.9000
      Allegany, MD                                                          
      Mineral, WV                                                           
    1900  Cumberland, MD-WV (West Virginia Hospital)....    0.8259    0.8772
      Allegany, MD                                                          
      Mineral, WV                                                           
    1920  \1\ Dallas, TX................................    0.9364    0.9560
      Collin, TX                                                            
      Dallas, TX                                                            
      Denton, TX                                                            
      Ellis, TX                                                             
      Henderson, TX                                                         
      Hunt, TX                                                              
      Kaufman, TX                                                           
      Rockwall, TX                                                          
    1950  Danville, VA..................................    0.9065    0.9350
      Danville City, VA                                                     
      Pittsylvania, VA                                                      
    1960  DavenportMoline-Rock Island, IA-IL............    0.8431    0.8897
      Scott, IA                                                             
      Henry, IL                                                             
      Rock Island, IL                                                       
    2000  Dayton-Springfield, OH........................    0.9584    0.9713
      Clark, OH                                                             
      Greene, OH                                                            
      Miami, OH                                                             
      Montgomery, OH                                                        
    2020  Daytona Beach, FL.............................    0.9153    0.9412
      Flagler, FL                                                           
      Volusia, FL                                                           
    2030  Decatur, AL...................................    0.8251    0.8766
      Lawrence, AL                                                          
      Morgan, AL                                                            
    2040  Decatur, IL...................................    0.8052    0.8621
      Macon, IL                                                             
    2080  \1\ Denver, CO................................    1.0059    1.0040
      Adams, CO                                                             
      Arapahoe, CO                                                          
      Denver, CO                                                            
      Douglas, CO                                                           
      Jefferson, CO                                                         
    2120  Des Moines, IA................................    0.8494    0.8942
      Dallas, IA                                                            
      Polk, IA                                                              
      Warren, IA                                                            
    2160  \1\ Detroit, MI...............................    1.0567    1.0385
      Lapeer, MI                                                            
      Macomb, MI                                                            
      Monroe, MI                                                            
      Oakland, MI                                                           
      St. Clair, MI                                                         
      Wayne, MI                                                             
    2180  Dothan, AL....................................    0.7909    0.8516
      Dale, AL                                                              
      Houston, AL                                                           
    2190  Dover, DE.....................................    0.9383    0.9573
      Kent, DE                                                              
    2200  Dubuque, IA...................................    0.8240    0.8758
      Dubuque, IA                                                           
    2240  Duluth-Superior, MN-WI........................    1.0031    1.0021
      St. Louis, MN                                                         
      Douglas, WI                                                           
    2281  Dutchess County, NY...........................    0.9904    0.9934
      Dutchess, NY                                                          
    2290  \2\ Eau Claire, WI............................    0.8729    0.9111
      Chippewa, WI                                                          
      Eau Claire, WI                                                        
    2320  El Paso, TX...................................    0.9235    0.9470
      El Paso, TX                                                           
    2330  Elkhart-Goshen, IN............................    0.9388    0.9577
      Elkhart, IN                                                           
    2335  \2\ Elmira, NY................................    0.8605    0.9022
      Chemung, NY                                                           
    2340  Enid, OK......................................    0.7969    0.8560
      Garfield, OK                                                          
    2360  Erie, PA......................................    0.9290    0.9508
      Erie, PA                                                              
    2400  Eugene-Springfield, OR........................    1.1217    1.0818
      Lane, OR                                                              
    2440  Evansville-Henderson, IN-KY...................    0.8547    0.8981
    
    [[Page 41054]]
    
                                                                            
      Posey, IN                                                             
      Vanderburgh, IN                                                       
      Warrick, IN                                                           
      Henderson, KY                                                         
    2520  Fargo-Moorhead, ND-MN.........................    0.9537    0.9681
      Clay, MN                                                              
      Cass, ND                                                              
    2560  Fayetteville, NC..............................    0.8407    0.8880
      Cumberland, NC                                                        
    2580  Fayetteville-Springdale-Rogers, AR............    0.8632    0.9042
      Benton, AR                                                            
      Washington, AR                                                        
    2620  Flagstaff, AZ-UT..............................    0.9543    0.9685
      Coconino, AZ                                                          
      Kane, UT                                                              
    2640  Flint, MI.....................................    1.1054    1.0710
      Genesee, MI                                                           
    2650  Florence, AL..................................    0.7692    0.8355
      Colbert, AL                                                           
      Lauderdale, AL                                                        
    2655  Florence, SC..................................    0.8520    0.8961
      Florence, SC                                                          
    2670  Fort Collins-Loveland, CO.....................    1.0319    1.0217
      Larimer, CO                                                           
    2680  \1\ Ft. Lauderdale, FL........................    0.9867    0.9909
      Broward, FL                                                           
    2700  Fort Myers-Cape Coral, FL.....................    0.8936    0.9259
      Lee, FL                                                               
    2710  Fort Pierce-Port St. Lucie, FL................    1.0263    1.0179
      Martin, FL                                                            
      St. Lucie, FL                                                         
    2720  Fort Smith, AR-OK.............................    0.7639    0.8316
      Crawford, AR                                                          
      Sebastian, AR                                                         
      Sequoyah, OK                                                          
    2750  \2\ Fort Walton Beach, FL.....................    0.8896    0.9230
      Okaloosa, FL                                                          
    2760  Fort Wayne, IN................................    0.9066    0.9351
      Adams, IN                                                             
      Allen, IN                                                             
      De Kalb, IN                                                           
      Huntington, IN                                                        
      Wells, IN                                                             
      Whitley, IN                                                           
    2800  \1\ Forth Worth-Arlington, TX.................    0.9729    0.9814
      Hood, TX                                                              
      Johnson, TX                                                           
      Parker, TX                                                            
      Tarrant, TX                                                           
    2840  Fresno, CA....................................    1.0409    1.0278
      Fresno, CA                                                            
      Madera, CA                                                            
    2880  Gadsden, AL...................................    0.8799    0.9161
      Etowah, AL                                                            
    2900  Gainesville, FL...............................    0.9482    0.9642
      Alachua, FL                                                           
    2920  Galveston-Texas City, TX......................    1.0848    1.0573
      Galveston, TX                                                         
    2960  Gary, IN......................................    0.9482    0.9642
      Lake, IN                                                              
      Porter, IN                                                            
    2975  \2\ Glens Falls, NY...........................    0.8605    0.9022
      Warren, NY                                                            
      Washington, NY                                                        
    2980  Goldsboro, NC.................................    0.8548    0.8981
      Wayne, NC                                                             
    2985  Grand Forks, ND-MN............................    0.8918    0.9246
      Polk, MN                                                              
      Grand Forks, ND                                                       
    2995  Grand Junction, CO............................    0.9099    0.9374
      Mesa, CO                                                              
    3000  \1\ Grand Rapids-Muskegon-Holland, MI.........    0.9992    0.9995
      Allegan, MI                                                           
      Kent, MI                                                              
      Muskegon, MI                                                          
      Ottawa, MI                                                            
    3040  Great Falls, MT...............................    0.9304    0.9518
      Cascade, MT                                                           
    3060  Greeley, CO...................................    0.9477    0.9639
      Weld, CO                                                              
    3080  Green Bay, WI.................................    0.9268    0.9493
      Brown, WI                                                             
    3120  \1\ Greensboro-Winston-Salem-High Point, NC...    0.9567    0.9701
      Alamance, NC                                                          
      Davidson, NC                                                          
      Davie, NC                                                             
      Forsyth, NC                                                           
      Guilford, NC                                                          
      Randolph, NC                                                          
      Stokes, NC                                                            
      Yadkin, NC                                                            
    3150  Greenville, NC................................    0.9454    0.9623
      Pitt, NC                                                              
    3160  Greenville-Spartanburg-Anderson, SC...........    0.9242    0.9475
      Anderson, SC                                                          
      Cherokee, SC                                                          
      Greenville, SC                                                        
      Pickens, SC                                                           
      Spartanburg, SC                                                       
    3180  Hagerstown, MD................................    1.0204    1.0139
      Washington, MD                                                        
    3200  Hamilton-Middletown, OH.......................    0.9253    0.9482
      Butler, OH                                                            
    3240  Harrisburg-Lebanon-Carlisle, PA...............    1.0082    1.0056
      Cumberland, PA                                                        
      Dauphin, PA                                                           
      Lebanon, PA                                                           
      Perry, PA                                                             
    3283  \1\, \2\ Hartford, CT.........................    1.2100    1.1394
      Hartford, CT                                                          
      Litchfield, CT                                                        
      Middlesex, CT                                                         
      Tolland, CT                                                           
    3285  \2\ Hattiesburg, MS...........................    0.7327    0.8082
      Forrest, MS                                                           
      Lamar, MS                                                             
    3290  Hickory-Morganton-Lenoir, NC..................    0.8668    0.9067
      Alexander, NC                                                         
      Burke, NC                                                             
      Caldwell, NC                                                          
      Catawba, NC                                                           
    3320  Honolulu, HI..................................    1.1535    1.1027
      Honolulu, HI                                                          
    3350  Houma, LA.....................................    0.8215    0.8740
      Lafourche, LA                                                         
      Terrebonne, LA                                                        
    3360  \1\ Houston, TX...............................    0.9904    0.9934
      Chambers, TX                                                          
      Fort Bend, TX                                                         
      Harris, TX                                                            
      Liberty, TX                                                           
      Montgomery, TX                                                        
      Waller, TX                                                            
    3400  Huntington-Ashland, WV-KY-OH..................    0.9668    0.9771
      Boyd, KY                                                              
      Carter, KY                                                            
      Greenup, KY                                                           
      Lawrence, OH                                                          
      Cabell, WV                                                            
      Wayne, WV                                                             
    3440  Huntsville, AL................................    0.8403    0.8877
      Limestone, AL                                                         
      Madison, AL                                                           
    3480  \1\ Indianapolis, IN..........................    0.9852    0.9898
      Boone, IN                                                             
      Hamilton, IN                                                          
      Hancock, IN                                                           
      Hendricks, IN                                                         
      Johnson, IN                                                           
      Madison, IN                                                           
      Marion, IN                                                            
      Morgan, IN                                                            
      Shelby, IN                                                            
    3500  Iowa City, IA.................................    0.9502    0.9656
      Johnson, IA                                                           
    3520  Jackson, MI...................................    0.9244    0.9476
      Jackson, MI                                                           
    3560  Jackson, MS...................................    0.8310    0.8809
      Hinds, MS                                                             
      Madison, MS                                                           
      Rankin, MS                                                            
    3580  Jackson, TN...................................    0.8578    0.9003
      Madison, TN                                                           
      Chester, TN                                                           
    3600  \1\ Jacksonville, FL..........................    0.8919    0.9246
      Clay, FL                                                              
      Duval, FL                                                             
      Nassau, FL                                                            
      St. Johns, FL                                                         
    3605  \2\ Jacksonville, NC..........................    0.8130    0.8678
      Onslow, NC                                                            
    3610  \2\ Jamestown, NY.............................    0.8605    0.9022
      Chautauqua, NY                                                        
    3620  Janesville-Beloit, WI.........................    0.9071    0.9354
      Rock, WI                                                              
    3640  Jersey City, NJ...............................    1.1623    1.1085
      Hudson, NJ                                                            
    
    [[Page 41055]]
    
                                                                            
    3660  Johnson City-Kingsport-Bristol, TN-VA.........    0.8792    0.9156
      Carter, TN                                                            
      Hawkins, TN                                                           
      Sullivan, TN                                                          
      Unicoi, TN                                                            
      Washington, TN                                                        
      Bristol City, VA                                                      
      Scott, VA                                                             
      Washington, VA                                                        
    3680  \2\ Johnstown, PA.............................    0.8683    0.9078
      Cambria, PA                                                           
      Somerset, PA                                                          
    3700  Jonesboro, AR.................................    0.7595    0.8283
      Craighead, AR                                                         
    3710  Joplin, MO....................................    0.7890    0.8502
      Jasper, MO                                                            
      Newton, MO                                                            
    3720  Kalamazoo-Battlecreek, MI.....................    1.1355    1.0909
      Calhoun, MI                                                           
      Kalamazoo, MI                                                         
      Van Buren, MI                                                         
    3740  Kankakee, IL..................................    0.9438    0.9612
      Kankakee, IL                                                          
    3760  \1\ Kansas City, KS-MO........................    0.9666    0.9770
      Johnson, KS                                                           
      Leavenworth, KS                                                       
      Miami, KS                                                             
      Wyandotte, KS                                                         
      Cass, MO                                                              
      Clay, MO                                                              
      Clinton, MO                                                           
      Jackson, MO                                                           
      Lafayette, MO                                                         
      Platte, MO                                                            
      Ray, MO                                                               
    3800  Kenosha, WI...................................    0.9149    0.9409
      Kenosha, WI                                                           
    3810  Killeen-Temple, TX............................    1.0131    1.0090
      Bell, TX                                                              
      Coryell, TX-                                                          
    3840  Knoxville, TN.................................    0.8937    0.9259
      Anderson, TN                                                          
      Blount, TN                                                            
      Knox, TN                                                              
      Loudon, TN                                                            
      Sevier, TN                                                            
      Union, TN                                                             
    3850  Kokomo, IN....................................    0.9295    0.9512
      Howard, IN                                                            
      Tipton, IN                                                            
    3870  La Crosse, WI-MN..............................    0.8933    0.9256
      Houston, MN                                                           
      La Crosse, WI                                                         
    3880  Lafayette, LA.................................    0.8311    0.8810
      Acadia, LA                                                            
      Lafayette, LA                                                         
      St. Landry, LA                                                        
      St. Martin, LA                                                        
    3920  Lafayette, IN.................................    0.8928    0.9253
      Clinton, IN                                                           
      Tippecanoe, IN                                                        
    3960  Lake Charles, LA..............................    0.7690    0.8354
      Calcasieu, LA                                                         
    3980  Lakeland-Winter Haven, FL.....................    0.8896    0.9230
      Polk, FL                                                              
    4000  Lancaster, PA.................................    0.9581    0.9711
      Lancaster, PA                                                         
    4040  Lansing-East Lansing, MI......................    1.0112    1.0077
      Clinton, MI                                                           
      Eaton, MI                                                             
      Ingham, MI                                                            
    4080  \2\ Laredo, TX................................    0.7441    0.8168
      Webb, TX                                                              
    4100  Las Cruces, NM................................    0.8989    0.9296
      Dona Ana, NM                                                          
    4120  \1\ Las Vegas, NV-AZ..........................    1.1438    1.0964
      Mohave, AZ                                                            
      Clark, NV                                                             
      Nye, NV                                                               
    4150  Lawrence, KS..................................    0.8674    0.9072
      Douglas, KS                                                           
    4200  Lawton, OK....................................    0.8716    0.9102
      Comanche, OK                                                          
    4243  Lewiston-Auburn, ME...........................    0.9169    0.9423
      Androscoggin, ME                                                      
    4280  Lexington, KY.................................    0.8525    0.8965
      Bourbon, KY                                                           
      Clark, KY                                                             
      Fayette, KY                                                           
      Jessamine, KY                                                         
      Madison, KY                                                           
      Scott, KY                                                             
      Woodford, KY                                                          
    4320  Lima, OH......................................    0.8968    0.9281
      Allen, OH                                                             
      Auglaize, OH                                                          
    4360  Lincoln, NE...................................    0.9323    0.9531
      Lancaster, NE                                                         
    4400  Little Rock-North Little Rock, AR.............    0.8553    0.8985
      Faulkner, AR                                                          
      Lonoke, AR                                                            
      Pulaski, AR                                                           
      Saline, AR                                                            
    4420  Longview-Marshall, TX.........................    0.8717    0.9103
      Gregg, TX                                                             
      Harrison, TX                                                          
      Upshur, TX                                                            
    4480  \1\ Los Angeles-Long Beach, CA................    1.2070    1.1375
      Los Angeles, CA                                                       
    4520  Louisville, KY-IN.............................    0.9113    0.9384
      Clark, IN                                                             
      Floyd, IN                                                             
      Harrison, IN                                                          
      Scott, IN                                                             
      Bullitt, KY                                                           
      Jefferson, KY                                                         
      Oldham, KY                                                            
    4600  Lubbock, TX...................................    0.8514    0.8957
      Lubbock, TX                                                           
    4640  Lynchburg, VA.................................    0.8919    0.9246
      Amherst, VA                                                           
      Bedford, VA                                                           
      Bedford City, VA                                                      
      Campbell, VA                                                          
      Lynchburg City, VA                                                    
    4680  Macon, GA.....................................    0.8629    0.9040
      Bibb, GA                                                              
      Houston, GA                                                           
      Jones, GA                                                             
      Peach, GA                                                             
      Twiggs, GA                                                            
    4720  Madison, WI...................................    1.0040    1.0027
      Dane, WI                                                              
    4800  Mansfield, OH.................................    0.8552    0.8984
      Crawford, OH                                                          
      Richland, OH                                                          
    4840  Mayaguez, PR..................................    0.4188    0.5510
      Anasco, PR                                                            
      Cabo Rojo, PR                                                         
      Hormigueros, PR                                                       
      Mayaguez, PR                                                          
      Sabana Grande, PR                                                     
      San German, PR                                                        
    4880  McAllen-Edinburg-Mission, TX..................    0.8506    0.8951
      Hidalgo, TX                                                           
    4890  Medford-Ashland, OR...........................    1.0042    1.0029
      Jackson, OR                                                           
    4900  Melbourne-Titusville-Palm Bay, FL.............    0.9236    0.9470
      Brevard, FL                                                           
    4920  \1\ Memphis, TN-AR-MS.........................    0.8371    0.8854
      Crittenden, AR                                                        
      DeSoto, MS                                                            
      Fayette, TN                                                           
      Shelby, TN                                                            
      Tipton, TN                                                            
    4940  Merced, CA....................................    1.0240    1.0164
      Merced, CA                                                            
    5000  \1\ Miami, FL.................................    1.0038    1.0026
      Dade, FL                                                              
    5015  \1\ Middlesex-Somerset-Hunterdon, NJ..........    1.0785    1.0531
      Hunterdon, NJ                                                         
      Middlesex, NJ                                                         
      Somerset, NJ                                                          
    5080  \1\ Milwaukee-Waukesha, WI....................    0.9135    0.9399
      Milwaukee, WI                                                         
      Ozaukee, WI                                                           
      Washington, WI                                                        
      Waukesha, WI                                                          
    5120  \1\ Minneapolis-St. Paul, MN-WI...............    1.0877    1.0593
      Anoka, MN                                                             
      Carver, MN                                                            
      Chisago, MN                                                           
      Dakota, MN                                                            
      Hennepin, MN                                                          
      Isanti, MN                                                            
      Ramsey, MN                                                            
      Scott, MN                                                             
      Sherburne, MN                                                         
      Washington, MN                                                        
      Wright, MN                                                            
    
    [[Page 41056]]
    
                                                                            
      Pierce, WI                                                            
      St. Croix, WI                                                         
    5140  Missoula, MT..................................    0.9208    0.9451
      Missoula, MT                                                          
    5160  Mobile, AL....................................    0.8395    0.8871
      Baldwin, AL                                                           
      Mobile, AL                                                            
    5170  Modesto, CA...................................    1.0368    1.0251
      Stanislaus, CA                                                        
    5190  \1\ Monmouth-Ocean, NJ........................    1.1341    1.0900
      Monmouth, NJ                                                          
      Ocean, NJ                                                             
    5200  Monroe, LA....................................    0.8236    0.8756
      Ouachita, LA                                                          
    5240  Montgomery, AL................................    0.7877    0.8492
      Autauga, AL                                                           
      Elmore, AL                                                            
      Montgomery, AL                                                        
    5280  Muncie, IN....................................    0.9434    0.9609
      Delaware, IN                                                          
    5330  Myrtle Beach, SC..............................    0.8196    0.8726
      Horry, SC                                                             
    5345  Naples, FL....................................    1.0199    1.0136
      Collier, FL                                                           
    5360  \1\ Nashville, TN.............................    0.9500    0.9655
      Cheatham, TN                                                          
      Davidson, TN                                                          
      Dickson, TN                                                           
      Robertson, TN                                                         
      Rutherford TN                                                         
      Sumner, TN                                                            
      Williamson, TN                                                        
      Wilson, TN                                                            
    5380  \1\ Nassau-Suffolk, NY........................    1.3579    1.2331
      Nassau, NY                                                            
      Suffolk, NY                                                           
    5483  \1\ New Haven-Bridgeport-Stamford-Waterbury-                      
     Danbury, CT........................................    1.2271    1.1504
      Fairfield, CT                                                         
      New Haven, CT                                                         
    5523  \2\ New London-Norwich, CT....................    1.2100    1.1394
      New London, CT                                                        
    5560  \1\ New Orleans, LA...........................    0.9330    0.9536
      Jefferson, LA                                                         
      Orleans, LA                                                           
      Plaquemines, LA                                                       
      St. Bernard, LA                                                       
      St. Charles, LA                                                       
      St. James, LA                                                         
      St. John The Baptist, LA                                              
      St. Tammany, LA                                                       
    5600  \1\ New York, NY..............................    1.4431    1.2855
      Bronx, NY                                                             
      Kings, NY                                                             
      New York, NY                                                          
      Putnam, NY                                                            
      Queens, NY                                                            
      Richmond, NY                                                          
      Rockland, NY                                                          
      Westchester, NY                                                       
    5640  \1\ Newark, NJ................................    1.0895    1.0605
      Essex, NJ                                                             
      Morris, NJ                                                            
      Sussex, NJ                                                            
      Union, NJ                                                             
      Warren, NJ                                                            
    5660  Newburgh, NY-PA...............................    1.1247    1.0838
      Orange, NY                                                            
      Pike, PA                                                              
    5720  \1\ Norfolk-Virginia Beach-Newport News, VA-NC    0.8214    0.8740
      Currituck, NC                                                         
      Chesapeake City, VA                                                   
      Gloucester, VA                                                        
      Hampton City, VA                                                      
      Isle of Wight, VA                                                     
      James City, VA                                                        
      Mathews, VA                                                           
      Newport News City, VA                                                 
      Norfolk City, VA                                                      
      Poquoson City, VA                                                     
      Portsmouth City, VA                                                   
      Suffolk City, VA                                                      
      Virginia Beach City, VA                                               
      Williamsburg City, VA                                                 
      York, VA                                                              
    5775  \1\ Oakland, CA...............................    1.5194    1.3317
      Alameda, CA                                                           
      Contra Costa, CA                                                      
    5790  Ocala, FL.....................................    0.9172    0.9425
      Marion, FL                                                            
    5800  Odessa-Midland, TX............................    0.8683    0.9078
      Ector, TX                                                             
      Midland, TX                                                           
    5880  \1\ Oklahoma City, OK.........................    0.8727    0.9110
      Canadian, OK                                                          
      Cleveland, OK                                                         
      Logan, OK                                                             
      McClain, OK                                                           
      Oklahoma, OK                                                          
      Pottawatomie, OK                                                      
    5910  Olympia, WA...................................    1.1547    1.1035
      Thurston, WA                                                          
    5920  Omaha, NE-IA..................................    0.9993    0.9995
      Pottawattamie, IA                                                     
      Cass, NE                                                              
      Douglas, NE                                                           
      Sarpy, NE                                                             
      Washington, NE                                                        
    5945  \1\ Orange County, CA.........................    1.1472    1.0986
      Orange, CA                                                            
    5960  \1\ Orlando, FL...............................    0.9834    0.9886
      Lake, FL                                                              
      Orange, FL                                                            
      Osceola, FL                                                           
      Seminole, FL                                                          
    5990  \2\ Owensboro, KY.............................    0.7861    0.8481
      Daviess, KY                                                           
    6015  \2\ Panama City, FL...........................    0.8896    0.9230
      Bay, FL                                                               
    6020  Parkersburg-Marietta, WV-OH (West Virginia                        
     Hospitals).........................................    0.8034    0.8608
      Washington, OH                                                        
      Wood, WV                                                              
    6020  \2\ Parkersburg-Marietta, WV-OH (Ohio                             
     Hospitals).........................................    0.8537    0.8973
      Washington, OH                                                        
      Wood, WV                                                              
    6080  \2\ Pensacola, FL.............................    0.8896    0.9230
      Escambia, FL                                                          
      Santa Rosa, FL                                                        
    6120  Peoria-Pekin, IL..............................    0.8081    0.8642
      Peoria, IL                                                            
      Tazewell, IL                                                          
      Woodford, IL                                                          
    6160  \1\ Philadelphia, PA-NJ.......................    1.1382    1.0927
      Burlington, NJ                                                        
      Camden, NJ                                                            
      Gloucester, NJ                                                        
      Salem, NJ                                                             
      Bucks, PA                                                             
      Chester, PA                                                           
      Delaware, PA                                                          
      Montgomery, PA                                                        
      Philadelphia, PA                                                      
    6200  \1\ Phoenix-Mesa, AZ..........................    0.9611    0.9732
      Maricopa, AZ                                                          
      Pinal, AZ                                                             
    6240  Pine Bluff, AR................................    0.7929    0.8531
      Jefferson, AR                                                         
    6280  \1\ Pittsburgh, PA............................    0.9809    0.9869
      Allegheny, PA                                                         
      Beaver, PA                                                            
      Butler, PA                                                            
      Fayette, PA                                                           
      Washington, PA                                                        
      Westmoreland, PA                                                      
    6323  \2\ Pittsfield, MA............................    1.0857    1.0579
      Berkshire, MA                                                         
    6340  Pocatello, ID.................................    0.8811    0.9170
      Bannock, ID                                                           
    6360  Ponce, PR.....................................    0.4799    0.6049
      Guayanilla, PR                                                        
      Juana Diaz, PR                                                        
      Penuelas, PR                                                          
      Ponce, PR                                                             
      Villalba, PR                                                          
      Yauco, PR                                                             
    6403  Portland, ME..................................    0.9595    0.9721
      Cumberland, ME                                                        
      Sagadahoc, ME                                                         
      York, ME                                                              
    6440  \1\ Portland-Vancouver, OR-WA.................    1.1202    1.0808
      Clackamas, OR                                                         
      Columbia, OR                                                          
      Multnomah, OR                                                         
      Washington, OR                                                        
      Yamhill, OR                                                           
      Clark, WA                                                             
    
    [[Page 41057]]
    
                                                                            
    6483  \1\ Providence-Warwick-Pawtucket, RI..........    1.0824    1.0557
      Bristol, RI                                                           
      Kent, RI                                                              
      Newport, RI                                                           
      Providence, RI                                                        
      Washington, RI                                                        
    6520  Provo-Orem, UT................................    0.9907    0.9936
      Utah, UT                                                              
    6560  Pueblo, CO....................................    0.8731    0.9113
      Pueblo, CO                                                            
    6580  Punta Gorda, FL...............................    0.9050    0.9339
      Charlotte, FL                                                         
    6600  Racine, WI....................................    0.9149    0.9409
      Racine, WI                                                            
    6640  \1\ Raleigh-Durham-Chapel Hill, NC............    0.9833    0.9885
      Chatham, NC                                                           
      Durham, NC                                                            
      Franklin, NC                                                          
      Johnston, NC                                                          
      Orange, NC                                                            
      Wake, NC                                                              
    6660  Rapid City, SD................................    0.8226    0.8748
      Pennington, SD                                                        
    6680  Reading, PA...................................    0.9254    0.9483
      Berks, PA                                                             
    6690  Redding, CA...................................    1.1883    1.1254
      Shasta, CA                                                            
    6720  Reno, NV......................................    1.1118    1.0753
      Washoe, NV                                                            
    6740  \2\ Richland-Kennewick-Pasco, WA..............    1.0512    1.0348
      Benton, WA                                                            
      Franklin, WA                                                          
    6760  Richmond-Petersburg, VA.......................    0.9231    0.9467
      Charles City County, VA                                               
      Chesterfield, VA                                                      
      Colonial Heights City, VA                                             
      Dinwiddie, VA                                                         
      Goochland, VA                                                         
      Hanover, VA                                                           
      Henrico, VA                                                           
      Hopewell City, VA                                                     
      New Kent, VA                                                          
      Petersburg City, VA                                                   
      Powhatan, VA                                                          
      Prince George, VA                                                     
      Richmond City, VA                                                     
    6780  \1\ Riverside-San Bernardino, CA..............    1.0141    1.0096
      Riverside, CA                                                         
      San Bernardino, CA                                                    
    6800  Roanoke, VA...................................    0.8528    0.8967
      Botetourt, VA                                                         
      Roanoke, VA                                                           
      Roanoke City, VA                                                      
      Salem City, VA                                                        
    6820  Rochester, MN.................................    1.1723    1.1150
      Olmsted, MN                                                           
    6840  \1\ Rochester, NY.............................    0.9677    0.9778
      Genesee, NY                                                           
      Livingston, NY                                                        
      Monroe, NY                                                            
      Ontario, NY                                                           
      Orleans, NY                                                           
      Wayne, NY                                                             
    6880  Rockford, IL..................................    0.8634    0.9043
      Boone, IL                                                             
      Ogle, IL                                                              
      Winnebago, IL                                                         
    6895  Rocky Mount, NC...............................    0.9031    0.9326
      Edgecombe, NC                                                         
      Nash, NC                                                              
    6920  \1\ Sacramento, CA............................    1.1864    1.1242
      El Dorado, CA                                                         
      Placer, CA                                                            
      Sacramento, CA                                                        
    6960  Saginaw-Bay City-Midland, MI..................    0.9507    0.9660
      Bay, MI                                                               
      Midland, MI                                                           
      Saginaw, MI                                                           
    6980  St. Cloud, MN.................................    0.9607    0.9729
      Benton, MN                                                            
      Stearns, MN                                                           
    7000  St. Joseph, MO................................    0.9910    0.9938
      Andrew, MO                                                            
      Buchanan, MO                                                          
    7040  \1\ St. Louis, MO-IL..........................    0.9171    0.9425
      Clinton, IL                                                           
      Jersey, IL                                                            
      Madison, IL                                                           
      Monroe, IL                                                            
      St. Clair, IL                                                         
      Franklin, MO                                                          
      Jefferson, MO                                                         
      Lincoln, MO                                                           
      St. Charles, MO                                                       
      St. Louis, MO                                                         
      St. Louis City, MO                                                    
      Warren, MO                                                            
    7080  \2\ Salem, OR.................................    0.9933    0.9954
      Marion, OR                                                            
      Polk, OR                                                              
    7120  Salinas, CA...................................    1.5175    1.3306
      Monterey, CA                                                          
    7160  \1\ Salt Lake City-Ogden, UT..................    0.9400    0.9585
      Davis, UT                                                             
      Salt Lake, UT                                                         
      Weber, UT                                                             
    7200  San Angelo, TX................................    0.7662    0.8333
      Tom Green, TX                                                         
    7240  \1\ San Antonio, TX...........................    0.8117    0.8669
      Bexar, TX                                                             
      Comal, TX                                                             
      Guadalupe, TX                                                         
      Wilson, TX                                                            
    7320  \1\ San Diego, CA.............................    1.2336    1.1546
      San Diego, CA                                                         
    7360  \1\ San Francisco, CA.........................    1.3507    1.2286
      Marin, CA                                                             
      San Francisco, CA                                                     
      San Mateo, CA                                                         
    7400  \1\ San Jose, CA..............................    1.3724    1.2421
      Santa Clara, CA                                                       
    7440  \1\ San Juan-Bayamon, PR......................    0.4633    0.5904
      Aguas Buenas, PR                                                      
      Barceloneta, PR                                                       
      Bayamon, PR                                                           
      Canovanas, PR                                                         
      Carolina, PR                                                          
      Catano, PR                                                            
      Ceiba, PR                                                             
      Comerio, PR                                                           
      Corozal, PR                                                           
      Dorado, PR                                                            
      Fajardo, PR                                                           
      Florida, PR                                                           
      Guaynabo, PR                                                          
      Humacao, PR                                                           
      Juncos, PR                                                            
      Los Piedras, PR                                                       
      Loiza, PR                                                             
      Luguillo, PR                                                          
      Manati, PR                                                            
      Morovis, PR                                                           
      Naguabo, PR                                                           
      Naranjito, PR                                                         
      Rio Grande, PR                                                        
      San Juan, PR                                                          
      Toa Alta, PR                                                          
      Toa Baja, PR                                                          
      Trujillo Alto, PR                                                     
      Vega Alta, PR                                                         
      Vega Baja, PR                                                         
      Yabucoa, PR                                                           
    7460  San Luis Obispo-Atascadero-Paso Robles, CA....    1.0739    1.0500
      San Luis Obispo, CA                                                   
    7480  Santa Barbara-Santa Maria-Lompoc, CA..........    1.1218    1.0819
      Santa Barbara, CA                                                     
    7485  Santa Cruz-Watsonville, CA....................    1.4011    1.2598
      Santa Cruz, CA                                                        
    7490  Santa Fe, NM..................................    0.9623    0.9740
      Los Alamos, NM                                                        
      Santa Fe, NM                                                          
    7500  Santa Rosa, CA................................    1.3099    1.2031
      Sonoma, CA                                                            
    7510  Sarasota-Bradenton, FL........................    0.9553    0.9692
      Manatee, FL                                                           
      Sarasota, FL                                                          
    7520  Savannah, GA..................................    1.0081    1.0055
      Bryan, GA                                                             
      Chatham, GA                                                           
      Effingham, GA                                                         
    7560  \2\ Scranton--Wilkes-Barre--Hazleton, PA......    0.8683    0.9078
      Columbia, PA                                                          
      Lackawanna, PA                                                        
      Luzerne, PA                                                           
      Wyoming, PA                                                           
    7600  \1\ Seattle-Bellevue-Everett, WA..............    1.1560    1.1044
    
    [[Page 41058]]
    
                                                                            
      Island, WA                                                            
      King, WA                                                              
      Snohomish, WA                                                         
    7610  Sharon, PA....................................    0.8866    0.9209
      Mercer, PA                                                            
    7620  \2\ Sheboygan, WI.............................    0.8729    0.9111
      Sheboygan, WI                                                         
    7640  Sherman-Denison, TX...........................    0.8588    0.9010
      Grayson, TX                                                           
    7680  Shreveport-Bossier City, LA...................    0.9400    0.9585
      Bossier, LA                                                           
      Caddo, LA                                                             
      Webster, LA                                                           
    7720  Sioux City, IA-NE.............................    0.8499    0.8946
      Woodbury, IA                                                          
      Dakota, NE                                                            
    7760  Sioux Falls, SD...............................    0.8931    0.9255
      Lincoln, SD                                                           
      Minnehaha, SD                                                         
    7800  South Bend, IN................................    0.9880    0.9918
      St. Joseph, IN                                                        
    7840  Spokane, WA...................................    1.0952    1.0643
      Spokane, WA                                                           
    7880  Springfield, IL...............................    0.8739    0.9118
      Menard, IL                                                            
      Sangamon, IL                                                          
    7920  Springfield, MO...............................    0.8088    0.8647
      Christian, MO                                                         
      Greene, MO                                                            
      Webster, MO                                                           
    8003  Springfield, MA...............................    1.0857    1.0579
      Hampden, MA                                                           
      Hampshire, MA                                                         
    8050  State College, PA.............................    0.9469    0.9633
      Centre, PA                                                            
    8080  \2\ Steubenville-Weirton, OH-WV (Ohio                             
     Hospitals).........................................    0.8537    0.8973
      Jefferson, OH                                                         
      Brooke, WV                                                            
      Hancock, WV                                                           
    8080  Steubenville-Weirton, OH-WV (West Virginia                        
     Hospitals).........................................    0.8447    0.8909
      Jefferson, OH                                                         
      Brooke, WV                                                            
      Hancock, WV                                                           
    8120  Stockton-Lodi, CA.............................    1.1099    1.0740
      San Joaquin, CA                                                       
    8140  Sumter, SC....................................    0.8144    0.8688
      Sumter, SC                                                            
    8160  Syracuse, NY..................................    0.9420    0.9599
      Cayuga, NY                                                            
      Madison, NY                                                           
      Onondaga, NY                                                          
      Oswego, NY                                                            
    8200  \2\ Tacoma, WA................................    1.0512    1.0348
      Pierce, WA                                                            
    8240  \2\ Tallahassee, FL...........................    0.8896    0.9230
      Gadsden, FL                                                           
      Leon, FL                                                              
    8280  \1\ Tampa-St. Petersburg-Clearwater, FL.......    0.9203    0.9447
      Hernando, FL                                                          
      Hillsborough, FL                                                      
      Pasco, FL                                                             
      Pinellas, FL                                                          
    8320  Terre Haute, IN...............................    0.9010    0.9311
      Clay, IN                                                              
      Vermillion, IN                                                        
      Vigo, IN                                                              
    8360  Texarkana, AR-Texarkana, TX...................    0.8542    0.8977
      Miller, AR                                                            
      Bowie, TX                                                             
    8400  Toledo, OH....................................    1.0012    1.0008
      Fulton, OH                                                            
      Lucas, OH                                                             
      Wood, OH                                                              
    8440  Topeka, KS....................................    0.9833    0.9885
      Shawnee, KS                                                           
    8480  Trenton, NJ...................................    1.0532    1.0361
      Mercer, NJ                                                            
    8520  Tucson, AZ....................................    0.9047    0.9337
      Pima, AZ                                                              
    8560  Tulsa, OK.....................................    0.8481    0.8933
      Creek, OK                                                             
      Osage, OK                                                             
      Rogers, OK                                                            
      Tulsa, OK                                                             
      Wagoner, OK                                                           
    8600  Tuscaloosa, AL................................    0.7658    0.8330
      Tuscaloosa, AL                                                        
    8640  Tyler, TX.....................................    0.8837    0.9188
      Smith, TX                                                             
    8680  \2\ Utica-Rome, NY............................    0.8605    0.9022
      Herkimer, NY                                                          
      Oneida, NY                                                            
    8720  Vallejo-Fairfield-Napa, CA....................    1.2845    1.1870
      Napa, CA                                                              
      Solano, CA                                                            
    8735  Ventura, CA...................................    1.0715    1.0484
      Ventura, CA                                                           
    8750  Victoria, TX..................................    0.8400    0.8875
      Victoria, TX                                                          
    8760  Vineland-Millville-Bridgeton, NJ..............    1.0463    1.0315
      Cumberland, NJ                                                        
    8780  Visalia-Tulare-Porterville, CA................    1.0105    1.0072
      Tulare, CA                                                            
    8800  Waco, TX......................................    0.8389    0.8867
      McLennan, TX                                                          
    8840  \1\ Washington, DC-MD-VA-WV...................    1.0812    1.0549
      District of Columbia, DC                                              
      Calvert, MD                                                           
      Charles, MD                                                           
      Frederick, MD                                                         
      Montgomery, MD                                                        
      Prince Georges, MD                                                    
      Alexandria City, VA                                                   
      Arlington, VA                                                         
      Clarke, VA                                                            
      Culpeper, VA                                                          
      Fairfax, VA                                                           
      Fairfax City, VA                                                      
      Falls Church City, VA                                                 
      Fauquier, VA                                                          
      Fredericksburg City, VA                                               
      King George, VA                                                       
      Loudoun, VA                                                           
      Manassas City, VA                                                     
      Manassas Park City, VA                                                
      Prince William, VA                                                    
      Spotsylvania, VA                                                      
      Stafford, VA                                                          
      Warren, VA                                                            
      Berkeley, WV                                                          
      Jefferson, WV                                                         
    8920  Waterloo-Cedar Falls, IA......................    0.8350    0.8838
      Black Hawk, IA                                                        
    8940  Wausau, WI....................................    0.9753    0.9830
      Marathon, WI                                                          
    8960  \1\ West Palm Beach-Boca Raton, FL............    1.0203    1.0139
      Palm Beach, FL                                                        
    9000  \2\ Wheeling, WV-OH (West Virginia Hospitals).    0.7892    0.8503
      Belmont, OH                                                           
      Marshall, WV                                                          
      Ohio, WV                                                              
    9000  \2\ Wheeling, WV-OH (Ohio Hospitals)..........    0.8537    0.8973
      Belmont, OH                                                           
      Marshall, WV                                                          
      Ohio, WV                                                              
    9040  Wichita, KS...................................    0.8917    0.9245
      Butler, KS                                                            
      Harvey, KS                                                            
      Sedgwick, KS                                                          
    9080  Wichita Falls, TX.............................    0.7847    0.8470
      Archer, TX                                                            
      Wichita, TX                                                           
    9140  \2\ Williamsport, PA..........................    0.8683    0.9078
      Lycoming, PA                                                          
    9160  Wilmington-Newark, DE-MD......................    1.1894    1.1261
      New Castle, DE                                                        
      Cecil, MD                                                             
    9200  Wilmington, NC................................    0.9364    0.9560
      New Hanover, NC                                                       
      Brunswick, NC                                                         
    9260  \2\ Yakima, WA................................    1.0512    1.0348
      Yakima, WA                                                            
    9270  Yolo, CA......................................    1.0636    1.0431
      Yolo, CA                                                              
    9280  York, PA......................................    0.9431    0.9607
      York, PA                                                              
    9320  Youngstown-Warren, OH.........................    0.9836    0.9887
      Columbiana, OH                                                        
      Mahoning, OH                                                          
      Trumbull, OH                                                          
    9340  Yuba City, CA.................................    1.0889    1.0601
    
    [[Page 41059]]
    
                                                                            
      Sutter, CA                                                            
      Yuba, CA                                                              
    9360  Yuma, AZ......................................    1.0080    1.0055
      Yuma, AZ                                                              
    ------------------------------------------------------------------------
    \1\ Large Urban Area                                                    
    \2\ Hospitals geographically located in the area are assigned the       
      statewide rural wage index for FY 1999.                               
    
    
    Table 4B.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                                   Rural Areas                              
    ------------------------------------------------------------------------
                                                            Wage            
                        Nonurban area                       index      GAF  
    ------------------------------------------------------------------------
    Alabama.............................................    0.7338    0.8090
    Alaska..............................................    1.2456    1.1623
    Arizona.............................................    0.8007    0.8588
    Arkansas............................................    0.7265    0.8035
    California..........................................    0.9959    0.9972
    Colorado............................................    0.8454    0.8914
    Connecticut.........................................    1.2100    1.1394
    Delaware............................................    0.8826    0.9180
    Florida.............................................    0.8896    0.9230
    Georgia.............................................    0.7905    0.8513
    Hawaii..............................................    1.0933    1.0630
    Idaho...............................................    0.8495    0.8943
    Illinois............................................    0.7942    0.8540
    Indiana.............................................    0.8398    0.8873
    Iowa................................................    0.7793    0.8430
    Kansas..............................................    0.7330    0.8084
    Kentucky............................................    0.7861    0.8481
    Louisiana...........................................    0.7481    0.8198
    Maine...............................................    0.8485    0.8936
    Maryland............................................    0.8574    0.9000
    Massachusetts.......................................    1.0857    1.0579
    Michigan............................................    0.8903    0.9235
    Minnesota...........................................    0.8613    0.9028
    Mississippi.........................................    0.7327    0.8082
    Missouri............................................    0.7468    0.8188
    Montana.............................................    0.8596    0.9016
    Nebraska............................................    0.7690    0.8354
    Nevada..............................................    0.9276    0.9498
    New Hampshire.......................................    1.0262    1.0179
    New Jersey \1\......................................  ........          
    New Mexico..........................................    0.8136    0.8683
    New York............................................    0.8605    0.9022
    North Carolina......................................    0.8130    0.8678
    North Dakota........................................    0.7514    0.8222
    Ohio................................................    0.8537    0.8973
    Oklahoma............................................    0.7139    0.7939
    Oregon..............................................    0.9933    0.9954
    Pennsylvania........................................    0.8683    0.9078
    Puerto Rico.........................................    0.4089    0.5420
    Rhode Island \1\....................................  ........          
    South Carolina......................................    0.8063    0.8629
    South Dakota........................................    0.7524    0.8230
    Tennessee...........................................    0.7508    0.8218
    Texas...............................................    0.7441    0.8168
    Utah................................................    0.8878    0.9217
    Vermont.............................................    0.9436    0.9610
    Virginia............................................    0.7863    0.8482
    Washington..........................................    1.0512    1.0348
    West Virginia.......................................    0.7892    0.8503
    Wisconsin...........................................    0.8729    0.9111
    Wyoming.............................................    0.8787   0.9153 
    ------------------------------------------------------------------------
    \1\ All counties within the State are classified as urban.              
    
    
    Table 4C.--Wage Index and Capital Geographic Adjustment Factor (GAF) for
                         Hospitals That are Reclassified                    
    ------------------------------------------------------------------------
                                                            Wage            
                            Area                            index      GAF  
    ------------------------------------------------------------------------
    Abilene, TX.........................................    0.8083    0.8644
    Albany, GA..........................................    0.7905    0.8513
    Albuquerque, NM.....................................    0.8632    0.9042
    Alexandria, LA......................................    0.8544    0.8978
    Allentown-Bethlehem-Easton, PA......................    1.0226    1.0154
    Amarillo, TX........................................    0.8509    0.8953
    Anchorage, AK.......................................    1.3007    1.1973
    Asheville, NC.......................................    0.8960    0.9276
    Atlanta, GA.........................................    0.9936    0.9956
    Augusta-Aiken, GA-SC................................    0.9253    0.9482
    Baltimore, MD.......................................    0.9663    0.9768
    Barnstable-Yarmouth, MA.............................    1.4458    1.2872
    Baton Rouge, LA.....................................    0.8891    0.9227
    Benton Harbor, MI...................................    0.8903    0.9235
    Bergen-Passaic, NJ..................................    1.1774    1.1183
    Billings, MT........................................    0.9162    0.9418
    Binghamton, NY......................................    0.9078    0.9359
    Birmingham, AL......................................    0.9092    0.9369
    Bismarck, ND........................................    0.7863    0.8482
    Boise City, ID......................................    0.9209    0.9451
    Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH....    1.1307    1.0878
    Brazoria, TX........................................    0.8925    0.9251
    Bryan-College Station, TX...........................    0.8084    0.8645
    Buffalo-Niagara Falls, NY...........................    0.9607    0.9729
    Burlington, VT......................................    0.9616    0.9735
    Caguas, PR..........................................    0.4419    0.5716
    Canton-Massillon, OH................................    0.8827    0.9181
    Casper, WY..........................................    0.9170    0.9424
    Champaign-Urbana, IL................................    0.8789    0.9154
    Charleston-North Charleston, SC.....................    0.9134    0.9399
    Charleston, WV......................................    0.8782    0.9149
    Charlotte-Gastonia-Rock Hill, NC-SC.................    0.9562    0.9698
    Charlottesville, VA.................................    0.9754    0.9831
    Chattanooga, TN-GA..................................    0.8888    0.9224
    Chicago, IL.........................................    1.0469    1.0319
    Cincinnati, OH-KY-IN................................    0.9615    0.9735
    Clarksville-Hopkinsville, TN-KY.....................    0.8231    0.8752
    Cleveland-Lorain-Elyria, OH.........................    0.9907    0.9936
    Columbia, MO........................................    0.8817    0.9174
    Columbus, GA-AL.....................................    0.8529    0.8968
    Columbus, OH........................................    0.9802    0.9864
    Corpus Christi, TX..................................    0.8549    0.8982
    Dallas, TX..........................................    0.9364    0.9560
    Danville, VA........................................    0.8735    0.9115
    Davenport-Moline-Rock Island, IA-IL.................    0.8431    0.8897
    Dayton-Springfield, OH..............................    0.9584    0.9713
    Denver, CO..........................................    1.0059    1.0040
    Des Moines, IA......................................    0.8494    0.8942
    Duluth-Superior, MN-WI..............................    1.0031    1.0021
    Dutchess County, NY.................................    0.9904    0.9934
    Elkhart-Goshen, IN..................................    0.9388    0.9577
    Eugene-Springfield, OR..............................    1.1072    1.0722
    Evansville-Henderson, IN-KY.........................    0.8433    0.8898
    Fargo-Moorhead, ND-MN...............................    0.9264    0.9490
    Fayetteville, NC....................................    0.8407    0.8880
    Flagstaff, AZ-UT....................................    0.9543    0.9685
    Flint, MI...........................................    1.1054    1.0710
    Fort Collins-Loveland, CO...........................    1.0319    1.0217
    Ft. Lauderdale, FL..................................    0.9867    0.9909
    Fort Pierce-Port St. Lucie, FL......................    1.0263    1.0179
    Fort Smith, AR-OK...................................    0.7535    0.8238
    Fort Walton Beach, FL...............................    0.8640    0.9047
    Forth Worth-Arlington, TX...........................    0.9729    0.9814
    Gadsden, AL.........................................    0.8799    0.9161
    Gainesville, FL.....................................    0.9482    0.9642
    Goldsboro, NC.......................................    0.8353    0.8841
    Grand Forks, ND-MN..................................    0.8918    0.9246
    Grand Junction, CO..................................    0.9099    0.9374
    Grand Rapids-Muskegon-Holland, MI...................    0.9878    0.9916
    Great Falls, MT.....................................    0.9304    0.9518
    Greeley, CO.........................................    0.9376    0.9568
    Green Bay, WI.......................................    0.9268    0.9493
    Greenville, NC......................................    0.9118    0.9387
    Greenville-Spartanburg-Anderson, SC.................    0.9242    0.9475
    Harrisburg-Lebanon-Carlisle, PA.....................    1.0082    1.0056
    Hartford, CT........................................    1.1879    1.1251
    Hattiesburg, MS.....................................    0.7327    0.8082
    Hickory-Morganton-Lenoir, NC........................    0.8668    0.9067
    Honolulu, HI........................................    1.1535    1.1027
    Houston, TX.........................................    0.9904    0.9934
    Huntington-Ashland, WV-KY-OH........................    0.9295    0.9512
    Huntsville, AL......................................    0.8240    0.8758
    Indianapolis, IN....................................    0.9748    0.9827
    Iowa City, IA.......................................    0.9382    0.9573
    Jackson, MS.........................................    0.8310    0.8809
    Jackson, TN.........................................    0.8578    0.9003
    Jacksonville, FL....................................    0.8919    0.9246
    Johnson City-Kingsport-Bristol, TN-VA...............    0.8792    0.9156
    Jonesboro, AR.......................................    0.7595    0.8283
    Joplin, MO..........................................    0.7890    0.8502
    Kalamazoo-Battlecreek, MI...........................    1.1102    1.0742
    Kansas City, KS-MO..................................    0.9666    0.9770
    Knoxville, TN.......................................    0.8937    0.9259
    Lafayette, LA.......................................    0.8311    0.8810
    Lansing-East Lansing, MI............................    0.9995    0.9997
    Las Cruces, NM......................................    0.8989    0.9296
    
    [[Page 41060]]
    
                                                                            
    Las Vegas, NV-AZ....................................    1.1438    1.0964
    Lexington, KY.......................................    0.8525    0.8965
    Lima, OH............................................    0.8787    0.9153
    Lincoln, NE.........................................    0.9051    0.9340
    Little Rock-North Little Rock, AR...................    0.8553    0.8985
    Los Angeles-Long Beach, CA..........................    1.2070    1.1375
    Louisville, KY-IN...................................    0.9113    0.9384
    Macon, GA...........................................    0.8502    0.8948
    Madison, WI.........................................    1.0040    1.0027
    Mansfield, OH.......................................    0.8552    0.8984
    Memphis, TN-AR-MS...................................    0.8371    0.8854
    Merced, CA..........................................    1.0240    1.0164
    Milwaukee-Waukesha, WI..............................    0.9135    0.9399
    Minneapolis-St. Paul, MN-WI.........................    1.0877    1.0593
    Modesto, CA.........................................    1.0368    1.0251
    Monroe, LA..........................................    0.8097    0.8654
    Montgomery, AL......................................    0.7877    0.8492
    Myrtle Beach, SC....................................    0.8196    0.8726
    Nashville, TN.......................................    0.9322    0.9531
    New Haven-Bridgeport-Stamford-Waterbury-Danbury, CT.    1.2271    1.1504
    New London-Norwich, CT..............................    1.1665    1.1112
    New Orleans, LA.....................................    0.9330    0.9536
    New York, NY........................................    1.4431    1.2855
    Newburgh, NY-PA.....................................    1.1247    1.0838
    Oakland, CA.........................................    1.5194    1.3317
    Odessa-Midland, TX..................................    0.8683    0.9078
    Oklahoma City, OK...................................    0.8727    0.9110
    Omaha, NE-IA........................................    0.9993    0.9995
    Orange County, CA...................................    1.1472    1.0986
    Orlando, FL.........................................    0.9834    0.9886
    Peoria-Pekin, IL....................................    0.8081    0.8642
    Philadelphia, PA-NJ.................................    1.1382    1.0927
    Pittsburgh, PA......................................    0.9661    0.9767
    Pocatello, ID (Idaho Hospital)......................    0.8673    0.9071
    Pocatello, ID (Wyoming Hospitals)...................    0.8787    0.9153
    Portland, ME........................................    0.9595    0.9721
    Portland-Vancouver, OR-WA...........................    1.1202    1.0808
    Provo-Orem, UT......................................    0.9907    0.9936
    Raleigh-Durham-Chapel Hill, NC......................    0.9833    0.9885
    Rapid City, SD......................................    0.8226    0.8748
    Reno, NV............................................    1.1118    1.0753
    Rochester, MN.......................................    1.1723    1.1150
    Rockford, IL........................................    0.8634    0.9043
    Sacramento, CA......................................    1.1864    1.1242
    Saginaw-Bay City-Midland, MI........................    0.9507    0.9660
    St. Cloud, MN.......................................    0.9607    0.9729
    St. Louis, MO-IL....................................    0.9171    0.9425
    Salt Lake City-Ogden, UT............................    0.9400    0.9585
    San Diego, CA.......................................    1.2336    1.1546
    Santa Fe, NM........................................    0.9493    0.9650
    Santa Rosa, CA......................................    1.2934    1.1927
    Seattle-Bellevue-Everett, WA........................    1.1560    1.1044
    Sharon, PA..........................................    0.8866    0.9209
    Sherman-Denison, TX.................................    0.8266    0.8777
    Sioux City, IA-NE...................................    0.8499    0.8946
    Sioux Falls, SD.....................................    0.8828    0.9182
    South Bend, IN......................................    0.9880    0.9918
    Spokane, WA.........................................    1.0752    1.0509
    Springfield, IL.....................................    0.8739    0.9118
    Springfield, MO.....................................    0.8088    0.8647
    State College, PA...................................    0.8812    0.9170
    Syracuse, NY........................................    0.9420    0.9599
    Tallahassee, FL.....................................    0.8518    0.8960
    Tampa-St. Petersburg-Clearwater, FL.................    0.9203    0.9447
    Texarkana, AR-Texarkana, TX.........................    0.8542    0.8977
    Toledo, OH..........................................    1.0012    1.0008
    Topeka, KS..........................................    0.9609    0.9731
    Tucson, AZ..........................................    0.9047    0.9337
    Tulsa, OK...........................................    0.8376    0.8857
    Tuscaloosa, AL......................................    0.7658    0.8330
    Tyler, TX...........................................    0.8837    0.9188
    Vallejo-Fairfield-Napa, CA..........................    1.2845    1.1870
    Victoria, TX........................................    0.8400    0.8875
    Washington, DC-MD-VA-WV.............................    1.0812    1.0549
    Waterloo-Cedar Falls, IA............................    0.8350    0.8838
    Wausau, WI..........................................    0.9442    0.9614
    Wichita, KS.........................................    0.8789    0.9154
    Wichita Falls, TX...................................    0.7677    0.8344
    Rural Alabama.......................................    0.7338    0.8090
    Rural Illinois......................................    0.7942    0.8540
    Rural Louisiana.....................................    0.7481    0.8198
    Rural Massachusetts.................................    1.0421    1.0286
    Rural Michigan......................................    0.8903    0.9235
    Rural Minnesota.....................................    0.8613    0.9028
    Rural Missouri......................................    0.7468    0.8188
    Rural Nevada........................................    0.8851    0.9198
    Rural New Mexico....................................    0.8136    0.8683
    Rural Oregon........................................    0.9933    0.9954
    Rural Washington....................................    1.0512    1.0348
    Rural Wyoming.......................................    0.8787    0.9153
    ------------------------------------------------------------------------
    
    
                 Table 4D.--Average Hourly Wage for Urban Areas             
    ------------------------------------------------------------------------
                                                                    Average 
                              Urban area                             hourly 
                                                                      wage  
    ------------------------------------------------------------------------
    Abilene, TX..................................................    16.5825
    Aguadilla, PR................................................     9.8222
    Akron, OH....................................................    20.5687
    Albany, GA...................................................    16.5708
    Albany-Schenectady-Troy, NY..................................    17.8900
    Albuquerque, NM..............................................    17.8958
    Alexandria, LA...............................................    17.7146
    Allentown-Bethlehem-Easton, PA...............................    21.2002
    Altoona, PA..................................................    19.3951
    Amarillo, TX.................................................    17.6070
    Anchorage, AK................................................    26.6324
    Ann Arbor, MI................................................    22.9238
    Anniston, AL.................................................    17.9884
    Appleton-Oshkosh-Neenah, WI..................................    18.3354
    Arecibo, PR..................................................    10.1129
    Asheville, NC................................................    18.5755
    Athens, GA...................................................    18.0203
    Atlanta, GA..................................................    20.6008
    Atlantic-Cape May, NJ........................................    23.9678
    Augusta-Aiken, GA-SC.........................................    19.1829
    Austin-San Marcos, TX........................................    17.5021
    Bakersfield, CA..............................................    19.3407
    Baltimore, MD................................................    20.0332
    Bangor, ME...................................................    19.6846
    Barnstable-Yarmouth, MA......................................    31.9593
    Baton Rouge, LA..............................................    18.4325
    Beaumont-Port Arthur, TX.....................................    18.8069
    Bellingham, WA...............................................    23.7572
    Benton Harbor, MI............................................    17.7241
    Bergen-Passaic, NJ...........................................    25.3184
    Billings, MT.................................................    18.9960
    Biloxi-Gulfport-Pascagoula, MS...............................    17.1946
    Binghamton, NY...............................................    18.8217
    Birmingham, AL...............................................    18.8506
    Bismarck, ND.................................................    16.6736
    Bloomington, IN..............................................    18.6271
    Bloomington-Normal, IL.......................................    18.3900
    Boise City, ID...............................................    19.0323
    Boston-Worcester-Lawrence-Lowell-Brockton, MA-NH.............    23.4028
    Boulder-Longmont, CO.........................................    20.8550
    Brazoria, TX.................................................    18.5041
    Bremerton, WA................................................    22.9686
    Brownsville-Harlingen-San Benito, TX.........................    17.1138
    Bryan-College Station, TX....................................    16.2473
    Buffalo-Niagara Falls, NY....................................    19.9187
    Burlington, VT...............................................    19.8983
    Caguas, PR...................................................     9.1414
    Canton-Massillon, OH.........................................    18.3002
    Casper, WY...................................................    18.0774
    Cedar Rapids, IA.............................................    18.3134
    Champaign-Urbana, IL.........................................    18.1242
    Charleston-North Charleston, SC..............................    18.9373
    Charleston, WV...............................................    18.6776
    Charlotte-Gastonia-Rock Hill, NC-SC..........................    19.8253
    Charlottesville, VA..........................................    21.3425
    Chattanooga, TN-GA...........................................    18.8525
    Cheyenne, WY.................................................    16.9321
    Chicago, IL..................................................    21.7048
    Chico-Paradise, CA...........................................    21.0787
    Cincinnati, OH-KY-IN.........................................    19.9348
    Clarksville-Hopkinsville, TN-KY..............................    16.7045
    Cleveland-Lorain-Elyria, OH..................................    20.5401
    Colorado Springs, CO.........................................    19.5098
    Columbia, MO.................................................    18.5780
    Columbia, SC.................................................    19.3016
    Columbus, GA-AL..............................................    17.6831
    Columbus, OH.................................................    20.3213
    Corpus Christi, TX...........................................    17.6885
    Cumberland, MD-WV............................................    17.1237
    Dallas, TX...................................................    19.4566
    Danville, VA.................................................    18.7936
    Davenport-Moline-Rock Island, IA-IL..........................    17.4790
    Dayton-Springfield, OH.......................................    19.8696
    Daytona Beach, FL............................................    18.9775
    Decatur, AL..................................................    17.1056
    Decatur, IL..................................................    16.6936
    Denver, CO...................................................    20.8379
    Des Moines, IA...............................................    17.5526
    Detroit, MI..................................................    21.9074
    Dothan, AL...................................................    16.3982
    
    [[Page 41061]]
    
                                                                            
    Dover, DE....................................................    19.4527
    Dubuque, IA..................................................    17.0836
    Duluth-Superior, MN-WI.......................................    20.6977
    Dutchess County, NY..........................................    21.8781
    Eau Claire, WI...............................................    17.8112
    El Paso, TX..................................................    19.1468
    Elkhart-Goshen, IN...........................................    19.3331
    Elmira, NY...................................................    17.5367
    Enid, OK.....................................................    16.5214
    Erie, PA.....................................................    19.2614
    Eugene-Springfield, OR.......................................    23.2566
    Evansville, Henderson, IN-KY.................................    17.7198
    Fargo-Moorhead, ND-MN........................................    19.7733
    Fayetteville, NC.............................................    17.4302
    Fayetteville-Springdale-Rogers, AR...........................    17.8965
    Flagstaff, AZ-UT.............................................    19.7032
    Flint, MI....................................................    22.9184
    Florence, AL.................................................    15.9479
    Florence, SC.................................................    17.6631
    Fort Collins-Loveland, CO....................................    21.3936
    Fort Lauderdale, FL..........................................    20.3766
    Fort Myers-Cape Coral, FL....................................    18.5257
    Fort Pierce-Port St. Lucie, FL...............................    21.2784
    Fort Smith, AR-OK............................................    15.8375
    Fort Walton Beach, FL........................................    17.8995
    Fort Wayne, IN...............................................    18.7962
    Fort Worth-Arlington, TX.....................................    20.1487
    Fresno, CA...................................................    21.5811
    Gadsden, AL..................................................    18.2411
    Gainesville, FL..............................................    19.6396
    Galveston-Texas City, TX.....................................    22.4914
    Gary, IN.....................................................    19.6025
    Glens Falls, NY..............................................    17.6404
    Goldsboro, NC................................................    17.7222
    Grand Forks, ND-MN...........................................    18.3589
    Grand Junction, CO...........................................    17.0997
    Grand Rapids-Muskegon-Holland, MI............................    20.7161
    Great Falls, MT..............................................    18.4336
    Greeley, CO..................................................    19.6480
    Green Bay, WI................................................    19.0230
    Greensboro-Winston-Salem-High Point, NC......................    19.8355
    Greenville, NC...............................................    19.6007
    Greenville-Spartanburg-Anderson, SC..........................    19.1612
    Hagerstown, MD...............................................    21.1564
    Hamilton-Middletown, OH......................................    19.1833
    Harrisburg-Lebanon-Carlisle, PA..............................    20.9016
    Hartford, CT.................................................    24.5817
    Hattiesburg, MS..............................................    15.0868
    Hickory-Morganton-Lenoir, NC.................................    18.4995
    Honolulu, HI.................................................    23.9148
    Houma, LA....................................................    17.0314
    Houston, TX..................................................    20.5336
    Huntington-Ashland, WV-KY-OH.................................    20.0441
    Huntsville, AL...............................................    17.4211
    Indianapolis, IN.............................................    20.4258
    Iowa City, IA................................................    19.6992
    Jackson, MI..................................................    19.1645
    Jackson, MS..................................................    17.2283
    Jackson, TN..................................................    17.7852
    Jacksonville, FL.............................................    18.4915
    Jacksonville, NC.............................................    15.6996
    Jamestown, NY................................................    15.9148
    Janesville-Beloit, WI........................................    18.8060
    Jersey City, NJ..............................................    24.0964
    Johnson City-Kingsport-Bristol, TN-VA........................    18.2276
    Johnstown, PA................................................    17.9084
    Jonesboro, AR................................................    15.3904
    Joplin, MO...................................................    16.3572
    Kalamazoo-Battlecreek, MI....................................    23.5418
    Kankakee, IL.................................................    19.5674
    Kansas City, KS-MO...........................................    20.0395
    Kenosha, WI..................................................    18.9676
    Killeen-Temple, TX...........................................    21.0041
    Knoxville, TN................................................    18.5294
    Kokomo, IN...................................................    19.2700
    La Crosse, WI-MN.............................................    18.5196
    Lafayette, LA................................................    17.1506
    Lafayette, IN................................................    18.3693
    Lake Charles, LA.............................................    15.9437
    Lakeland-Winter Haven, FL....................................    18.5726
    Lancaster, PA................................................    19.8644
    Lansing-East Lansing, MI.....................................    20.9650
    Laredo, TX...................................................    15.2556
    Las Cruces, NM...............................................    18.4298
    Las Vegas, NV-AZ.............................................    23.7139
    Lawrence, KS.................................................    17.9827
    Lawton, OK...................................................    18.0698
    Lewiston-Auburn, ME..........................................    19.0090
    Lexington, KY................................................    17.6740
    Lima, OH.....................................................    18.5932
    Lincoln, NE..................................................    19.3291
    Little Rock-North Little Rock, AR............................    17.6667
    Longview-Marshall, TX........................................    18.0723
    Los Angeles-Long Beach, CA...................................    24.9564
    Louisville, KY-IN............................................    18.8926
    Lubbock, TX..................................................    17.6523
    Lynchburg, VA................................................    18.4907
    Macon, GA....................................................    17.8909
    Madison, WI..................................................    20.8155
    Mansfield, OH................................................    17.7305
    Mayaguez, PR.................................................     8.6819
    McAllen-Edinburg-Mission, TX.................................    17.6361
    Medford-Ashland, OR..........................................    20.8190
    Melbourne-Titusville-Palm Bay, FL............................    19.1487
    Memphis, TN-AR-MS............................................    17.3552
    Merced, CA...................................................    20.8449
    Miami, FL....................................................    20.8119
    Middlesex-Somerset-Hunterdon, NJ.............................    23.1702
    Milwaukee-Waukesha, WI.......................................    18.9231
    Minneapolis-St. Paul, MN-WI..................................    22.5517
    Missoula, MT.................................................    19.0914
    Mobile, AL...................................................    17.4040
    Modesto, CA..................................................    21.4951
    Monmouth-Ocean, NJ...........................................    23.5125
    Monroe, LA...................................................    17.0762
    Montgomery, AL...............................................    16.2493
    Muncie, IN...................................................    19.5589
    Myrtle Beach, SC.............................................    16.9930
    Naples, FL...................................................    21.1457
    Nashville, TN................................................    19.6966
    Nassau-Suffolk, NY...........................................    28.1530
    New Haven-Bridgeport-Stamford-Waterbury-Danbury, CT..........    25.6149
    New London-Norwich, CT.......................................    24.1351
    New Orleans, LA..............................................    19.3440
    New York, NY.................................................    29.9194
    Newark, NJ...................................................    24.6026
    Newburgh, NY-PA..............................................    23.1779
    Norfolk-Virginia Beach-Newport News, VA-NC...................    17.0290
    Oakland, CA..................................................    31.1506
    Ocala, FL....................................................    19.0159
    Odessa-Midland, TX...........................................    17.9849
    Oklahoma City, OK............................................    18.0923
    Olympia, WA..................................................    23.9389
    Omaha, NE-IA.................................................    20.7181
    Orange County, CA............................................    23.8979
    Orlando, FL..................................................    20.3876
    Owensboro, KY................................................    16.1460
    Panama City, FL..............................................    17.6753
    Parkersburg-Marietta, WV-OH..................................    16.6559
    Pensacola, FL................................................    16.9466
    Peoria-Pekin, IL.............................................    16.7415
    Philadelphia, PA-NJ..........................................    23.5963
    Phoenix-Mesa, AZ.............................................    19.9270
    Pine Bluff, AR...............................................    16.4382
    Pittsburgh, PA...............................................    20.3368
    Pittsfield, MA...............................................    22.4781
    Pocatello, ID................................................    18.2669
    Ponce, PR....................................................     9.9487
    Portland, ME.................................................    19.8655
    Portland-Vancouver, OR-WA....................................    23.2244
    Providence-Warwick, RI.......................................    22.4405
    Provo-Orem, UT...............................................    20.5384
    Pueblo, CO...................................................    18.1010
    Punta Gorda, FL..............................................    18.7634
    Racine, WI...................................................    18.9687
    Raleigh-Durham-Chapel Hill, NC...............................    20.3867
    Rapid City, SD...............................................    17.0546
    Reading, PA..................................................    19.1866
    Redding, CA..................................................    24.6374
    Reno, NV.....................................................    23.0512
    Richland-Kennewick-Pasco, WA.................................    21.3732
    Richmond-Petersburg, VA......................................    19.1375
    Riverside-San Bernardino, CA.................................    21.4175
    Roanoke, VA..................................................    17.6802
    Rochester, MN................................................    24.3054
    Rochester, NY................................................    20.0636
    Rockford, IL.................................................    17.8998
    Rocky Mount, NC..............................................    18.7242
    Sacramento, CA...............................................    24.5905
    Saginaw-Bay City-Midland, MI.................................    19.7109
    St. Cloud, MN................................................    19.9167
    St. Joseph, MO...............................................    20.5465
    St. Louis, MO-IL.............................................    19.0136
    Salem, OR....................................................    20.5776
    Salinas, CA..................................................    31.4614
    Salt Lake City-Ogden, UT.....................................    19.4382
    San Angelo, TX...............................................    15.8857
    San Antonio, TX..............................................    16.8290
    San Diego, CA................................................    25.4828
    San Francisco, CA............................................    28.8570
    San Jose, CA.................................................    28.7281
    San Juan-Bayamon, PR.........................................     9.6051
    San Luis Obispo-Atascadero-Paso Robles, CA...................    22.2647
    Santa Barbara-Santa Maria-Lompoc, CA.........................    23.2580
    Santa Cruz-Watsonville, CA...................................    29.0487
    Santa Fe, NM.................................................    19.9519
    Santa Rosa, CA...............................................    28.2508
    Sarasota-Bradenton, FL.......................................    19.8054
    Savannah, GA.................................................    20.9009
    Scranton-Wilkes Barre-Hazleton, PA...........................    17.2431
    Seattle-Bellevue-Everett, WA.................................    23.9486
    Sharon, PA...................................................    18.3824
    Sheboygan, WI................................................    17.0899
    Sherman-Denison, TX..........................................    17.8053
    Shreveport-Bossier City, LA..................................    19.4893
    
    [[Page 41062]]
    
                                                                            
    Sioux City, IA-NE............................................    17.6215
    Sioux Falls, SD..............................................    18.5158
    South Bend, IN...............................................    20.4831
    Spokane, WA..................................................    22.7055
    Springfield, IL..............................................    18.1176
    Springfield, MO..............................................    16.7688
    Springfield, MA..............................................    22.8337
    State College, PA............................................    19.6319
    Steubenville-Weirton, OH-WV..................................    17.5119
    Stockton-Lodi, CA............................................    23.0115
    Sumter, SC...................................................    16.8850
    Syracuse, NY.................................................    19.5305
    Tacoma, WA...................................................    21.5661
    Tallahassee, FL..............................................    17.5545
    Tampa-St. Petersburg-Clearwater, FL..........................    18.9348
    Terre Haute, IN..............................................    18.6798
    Texarkana, AR-Texarkana, TX..................................    17.7097
    Toledo, OH...................................................    20.7579
    Topeka, KS...................................................    20.3862
    Trenton, NJ..................................................    21.8355
    Tucson, AZ...................................................    18.7576
    Tulsa, OK....................................................    17.5841
    Tuscaloosa, AL...............................................    15.8762
    Tyler, TX....................................................    18.3215
    Utica-Rome, NY...............................................    17.4892
    Vallejo-Fairfield-Napa, CA...................................    26.6436
    Ventura, CA..................................................    22.7551
    Victoria, TX.................................................    17.4131
    Vineland-Millville-Bridgeton, NJ.............................    21.6923
    Visalia-Tulare-Porterville, CA...............................    20.9493
    Waco, TX.....................................................    17.3923
    Washington, DC-MD-VA-WV......................................    22.4162
    Waterloo-Cedar Falls, IA.....................................    16.5347
    Wausau, WI...................................................    20.2214
    West Palm Beach-Boca Raton, FL...............................    21.2323
    Wheeling, OH-WV..............................................    15.8460
    Wichita, KS..................................................    18.4872
    Wichita Falls, TX............................................    16.2686
    Williamsport, PA.............................................    17.7778
    Wilmington-Newark, DE-MD.....................................    24.6591
    Wilmington, NC...............................................    19.4129
    Yakima, WA...................................................    21.4371
    Yolo, CA.....................................................    22.0507
    York, PA.....................................................    19.5520
    Youngstown-Warren, OH........................................    20.3921
    Yuba City, CA................................................    22.5751
    Yuma, AZ.....................................................    20.8977
    ------------------------------------------------------------------------
    
    
                 Table 4E.--Average Hourly Wage for Rural Areas             
    ------------------------------------------------------------------------
                                                                    Average 
                            Nonurban area                            hourly 
                                                                      wage  
    ------------------------------------------------------------------------
    Alabama......................................................    15.1457
    Alaska.......................................................    25.8250
    Arizona......................................................    16.5996
    Arkansas.....................................................    15.0624
    California...................................................    20.6476
    Colorado.....................................................    17.5278
    Connecticut..................................................    25.0854
    Delaware.....................................................    18.2993
    Florida......................................................    18.4445
    Georgia......................................................    16.3888
    Hawaii.......................................................    22.6670
    Idaho........................................................    17.6129
    Illinois.....................................................    16.4463
    Indiana......................................................    17.4120
    Iowa.........................................................    16.1574
    Kansas.......................................................    15.1960
    Kentucky.....................................................    16.2977
    Louisiana....................................................    15.4880
    Maine........................................................    17.5914
    Maryland.....................................................    17.7750
    Massachusetts................................................    22.5095
    Michigan.....................................................    18.4407
    Minnesota....................................................    17.8572
    Mississippi..................................................    15.1905
    Missouri.....................................................    15.4837
    Montana......................................................    17.4489
    Nebraska.....................................................    15.9437
    Nevada.......................................................    19.2311
    New Hampshire................................................    21.2761
    New Jersey \1\...............................................  .........
    New Mexico...................................................    16.8682
    New York.....................................................    17.8401
    North Carolina...............................................    16.8551
    North Dakota.................................................    15.5776
    Ohio.........................................................    17.6991
    Oklahoma.....................................................    14.8012
    Oregon.......................................................    20.5901
    Pennsylvania.................................................    18.0013
    Puerto Rico..................................................     8.4766
    Rhode Island \1\.............................................  .........
    South Carolina...............................................    16.7176
    South Dakota.................................................    15.5989
    Tennessee....................................................    15.5660
    Texas........................................................    15.4273
    Utah.........................................................    18.4060
    Vermont......................................................    19.5637
    Virginia.....................................................    16.3017
    Washington...................................................    21.7934
    West Virginia................................................    16.3620
    Wisconsin....................................................    18.0975
    Wyoming......................................................    18.2168
    ------------------------------------------------------------------------
    \1\ All counties within the State are classified as urban.              
    
    
                    Table 4F.--Puerto Rico Wage Index and Capital Geographic Adjustment Factor (GAF)                
    ----------------------------------------------------------------------------------------------------------------
                                                                                            Wage index--            
                                                                                              reclass.      GAF--   
                                Area                               Wage index      GAF       hospitals     Reclass. 
                                                                                                          hospitals 
    ----------------------------------------------------------------------------------------------------------------
    Aguadilla, PR...............................................       1.0336       1.0229  ...........  ...........
    Arecibo, PR.................................................       1.0642       1.0435  ...........  ...........
    Caguas, PR..................................................       0.9642       0.9753       0.9642       0.9753
    Mayaguez, PR................................................       0.9136       0.9400  ...........  ...........
    Ponce, PR...................................................       1.0470       1.0320  ...........  ...........
    San Juan-Bayamon, PR........................................       1.0108       1.0074  ...........  ...........
    Rural Puerto Rico...........................................       0.8920       0.9247  ...........  ...........
    ----------------------------------------------------------------------------------------------------------------
    
    BILLING CODE 4120-01-P
    
    [[Page 41063]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.032
    
    
    
    [[Page 41064]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.033
    
    
    
    [[Page 41065]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.034
    
    
    
    [[Page 41066]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.035
    
    
    
    [[Page 41067]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.036
    
    
    
    [[Page 41068]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.037
    
    
    
    [[Page 41069]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.038
    
    
    
    [[Page 41070]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.039
    
    
    
    [[Page 41071]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.040
    
    
    
    [[Page 41072]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.041
    
    
    
    [[Page 41073]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.042
    
    
    
    [[Page 41074]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.043
    
    
    
    [[Page 41075]]
    
    [GRAPHIC] [TIFF OMITTED] TR31JY98.044
    
    
    
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    [GRAPHIC] [TIFF OMITTED] TR31JY98.045
    
    
    
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    [GRAPHIC] [TIFF OMITTED] TR31JY98.046
    
    
    BILLING CODE 4120-01-C
    
    [[Page 41078]]
    
    
    
                                             Table 6A.--New Diagnosis Codes                                         
    ----------------------------------------------------------------------------------------------------------------
      Diagnosis                                                                                                     
        code               Description                   CC               MDC                     DRG               
    ----------------------------------------------------------------------------------------------------------------
    337.3.......  Autonomic dysreflexia.......  N                              1  18, 19                            
    438.53......  Other paralytic syndrome,     N                              1  12                                
                   bilateral.                                                                                       
    482.40......  Pneumonia due to              Y                              4  79, 80, 81                        
                   Staphyloccus, unspecified.                                  5  121 \1\                           
                                                                              15  387, 389 \2\                      
                                                                              25  489 \3\                           
    482.41......  Pneumonia due to              Y                              4  79, 80, 81                        
                   Staphylococcus aureus.                                      5  121 \1\                           
                                                                              15  387, 389 \2\                      
                                                                              25  489 \3\                           
    482.49......  Other Staphylococcus          Y                              4  79, 80, 81                        
                   pneumonia.                                                  5  121 \1\                           
                                                                              15  387, 389 \2\                      
                                                                              25  489 \3\                           
    518.83......  Chronic respiratory failure.  Y                              4  87                                
                                                                               5  121 \1\                           
    518.84......  Acute and chronic             Y                              4  87                                
                   respiratory failure.                                        5  121 \1\                           
                                                                              22  506, 507                          
    519.00......  Unspecified tracheostomy      Y                            Pre  482                               
                   complication.                                               4  101, 102                          
    519.01......  Infection of tracheostomy...  Y                            Pre  482                               
                                                                               4  101, 102                          
    519.02......  Mechanical complication of    Y                            Pre  482                               
                   tracheostomy.                                               4  101, 102                          
    519.09......  Other tracheostomy            Y                            Pre  482                               
                   complication.                                               4  101, 102                          
    536.40......  Unspecified gastrostomy       Y                              6  188, 189, 190                     
                   complication.                                                                                    
    536.41......  Infection of gastrostomy....  Y                              6  188, 189, 190                     
    536.42......  Mechanical complication of    Y                              6  188, 189, 190                     
                   gastrostomy.                                                                                     
    536.49......  Other gastrostomy             Y                              6  188, 189, 190                     
                   complication.                                                                                    
    564.81......  Neurogenic bowel............  N                              6  182, 183, 184                     
    564.89......  Other functional disorders    N                              6  182, 183, 184                     
                   of intestine.                                                                                    
    569.62......  Mechanical complication of    Y                              6  188, 189, 190                     
                   colostomy and enterostomy.                                                                       
    659.70......  Abnormality in fetal heart    N                             14  370, 371, 372, 373, 374, 375      
                   rate/rhythm, unspecified as                                                                      
                   to episode of care or not                                                                        
                   applicable.                                                                                      
    659.71......  Abnormality in fetal heart    N                             14  370, 371, 372, 373, 374, 375      
                   rate/rhythm, delivered,                                                                          
                   with or without mention of                                                                       
                   antepartum condition.                                                                            
    659.73......  Abnormality in fetal heart    N                             14  383, 384                          
                   rate/rhythm, antepartum                                                                          
                   condition or complication.                                                                       
    763.81......  Abnormality in fetal heart    N                             15  390                               
                   rate or rhythm before the                                                                        
                   onset of labor.                                                                                  
    763.82......  Abnormality in fetal heart    N                             15  390                               
                   rate or rhythm during labor.                                                                     
    763.83......  Abnormality in fetal heart    N                             15  390                               
                   rate or rhythm, unspecified                                                                      
                   as to time of onset.                                                                             
    763.89......  Other specified               N                             15  390                               
                   complications of labor and                                                                       
                   delivery affecting fetus                                                                         
                   and newborn.                                                                                     
    780.71......  Chronic fatigue syndrome....  N                             23  463, 464                          
                                                                              25  490                               
    780.79......  Other malaise and fatigue...  N                             23  463, 464                          
                                                                              25  490                               
    786.03......  Apnea.......................  Y                              4  99, 100                           
                                                                              25  490                               
    786.04......  Cheyne-Stokes respiration...  Y                              4  99, 100                           
                                                                              25  490                               
    786.05......  Shortness of breath.........  N                              4  99, 100                           
                                                                              25  490                               
    786.06......  Tachypnea...................  N                              4  99, 100                           
                                                                              25  490                               
    786.07......  Wheezing....................  N                              4  99, 100                           
                                                                              25  490                               
    965.61......  Poisoning by propionic acid   N                             21  449, 450, 451                     
                   derivatives.                                                                                     
    965.69......  Poisoning by other            N                             21  449, 450, 451                     
                   antirheumatics.                                                                                  
    995.86......  Malignant hyperthermia......  Y                             21  454,455                           
    996.55......  Mechanical complications due  Y                             21  452, 453                          
                   to artificial skin graft                                                                         
                   and decellularized                                                                               
                   allodermis.                                                                                      
    996.56......  Mechanical complications due  Y                             21  452, 453                          
                   to peritoneal dialysis                                                                           
                   catheter.                                                                                        
    996.68......  Infection and inflammatory    Y                             21  452, 453                          
                   reaction due to peritoneal                                                                       
                   dialysis catheter.                                                                               
    V02.51......  Carrier or suspected carrier  N                             23  467                               
                   of Group B streptococcus.                                                                        
    V02.52......  Carrier or suspected carrier  N                             23  467                               
                   of other streptococcus.                                                                          
    V02.59......  Carrier or suspected carrier  N                             23  467                               
                   of other specified                                                                               
                   bacterial diseases.                                                                              
    V10.48......  Personal history of           N                             17  411, 412                          
                   malignant neoplasm of                                                                            
                   epididymis.                                                                                      
    V13.61......  Personal history of           N                             23  467                               
                   hypospadias.                                                                                     
    V13.69......  Personal history other        N                             23  467                               
                   congenital malformation.                                                                         
    
    [[Page 41079]]
    
                                                                                                                    
    V16.51......  Family history of malignant   N                             23  467                               
                   neoplasm of kidney.                                                                              
    V16.59......  Family history of malignant   N                             23  467                               
                   neoplasm of other urinary                                                                        
                   organs.                                                                                          
    V18.61......  Family history of polycystic  N                             23  467                               
                   kidney.                                                                                          
    V18.69......  Family history of other       N                             23  467                               
                   kidney diseases.                                                                                 
    V23.81......  Supervision of high-risk      Y                             14  469                               
                   pregnancy of elderly                                                                             
                   primigravida.                                                                                    
    V23.82......  Supervision of high-risk      Y                             14  469                               
                   pregnancy of elderly                                                                             
                   multigravida.                                                                                    
    V23.83......  Supervision of high-risk      Y                             14  469                               
                   pregnancy of young                                                                               
                   primigravida.                                                                                    
    V23.84......  Supervision of high-risk      Y                             14  469                               
                   pregnancy of young                                                                               
                   multigravida.                                                                                    
    V23.89......  Supervision of other high-    Y                             14  469                               
                   risk pregnancy.                                                                                  
    V26.51......  Tubal ligation status.......  N                             23  467                               
    V26.52......  Vasectomy status............  N                             23  467                               
    V29.3.......  Observation for suspected     N                             23  467                               
                   genetic or metabolic                                                                             
                   condition.                                                                                       
    V43.83......  Organ or tissue replaced by   N                             23  467                               
                   artificial skin.                                                                                 
    V44.50......  Unspecified cystostomy        N                             23  467                               
                   status.                                                                                          
    V44.51......  Cutaneous-vesicostomy status  N                             23  467                               
    V44.52......  Appendico-vesicostomy status  N                             23  467                               
    V44.59......  Other cystostomy status.....  N                             23  467                               
    V56.2.......  Fitting and adjustment of     N                             11  317                               
                   peritoneal dialysis                                                                              
                   catheter.                                                                                        
    V58.62......  Encounter for aftercare for   N                             23  465, 466                          
                   long- term (current) use of                                                                      
                   antibiotics.                                                                                     
    V76.44......  Special screening for         N                             23  467                               
                   malignant neoplasm of                                                                            
                   prostate.                                                                                        
    V76.45......  Special screening for         N                             23  467                               
                   malignant neoplasm of                                                                            
                   testis.                                                                                          
    ----------------------------------------------------------------------------------------------------------------
    \1\ Classified as a ``major complication'' in this DRG.                                                         
    \2\ Classified as a ``major problem'' in these DRGs.                                                            
    \3\ HIV major related condition in this DRG.                                                                    
    
    
                                             Table 6B.--New Procedure Codes                                         
    ----------------------------------------------------------------------------------------------------------------
      Procedure                                                                                                     
        code                Description                   OR             MDC                     DRG                
    ----------------------------------------------------------------------------------------------------------------
    36.31.......  Open chest transmyocardial      Y                           5  108                                
                   revascularization.                                                                               
    36.32.......  Other transmyocardial           Y                           5  108                                
                   revascularization.                                                                               
    36.39.......  Other heart revascularization.  Y                           5  108                                
    37.67.......  Implantation of                 Y                           5  110, 111                           
                   cardiomyostimulation system.                                                                     
    75.37.......  Amnioinfusion.................  N                                                                 
    86.67.......  Dermal regenerative graft.....  Y                           1  7, 8                               
                                                                              3  63                                 
                                                                              5  120                                
                                                                              6  170, 171                           
                                                                              8  217                                
                                                                              9  263, 264, 265, 266                 
                                                                             10  287                                
                                                                             21  439                                
                                                                             22  504, 506, 507                      
                                                                             24  486                                
    92.30.......  Stereotactic radiosurgery, not  N \1\                       1  7, 8                               
                   otherwise specified.                                      10  292, 293                           
                                                                             17  401, 402, 408                      
    92.31.......  Single source photon            N \1\                       1  7, 8                               
                   radiosurgery.                                             10  292, 293                           
                                                                             17  401, 402, 408                      
    92.32.......  Multi-source photon             N \1\                       1  7, 8                               
                   radiosurgery.                                             10  292, 293                           
                                                                             17  401, 402, 408                      
    92.33.......  Particulate radiosurgery......  N \1\                       1  7, 8                               
                                                                             10  292, 293                           
                                                                             17  401, 402, 408                      
    92.39.......  Stereotactic radiosurgery, not  N \1\                       1  7, 8                               
                   elsewhere classified.                                     10  292, 293                           
                                                                             17  401, 402, 408                      
    96.29.......  Reduction of intussusception    N                                                                 
                   of alimentary tract.                                                                             
    99.10.......  Injection or infusion of        N                                                                 
                   thrombolytic agent.                                                                              
    99.20.......  Injection or infusion of        N                                                                 
                   platelet inhibitor.                                                                              
    ----------------------------------------------------------------------------------------------------------------
    \1\ Non-operating room procedure that affects DRG assignment.                                                   
    
    
    [[Page 41080]]
    
    
                                           Table 6C.--Invalid Diagnosis Codes                                       
    ----------------------------------------------------------------------------------------------------------------
      Diagnosis                                                                                                     
        code               Description                   CC               MDC                     DRG               
    ----------------------------------------------------------------------------------------------------------------
    482.4.......  Pneumonia due to              Y                              4  79, 80, 81                        
                   Staphylococcus.                                             5  121 \1\1                          
                                                                              15  387, 389 \2\                      
                                                                              25  489 \3\                           
    519.0.......  Tracheostomy complication...  Y                            PRE  482                               
                                                                               4  101, 102                          
    564.8.......  Other specified functional    N                              6  182, 183, 184                     
                   disorders of intestine.                                                                          
    763.8.......  Other specified               N                             15  390                               
                   complications of labor and                                                                       
                   delivery affecting fetus                                                                         
                   and newborn.                                                                                     
    780.7.......  Malaise and fatigue.........  N                             23  463, 464                          
                                                                              25  490                               
    965.6.......  Poisoning by antirheumatics   N                             21  449, 450, 451                     
                   [antiphlogistics].                                                                               
    V02.5.......  Carrier or suspected carrier  N                             23  467                               
                   of other specified                                                                               
                   bacterial diseases.                                                                              
    V13.6.......  Personal history of           N                             23  467                               
                   congenital malformations.                                                                        
    V16.5.......  Family history of malignant   N                             23  467                               
                   neoplasm of urinary organs.                                                                      
    V18.6.......  Family history of kidney      N                             23  467                               
                   diseases.                                                                                        
    V23.8.......  Supervision of other high-    Y                             14  469                               
                   risk pregnancy.                                                                                  
    V44.5.......  Cystostomy status...........  N                             23  467                               
    ----------------------------------------------------------------------------------------------------------------
    \1\ Classified as a ``major complication'' in this DRG.                                                         
    \2\ Classified as a ``major problem'' in these DRGs.                                                            
    \3\ HIV major related condition in this DRG.                                                                    
    
    
                                           Table 6D.--Invalid Procedure Codes                                       
    ----------------------------------------------------------------------------------------------------------------
      Procedure                                                                                                     
        code               Description                   OR               MDC                     DRG               
    ----------------------------------------------------------------------------------------------------------------
    36.3........  Other heart                   Y                              5  108                               
                   revascularization.                                                                               
    92.3........  Stereotactic radiosurgery...  N \1\                          1  7,8                               
                                                                              10  292, 293                          
                                                                              17  401, 402, 408                     
    ----------------------------------------------------------------------------------------------------------------
    \1\ Non-operating room procedure that affects DRG assignment.                                                   
    
    
                                        Table 6E.--Revised Diagnosis Code Titles                                    
    ----------------------------------------------------------------------------------------------------------------
      Diagnosis                                                                                                     
        code               Description                   CC               MDC                     DRG               
    ----------------------------------------------------------------------------------------------------------------
    518.81......  Acute respiratory failure...  Y                              4  87                                
                                                                               5  121 \1\                           
                                                                              22  506, 507                          
    659.60......  Elderly multigravida          N                             14  370, 371, 372, 373, 374, 375      
                   unspecified as to episode                                                                        
                   of care or not applicable.                                                                       
    659.61......  Elderly multigravida          N                             14  370, 371, 372, 373, 374, 375      
                   delivered, with mention of                                                                       
                   antepartum condition.                                                                            
    659.63......  Elderly multigravida with     N                             14  383, 384                          
                   antepartum condition or                                                                          
                   complication.                                                                                    
    V56.1.......  Fitting and adjustment of     N                             11  317                               
                   extracorporeal dialysis                                                                          
                   catheter.                                                                                        
    V82.4.......  Maternal postnatal screening  N                             23  467                               
                   for chromosomal anomalies.                                                                       
    ----------------------------------------------------------------------------------------------------------------
    \1\ Classified as a ``major complication'' in this DRG.                                                         
    
    
    [[Page 41081]]
    
    
                 Table 6F.--Additions to the CC Exclusions List             
                                Page 1 of 3 Pages                           
       CCs that are added to the list are in Table 6F--Additions to the CC  
        Exclusions List. Each of the principal diagnoses is shown with an   
    asterisk, and the revisions to the CC Exclusions List are provided in an
     indented column immediately following the affected principal diagnosis.
    ------------------------------------------------------------------------
                                                                            
    ------------------------------------------------------------------------
    *01100    *01123    *01146   *01172   *01195   *01281   *11515     48249
      48240     48240     48240    48240    48240    48240    48240  *48230 
      48241     48241     48241    48241    48241    48241    48241    48240
      48249     48249     48249    48249    48249    48249    48249    48241
    *01101    *01124    *01150   *01173   *01196   *01282   *11595     48249
      48240     48240     48240    48240    48240    48240    48240  *48231 
      48241     48241     48241    48241    48241    48241    48241    48240
      48249     48249     48249    48249    48249    48249    48249    48241
    *01102    *01125    *01151   *01174   *01200   *01283   *1221      48249
      48240     48240     48240    48240    48240    48240    48240  *48232 
      48241     48241     48241    48241    48241    48241    48241    48240
      48249     48249     48249    48249    48249    48249    48249    48241
    *01103    *01126    *01152   *01175   *01201   *01284   *1304      48249
      48240     48240     48240    48240    48240    48240    48240  *48239 
      48241     48241     48241    48241    48241    48241    48241    48240
      48249     48249     48249    48249    48249    48249    48249    48241
    *01104    *01130    *01153   *01176   *01202   *01285   *1363      48249
      48240     48240     48240    48240    48240    48240    48240  *48240 
      48241     48241     48241    48241    48241    48241    48241    01100
      48249     48249     48249    48249    48249    48249    48249    01101
    *01105    *01131    *01154   *01180   *01203   *01286   *3373      01102
      48240     48240     48240    48240    48240    48240    3350          
                                                                      01103 
      48241     48241     48241    48241    48241    48241    33510    01104
      48249     48249     48249    48249    48249    48249    33511    01105
    *01106    *01132    *01155   *01181   *01204   *01790              01106
                                                             33519          
      48240     48240     48240    48240    48240    48240    33520    01110
      48241     48241     48241    48241    48241    48241    33521    01111
      48249     48249     48249    48249    48249    48249    33522    01112
    *01110    *01133    *01156   *01182   *01205   *01791     33523    01113
      48240     48240     48240    48240    48240    48240    33524    01114
      48241     48241     48241    48241    48241    48241    33529    01115
      48249     48249     48249    48249    48249    48249    3358     01116
    *01111    *01134    *01160   *01183   *01206   *01792     3359     01120
      48240     48240     48240    48240    48240    48240  *4800      01121
      48241     48241     48241    48241    48241    48241    48240    01122
      48249     48249     48249    48249    48249    48249    48241    01123
    *01112    *01135    *01161   *01184   *01210   *01793     48249    01124
      48240     48240     48240    48240    48240    48240  *4801      01125
      48241     48241     48241    48241    48241    48241    48240    01126
      48249     48249     48249    48249    48249    48249    48241    01130
    *01113    *01136    *01162   *01185   *01211   *01794     48249    01131
      48240     48240     48240    48240    48240    48240  *4802      01132
      48241     48241     48241    48241    48241    48241    48240    01133
      48249     48249     48249    48249    48249    48249    48241    01134
    *01114    *01140    *01163   *01186   *01212   *01795     48249    01135
      48240     48240     48240    48240    48240    48240  *4808      01136
      48241     48241     48241    48241    48241    48241    48240    01140
      48249     48249     48249    48249    48249    48249    48241    01141
    *01115    *01141    *01164   *01190   *01213   *01796     48249    01142
      48240     48240     48240    48240    48240    48240  *4809      01143
      48241     48241     48241    48241    48241    48241    48240    01144
      48249     48249     48249    48249    48249    48249    48241    01145
    *01116    *01142    *01165   *01191   *01214   *0212      48249    01146
      48240     48240     48240    48240    48240    48240  *481       01150
      48241     48241     48241    48241    48241    48241    48240    01151
      48249     48249     48249    48249    48249    48249    48241    01152
    *01120    *01143    *01166   *01192   *01215   *0310      48249    01153
      48240     48240     48240    48240    48240    48240  *4820      01154
      48241     48241     48241    48241    48241    48241    48240    01155
      48249     48249     48249    48249    48249    48249    48241    01156
    *01121    *01144    *01170   *01193   *01216   *0391      48249    01160
      48240     48240     48240    48240    48240    48240  *4821      01161
      48241     48241     48241    48241    48241    48241    48240    01162
      48249     48249     48249    48249    48249    48249    48241    01163
    *01122    *01145    *01171   *01194   *01280   *11505     48249    01164
      48240     48240     48240    48240    48240    48240  *4822      01165
      48241     48241     48241    48241    48241    48241    48240    01166
      48249     48249     48249    48249    48249    48249    48241    01170
    ------------------------------------------------------------------------
    
    
    [[Page 41082]]
    
    
                                Page 2 of 3 Pages                           
    ------------------------------------------------------------------------
                                                                            
    ------------------------------------------------------------------------
      01171     4955      01183    5078     01195    48240    48241    48249
      01172     4956      01184    5080     01196    48241    48249  *5061  
      01173     4957      01185    5081     01200    48249  *4950      48240
      01174     4958      01186    5171     01201  *48283     48240    48241
      01175     4959      01190  *48249     01202    48240    48241    48249
      01176     5060      01191    01100    01203    48241    48249  *5062  
      01180     5061      01192    01101    01204    48249  *4951      48240
      01181     5070      01193    01102    01205  *48284     48240    48241
      01182     5071      01194    01103    01206    48240    48241    48249
      01183     5078      01195    01104    01210    48241    48249  *5063  
      01184     5080      01196    01105    01211    48249  *4952      48240
      01185     5081      01200    01106    01212  *48289     48240    48241
      01186     5171      01201    01110    01213    48240    48241    48249
      01190   *48241      01202    01111    01214    48241    48249  *5064  
      01191     01100     01203    01112    01215    48249  *4953      48240
      01192     01101     01204    01113    01216  *4829      48240    48241
      01193     01102     01205    01114    0310     48240    48241    48249
      01194     01103     01206    01115    11505    48241    48249  *5069  
      01195     01104     01210    01116    11515    48249  *4954      48240
      01196     01105     01211    01120    1304   *4830      48240    48241
      01200     01106     01212    01121    1363     48240    48241    48249
      01201     01110     01213    01122    481      48241    48249  *5070  
      01202     01111     01214    01123    4820     48249  *4955      48240
      01203     01112     01215    01124    4821   *4831      48240    48241
      01204     01113     01216    01125    4822     48240    48241    48249
      01205     01114     0310     01126    48230    48241    48249  *5071  
      01206     01115     11505    01130    48231    48249  *4956      48240
      01210     01116     11515    01131    48232  *4838      48240    48241
      01211     01120     1304     01132    48239    48240    48241    48249
      01212     01121     1363     01133    48240    48241    48249  *5078  
      01213     01122     481      01134    48241    48249  *4957      48240
      01214     01123     4820     01135    48249  *4841      48240    48241
      01215     01124     4821     01136    48281    48240    48241    48249
      01216     01125     4822     01140    48282    48241    48249  *5080  
      0310      01126     48230    01141    48283    48249  *4958      48240
      11505     01130     48231    01142    48284  *4843      48240    48241
      11515     01131     48232    01143    48289    48240    48241    48249
      1304      01132     48239    01144    4829     48241    48249  *5081  
      1363      01133     48240    01145    4830     48249  *4959      48240
      481       01134     48241    01146    4831   *4845      48240    48241
      4820      01135     48249    01150    4838     48240    48241    48249
      4821      01136     48281    01151    4841     48241    48249  *5088  
      4822      01140     48282    01152    4843     48249  *496       48240
      48230     01141     48283    01153    4845   *4846      48240    48241
      48231     01142     48284    01154    4846     48240    48241    48249
      48232     01143     48289    01155    4847     48241    48249  *5089  
      48239     01144     4829     01156    4848     48249  *500       48240
      48240     01145     4830     01160    485    *4847      48240    48241
      48241     01146     4831     01161    486      48240    48241    48249
      48249     01150     4838     01162    4870     48241    48249  *5171  
      48281     01151     4841     01163    4950     48249  *501       48240
      48282     01152     4843     01164    4951   *4848      48240    48241
      48283     01153     4845     01165    4952     48240    48241    48249
      48284     01154     4846     01166    4953     48241    48249  *5178  
      48289     01155     4847     01170    4954     48249  *502       48240
      4829      01156     4848     01171    4955   *485       48240    48241
      4830      01160     485      01172    4956     48240    48241    48249
      4831      01161     486      01173    4957     48241    48249  *51881 
      4838      01162     4870     01174    4958     48249  *503       51883
      4841      01163     4950     01175    4959   *486       48240    51884
      4843      01164     4951     01176    5060     48240    48241    78603
      4845      01165     4952     01180    5061     48241    48249    78604
      4846      01166     4953     01181    5070     48249  *504     *51882 
      4847      01170     4954     01182    5071   *4870      48240    51883
      4848      01171     4955     01183    5078     48240    48241    51884
      485       01172     4956     01184    5080     48241    48249    78603
      486       01173     4957     01185    5081     48249  *505       78604
      4870      01174     4958     01186    5171   *4871      48240  *51883 
      4950      01175     4959     01190  *48281     48240    48241    51881
      4951      01176     5060     01191    48240    48241    48249    51882
      4952      01180     5061     01192    48241    48249  *5060      51883
      4953      01181     5070     01193    48249  *494       48240    51884
      4954      01182     5071     01194  *48282     48240    48241    78603
    ------------------------------------------------------------------------
    
    
    [[Page 41083]]
    
    
                                Page 3 of 3 Pages                           
    ------------------------------------------------------------------------
                                                                            
    ------------------------------------------------------------------------
      78604     53642   *99656     56962    V2384    V2384                  
      7991      53649     99655  *99791     V2389    V2389                  
    *51884      56962     99656    53640  *V230      V239                   
      51881     9974      99659    53641    V2381  *V2389                   
      51882   *53642      99660    53642    V2382    V237                   
      51883     53640     99661    53649    V2383    V2381                  
      51884     53641     99662    56962    V2384    V2382                  
      78603     53642     99663    99586    V2389    V2383                  
      78604     53649     99664    99655  *V231      V2384                  
      7991      56962     99665    99656    V2381    V2389                  
    *51889      9974      99666    99668    V2382    V239                   
      48240   *53649      99667  *99799     V2383  *V239                    
      48241     53640     99668    53640    V2384    V2381                  
      48249     53641     99669    53641    V2389    V2382                  
    *51900      53642     99670    53642  *V232      V2383                  
      51900     53649     99671    53649    V2381    V2384                  
      51901     56962     99672    56962    V2382    V2389                  
      51902     9974      99673    99586    V2383                           
      51909   *56960      99674    99655    V2384                           
    *51901      56962     99675    99656    V2389                           
      51900   *56961      99676    99668  *V233                             
      51901     56962     99677  *9980      V2381                           
      51902   *56962      99678    99586    V2382                           
      51909     56960     99679  *99811     V2383                           
    *51902      56961   *99659     99586    V2384                           
      51900     56962     99655  *99812     V2389                           
      51901     56969     99656    99586  *V234                             
      51902   *56969      99668  *99813     V2381                           
      51909     56962   *99660     99586    V2382                           
    *51909    *74861      99655  *99881     V2383                           
      51900     48240     99656    53640    V2384                           
      51901     48241     99668    53641    V2389                           
      51902     48249   *99668     53642  *V235                             
      51909   *78603      99655    53649    V2381                           
    *5191       78603     99656    56962    V2382                           
      51900     78604     99659    99586    V2383                           
      51901   *78604      99660  *99883     V2384                           
      51902     78603     99661    53640    V2389                           
      51909     78604     99662    53641  *V237                             
    *5198     *7991       99663    53642    V2381                           
      48240     51883     99664    53649    V2382                           
      48241     51884     99665    56962    V2383                           
      48249     78603     99666    99586    V2384                           
      51883     78604     99667  *99889     V2389                           
      51884   *9584       99668    53640  *V2381                            
      51900     99586     99669    53641    V237                            
      51901   *9954       99670    53642    V2381                           
      51902     99586     99671    53649    V2382                           
      51909   *99586      99672    56962    V2383                           
      78603     99586     99673    99586    V2384                           
      78604   *99652      99674  *9989      V2389                           
    *5199       99655     99675    53640    V239                            
      48240   *99655      99676    53641  *V2382                            
      48241     99652     99677    53642    V237                            
      48249     99655     99678    53649    V2381                           
      51883     99660     99679    56962    V2382                           
      51884     99661   *99669     99586    V2383                           
      51900     99662     99655  *V220      V2384                           
      51901     99663     99656    V2381    V2389                           
      51902     99665     99668    V2382    V239                            
      51909     99666   *99670     V2383  *V2383                            
      78603     99667     99655    V2384    V237                            
      78604     99669     99656    V2389    V2381                           
    *53640      99670     99668  *V221      V2382                           
      53640     99671   *99679     V2381    V2383                           
      53641     99672     99655    V2382    V2384                           
      53642     99673     99656    V2383    V2389                           
      53649     99674     99668    V2384    V239                            
      56962     99675   *9974      V2389  *V2384                            
      9974      99676     53640  *V222      V237                            
    *53641      99677     53641    V2381    V2381                           
      53640     99678     53642    V2382    V2382                           
      53641     99679     53649    V2383    V2383                           
    ------------------------------------------------------------------------
    
    
    [[Page 41084]]
    
    
                 Table 6G.--Deletions to the CC Exclusions List             
    [CCs that are deleted from the list are in Table 6G--Deletions to the CC
        Exclusions List. Each of the principal diagnoses is shown with an   
    asterisk, and the revisions to the CC Exclusions List are provided in an
    indented column immediately following the affected principal diagnosis.]
    ------------------------------------------------------------------------
                                                                            
    ------------------------------------------------------------------------
    *01100    *01146    *01195   *11515     01143    48282    4824     4824 
      4824      4824      4824     4824     01144    48283  *4870    *5178  
    *01101    *01150    *01196   *11595     01145    48284    4824     4824 
      4824      4824      4824     4824     01146    48289  *4871    *51889 
    *01102    *01151    *01200   *1221      01150    4829     4824     4824 
      4824      4824      4824     4824     01151    4830   *494     *5190  
    *01103    *01152    *01201   *1304      01152    4831     4824     5190 
      4824      4824      4824     4824     01153    4838   *4950    *5191  
    *01104    *01153    *01202   *1363      01154    4841     4824     5190 
      4824      4824      4824     4824     01155    4843   *4951    *5198  
    *01105    *01154    *01203   *4800      01156    4845     4824     4824 
      4824      4824      4824     4824     01160    4846   *4952      5190 
    *01106    *01155    *01204   *4801      01161    4847     4824   *5199  
      4824      4824      4824     4824     01162    4848   *4953      4824 
    *01110    *01156    *01205   *4802      01163    485      4824     5190 
      4824      4824      4824     4824     01164    486    *4954    *74861 
    *01111    *01160    *01206   *4808      01165    4870     4824     4824 
      4824      4824      4824     4824     01166    4950   *4955    *V220  
    *01112    *01161    *01210   *4809      01170    4951     4824     V238 
      4824      4824      4824     4824     01171    4952   *4956    *V221  
    *01113    *01162    *01211   *481                4953     4824     V238 
                                           01172                            
      4824      4824      4824     4824     01173    4954   *4957    *V222  
    *01114    *01163    *01212   *4820      01174    4955     4824     V238 
      4824      4824      4824     4824     01175    4956   *4958    *V230  
    *01115    *01164    *01213   *4821      01176    4957     4824     V238 
      4824      4824      4824     4824     01180    4958   *4959    *V231  
    *01116    *01165    *01214   *4822      01181    4959     4824     V238 
      4824      4824      4824     4824     01182    5060   *496     *V232  
    *01120    *01166    *01215   *48230     01183    5061     4824     V238 
      4824      4824      4824     4824     01184    5070   *500     *V233  
    *01121    *01170    *01216   *48231     01185    5071     4824     V238 
      4824      4824      4824     4824     01186    5078   *501     *V234  
    *01122    *01171    *01280   *48232     01190    5080     4824     V238 
      4824      4824      4824     4824     01191    5081   *502     *V235  
    *01123    *01172    *01281   *48239     01192    5171     4824     V238 
      4824      4824      4824     4824     01193  *48281   *503     *V237  
    *01124    *01173    *01282   *4824      01194    4824     4824     V238 
      4824      4824      4824     01100    01195  *48282   *504     *V238  
    *01125    *01174    *01283     01101    01196    4824     4824     V237 
      4824      4824      4824     01102    01200  *48283   *505       V238 
    *01126    *01175    *01284     01103    01201    4824     4824     V239 
      4824      4824      4824     01104    01202  *48284   *5060    *V239  
    *01130    *01176    *01285     01105    01203    4824     4824     V238 
      4824      4824      4824     01106    01204  *48289   *5061           
    *01131    *01180    *01286     01110    01205    4824     4824          
      4824      4824      4824     01111    01206  *4829    *5062           
    *01132    *01181    *01790     01112    01210    4824     4824          
      4824      4824      4824     01113    01211  *4830    *5063           
    *01133    *01182    *01791     01114    01212    4824     4824          
      4824      4824      4824     01115    01213  *4831    *5064           
    *01134    *01183    *01792     01116    01214    4824     4824          
      4824      4824      4824     01120    01215  *4838    *5069           
    *01135    *01184    *01793     01121    01216    4824     4824          
      4824      4824      4824     01122    0310   *4841    *5070           
    *01136    *01185    *01794     01123    11505    4824     4824          
      4824      4824      4824     01124    11515  *4843    *5071           
    *01140    *01186    *01795     01125    1304     4824     4824          
      4824      4824      4824     01126    1363   *4845    *5078           
    *01141    *01190    *01796     01130    481      4824     4824          
      4824      4824      4824     01131    4820   *4846    *5080           
    *01142    *01191    *0212      01132    4821     4824     4824          
      4824      4824      4824     01133    4822   *4847    *5081           
    *01143    *01192    *0310      01134    48230    4824     4824          
      4824      4824      4824     01135    48231  *4848    *5088           
    *01144    *01193    *0391      01136    48232    4824     4824          
      4824      4824      4824     01140    48239  *485     *5089           
    *01145    *01194    *11505     01141    4824     4824     4824          
      4824      4824      4824     01142    48281  *486     *5171           
    ------------------------------------------------------------------------
    
    
    [[Page 41085]]
    
    
                                       Table 7A.--Medicare Prospective Payment System Selected Percentile Lengths of Stay                                   
                                                            [FY97 MEDPAR Update 03/98 Grouper V15.0]                                                        
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Number        Arithmetic         10th            25th            50th            75th            90th     
                       DRG                      discharges       mean LOS       percentile      percentile      percentile      percentile      percentile  
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    1.......................................           36863          9.6140               2               4               7              12              20
    2.......................................            7073         10.0431               3               5               8              13              20
    3.......................................               3          9.3333               7               7               9              12              12
    4.......................................            6387          7.7417               1               3               5               9              17
    5.......................................          101629          3.6388               1               2               2               4               8
    6.......................................             359          3.0306               1               1               2               4               7
    7.......................................           12693         10.1052               2               4               7              12              20
    8.......................................            3051          3.1786               1               1               2               4               7
    9.......................................            1712          6.5724               1               3               5               8              13
    10......................................           19898          6.8603               2               3               5               8              14
    11......................................            2976          4.1398               1               2               3               5               8
    12......................................           38546          6.6802               2               3               5               8              12
    13......................................            6395          5.4835               2               3               4               6               9
    14......................................          374285          6.2936               2               3               5               8              12
    15......................................          146334          3.8586               1               2               3               5               7
    16......................................           13990          5.9277               2               3               4               7              11
    17......................................            3228          3.4291               1               2               3               4               7
    18......................................           27696          5.5756               2               3               4               7              10
    19......................................            7354          3.8089               1               2               3               5               7
    20......................................            6638         10.1788               2               5               8              13              19
    21......................................            1386          6.8283               2               3               5               8              14
    22......................................            2803          4.6522               2               2               4               6               9
    23......................................            6933          4.2573               1               2               3               5               8
    24......................................           58307          5.0648               1               2               4               6              10
    25......................................           22886          3.4256               1               2               3               4               7
    26......................................              35          3.2857               1               1               3               4               7
    27......................................            4246          5.4788               1               1               3               7              12
    28......................................           14087          5.9295               1               2               4               7              12
    29......................................            4349          3.5220               1               1               3               4               7
    31......................................            3135          4.4287               1               2               3               5               8
    32......................................            1378          2.9594               1               1               2               3               5
    34......................................           20202          5.4414               1               3               4               7              11
    35......................................            4292          3.5517               1               2               3               4               7
    36......................................            5421          1.5379               1               1               1               1               2
    37......................................            1697          3.7183               1               1               2               4               8
    38......................................             116          2.5948               1               1               2               3               5
    39......................................            1908          2.0383               1               1               1               2               4
    40......................................            2300          3.1822               1               1               2               4               7
    42......................................            4052          2.0908               1               1               1               2               4
    43......................................             120          3.4250               1               2               3               5               7
    44......................................            1346          5.0498               2               3               4               6               9
    45......................................            2428          3.4773               1               2               3               4               6
    46......................................            3177          4.6396               1               2               4               6               9
    47......................................            1232          3.2873               1               1               3               4               7
    48......................................               2          4.5000               4               4               5               5               5
    49......................................            2297          5.0004               1               2               4               6               9
    50......................................            3026          1.9752               1               1               2               2               3
    51......................................             308          2.8182               1               1               1               3               6
    52......................................              89          2.7528               1               1               2               3               7
    53......................................            3012          3.6597               1               1               2               4               8
    54......................................               2          6.0000               5               5               7               7               7
    55......................................            1704          2.9607               1               1               2               3               6
    56......................................             695          2.8374               1               1               2               3               6
    57......................................             611          3.6759               1               1               3               4               7
    59......................................             121          2.4215               1               1               2               3               5
    60......................................               1          4.0000               4               4               4               4               4
    61......................................             280          4.6464               1               1               2               5              10
    62......................................               4          1.2500               1               1               1               1               2
    63......................................            3733          4.4466               1               2               3               5               9
    64......................................            3432          6.6973               1               2               5               8              14
    65......................................           29238          2.9721               1               2               2               4               5
    66......................................            6848          3.2604               1               2               3               4               6
    67......................................             494          3.7854               1               2               3               4               7
    68......................................           11573          4.1497               1               2               3               5               7
    69......................................            3471          3.3244               1               2               3               4               6
    70......................................              37          2.5405               1               1               2               3               4
    71......................................             100          3.9300               1               2               3               6               7
    72......................................             829          3.7853               1               2               3               5               7
    73......................................            6323          4.4058               1               2               3               6               8
    74......................................               2          2.5000               2               2               3               3               3
    
    [[Page 41086]]
    
                                                                                                                                                            
    75......................................           41135         10.2396               4               5               8              13              20
    76......................................           41950         11.3136               3               5               9              14              21
    77......................................            2041          4.8863               1               2               4               7              10
    78......................................           31059          7.3075               3               5               7               9              12
    79......................................          248239          8.4083               3               4               7              10              15
    80......................................            8319          5.8721               2               3               5               7              10
    81......................................               7         11.2857               2               3               6               7               8
    82......................................           71558          7.1252               2               3               6               9              14
    83......................................            7419          5.5741               2               3               4               7              10
    84......................................            1322          3.3162               1               2               3               4               6
    85......................................           22565          6.6618               2               3               5               8              13
    86......................................            1510          3.8801               1               2               3               5               7
    87......................................           73527          6.3192               1               3               5               8              12
    88......................................          390502          5.4117               2               3               4               7              10
    89......................................          471124          6.2766               2               4               5               8              11
    90......................................           39143          4.4608               2               3               4               6               8
    91......................................              48          3.9375               1               2               3               5               7
    92......................................           14606          6.3852               2               3               5               8              12
    93......................................            1323          4.3583               1               2               4               6               8
    94......................................           13510          6.4760               2               3               5               8              12
    95......................................            1408          3.8544               1               2               3               5               7
    96......................................           62085          4.8491               2               3               4               6               9
    97......................................           25768          3.8219               1               2               3               5               7
    98......................................              28          4.9286               1               2               3               5              13
    99......................................           26603          3.0405               1               1               2               4               6
    100.....................................           10353          2.1232               1               1               2               3               4
    101.....................................           20349          4.4392               1               2               3               5               9
    102.....................................            4579          2.7917               1               1               2               3               5
    103.....................................             515         50.5320               9              14              32              71             124
    104.....................................           29432         12.4392               4               7              10              16              23
    105.....................................           25718          9.6492               4               6               8              11              17
    106.....................................          107341         10.6962               6               7               9              12              17
    107.....................................           69437          7.9517               4               5               7               9              13
    108.....................................            8142         11.7677               4               6               9              14              22
    110.....................................           62676          9.6167               2               5               8              12              18
    111.....................................            5616          5.8063               2               4               6               7               9
    112.....................................          119137          3.9263               1               1               3               5               8
    113.....................................           46975         12.2664               4               6               9              15              24
    114.....................................            8543          8.4041               2               4               7              11              16
    115.....................................           15131          8.7469               2               4               7              11              17
    116.....................................          210530          4.1764               1               2               3               5               8
    117.....................................            3747          3.9861               1               1               2               5               9
    118.....................................            6529          2.9326               1               1               2               3               6
    119.....................................            1640          5.3829               1               1               3               7              13
    120.....................................           38162          8.1769               1               2               5              10              18
    121.....................................          170973          6.6427               2               4               6               8              12
    122.....................................           83711          4.1990               1               2               4               6               7
    123.....................................           43626          4.3987               1               1               2               5              10
    124.....................................          155144          4.4560               1               2               4               6               9
    125.....................................           63029          2.8712               1               1               2               4               6
    126.....................................            5445         12.4382               4               6               9              15              25
    127.....................................          723327          5.5118               2               3               4               7              10
    128.....................................           16139          6.0284               3               4               5               7               9
    129.....................................            4482          2.9514               1               1               1               3               7
    130.....................................           98650          5.9904               2               3               5               7              10
    131.....................................           24713          4.6719               1               3               4               6               8
    132.....................................          175262          3.1519               1               2               3               4               6
    133.....................................            6682          2.4811               1               1               2               3               5
    134.....................................           30563          3.4498               1               2               3               4               6
    135.....................................            8271          4.3344               1               2               3               5               8
    136.....................................            1117          2.9687               1               1               2               4               5
    138.....................................          210196          4.0456               1               2               3               5               8
    139.....................................           67634          2.5762               1               1               2               3               5
    140.....................................          108283          2.9686               1               1               2               4               5
    141.....................................           82219          3.8511               1               2               3               5               7
    142.....................................           36801          2.7878               1               1               2               3               5
    143.....................................          144774          2.2571               1               1               2               3               4
    144.....................................           79437          5.2262               1               2               4               7              10
    145.....................................            6398          2.8678               1               1               2               4               6
    146.....................................           10433         10.2667               5               7               9              12              17
    
    [[Page 41087]]
    
                                                                                                                                                            
    147.....................................            1790          6.7374               4               5               7               8              10
    148.....................................          147867         12.2636               5               7              10              15              22
    149.....................................           14480          6.8502               4               5               6               8              10
    150.....................................           23924         10.8759               4               6               9              13              19
    151.....................................            4176          5.8829               2               3               5               8              10
    152.....................................            4736          8.3328               4               5               7              10              14
    153.....................................            1616          5.6293               3               4               5               7               8
    154.....................................           34592         13.3723               4               7              11              16              25
    155.....................................            4766          4.6897               1               2               4               6               9
    156.....................................               2         18.0000               6               6              30              30              30
    157.....................................            9351          5.4102               1               2               4               7              11
    158.....................................            4141          2.6218               1               1               2               3               5
    159.....................................           18453          4.9685               1               2               4               6              10
    160.....................................            9823          2.6793               1               1               2               3               5
    161.....................................           14694          4.0874               1               2               3               5               9
    162.....................................            7099          2.0338               1               1               1               2               4
    163.....................................               6         10.0000               1               4               9              13              13
    164.....................................            5319          8.5336               4               5               7              10              15
    165.....................................            1658          4.9566               2               3               5               6               8
    166.....................................            3561          5.1106               2               3               4               6               9
    167.....................................            2350          2.8400               1               2               2               4               5
    168.....................................            1732          4.5704               1               2               3               6               9
    169.....................................             853          2.5768               1               1               2               3               5
    170.....................................           12888         11.2453               2               5               8              14              23
    171.....................................            1013          4.8164               1               2               4               6               9
    172.....................................           33258          7.1141               2               3               5               9              14
    173.....................................            2164          3.9750               1               1               3               5               8
    174.....................................          250195          4.9246               2               3               4               6               9
    175.....................................           21767          3.0099               1               2               3               4               5
    176.....................................           18457          5.4888               2               3               4               7              10
    177.....................................           11202          4.5540               2               2               4               6               8
    178.....................................            3523          3.2109               1               2               3               4               6
    179.....................................           12572          6.4144               2               3               5               8              12
    180.....................................           93855          5.4295               2               3               4               7              10
    181.....................................           21459          3.5079               1               2               3               4               6
    182.....................................          236477          4.3554               1               2               3               5               8
    183.....................................           70321          3.0159               1               1               2               4               6
    184.....................................              91          3.2857               1               2               2               4               7
    185.....................................            4110          4.4822               1               2               3               6               9
    187.....................................             892          3.9608               1               2               3               5               8
    188.....................................           75769          5.5554               1               2               4               7              11
    189.....................................            8683          3.2034               1               1               2               4               6
    190.....................................              62          5.2903               1               2               4               7              11
    191.....................................           10738         14.5968               4               7              11              18              29
    192.....................................             839          6.7247               2               4               6               8              12
    193.....................................            7407         12.4918               5               7              10              15              22
    194.....................................             774          6.9225               3               4               6               9              12
    195.....................................            7134          9.8004               4               6               8              12              17
    196.....................................            1274          5.7245               2               4               5               7              10
    197.....................................           25188          8.6282               3               5               7              10              15
    198.....................................            6401          4.5894               2               3               4               6               8
    199.....................................            2067         10.1751               3               5               8              14              20
    200.....................................            1357         11.4952               2               4               8              14              24
    201.....................................            1670         14.3072               4               6              11              18              29
    202.....................................           28883          6.7510               2               3               5               8              13
    203.....................................           29715          6.8468               2               3               5               9              14
    204.....................................           53504          6.0856               2               3               5               7              11
    205.....................................           23103          6.5500               2               3               5               8              13
    206.....................................            1630          4.0865               1               2               3               5               8
    207.....................................           35726          5.1383               1               2               4               6              10
    208.....................................            9541          2.9005               1               1               2               4               6
    209.....................................          364469          5.4343               3               4               5               6               8
    210.....................................          142415          7.0179               3               4               6               8              12
    211.....................................           26144          5.1433               3               4               5               6               8
    212.....................................              13          3.7692               1               2               4               5               6
    213.....................................            7546          8.4157               2               4               6              11              16
    216.....................................            6154          9.8351               2               4               7              12              19
    217.....................................           20823         12.9944               3               5               9              16              27
    218.....................................           24004          5.3243               2               3               4               6              10
    219.....................................           18448          3.2888               1               2               3               4               5
    
    [[Page 41088]]
    
                                                                                                                                                            
    220.....................................               5          3.2000               1               1               3               4               7
    223.....................................           18683          2.6174               1               1               2               3               5
    224.....................................            7760          2.0628               1               1               2               3               4
    225.....................................            5697          4.3498               1               2               3               5               9
    226.....................................            5583          5.9226               1               2               4               7              12
    227.....................................            4638          2.7288               1               1               2               3               5
    228.....................................            2773          3.4241               1               1               2               4               8
    229.....................................            1114          2.3887               1               1               2               3               5
    230.....................................            2399          4.5302               1               2               3               5               9
    231.....................................           10765          4.5644               1               2               3               5               9
    232.....................................             498          3.8273               1               1               2               4               9
    233.....................................            4948          7.6326               2               3               5               9              16
    234.....................................            2286          3.6374               1               2               3               5               7
    235.....................................            5378          5.3103               1               3               4               6              10
    236.....................................           39661          5.1485               1               3               4               6               9
    237.....................................            1608          3.6486               1               2               3               5               7
    238.....................................            7892          8.8692               3               4               7              11              17
    239.....................................           59978          6.4285               2               3               5               8              12
    240.....................................           13753          6.6862               2               3               5               8              13
    241.....................................            2925          4.0021               1               2               3               5               7
    242.....................................            2652          6.7266               2               3               5               8              13
    243.....................................           82323          4.8596               2               3               4               6               9
    244.....................................           12497          5.0070               2               3               4               6               9
    245.....................................            4392          3.7368               1               2               3               5               7
    246.....................................            1280          3.9313               1               2               3               5               7
    247.....................................           12331          3.4951               1               2               3               4               7
    248.....................................            8162          4.6837               1               2               4               6               9
    249.....................................           10919          3.6445               1               1               3               4               7
    250.....................................            3586          4.2284               1               2               3               5               8
    251.....................................            2229          2.9484               1               1               2               4               5
    252.....................................               1          1.0000               1               1               1               1               1
    253.....................................           19548          4.8593               1               3               4               6               9
    254.....................................            9373          3.3465               1               2               3               4               6
    255.....................................               2          3.5000               1               1               6               6               6
    256.....................................            5566          5.1175               1               2               4               6              10
    257.....................................           21299          2.9851               1               2               2               3               5
    258.....................................           16484          2.1352               1               1               2               3               3
    259.....................................            3797          3.0830               1               1               2               3               7
    260.....................................            4492          1.5410               1               1               1               2               2
    261.....................................            2003          2.2476               1               1               2               3               4
    262.....................................             665          4.2391               1               1               3               6               9
    263.....................................           27639         11.4184               3               5               8              14              22
    264.....................................            3332          7.0624               2               3               5               8              14
    265.....................................            4341          6.5312               1               2               4               8              13
    266.....................................            2480          3.4161               1               1               2               4               7
    267.....................................             254          4.5984               1               2               3               5               9
    268.....................................             888          3.5676               1               1               2               4               7
    269.....................................            9483          7.8891               2               3               6              10              16
    270.....................................            2696          3.1439               1               1               2               4               7
    271.....................................           23100          7.1558               3               4               6               9              13
    272.....................................            5981          6.4233               2               3               5               8              12
    273.....................................            1315          4.8008               1               2               4               6               8
    274.....................................            2440          6.7398               1               3               5               8              14
    275.....................................             215          3.5163               1               1               3               4               7
    276.....................................             944          4.4492               1               2               4               6               8
    277.....................................           82207          5.9080               2               3               5               7              10
    278.....................................           24763          4.4937               2               3               4               6               8
    279.....................................              12          5.0000               2               2               4               7               9
    280.....................................           14318          4.3117               1               2               3               5               8
    281.....................................            6028          3.1443               1               1               3               4               6
    282.....................................               2          2.0000               2               2               2               2               2
    283.....................................            5236          4.8010               1               2               4               6               9
    284.....................................            1668          3.3171               1               2               3               4               6
    285.....................................            5567         11.0223               3               5               8              13              21
    286.....................................            2153          6.9833               3               4               5               8              13
    287.....................................            6222         11.2252               3               5               8              13              22
    288.....................................            1521          5.9382               3               3               5               6               9
    289.....................................            5499          3.2366               1               1               2               3               7
    290.....................................            8981          2.5171               1               1               2               3               4
    291.....................................              67          1.7612               1               1               1               2               3
    
    [[Page 41089]]
    
                                                                                                                                                            
    292.....................................            5072         10.7744               2               4               8              14              21
    293.....................................             351          5.4672               1               2               4               7              12
    294.....................................           82620          4.9159               1               2               4               6               9
    295.....................................            3630          3.9573               1               2               3               5               7
    296.....................................          236933          5.3935               2               3               4               7              10
    297.....................................           32857          3.6526               1               2               3               4               7
    298.....................................              95          3.6526               1               1               2               4               8
    299.....................................             979          5.3463               1               2               4               7              10
    300.....................................           16904          6.2827               2               3               5               8              12
    301.....................................            2411          3.8075               1               2               3               5               7
    302.....................................            8040         10.1373               5               6               8              12              18
    303.....................................           19774          9.2208               4               5               7              10              16
    304.....................................           12948          8.9874               2               4               7              11              18
    305.....................................            2570          3.8911               1               2               3               5               7
    306.....................................           10714          5.5080               1               2               3               7              12
    307.....................................            2368          2.4041               1               1               2               3               4
    308.....................................            9227          6.0016               1               2               4               8              13
    309.....................................            3565          2.5910               1               1               2               3               5
    310.....................................           26862          4.3113               1               2               3               5               9
    311.....................................            7848          1.9509               1               1               1               2               4
    312.....................................            1744          4.3354               1               1               3               6               9
    313.....................................             589          2.3820               1               1               2               3               5
    314.....................................               1         10.0000              10              10              10              10              10
    315.....................................           28603          8.0449               1               2               5              10              18
    316.....................................           93772          6.7982               2               3               5               9              14
    317.....................................             803          2.8543               1               1               2               3               6
    318.....................................            6238          6.0928               1               3               4               8              12
    319.....................................             412          2.9879               1               1               2               4               6
    320.....................................          178400          5.5722               2               3               4               7              10
    321.....................................           23782          4.0371               2               2               3               5               7
    322.....................................              85          4.0588               2               2               3               4               7
    323.....................................           17085          3.2128               1               1               2               4               6
    324.....................................            7560          1.9376               1               1               1               2               4
    325.....................................            7442          3.9614               1               2               3               5               8
    326.....................................            2205          2.7728               1               1               2               3               5
    327.....................................               9          2.8889               1               1               2               3               4
    328.....................................             767          3.7171               1               2               3               5               7
    329.....................................              88          2.2500               1               1               1               3               4
    331.....................................           44022          5.5767               1               3               4               7              11
    332.....................................            4566          3.5572               1               1               3               5               7
    333.....................................             320          4.9219               1               2               4               6              11
    334.....................................           18718          4.9703               3               3               4               6               8
    335.....................................           10403          3.7142               2               3               3               4               5
    336.....................................           54368          3.6034               1               2               3               4               7
    337.....................................           31918          2.2865               1               1               2               3               4
    338.....................................            2785          4.7885               1               2               3               6              10
    339.....................................            2000          4.1895               1               1               3               5               9
    340.....................................               2          1.0000               1               1               1               1               1
    341.....................................            4945          2.9521               1               1               2               3               6
    342.....................................            1013          3.4423               1               2               2               4               7
    344.....................................            3904          2.6360               1               1               1               3               5
    345.....................................            1349          3.6338               1               1               2               4               8
    346.....................................            4889          5.8151               1               3               4               7              11
    347.....................................             368          3.1141               1               1               2               4               6
    348.....................................            3216          4.2463               1               2               3               5               8
    349.....................................             636          2.7453               1               1               2               3               5
    350.....................................            6146          4.4007               2               2               4               5               8
    352.....................................             640          3.6078               1               1               3               4               7
    353.....................................            2831          6.9347               3               4               5               8              12
    354.....................................           10001          5.7745               3               3               4               6              10
    355.....................................            5668          3.4622               2               3               3               4               5
    356.....................................           29070          2.6484               1               2               2               3               4
    357.....................................            6365          9.0207               3               5               7              11              17
    358.....................................           27581          4.3699               2               3               3               5               7
    359.....................................           28195          2.9766               2               2               3               3               4
    360.....................................           17946          3.1562               1               2               3               4               5
    361.....................................             543          3.3204               1               1               2               3               7
    363.....................................            3976          3.3154               1               2               2               3               6
    364.....................................            1838          3.5620               1               1               2               5               8
    365.....................................            2315          6.8877               1               2               5               9              14
    
    [[Page 41090]]
    
                                                                                                                                                            
    366.....................................            4395          6.8066               1               3               5               8              14
    367.....................................             510          2.8863               1               1               2               3               6
    368.....................................            2907          6.3509               2               3               5               8              12
    369.....................................            2621          3.0626               1               1               2               4               6
    370.....................................            1207          5.4905               2               3               4               5               9
    371.....................................            1184          3.4611               2               3               3               4               5
    372.....................................            1004          3.1464               1               2               2               3               5
    373.....................................            3985          2.1154               1               1               2               2               3
    374.....................................             159          3.0629               1               2               2               3               4
    375.....................................               9          5.1111               2               2               3               9              10
    376.....................................             222          2.9144               1               2               2               3               6
    377.....................................              53          4.4528               1               2               3               6               9
    378.....................................             171          2.5906               1               2               2               3               4
    379.....................................             338          3.5562               1               1               2               3               7
    380.....................................              90          2.1556               1               1               2               3               4
    381.....................................             192          2.1198               1               1               1               2               4
    382.....................................              42          1.2619               1               1               1               1               2
    383.....................................            1490          3.7302               1               2               3               4               8
    384.....................................             129          2.6512               1               1               1               3               6
    385.....................................               1          2.0000               2               2               2               2               2
    389.....................................              10         10.2000               1               7               7              15              19
    390.....................................              13          6.0000               2               2               4               5              17
    392.....................................            2546         10.3987               4               5               7              12              21
    394.....................................            1820          7.0368               1               2               4               8              16
    395.....................................           71452          4.7241               1               2               3               6               9
    396.....................................              16         17.3750               1               1               4              11              13
    397.....................................           18933          5.5143               1               2               4               7              11
    398.....................................           18263          6.0488               2               3               5               7              11
    399.....................................            1325          3.7170               1               2               3               5               7
    400.....................................            7291          9.3665               2               3               6              12              20
    401.....................................            6715         11.0067               2               4               8              14              23
    402.....................................            1465          3.8826               1               1               3               5               8
    403.....................................           39249          8.1435               2               3               6              10              17
    404.....................................            3823          4.4499               1               2               3               6               9
    406.....................................            3326          9.5391               2               4               7              12              20
    407.....................................             636          4.3270               1               2               4               5               8
    408.....................................            2692          7.5137               1               2               5               9              16
    409.....................................            4682          5.8317               2               3               4               6              11
    410.....................................           59539          3.4172               1               2               3               4               6
    411.....................................              19          3.5263               1               1               2               2               7
    412.....................................              25          2.2800               1               1               2               3               4
    413.....................................            7854          7.4318               2               3               6               9              15
    414.....................................             677          4.1905               1               2               3               5               8
    415.....................................           45551         14.3639               4               7              11              18              28
    416.....................................          231746          7.3984               2               4               6               9              14
    417.....................................              43          5.8837               2               3               5               7              11
    418.....................................           21340          6.1925               2               3               5               8              11
    419.....................................           15355          5.0178               2               3               4               6               9
    420.....................................            2697          3.9459               1               2               3               5               7
    421.....................................           12186          3.9568               1               2               3               5               7
    422.....................................              89          3.3258               1               2               2               4               7
    423.....................................           10830          7.7667               2               3               6               9              15
    424.....................................            1640         14.2976               2               5              10              18              29
    425.....................................           15541          4.1344               1               2               3               5               8
    426.....................................            4507          4.9022               1               2               3               6              10
    427.....................................            1656          4.7977               1               2               3               6              10
    428.....................................             963          7.2887               1               2               5               8              15
    429.....................................           32953          7.1813               2               3               5               8              14
    430.....................................           57380          8.7114               2               4               7              11              17
    431.....................................             220          7.2409               1               3               5               8              13
    432.....................................             414          5.3116               1               2               3               6              12
    433.....................................            6874          3.2098               1               1               2               4               7
    434.....................................           21742          5.1845               2               3               4               6               9
    435.....................................           14706          4.4104               1               2               4               5               8
    436.....................................            3357         13.9896               4               7              13              21              27
    437.....................................           12879          9.2165               3               5               8              12              16
    439.....................................            1149          7.7346               1               3               5               9              16
    440.....................................            5199          8.9683               2               3               6              10              19
    441.....................................             578          3.4810               1               1               2               4               7
    442.....................................           16431          8.1169               1               3               6              10              17
    
    [[Page 41091]]
    
                                                                                                                                                            
    443.....................................            3185          3.3215               1               1               2               4               7
    444.....................................            3471          4.4967               1               2               3               5               8
    445.....................................            1261          3.3672               1               2               3               4               6
    446.....................................               1          2.0000               2               2               2               2               2
    447.....................................            4291          2.5101               1               1               2               3               5
    449.....................................           28174          3.7816               1               1               3               5               8
    450.....................................            6226          2.0830               1               1               1               2               4
    451.....................................               9          2.7778               1               1               1               4               5
    452.....................................           23072          5.0396               1               2               4               6              10
    453.....................................            3826          2.9260               1               1               2               4               6
    454.....................................            3900          4.6767               1               2               3               6               9
    455.....................................             772          2.7176               1               1               2               3               5
    456.....................................             197          8.4721               1               1               3               9              20
    457.....................................             128          3.5781               1               1               1               3               9
    458.....................................            1543         15.0194               3               7              12              19              31
    459.....................................             487          8.9548               2               3               6              11              19
    460.....................................            2357          6.0793               1               3               4               7              12
    461.....................................            3071          4.4435               1               1               2               4              11
    462.....................................           10468         12.4882               4               6              10              16              23
    463.....................................           14079          4.4165               1               2               3               5               8
    464.....................................            3582          3.3707               1               2               3               4               6
    465.....................................             207          2.9179               1               1               1               3               5
    466.....................................            1765          4.0436               1               1               2               4               8
    467.....................................            1331          4.4132               1               1               2               4               7
    468.....................................           62314         13.4808               3               6              10              17              27
    471.....................................           12993          6.0741               3               4               5               7              10
    472.....................................             181         27.2983               1               8              19              38              55
    473.....................................            8512         12.7849               2               3               7              18              33
    475.....................................          110026         11.1951               2               5               9              15              22
    476.....................................            5974         11.9093               3               6              10              15              22
    477.....................................           28969          8.1503               1               3               6              11              17
    478.....................................          124086          7.4574               1               3               5               9              15
    479.....................................           18459          3.8438               1               2               3               5               7
    480.....................................             415         26.7590               8              11              20              32              55
    481.....................................             263         27.8213              16              20              24              33              44
    482.....................................            6659         12.7485               4               7              10              15              23
    483.....................................           42214         40.2055              14              21              33              50              74
    484.....................................             411         14.7591               2               6              11              18              28
    485.....................................            3536          9.6649               4               5               7              11              18
    486.....................................            2380         12.4319               1               5              10              16              25
    487.....................................            4381          7.4170               1               3               6               9              14
    488.....................................             874         17.1201               4               7              12              22              35
    489.....................................           15056          8.9267               2               4               6              11              19
    490.....................................            4923          5.4148               1               2               4               7              11
    491.....................................           11099          3.6559               2               2               3               4               6
    492.....................................            2359         17.1768               4               5              12              27              36
    493.....................................           56592          5.6275               1               2               5               7              11
    494.....................................           25335          2.4293               1               1               2               3               5
    495.....................................             130         16.7538               7               9              13              19              30
    496.....................................             904         10.5564               4               6               8              13              20
    497.....................................           22184          6.2841               2               3               5               7              11
    498.....................................           12634          3.5001               1               2               3               5               6
    499.....................................           36447          4.9602               2               2               4               6               9
    500.....................................           36672          2.8703               1               2               2               4               5
    501.....................................            1910         10.4806               4               6               8              12              19
    502.....................................             471          6.5669               3               4               6               8              10
    503.....................................            6366          4.2147               1               2               3               5               8
                                             ----------------                                                                                               
                                                    11317977                                                                                                
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    
    
                                       Table 7B.--Medicare Prospective Payment System Selected Percentile Lengths of Stay                                   
                                                            [FY97 MEDPAR Update 03/98 Grouper V16.0]                                                        
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Number        Arithmetic         10th            25th            50th            75th            90th     
                       DRG                      discharges       mean LOS       percentile      percentile      percentile      percentile      percentile  
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    1.......................................           36863          9.6140               2               4               7              12              20
    2.......................................            7073         10.0431               3               5               8              13              20
    3.......................................               3          9.3333               7               7               9              12              12
    
    [[Page 41092]]
    
                                                                                                                                                            
    4.......................................            6387          7.7417               1               3               5               9              17
    5.......................................          101629          3.6388               1               2               2               4               8
    6.......................................             359          3.0306               1               1               2               4               7
    7.......................................           12693         10.1052               2               4               7              12              20
    8.......................................            3051          3.1786               1               1               2               4               7
    9.......................................            1712          6.5724               1               3               5               8              13
    10......................................           19898          6.8603               2               3               5               8              14
    11......................................            2976          4.1398               1               2               3               5               8
    12......................................           38546          6.6802               2               3               5               8              12
    13......................................            6395          5.4835               2               3               4               6               9
    14......................................          374285          6.2936               2               3               5               8              12
    15......................................          146334          3.8586               1               2               3               5               7
    16......................................           13990          5.9277               2               3               4               7              11
    17......................................            3228          3.4291               1               2               3               4               7
    18......................................           27696          5.5756               2               3               4               7              10
    19......................................            7354          3.8089               1               2               3               5               7
    20......................................            6638         10.1788               2               5               8              13              19
    21......................................            1386          6.8283               2               3               5               8              14
    22......................................            2803          4.6522               2               2               4               6               9
    23......................................            6933          4.2573               1               2               3               5               8
    24......................................           58307          5.0648               1               2               4               6              10
    25......................................           22886          3.4256               1               2               3               4               7
    26......................................              35          3.2857               1               1               3               4               7
    27......................................            4246          5.4788               1               1               3               7              12
    28......................................           14087          5.9295               1               2               4               7              12
    29......................................            4349          3.5220               1               1               3               4               7
    31......................................            3135          4.4287               1               2               3               5               8
    32......................................            1378          2.9594               1               1               2               3               5
    34......................................           20202          5.4414               1               3               4               7              11
    35......................................            4292          3.5517               1               2               3               4               7
    36......................................            5421          1.5379               1               1               1               1               2
    37......................................            1697          3.7183               1               1               2               4               8
    38......................................             116          2.5948               1               1               2               3               5
    39......................................            1908          2.0383               1               1               1               2               4
    40......................................            2300          3.1822               1               1               2               4               7
    42......................................            4052          2.0908               1               1               1               2               4
    43......................................             120          3.4250               1               2               3               5               7
    44......................................            1346          5.0498               2               3               4               6               9
    45......................................            2428          3.4773               1               2               3               4               6
    46......................................            3177          4.6396               1               2               4               6               9
    47......................................            1232          3.2873               1               1               3               4               7
    48......................................               2          4.5000               4               4               5               5               5
    49......................................            2297          5.0004               1               2               4               6               9
    50......................................            3026          1.9752               1               1               2               2               3
    51......................................             308          2.8182               1               1               1               3               6
    52......................................              80          2.4125               1               1               2               3               5
    53......................................            3021          3.6660               1               1               2               4               8
    54......................................               2          6.0000               5               5               7               7               7
    55......................................            1704          2.9607               1               1               2               3               6
    56......................................             695          2.8374               1               1               2               3               6
    57......................................             523          3.5488               1               1               3               4               7
    59......................................             121          2.4215               1               1               2               3               5
    60......................................               1          4.0000               4               4               4               4               4
    61......................................             280          4.6464               1               1               2               5              10
    62......................................               4          1.2500               1               1               1               1               2
    63......................................            3733          4.4466               1               2               3               5               9
    64......................................            3432          6.6973               1               2               5               8              14
    65......................................           29238          2.9721               1               2               2               4               5
    66......................................            6848          3.2604               1               2               3               4               6
    67......................................             494          3.7854               1               2               3               4               7
    68......................................           11573          4.1497               1               2               3               5               7
    69......................................            3471          3.3244               1               2               3               4               6
    70......................................              37          2.5405               1               1               2               3               4
    71......................................             100          3.9300               1               2               3               6               7
    72......................................             829          3.7853               1               2               3               5               7
    73......................................            6323          4.4058               1               2               3               6               8
    74......................................               2          2.5000               2               2               3               3               3
    75......................................           41135         10.2396               4               5               8              13              20
    76......................................           41950         11.3136               3               5               9              14              21
    77......................................            2041          4.8863               1               2               4               7              10
    
    [[Page 41093]]
    
                                                                                                                                                            
    78......................................           31059          7.3075               3               5               7               9              12
    79......................................          248239          8.4083               3               4               7              10              15
    80......................................            8319          5.8721               2               3               5               7              10
    81......................................               7         11.2857               2               3               6               7               8
    82......................................           71558          7.1252               2               3               6               9              14
    83......................................            7419          5.5741               2               3               4               7              10
    84......................................            1322          3.3162               1               2               3               4               6
    85......................................           22565          6.6618               2               3               5               8              13
    86......................................            1510          3.8801               1               2               3               5               7
    87......................................           73527          6.3192               1               3               5               8              12
    88......................................          390502          5.4117               2               3               4               7              10
    89......................................          471124          6.2766               2               4               5               8              11
    90......................................           39143          4.4608               2               3               4               6               8
    91......................................              48          3.9375               1               2               3               5               7
    92......................................           14606          6.3852               2               3               5               8              12
    93......................................            1323          4.3583               1               2               4               6               8
    94......................................           13510          6.4760               2               3               5               8              12
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    [[Page 41095]]
    
                                                                                                                                                            
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    [[Page 41097]]
    
                                                                                                                                                            
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    447.....................................            4291          2.5101               1               1               2               3               5
    449.....................................           28174          3.7816               1               1               3               5               8
    450.....................................            6226          2.0830               1               1               1               2               4
    451.....................................               9          2.7778               1               1               1               4               5
    452.....................................           23072          5.0396               1               2               4               6              10
    453.....................................            3826          2.9260               1               1               2               4               6
    454.....................................            3900          4.6767               1               2               3               6               9
    455.....................................             772          2.7176               1               1               2               3               5
    461.....................................            3071          4.4435               1               1               2               4              11
    462.....................................           10468         12.4882               4               6              10              16              23
    463.....................................           14079          4.4165               1               2               3               5               8
    464.....................................            3582          3.3707               1               2               3               4               6
    465.....................................             207          2.9179               1               1               1               3               5
    466.....................................            1765          4.0436               1               1               2               4               8
    467.....................................            1331          4.4132               1               1               2               4               7
    468.....................................           62290         13.4801               3               6              10              17              27
    471.....................................           12993          6.0741               3               4               5               7              10
    473.....................................            8512         12.7849               2               3               7              18              33
    475.....................................          110026         11.1951               2               5               9              15              22
    476.....................................            5972         11.9089               3               6              10              15              22
    477.....................................           28961          8.1501               1               3               6              11              17
    478.....................................          124086          7.4574               1               3               5               9              15
    479.....................................           18459          3.8438               1               2               3               5               7
    480.....................................             415         26.7590               8              11              20              32              55
    481.....................................             263         27.8213              16              20              24              33              44
    482.....................................            6659         12.7485               4               7              10              15              23
    483.....................................           42214         40.2055              14              21              33              50              74
    484.....................................             411         14.7591               2               6              11              18              28
    485.....................................            3536          9.6649               4               5               7              11              18
    486.....................................            2380         12.4319               1               5              10              16              25
    487.....................................            4381          7.4170               1               3               6               9              14
    488.....................................             874         17.1201               4               7              12              22              35
    489.....................................           15056          8.9267               2               4               6              11              19
    490.....................................            4923          5.4148               1               2               4               7              11
    491.....................................           11099          3.6559               2               2               3               4               6
    492.....................................            2359         17.1768               4               5              12              27              36
    493.....................................           56592          5.6275               1               2               5               7              11
    494.....................................           25335          2.4293               1               1               2               3               5
    495.....................................             130         16.7538               7               9              13              19              30
    496.....................................             904         10.5564               4               6               8              13              20
    497.....................................           22184          6.2841               2               3               5               7              11
    498.....................................           12634          3.5001               1               2               3               5               6
    499.....................................           36447          4.9602               2               2               4               6               9
    500.....................................           36672          2.8703               1               2               2               4               5
    501.....................................            1910         10.4806               4               6               8              12              19
    502.....................................             471          6.5669               3               4               6               8              10
    503.....................................            6366          4.2147               1               2               3               5               8
    504.....................................             158         31.8481               9              14              26              39              57
    505.....................................             174          5.8218               1               1               1               5              11
    506.....................................            1138         16.7926               4               8              13              22              34
    507.....................................             395          8.9747               2               4               7              12              17
    508.....................................            1227          7.8240               2               3               5              10              16
    509.....................................             483          4.9896               1               2               3               6              10
    510.....................................            1024          6.9355               2               3               5               8              14
    511.....................................             328          4.8323               1               2               3               6               9
                                             ----------------                                                                                               
                                                    11317977                                                                                                
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    
    
    [[Page 41099]]
    
    
     Table 8A.--Statewide Average Operating Cost-To-Charge Ratios for Urban 
                  and Rural Hospitals (Case Weighted) July 1998             
    ------------------------------------------------------------------------
                            State                           Urban     Rural 
    ------------------------------------------------------------------------
    ALABAMA.............................................     0.387     0.442
    ALASKA..............................................     0.503     0.733
    ARIZONA.............................................     0.374     0.542
    ARKANSAS............................................     0.516     0.458
    CALIFORNIA..........................................     0.365     0.480
    COLORADO............................................     0.467     0.566
    CONNECTICUT.........................................     0.546     0.532
    DELAWARE............................................     0.506     0.487
    DISTRICT OF COLUMBIA................................     0.521  ........
    FLORIDA.............................................     0.384     0.394
    GEORGIA.............................................     0.498     0.498
    HAWAII..............................................     0.434     0.558
    IDAHO...............................................     0.563     0.585
    ILLINOIS............................................     0.445     0.547
    INDIANA.............................................     0.559     0.597
    IOWA................................................     0.514     0.641
    KANSAS..............................................     0.415     0.641
    KENTUCKY............................................     0.496     0.520
    LOUISIANA...........................................     0.442     0.495
    MAINE...............................................     0.620     0.576
    MARYLAND............................................     0.764     0.818
    MASSACHUSETTS.......................................     0.541     0.571
    MICHIGAN............................................     0.468     0.580
    MINNESOTA...........................................     0.532     0.603
    MISSISSIPPI.........................................     0.478     0.499
    MISSOURI............................................     0.442     0.519
    MONTANA.............................................     0.529     0.574
    NEBRASKA............................................     0.483     0.640
    NEVADA..............................................     0.322     0.585
    NEW HAMPSHIRE.......................................     0.574     0.584
    NEW JERSEY..........................................     0.437  ........
    NEW MEXICO..........................................     0.467     0.511
    NEW YORK............................................     0.551     0.623
    NORTH CAROLINA......................................     0.522     0.464
    NORTH DAKOTA........................................     0.617     0.666
    OHIO................................................     0.534     0.569
    OKLAHOMA............................................     0.460     0.530
    OREGON..............................................     0.554     0.620
    PENNSYLVANIA........................................     0.406     0.528
    PUERTO RICO.........................................     0.479     0.561
    RHODE ISLAND........................................     0.571  ........
    SOUTH CAROLINA......................................     0.472     0.478
    SOUTH DAKOTA........................................     0.537     0.620
    TENNESSEE...........................................     0.482     0.507
    TEXAS...............................................     0.428     0.536
    UTAH................................................     0.535     0.632
    VERMONT.............................................     0.615     0.576
    VIRGINIA............................................     0.476     0.499
    WASHINGTON..........................................     0.600     0.661
    WEST VIRGINIA.......................................     0.591     0.573
    WISCONSIN...........................................     0.569     0.641
    WYOMING.............................................     0.495     0.698
    ------------------------------------------------------------------------
    
    
        Table 8B.--Statewide Average Capital Cost-To-Charge Ratios (Case    
                               Weighted) July 1998                          
    ------------------------------------------------------------------------
                                 State                                Ratio 
    ------------------------------------------------------------------------
    ALABAMA.......................................................     0.050
    ALASKA........................................................     0.066
    ARIZONA.......................................................     0.043
    ARKANSAS......................................................     0.054
    CALIFORNIA....................................................     0.039
    COLORADO......................................................     0.053
    CONNECTICUT...................................................     0.041
    DELAWARE......................................................     0.057
    DISTRICT OF COLUMBIA..........................................     0.040
    FLORIDA.......................................................     0.046
    GEORGIA.......................................................     0.049
    HAWAII........................................................     0.045
    IDAHO.........................................................     0.054
    ILLINOIS......................................................     0.043
    INDIANA.......................................................     0.059
    IOWA..........................................................     0.054
    KANSAS........................................................     0.051
    KENTUCKY......................................................     0.051
    LOUISIANA.....................................................     0.055
    MAINE.........................................................     0.040
    MARYLAND......................................................     0.013
    MASSACHUSETTS.................................................     0.056
    MICHIGAN......................................................     0.046
    MINNESOTA.....................................................     0.055
    MISSISSIPPI...................................................     0.048
    MISSOURI......................................................     0.048
    MONTANA.......................................................     0.052
    NEBRASKA......................................................     0.057
    NEVADA........................................................     0.066
    NEW HAMPSHIRE.................................................     0.066
    NEW JERSEY....................................................     0.039
    NEW MEXICO....................................................     0.047
    NEW YORK......................................................     0.053
    NORTH CAROLINA................................................     0.047
    NORTH DAKOTA..................................................     0.075
    OHIO..........................................................     0.053
    OKLAHOMA......................................................     0.055
    OREGON........................................................     0.055
    PENNSYLVANIA..................................................     0.043
    PUERTO RICO...................................................     0.054
    RHODE ISLAND..................................................     0.033
    SOUTH CAROLINA................................................     0.052
    SOUTH DAKOTA..................................................     0.061
    TENNESSEE.....................................................     0.056
    TEXAS.........................................................     0.051
    UTAH..........................................................     0.056
    VERMONT.......................................................     0.047
    VIRGINIA......................................................     0.058
    WASHINGTON....................................................     0.066
    WEST VIRGINIA.................................................     0.056
    WISCONSIN.....................................................     0.052
    WYOMING.......................................................     0.056
    ------------------------------------------------------------------------
    
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    Appendix A--Regulatory Impact Analysis
    
    I. Introduction
    
        Section 804(2) of Title 5, United States Code (as added by 
    section 251 of Public Law 104-121), specifies that a ``major rule'' 
    is any rule that the Office of Management and Budget finds is likely 
    to result in--
         An annual effect on the economy of $100 million or 
    more;
         A major increase in costs or prices for consumers, 
    individual industries, Federal, State, or local government agencies, 
    or geographic regions; or
         Significant adverse effects on competition, employment, 
    investment, productivity, innovation, or on the ability of United 
    States-based enterprises to compete with foreign-based enterprises 
    in domestic and export markets.
        We estimate that the impact of this final rule will be to 
    decrease payments to hospitals by approximately $530 million in FY 
    1999. Therefore, this rule is a major rule as defined in Title 5, 
    United States Code, section 804(2).
        We have examined the impacts of this final rule as required by 
    Executive Order 12866 and the Regulatory Flexibility Act (RFA) 
    (Public Law 96-354). Executive Order 12866 directs agencies to 
    assess all costs and benefits of available regulatory alternatives 
    and, when regulation is necessary, to select regulatory approaches 
    that maximize net benefits (including potential economic, 
    environmental, public health and safety effects; distributive 
    impacts; and equity). The RFA requires agencies to analyze options 
    for regulatory relief for small businesses. For purposes of the RFA, 
    most hospitals, and most other providers, physicians, and health 
    care suppliers are small entities, either by nonprofit status or by 
    having revenues of $5 million or less annually.
        Also, section 1102(b) of the Social Security Act requires us to 
    prepare a regulatory impact analysis for any final rule that may 
    have a significant impact on the operations of a substantial number 
    of small rural hospitals. Such an analysis must conform to the 
    provisions of section 603 of the RFA. With the exception of 
    hospitals located in certain New England counties, for purposes of 
    section 1102(b) of the Act, we define a small rural hospital as a 
    hospital with fewer than 100 beds that is located outside of a 
    Metropolitan Statistical Area (MSA) or New England County 
    Metropolitan Area (NECMA). Section 601(g) of the Social Security 
    Amendments of 1983 (Public Law 98-21) designated hospitals in 
    certain New England counties as belonging to the adjacent NECMA. 
    Thus, for purposes of the prospective payment system, we classify 
    these hospitals as urban hospitals.
        It is clear that the changes being made in this document will 
    affect both a substantial number of small rural hospitals as well as 
    other classes of hospitals, and the effects on some may be 
    significant. Therefore, the discussion below, in combination with 
    the rest of this final rule, constitutes a combined regulatory 
    impact analysis and regulatory flexibility analysis.
        In accordance with the provisions of Executive Order 12866, this 
    final rule was reviewed by the Office of Management and Budget.
    
    II. Changes in the Final Rule
    
        Since we published the proposed rule, the market basket 
    estimates for hospitals subject to the prospective payment system 
    and hospitals and units excluded from the system have both fallen by 
    0.2 percentage points. As a result, the updates are 0.2 percent 
    lower than the updates reflected in the impact analysis for the 
    proposed rule.
        Also, in the proposed rule, we included discharges to swing beds 
    under the expanded transfer definition. In this final rule we are 
    not including swing beds from the definition of a postacute care 
    setting. The overall payment impact of this change is relatively 
    very small (an increase of approximately $4 million).
        With the exception of these two changes, we are generally 
    implementing the policy and statutory changes discussed in the 
    proposed rule.
    
    III. Limitations of Our Analysis
    
        As has been the case in previously published regulatory impact 
    analyses, the following quantitative analysis presents the projected 
    effects of our policy changes, as well as statutory changes 
    effective for FY 1999, on various hospital groups. We estimate the 
    effects of individual policy changes by estimating payments per case 
    while holding all other payment policies constant. We use the best 
    data available, but we do not attempt to predict behavioral 
    responses to our policy changes, and we do not make adjustments for 
    future changes in such variables as admissions, lengths of stay, or 
    case mix.
        We received no comments on the methodology used for the impact 
    analysis in the proposed rule.
    
    IV. GME Payment to Nonhospital Providers
    
        In the past, Medicare only paid hospitals for GME costs. 
    Therefore, FQHCs, RHCs, and Medicare+Choice organizations may have 
    been reluctant to train large numbers of residents since Medicare 
    would not reimburse their incurred training costs. This final rule 
    specifies that Medicare will reimburse the qualified nonhospital 
    provider for Medicare's share of the reasonable costs of the 
    training where the qualified nonhospital provider incurs all or 
    substantially all of the costs of the training at that site. This 
    final rule may facilitate more training of residents in settings 
    where many of those residents will ultimately practice after their 
    training is completed. Additionally, this could result in an 
    increase in the number of physicians practicing in underserved 
    areas.
        In addition, hospitals are currently allowed to count residents 
    working in nonhospital sites in their FTE count of residents for 
    determining indirect and direct graduate medical education payments, 
    if the hospital incurs ``all or substantially all of the costs'' of 
    the training at the non-hospital site. The regulation defined the 
    statutory requirement of ``all or substantially all'' to mean at 
    least the residents' salaries and fringe benefits. In this final 
    rule, we are defining ``all or substantially all'' of the costs of 
    training in the nonhospital site to mean residents' salaries and 
    fringe benefits as well as the portion of teaching physicians' 
    salaries and fringe benefits that can be allocated to direct GME. We 
    believe that this definition will not discourage training in 
    nonhospital settings.
        Section 4625 of the Balanced Budget Act, which provides for 
    direct graduate medical education payments to nonhospital providers, 
    would have minimal impact in the context of total graduate medical 
    education costs. We believe that the most significant impact 
    resulting from making payment directly to qualified nonhospital 
    providers and the redefinition of ``all or substantially all'' will 
    be that additional nonhospital sites may participate in training 
    residents. We expect that such an impact will result in little if 
    any additional cost to Medicare.
    
    V. Hospitals Included in and Excluded From the Prospective Payment 
    System
    
        The prospective payment systems for hospital inpatient operating 
    and capital-related costs encompass nearly all general, short-term, 
    acute care hospitals that participate in the Medicare program. There 
    were 45 Indian Health Service hospitals in our database, which we 
    excluded from the analysis due to the special characteristics of the 
    prospective payment method for these hospitals. Among other short-
    term, acute care hospitals, only the 50 such hospitals in Maryland 
    remain excluded from the prospective payment system under the waiver 
    at section 1814(b)(3) of the Act. Thus, as of July 1998, we have 
    included 4,975 hospitals in our analysis. This represents about 82 
    percent of all Medicare-participating hospitals. The majority of 
    this impact analysis focuses on this set of hospitals.
        The remaining 18 percent are specialty hospitals that are 
    excluded from the prospective payment system and continue to be paid 
    on the basis of their reasonable costs (subject to a rate-of-
    increase ceiling on their inpatient operating costs per discharge). 
    These hospitals include psychiatric, rehabilitation, long-term care, 
    children's, and cancer hospitals. The impacts of our final policy 
    changes on these hospitals are discussed below.
    
    VI. Impact on Excluded Hospitals and Units
    
        As of July 1998, there were 1,077 specialty hospitals excluded 
    from the prospective payment system and instead paid on a reasonable 
    cost basis subject to the rate-of-increase ceiling under 
    Sec. 413.40. In addition, there were 2,408 psychiatric and 
    rehabilitation units in hospitals otherwise subject to the 
    prospective payment system. These excluded units are also paid in 
    accordance with Sec. 413.40.
        As required by section 1886(b)(3)(B) of the Act, the update 
    factor applicable to the rate-of-increase limit for excluded 
    hospitals and units for FY 1999 would be between 0 and 2.4 percent, 
    depending on the hospital's costs in relation to its limit.
        The impact on excluded hospitals and units of the update in the 
    rate-of-increase limit depends on the cumulative cost increases 
    experienced by each excluded hospital or unit since its applicable 
    base period. For excluded hospitals and units that have maintained 
    their cost increases at a
    
    [[Page 41105]]
    
    level below the percentage increases in the rate-of-increase limits 
    since their base period, the major effect will be on the level of 
    incentive payments these hospitals and units receive. Conversely, 
    for excluded hospitals and units with per-case cost increases above 
    the cumulative update in their rate-of-increase limits, the major 
    effect will be the amount of excess costs that would not be 
    reimbursed.
        We note that, under Sec. 413.40(d)(3), an excluded hospital or 
    unit whose costs exceed 110 percent of its rate-of-increase limit 
    receives its rate-of-increase limit plus 50 percent of the 
    difference between its reasonable costs and 110 percent of the 
    limit, not to exceed 110 percent of its limit. In addition, under 
    the various provisions set forth in Sec. 413.40, certain excluded 
    hospitals and units can obtain payment adjustments for justifiable 
    increases in operating costs that exceed the limit. At the same 
    time, however, by generally limiting payment increases, we continue 
    to provide an incentive for excluded hospitals and units to restrain 
    the growth in their spending for patient services.
    
    VII. Quantitative Impact Analysis of the Final Policy Changes Under the 
    Prospective Payment System for Operating Costs
    
    A. Basis and Methodology of Estimates
    
        In this final rule, we are announcing policy changes and payment 
    rate updates for the prospective payment systems for operating and 
    capital-related costs. We have prepared separate impact analyses of 
    the changes to each system. This section deals with changes to the 
    operating prospective payment system.
        The data used in developing the quantitative analyses presented 
    below are taken from the FY 1997 MedPAR file and the most current 
    provider-specific file that is used for payment purposes. Although 
    the analyses of the changes to the operating prospective payment 
    system do not incorporate cost data, the most recently available 
    hospital cost report data were used to categorize hospitals. Our 
    analysis has several qualifications. First, we do not make 
    adjustments for behavioral changes that hospitals may adopt in 
    response to these final policy changes. Second, due to the 
    interdependent nature of the prospective payment system, it is very 
    difficult to precisely quantify the impact associated with each 
    change. Third, we draw upon various sources for the data used to 
    categorize hospitals in the tables. In some cases, particularly the 
    number of beds, there is a fair degree of variation in the data from 
    different sources. We have attempted to construct these variables 
    with the best available source overall. For individual hospitals, 
    however, some miscategorizations are possible.
        Using cases in the FY 1997 MedPAR file, we simulated payments 
    under the operating prospective payment system given various 
    combinations of payment parameters. Any short-term, acute care 
    hospitals not paid under the general prospective payment systems 
    (Indian Health Service hospitals and hospitals in Maryland) are 
    excluded from the simulations. Payments under the capital 
    prospective payment system, or payments for costs other than 
    inpatient operating costs, are not analyzed here. Estimated payment 
    impacts of final FY 1999 changes to the capital prospective payment 
    system are discussed below in section VIII of this Appendix.
        The final changes discussed separately below are the following:
         The effects of implementing the expanded transfer 
    definition enacted by section 4407 of the BBA, which counts as a 
    transfer any discharge from one of 10 DRGs if upon discharge the 
    patient is admitted to an excluded hospital or distinct part unit or 
    a skilled nursing facility, or is provided home health care that is 
    related to the hospitalization within 3 days of the date of 
    discharge.
         The effects of the annual reclassification of diagnoses 
    and procedures and the recalibration of the DRG relative weights 
    required by section 1886(d)(4)(C) of the Act.
         The effects of changes in hospitals' wage index values 
    reflecting the wage index update (FY 1995 data).
         The effects of two changes to the wage index for FY 
    1999: (1) Including the Part A costs associated with physicians 
    under contract; and (2) removing the overhead costs related to 
    departments excluded from the wage data used to calculate the wage 
    index (for example, skilled nursing facilities and distinct part 
    units).
         The effects of geographic reclassifications by the 
    Medicare Geographic Classification Review Board (MGCRB) that will be 
    effective in FY 1999.
         The total change in payments based on FY 1999 policies 
    relative to payments based on FY 1998 policies.
        To illustrate the impacts of the FY 1999 changes, our analysis 
    begins with a FY 1999 baseline simulation model using: the FY 1998 
    GROUPER (version 15.0); the FY 1998 wage index; the transfer 
    definition prior to implementation of section 4407 of the BBA; and 
    no MGCRB reclassifications. Outlier payments are set at 5.1 percent 
    of total DRG payments.
        Each final and statutory policy change is then added 
    incrementally to this baseline model, finally arriving at an FY 1999 
    model incorporating all of the changes. This allows us to isolate 
    the effects of each change.
        Our final comparison illustrates the percent change in payments 
    per case from FY 1998 to FY 1999. Four factors have significant 
    impacts here. First is the update to the standardized amounts. In 
    accordance with section 1886(d)(3)(A)(iv) of the Act, we are 
    updating the large urban and the other areas average standardized 
    amounts for FY 1999 by the most recently forecasted hospital market 
    basket increase for FY 1999 of 2.4 percent minus 1.9 percentage 
    points. Similarly, section 1886(b)(3)(C)(ii) of the Act provides 
    that the update factor applicable to the hospital-specific rates for 
    sole community hospitals (SCHs) and Medicare-dependent, small rural 
    hospitals (MDHs) is equal to the market basket increase of 2.4 
    percent minus 1.9 percentage points (for an update of 0.5 percent).
        A second significant factor impacting changes in hospitals' 
    payments per case from FY 1998 to FY 1999 is a change in MGCRB 
    reclassification status from one year to the next. That is, 
    hospitals reclassified in FY 1998 that are no longer reclassified in 
    FY 1999 may have a negative payment impact going from FY 1998 to FY 
    1999; conversely, hospitals not reclassified in FY 1998 that are 
    reclassified in FY 1999 may have a positive impact. In some cases, 
    these impacts can be quite substantial, so if a relatively small 
    number of hospitals in a particular category lose their 
    reclassification status, the percentage increase in payments for the 
    category may be below the national mean.
        A third significant factor is that we currently estimate that 
    actual outlier payments during FY 1998 will be 5.4 percent of actual 
    total DRG payments. When the FY 1998 final rule was published, we 
    projected FY 1998 outlier payments would be 5.1 percent of total DRG 
    payments, and the standardized amounts were reduced correspondingly. 
    The effects of the slightly higher than expected outlier payments 
    during FY 1998 (as discussed in the Addendum to this final rule) are 
    reflected in the analyses below comparing our current estimates of 
    FY 1998 payments per case to estimated FY 1999 payments per case.
        Fourth, payments per case in FY 1999 are reduced from FY 1998 
    for hospitals that receive the indirect medical education (IME) or 
    the disproportionate share (DSH) adjustments. Section 
    1886(d)(5)(B)(ii) of the Act provides that the IME adjustment is 
    reduced from approximately a 7.0 percent increase for every 10 
    percent increase in a hospital's resident-to-bed ratio in FY 1998, 
    to a 6.5 percent increase in FY 1999. Similarly, in accordance with 
    section 1886(d)(5)(F)(ix) of the Act, the DSH adjustment for FY 1999 
    is reduced by 2 percent from what would otherwise have been paid, 
    compared to a 1 percent reduction for FY 1998.
        Table I demonstrates the results of our analysis. The table 
    categorizes hospitals by various geographic and special payment 
    consideration groups to illustrate the varying impacts on different 
    types of hospitals. The top row of the table shows the overall 
    impact on the 4,975 hospitals included in the analysis. This is 113 
    fewer hospitals than were included in the impact analysis in the FY 
    1998 final rule with comment period (62 FR 46119).
        The next four rows of Table I contain hospitals categorized 
    according to their geographic location (all urban, which is further 
    divided into large urban and other urban, or rural). There are 2,810 
    hospitals located in urban areas (MSAs or NECMAs) included in our 
    analysis. Among these, there are 1,611 hospitals located in large 
    urban areas (populations over 1 million), and 1,199 hospitals in 
    other urban areas (populations of 1 million or fewer). In addition, 
    there are 2,165 hospitals in rural areas. The next two groupings are 
    by bed-size categories, shown separately for urban and rural 
    hospitals. The final groupings by geographic location are by census 
    divisions, also shown separately for urban and rural hospitals.
        The second part of Table I shows hospital groups based on 
    hospitals' FY 1999 payment classifications, including any 
    reclassifications under section 1886(d)(10) of the Act. For example, 
    the rows labeled urban,
    
    [[Page 41106]]
    
    large urban, other urban, and rural show the numbers of hospitals 
    paid based on these categorizations (after consideration of 
    geographic reclassifications) are 2,894, 1,698, 1,196, and 2,081, 
    respectively.
        The next three groupings examine the impacts of the final 
    changes on hospitals grouped by whether or not they have residency 
    programs (teaching hospitals that receive an IME adjustment), 
    receive DSH payments, or some combination of these two adjustments. 
    There are 3,880 nonteaching hospitals in our analysis, 854 teaching 
    hospitals with fewer than 100 residents, and 241 teaching hospitals 
    with 100 or more residents.
        In the DSH categories, hospitals are grouped according to their 
    DSH payment status, and whether they are considered urban or rural 
    after MGCRB reclassifications. Hospitals in the rural DSH 
    categories, therefore, represent hospitals that were not 
    reclassified for purposes of the standardized amount or for purposes 
    of the DSH adjustment. (They may, however, have been reclassified 
    for purposes of the wage index.) The next category groups hospitals 
    considered urban after geographic reclassification, in terms of 
    whether they receive the IME adjustment, the DSH adjustment, both, 
    or neither.
        The next row separately examines hospitals that available data 
    show may qualify under section 4401(b) of the BBA for the special 
    temporary relief provision, which grants an additional 0.3 percent 
    update to the standardized amounts (in addition to the 0.5 percent 
    update other hospitals receive during FY 1999), resulting in a 0.8 
    percent update for this category of hospitals. To be eligible, a 
    hospital must not be an MDH, nor may it receive either IME or DSH 
    payments. It must also experience a negative margin on its operating 
    prospective payments during FY 1999. We estimated eligible hospitals 
    based on whether they had a negative operating margin on their FY 
    1995 cost report (latest available data). Finally, to qualify, a 
    hospital must be located in a State where the aggregate FY 1995 
    operating prospective payments were less than the aggregate 
    associated costs for all of the non-IME, non-DSH, non-MDH hospitals 
    in the State. There are 344 hospitals in this row.
        The next four rows examine the impacts of the final changes on 
    rural hospitals by special payment groups (SCHs, rural referral 
    centers (RRCs), and MDHs), as well as rural hospitals not receiving 
    a special payment designation. The RRCs (145), SCHs (637), MDHs 
    (352), and SCH and RRCs (59) shown here were not reclassified for 
    purposes of the standardized amount. There are six SCHs that will be 
    reclassified for the standardized amount in FY 1999 that, therefore, 
    are not included in these rows. There are seven hospitals that 
    continue to be paid under the same rules as SCHs, by virtue of their 
    prior designation as essential access community hospitals (EACH). 
    These hospitals are categorized in our analysis as SCHs (there are 
    also three EACH/RRCs).
        The next two groupings are based on type of ownership and the 
    hospital's Medicare utilization expressed as a percent of total 
    patient days. These data are taken primarily from the FY 1995 
    Medicare cost report files, if available (otherwise FY 1994 data are 
    used). Data needed to determine ownership status or Medicare 
    utilization percentages were unavailable for 115 hospitals. For the 
    most part, these are new hospitals.
        The next series of groupings concern the geographic 
    reclassification status of hospitals. The first three groupings 
    display hospitals that were reclassified by the MGCRB for both FY 
    1998 and FY 1999, or for either of those 2 years, by urban/rural 
    status. The next rows illustrate the overall number of FY 1999 
    reclassifications, as well as the numbers of reclassified hospitals 
    grouped by urban and rural location. The final row in Table I 
    contains hospitals located in rural counties but deemed to be urban 
    under section 1886(d)(8)(B) of the Act.
    
                                      Table I.--Impact Analysis of Changes for FY 1999 Operating Prospective Payment System                                 
                                                             [Percent Changes in Payments Per Case]                                                         
                                                                                                                                                            
                                                                                                      Contract                           MGCRB              
                                                          Num. of   Pac tran.   DRG re-    New wage   phys. pt  Allocated   DRG & WI     recl-     All FY 99
                                                         hosps.\1\    prov-    calib.\3\   Data \4\   A Costs    overhead    changes    assifi-     changes 
                                                                    ision \2\                           \5\     costs \6\      \7\       cation       \9\   
                                                               (0)        (1)        (2)        (3)        (4)        (5)         (6)        (7)         (8)
    (BY GEOGRAPHIC LOCATION):                                                                                                                               
        ALL HOSPITALS..................................      4,975       -0.6        0.1        0.0        0.0        0.0         0.0        0.0        -1.0
        URBAN HOSPITALS................................      2,810       -0.7        0.2       -0.1        0.0       -0.1        -0.2       -0.4        -1.3
            LARGE URBAN................................      1,611       -0.7        0.2       -0.4        0.0       -0.1        -0.5       -0.5        -1.7
            OTHER URBAN................................      1,199       -0.6        0.1        0.4        0.0       -0.1         0.3       -0.4        -0.7
        RURAL HOSPITALS................................      2,165       -0.4        0.1        0.7        0.0        0.4         1.0        2.7         1.3
    BED SIZE (URBAN):                                                                                                                                       
        0-99 BEDS......................................        704       -0.8        0.1       -0.2        0.0        0.0        -0.2       -0.6        -0.9
        100-199 BEDS...................................        937       -0.9        0.2       -0.2        0.0       -0.1        -0.2       -0.5        -1.2
        200-299 BEDS...................................        568       -0.7        0.2       -0.2        0.0       -0.1        -0.2       -0.4        -1.2
        300-499 BEDS...................................        449       -0.6        0.1       -0.1        0.0       -0.1        -0.2       -0.5        -1.4
        500 OR MORE BEDS...............................        152       -0.5        0.1        0.1        0.0       -0.2         0.0       -0.3        -1.6
    BED SIZE (RURAL):                                                                                                                                       
        0-49 BEDS......................................      1,137       -0.2        0.0        0.7        0.0        0.5         1.0        0.0         1.0
        50-99 BEDS.....................................        634       -0.3        0.0        0.6        0.0        0.4         0.8        1.1         0.8
        100-149 BEDS...................................        229       -0.5        0.1        0.6       -0.1        0.5         1.0        3.6         1.1
                                                               (0)        (1)        (2)        (3)        (4)        (5)         (6)        (7)         (8)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
        150-199 BEDS...................................         91       -0.5        0.1        0.8        0.0        0.4         1.1        4.5         2.5
        200 OR MORE BEDS...............................         74       -0.4        0.1        0.8        0.0        0.3         1.1        5.3         1.7
    URBAN BY CENSUS DIVISION:                                                                                                                               
        NEW ENGLAND....................................        152       -0.7        0.1       -1.1        0.2       -0.3        -1.2       -0.2        -2.6
        MIDDLE ATLANTIC................................        425       -0.4        0.2        0.2        0.2       -0.1         0.3       -0.4        -0.9
        SOUTH ATLANTIC.................................        414       -0.6        0.2        0.7       -0.2       -0.1         0.5       -0.5        -0.4
        EAST NORTH CENTRAL.............................        476       -0.8        0.1       -0.4       -0.2       -0.3        -0.9       -0.4        -2.2
        EAST SOUTH CENTRAL.............................        162       -0.5        0.2        0.7       -0.2       -0.3         0.2       -0.5        -0.7
        WEST NORTH CENTRAL.............................        189       -0.7        0.1        0.6        0.2        0.2         1.0       -0.5        -0.1
        WEST SOUTH CENTRAL.............................        354       -1.0        0.2       -0.7        0.3       -0.1        -0.4       -0.5        -1.6
        MOUNTAIN.......................................        129       -0.9        0.1       -0.1        0.1       -0.1        -0.2       -0.5        -1.1
        PACIFIC........................................        461       -0.8        0.2       -0.9       -0.2        0.1        -0.9       -0.4        -2.0
        PUERTO RICO....................................         48       -0.8        0.3        0.9       -0.2       -0.3         0.5       -0.6        -0.3
    RURAL BY CENSUS DIVISION:                                                                                                                               
        NEW ENGLAND....................................         53       -0.4        0.0        1.0        0.0        0.0         0.9        1.4        -0.3
        MIDDLE ATLANTIC................................         80       -0.2        0.0        0.7        0.4        0.2         1.2        1.7         1.3
        SOUTH ATLANTIC.................................        286       -0.4        0.1        0.6       -0.2        0.3         0.7        3.8         1.8
        EAST NORTH CENTRAL.............................        285       -0.4        0.1        0.8       -0.1        0.3         1.0        2.1         1.3
        EAST SOUTH CENTRAL.............................        269       -0.3        0.1        1.3       -0.2        0.4         1.5        2.7         1.7
        WEST NORTH CENTRAL.............................        500       -0.3       -0.1        0.9        0.0        0.7         1.5        2.3         1.4
        WEST SOUTH CENTRAL.............................        342       -0.5        0.1        0.1        0.1        0.5         0.6        3.5         0.7
    
    [[Page 41107]]
    
                                                                                                                                                            
                                                               (0)        (1)        (2)        (3)        (4)        (5)         (6)        (7)         (8)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
        MOUNTAIN.......................................        204       -0.2        0.0        0.2       -0.1        0.5         0.5        1.8         0.6
        PACIFIC........................................        141       -0.5        0.1        0.3       -0.2        0.5         0.6        2.4         0.7
        PUERTO RICO....................................          5       -0.5        0.0        2.3       -0.2       -0.2         1.8        1.7        -0.2
    (BY PAYMENT CATEGORIES):                                                                                                                                
        URBAN HOSPITALS................................      2,894       -0.7        0.2       -0.1        0.0       -0.1        -0.2       -0.4        -1.3
            LARGE URBAN................................      1,698       -0.7        0.2       -0.4        0.0       -0.1        -0.4       -0.3        -1.6
            OTHER URBAN................................      1,196       -0.6        0.1        0.4        0.0       -0.1         0.3       -0.4        -0.6
        RURAL HOSPITALS................................      2,081       -0.4        0.1        0.7        0.0        0.4         1.0        2.4         1.1
    TEACHING STATUS:                                                                                                                                        
        NON-TEACHING...................................      3,880       -0.7        0.1        0.1       -0.1        0.1         0.2        0.3        -0.3
        LESS THAN 100 RES..............................        854       -0.7        0.1       -0.1        0.0       -0.1        -0.2       -0.3        -1.1
        100+ RESIDENTS.................................        241       -0.5        0.2       -0.1        0.1       -0.2        -0.1       -0.3        -2.0
    DISPROPORTIONATE SHARE HOSPITALS (DSH):                                                                                                                 
        NON-DSH........................................      3,089       -0.6        0.1        0.1        0.0        0.0         0.0        0.3        -0.6
        URBAN DSH:                                                                                                                                          
            100 BEDS OR MORE...........................      1,404       -0.7        0.2       -0.1        0.0       -0.1        -0.1       -0.4        -1.4
            FEWER THAN 100 BEDS........................         88       -0.6        0.2       -0.6       -0.1        0.0        -0.7       -0.4        -1.2
        RURAL DSH:                                                                                                                                          
            SOLE COMMUNITY (SCH).......................        162       -0.2        0.0        0.7       -0.1        0.3         0.8        0.0         1.0
            REFERRAL CENTERS (RRC).....................         53       -0.5        0.2        1.1       -0.1        0.4         1.4        5.6         2.5
                                                               (0)        (1)        (2)        (3)        (4)        (5)         (6)        (7)         (8)
        OTHER RURAL DSH HOSP:                                                                                                                               
            100 BEDS OR MORE...........................         60       -0.6        0.2        0.9       -0.2        0.5         1.3        1.1         0.7
            FEWER THAN 100 BEDS........................        119       -0.2        0.0        1.1       -0.1        0.5         1.4       -0.2         1.3
    URBAN TEACHING AND DSH:                                                                                                                                 
        BOTH TEACHING AND DSH..........................        709       -0.7        0.2       -0.1        0.0       -0.1        -0.2       -0.5        -1.6
        TEACHING AND NO DSH............................        331       -0.6        0.1       -0.1        0.0       -0.2        -0.3       -0.1        -1.3
        NO TEACHING AND DSH............................        783       -0.8        0.2        0.0       -0.1        0.0         0.0       -0.2        -0.7
        NO TEACHING AND NO DSH.........................      1,071       -0.7        0.1       -0.1        0.0       -0.1        -0.2       -0.4        -0.9
    SPECIAL UPDATE HOSPITALS (UNDER SEC. 4401(b) OF                                                                                                         
     PUBLIC LAW 105-33)................................        344       -0.6        0.1        0.0       -0.1       -0.1        -0.1       -0.2        -0.8
    RURAL HOSPITAL TYPES:                                                                                                                                   
        NONSPECIAL STATUS HOSPITALS....................        888       -0.4        0.1        0.9       -0.1        0.6         1.3        1.2         0.7
        RRC............................................        145       -0.6        0.2        0.9        0.0        0.4         1.4        6.4         2.2
        SCH............................................        637       -0.1       -0.1        0.3        0.0        0.2         0.4        0.1         0.4
        MDH............................................        352       -0.2        0.0        0.8        0.0        0.5         1.2        0.5         1.0
        SCH AND RRC....................................         59       -0.2        0.0        0.3       -0.1        0.2         0.3        2.0         1.2
    TYPE OF OWNERSHIP:                                                                                                                                      
        VOLUNTARY......................................      2,858       -0.6        0.1        0.0        0.0       -0.1        -0.1       -0.1        -1.0
        PROPRIETARY....................................        671       -0.9        0.2        0.1       -0.1        0.0         0.0        0.2        -1.0
        GOVERNMENT.....................................      1,331       -0.5        0.2        0.1        0.0        0.1         0.2        0.3        -0.5
                                                               (0)        (1)        (2)        (3)        (4)        (5)         (6)        (7)         (8)
        UNKNOWN........................................        115       -0.8        0.2        0.3       -0.2        0.1         0.4       -0.5        -1.0
    MEDICARE UTILIZATION AS A PERCENT OF INPATIENT                                                                                                          
     DAYS:                                                                                                                                                  
        0-25...........................................        247       -0.6        0.2       -1.0        0.0        0.0        -0.8       -0.2        -2.0
        25-50..........................................      1,264       -0.7        0.2       -0.2        0.0       -0.1        -0.2       -0.3        -1.5
        50-65..........................................      1,978       -0.6        0.1        0.2        0.0       -0.1         0.1        0.2        -0.6
        OVER 65........................................      1,371       -0.6        0.1        0.2        0.0        0.0         0.3        0.1        -0.2
        UNKNOWN........................................        115       -0.8        0.2        0.3       -0.2        0.1         0.4       -0.5        -1.0
    HOSPITALS RECLASSIFIED BY THE MEDICARE GEOGRAPHIC                                                                                                       
     REVIEW BOARD:                                                                                                                                          
        RECLASSIFICATION STATUS DURING FY 98 AND FY 99:                                                                                                     
            RECLASSIFIED DURING BOTH FY98 AND FY99.....        315       -0.5        0.1        0.6       -0.1        0.2         0.7        6.8        -0.5
                URBAN..................................         72       -0.4        0.2        0.4       -0.1       -0.2         0.1        4.9        -1.0
                RURAL..................................        243       -0.5        0.1        0.7       -0.1        0.4         1.1        8.3        -0.1
            RECLASSIFIED DURING FY 99 ONLY.............        170       -0.5        0.1        0.5        0.0        0.3         0.8        5.0         5.4
                URBAN..................................         15       -0.7        0.1       -0.1        0.1        0.1         0.1        4.6         2.3
                RURAL..................................        155       -0.5        0.1        0.7        0.0        0.3         1.0        5.1         6.3
            RECLASSIFIED DURING FY 98 ONLY.............        126       -0.7        0.1        0.3       -0.1       -0.1         0.1       -0.6        -3.6
                URBAN..................................         53       -0.8        0.1        0.2       -0.1       -0.3        -0.1       -0.7        -2.9
                                                               (0)        (1)        (2)        (3)        (4)        (5)         (6)        (7)         (8)
                RURAL..................................         73       -0.3        0.1        0.6       -0.1        0.4         1.0       -0.5        -5.9
    FY 99 RECLASSIFICATIONS:                                                                                                                                
        ALL RECLASSIFIED HOSP..........................        485       -0.5        0.1        0.6       -0.1        0.2         0.7        6.2         1.4
            STAND. AMOUNT ONLY.........................         94       -0.6        0.1        0.5        0.0       -0.2         0.3        1.0        -0.7
            WAGE INDEX ONLY............................        281       -0.5        0.1        0.4       -0.1        0.3         0.6        6.9        -1.2
            BOTH.......................................         47       -0.6        0.2        0.9       -0.2       -0.3         0.5        3.7        -2.2
            NONRECLASSIFIED............................      4,526       -0.7        0.1        0.0        0.0       -0.1        -0.1       -0.4        -0.9
        ALL URBAN RECLASS..............................         87       -0.5        0.2        0.3       -0.1       -0.2         0.1        4.8        -0.3
            STAND. AMOUNT ONLY.........................         26       -0.4        0.2        1.3       -0.1       -0.3         0.9        0.8         0.1
            WAGE INDEX ONLY............................         40       -0.5        0.1       -0.3        0.0        0.1        -0.2        7.2         0.0
            BOTH.......................................         21       -0.5        0.2        0.8       -0.2       -0.5         0.1        2.8         1.3
    
    [[Page 41108]]
    
                                                                                                                                                            
            NONRECLASSIFIED............................      2,696       -0.7        0.2       -0.1        0.0       -0.1        -0.2       -0.6         1.3
        ALL RURAL RECLASS..............................        398       -0.5        0.1        0.7       -0.1        0.4         1.1        7.0         2.4
            STAND. AMOUNT ONLY.........................         55       -0.4        0.1        0.9       -0.1        0.4         1.1        4.8         2.7
            WAGE INDEX ONLY............................        314       -0.5        0.1        0.7        0.0        0.4         1.1        6.9         2.2
            BOTH.......................................         29       -0.5        0.1        0.8       -0.1        0.3         1.1       10.0         3.8
            NONRECLASSIFIED............................      1,767       -0.3        0.0        0.7        0.0        0.4         0.9       -0.4         0.4
    OTHER RECLASSIFIED HOSPITALS (SECTION                                                                                                                   
     1886(d)(8)(B))....................................         27       -0.5        0.1       -0.4        0.0       -0.3        -0.6        1.0        1.1 
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Because data necessary to classify some hospitals by category are missing, the total number of hospitals in each category may not equal the national
      total. Discharge data are from FY 1997, and hospital cost report data are from reporting periods beginning in FY 1994 and FY 1995.                    
    \2\ This column displays the impact of the change enacted by section 4407 of the BBA, which defines discharges from 1 of 10 DRGs to postacute care as   
      transfers. Under our final policy, 3 of the 10 DRGs will be paid under an alternative methodology where they will receive 50 percent of the full DRG  
      amount on the first day and 50 percent of the current per diem transfer payment amount for each day of the stay. The remaining seven DRGs would be    
      paid using our current transfer payment methodology.                                                                                                  
    \3\ This column displays the payment impact of the recalibration of the DRG weights based on FY 1997 MedPAR data and the DRG classification changes, in 
      accordance with section 1886(d)(4)(C) of the Act.                                                                                                     
    \4\ This column shows the payment effects of updating the data used to calculate the wage index with data from the FY 1995 cost reports.                
    \5\ This column displays the impact of adding contract Part A physician costs to the wage data.                                                         
    \6\ This column illustrates the payment impact of removing the overhead costs allocated to departments where the directly assigned costs are already    
      excluded from the wage index calculation (for example, SNFs and distinct part units).                                                                 
    \7\ This column displays the combined impact of the reclassification and recalibration of the DRGs, the updated and revised wage data used to calculate 
      the wage index, and the budget neutrality adjustment factor for these two changes, in accordance with sections 1886(d)(4)(C)(iii) and 1886(d)(3)(E) of
      the Act. Thus, it represents the combined impacts shown in columns 2, 3, 4, and 5, and the FY 1999 budget neutrality factor of 0.999006.              
    \8\ Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB). The effects shown here   
      demonstrate the FY 1999 payment impact of going from no reclassifications to the reclassifications scheduled to be in effect for FY 1999.             
      Reclassification for prior years has no bearing on the payment impacts shown here.                                                                    
    \9\ This column shows changes in payments from FY 1998 to FY 1999. It incorporates all of the changes displayed in columns 1, 6, and 7 (the changes     
      displayed in columns 2, 3, 4 and 5 are included in column 6). It also displays the impact of the FY 1999 update, changes in hospitals'                
      reclassification status in FY 1999 compared to FY 1998, the difference in outlier payments from FY 1998 to FY 1999, and the reductions to payments    
      through the IME and DSH adjustments taking effect during FY 1999. The sum of these columns may be different from the percentage changes shown here due
      to rounding and interactive effects.                                                                                                                  
    
    B. Impact of the Implementation of the Expanded Transfer Definition 
    (Column 1)
    
        Section 1886(d)(5)(J) of the Act (added by section 4407 of the 
    BBA) requires the Secretary to select 10 DRGs for which discharges 
    (from any one of these DRGs) to a postacute care provider will be 
    treated as a transfer beginning with discharges on or after October 
    1, 1998. Column 1 shows the impact of this provision.
        Although the expanded definition encompasses only 10 DRGs, they 
    were selected, in accordance with the statute, based upon their 
    large and disproportionate volume of cases receiving postacute care. 
    Therefore, the overall payment impact of this change is significant 
    (a 0.6 percent decrease in payments per case).
        The 10 DRGs that we are including under this provision are 
    identified in section IV.A. of the preamble to this final rule. In 
    addition to selecting 10 DRGs, the statute authorizes the Secretary 
    to develop an alternative transfer payment methodology for DRGs 
    where a substantial portion of the costs of the cases occur very 
    early in the stay. This is particularly likely to happen in some 
    surgical DRGs because of the high cost of the surgical procedure. 
    Based on our analysis comparing the costs per case for these cases 
    with payments under our current transfer payment methodology, we 
    will pay the current transfer per diem for all DRGs except DRGs 209, 
    210, and 211. For those three DRGs, the alternative payment 
    methodology is 50 percent of the full DRG payment amount, plus 50 
    percent of the current per diem transfer payment for each day of the 
    stay, up to the full DRG payment.
        To simulate the impact of these final policies, we adjusted 
    hospitals' transfer-adjusted discharges and case-mix index values 
    (using version 15 of the GROUPER) to reflect the impact of this 
    expansion in the transfer definition. The transfer-adjusted 
    discharge fraction is calculated one of two ways, depending on the 
    transfer payment methodology. Under our current transfer payment 
    methodology, and for all but the three DRGs receiving special 
    payment consideration, this adjustment is made simply by adding one 
    to the length of stay and dividing that amount by the geometric mean 
    length of stay for the DRG (with the resulting fraction not to 
    exceed 1.0). For example, a transfer after 3 days from a DRG with a 
    geometric mean length of stay of 6 days would have a transfer-
    adjusted discharge fraction of 0.667 ((3+1)/6).
        For transfers from any one of the three DRGs receiving the 
    alternative payment methodology, the transfer-adjusted discharge 
    fraction is 0.5 (to reflect that these cases receive half the full 
    DRG amount the first day), plus one-half of the result of dividing 
    one plus the length of stay prior to transfer by the geometric mean 
    length of stay for the DRG. As with the above adjustment, the result 
    is equal to the lesser of the transfer-adjusted discharge fraction 
    or 1.
        The transfer-adjusted case-mix index values are calculated by 
    summing the transfer-adjusted DRG weights and dividing by the 
    transfer-adjusted discharges. The transfer-adjusted DRG weights are 
    calculated by multiplying the DRG weight by the lesser of 1 or the 
    transfer-adjusted discharge fraction for the case, divided by the 
    geometric mean length of stay for the DRG. In this way, simulated 
    payments per case can be compared before and after the change to the 
    transfer policy.
        This change has the greatest impact among urban hospitals (0.7 
    percent decrease). Among urban hospitals, hospitals with up to 99 
    beds and those with between 100 and 199 beds are most affected, with 
    0.8 percent and 0.9 percent reductions in payments, respectively. 
    For urban hospitals grouped by census division, the Middle Atlantic 
    division has the smallest negative impact, a 0.4 percent decrease. 
    The Middle Atlantic division has traditionally had the longest 
    average lengths of stay, therefore, it is reasonable that the impact 
    is smallest here. Transfer cases with a length of stay more than the 
    (geometric) mean length of stay minus one day do not experience any 
    payment impact under this provision. (Full payment is reached one 
    day prior to the mean length of stay due to the double per diem paid 
    for the first day under our current transfer payment methodology.)
        Rural hospitals experience a smaller payment impact overall, 
    especially the smallest rural hospitals: those with fewer than 50 
    beds (a 0.2 percent decrease). The smallest impacts among rural 
    census divisions are in the Middle Atlantic and the Mountain. The 
    largest rural impacts are in the West South Central and the Pacific 
    divisions, and Puerto Rico, all with 0.5 percent decreases. This 
    change is consistent with the shorter lengths of stay in these 
    geographic regions.
        The largest negative impact is a 1.0 percent decrease in 
    payments observed among urban West South Central hospitals. The 
    smallest negative impact occurs in SCHs (0.1 percent decrease). 
    Those SCHs paid based on their hospital-specific amount would see no 
    impact related to this change, since there is no transfer adjustment 
    made to the hospital-specific amount.
    
    [[Page 41109]]
    
    C. Impact of the Changes to the DRG Classifications and Relative 
    Weights (Column 2)
    
        In column 2 of Table I, we present the combined effects of the 
    DRG reclassifications and recalibration, as discussed in section II 
    of the preamble to this final rule. Section 1886(d)(4)(C)(i) of the 
    Act requires us to annually make appropriate classification changes 
    and to recalibrate the DRG weights in order to reflect changes in 
    treatment patterns, technology, and any other factors that may 
    change the relative use of hospital resources.
        We compared aggregate payments using the FY 1998 DRG relative 
    weights (GROUPER version 15) to aggregate payments using the final 
    FY 1999 DRG relative weights (GROUPER version 16). Overall, payments 
    increase by 0.1 percent due to the DRG changes, although this is 
    prior to applying the budget neutrality factor for DRG and wage 
    index changes (see column 6). Consistent with the minor changes 
    reflected in the FY 1999 GROUPER, the redistributional impacts of 
    DRG reclassifications and recalibration across hospital groups are 
    very small (a 0.2 percent increase for large urban hospitals, and a 
    0.1 percent increase for other urban hospitals as well as for rural 
    hospitals). Within hospital categories, the net effects for urban 
    hospitals are small positive changes for all hospitals (a 0.2 
    percent increase for hospitals with between 100 and 299 beds, and a 
    0.1 percent increase for smaller or larger urban hospitals). Rural 
    hospitals with 100 or more beds experience an increase of 0.1 
    percent, for smaller rural hospitals, there is no impact (0.0 
    percent change).
        The breakdowns by urban census division show that the increase 
    among urban hospitals is spread across all census categories, with 
    the largest increase (0.3 percent) for hospitals in Puerto Rico. For 
    rural hospitals, there is no impact (that is, a 0.0 percent change) 
    for hospitals in the New England, Middle Atlantic, and Mountain 
    census divisions. The West North Central division experiences a 0.1 
    percent decrease. All other rural census divisions experience a 0.1 
    percent increase. The only other hospital category experiencing a 
    negative impact is SCHs, with a 0.1 percent decrease.
        This pattern of small increases or no change applies to all 
    other hospital categories. Overall, we attribute this change to the 
    increasing severity of illness of hospital inpatients. That is, as 
    greater numbers of less acutely ill patients are treated outside the 
    inpatient setting, the acuity of the remaining hospital inpatients 
    increases. Although, in the past, this effect was seen more clearly 
    in large urban and very large rural hospitals, which often had more 
    outpatient settings available for patient treatment, hospitals in 
    all areas now appear to be able to take advantage of this practice. 
    Of course, in general, these positive impacts are very minor, with 
    virtually no hospital group experiencing more than a 0.2 percent 
    increase.
    
    D. Impact of Updating the Wage Data (Column 3)
    
        Section 1886(d)(3)(E) of the Act requires that, beginning 
    October 1, 1993, we annually update the wage data used to calculate 
    the wage index. In accordance with this requirement, the wage index 
    for FY 1999 is based on data submitted for hospital cost reporting 
    periods beginning on or after October 1, 1994 and before October 1, 
    1995. As with the previous column, the impact of the new data on 
    hospital payments is isolated by holding the other payment 
    parameters constant in the two simulations. That is, column 3 shows 
    the percentage changes in payments when going from a model using the 
    FY 1998 wage index based on FY 1994 wage data before geographic 
    reclassifications to a model using the FY 1999 prereclassification 
    wage index based on FY 1995 wage data.
        The wage data collected on the FY 1995 cost reports includes, 
    for the first time, contract labor costs and hours for top 
    management positions as allowable in the wage index calculation. In 
    addition, the changes to wage-related costs associated with hospital 
    and home office salaries that were discussed in the September 1, 
    1994 final rule (59 FR 45355) are reflected in the FY 1995 data. 
    These changes are reflected in column 3, as well as other year-to-
    year changes in hospitals' labor costs.
        The results indicate that the new wage data have no overall 
    impact in hospital payments. Rural hospitals as a category, however, 
    benefit from the update. Their payments increase by 0.7 percent. 
    These increases are attributable to increases above 5 percent in the 
    wage index values for the rural areas of several States.
        Urban hospitals as a group are not significantly affected by the 
    updated wage data (a 0.1 percent decrease). The gains of hospitals 
    in other urban areas (0.4 percent increase) are offset by decreases 
    among hospitals in large urban areas (0.4 percent decrease). The 
    negative impact among large urban areas appears to be largely due to 
    three large urban MSAs with decreases of greater than 6 percent in 
    their wage index values due to the FY 1995 data.
        Among urban census divisions, New England experiences the 
    largest decline, 1.1 percent. This is primarily attributable to a 
    2.0 percent decline in the Boston MSA's wage index. The negative 
    impact in the Pacific division is associated with three MSAs that 
    have a 7 percent decline in their wage index. On the other hand, in 
    urban Puerto Rico, two MSAs had increases of more than 10 percent.
        The largest increases are in the rural census divisions. Rural 
    Puerto Rico experiences the greatest positive impact, 2.3 percent. 
    Hospitals in two other census divisions receive positive increases 
    of at least 1.0 percent; East South Central at 1.3 percent, and New 
    England at 1.0 percent. We believe these positive impacts of the new 
    wage data for rural hospitals stem from the expansion of the 
    contract labor definition, specifically the inclusion certain 
    management categories. On average, the hourly cost of contract labor 
    increased for rural hospitals by 5.9 percent. Among urban hospitals, 
    the increase was 4.2 percent.
    
    E. Impact of Including Contract Physician Part A Costs (Column 4)
    
        As discussed in section III.C.1 of the preamble, we began 
    collecting separate wage data for both direct and contract physician 
    Part A services on the FY 1995 cost report. This change was made in 
    order to address any potential inequity of including only salaried 
    Part A physician costs in the wage index while some States had laws 
    prohibiting their hospitals from employing physicians directly 
    (forcing hospitals to contract with physicians for administrative 
    services). We are including contract physician Part A costs in the 
    wage index calculation.
        Column 4 shows the payment impacts of including these data. 
    Although only two States currently maintain the prohibition against 
    hospitals directly employing physicians (Texas and California), many 
    hospitals in other States reported these costs as well. Thus, the 
    impacts of this final change extend well beyond Texas and 
    California.
        In general, most hospital categories experience either no 
    changes due to this final policy, or small (0.1 percent) increases 
    or decreases. Urban hospitals in the West South Central census 
    division (which includes Texas) have a 0.3 percent increase. 
    Hospitals in the Pacific division (which includes California) have a 
    decrease of 0.2 percent overall in their wage index.
        The MSA with the greatest increase due to this change is 
    Galveston-Texas City, TX. Although hospitals in this MSA experience 
    a drop in their wage index due to the use of FY 1995 data, much of 
    that decrease is recovered by a 12 percent increase resulting from 
    the inclusion of contract physician Part A costs. Two California 
    MSAs experience increases in their wage indexes of at least 1.0 
    percent: Stockton-Lodi and Fresno.
    
    F. Impact of Removing Overhead Costs of Excluded Areas (Column 5)
    
        Prior years' wage index calculations have removed the direct 
    wages and hours associated with certain subprovider components 
    excluded from the prospective payment system; however, the overhead 
    costs associated with these excluded components have not been 
    removed. We revised the FY 1995 cost report to allow hospitals to 
    report separately overhead salaries and hours, and for the FY 1999 
    wage index we are removing the overhead costs and hours allocated to 
    areas of the hospital excluded from the wage index calculation.
        Column 5 displays the impacts on FY 1999 payments per case of 
    implementing this change. The overall payment impact is 0.0 percent; 
    however, the impact diverges along urban and rural lines. Urban 
    hospitals lose 0.1 percent as a result of removing these overhead 
    costs, while rural hospitals gain 0.4 percent.
        Hospitals in the rural West North Central census division 
    experience the largest percentage increase (0.7 percent). All the 
    rural Statewide wage indexes increased in this census division, led 
    by Minnesota (3.2 percent) and South Dakota (2.4 percent).
        The combined wage index changes in Table I are determined by 
    summing the individual impacts in columns 3, 4, and 5. For example, 
    the rural West North Central census division gains 0.9 percent from 
    the new wage data, and 0.7 percent from removing the overhead costs 
    allocated to
    
    [[Page 41110]]
    
    excluded areas. Therefore, the combined impact of the FY 1999 wage 
    index for these hospitals is a 1.6 percent increase.
        The following chart compares the shifts in wage index values for 
    labor market areas for FY 1999 relative to FY 1998. This chart 
    demonstrates the impact of the changes for the FY 1999 wage index 
    relative to the FY 1998 wage index. The majority of labor market 
    areas (305) experience less than a 5 percent change. A total of 38 
    labor market areas experience an increase of more than 5 percent, 
    with 9 having an increase greater than 10 percent. A total of 28 
    areas (all urban) experience decreases of more than 5 percent, 
    although, of those, all decline by less than 10 percent.
    
    ------------------------------------------------------------------------
                                                           Number of labor  
                                                            market areas    
       Percentage change in area wage index  values    ---------------------
                                                         FY 1998    FY 1999 
    ------------------------------------------------------------------------
    Increase more than 10 percent.....................          2          9
    Increase more than 5 percent and less than 10                           
     percent..........................................         24         29
    Increase or decrease less than 5 percent..........        334        305
    Decrease more than 5 percent and less than 10                           
     percent..........................................          9         28
    Decrease more than 10 percent.....................          1          0
    ------------------------------------------------------------------------
    
        Among urban hospitals, 129 would experience an increase of more 
    than 5 percent and 23 more than 10 percent. More rural hospitals 
    have increases greater than 5 percent (355), but none greater than 
    10 percent. On the negative side, 186 urban hospitals but no rural 
    hospitals have decreases in their wage index values of at least 5 
    percent (none have decreases greater than 10 percent). The following 
    chart shows the impact for urban and rural hospitals.
    
    ------------------------------------------------------------------------
                                                         Number of hospitals
       Percentage change in area wage index  values    ---------------------
                                                          Urban      Rural  
    ------------------------------------------------------------------------
    Increase more than 10 percent.....................         23          0
    Increase more than 5 percent and less than 10                           
     percent..........................................        129        355
    Increase or decrease less than 5 percent..........       2472       1810
    Decrease more than 5 percent and less than 10                           
     percent..........................................        186          0
    Decrease more than 10 percent.....................          0          0
    ------------------------------------------------------------------------
    
    G. Combined Impact of DRG and Wage Index Changes--Including Budget 
    Neutrality Adjustment (Column 6)
    
        The impact of DRG reclassifications and recalibration on 
    aggregate payments is required by section 1886(d)(4)(C)(iii) of the 
    Act to be budget neutral. In addition, section 1886(d)(3)(E) of the 
    Act specifies that any updates or adjustments to the wage index are 
    to be budget neutral. As noted in the Addendum to this final rule, 
    we compared aggregate payments using the FY 1998 DRG relative 
    weights and wage index to aggregate payments using the FY 1999 DRG 
    relative weights and wage index. Based on this comparison, we 
    computed a wage and recalibration budget neutrality factor of 
    0.999006. In Table I, the combined overall impacts of the effects of 
    both the DRG reclassifications and recalibration and the updated 
    wage index are shown in column 6. The 0.0 percent impact for All 
    Hospitals demonstrates that these changes, in combination with the 
    budget neutrality factor, are budget neutral.
        For the most part, the changes in this column are the sum of the 
    changes in columns 2, 3, 4, and 5, minus approximately 0.1 percent 
    attributable to the budget neutrality factor. There may, of course, 
    be some variation of plus or minus 0.1 percent due to rounding.
    
    H. Impact of MGCRB Reclassifications (Column 7)
    
        Our impact analysis to this point has assumed hospitals are paid 
    on the basis of their actual geographic location (with the exception 
    of ongoing policies that provide that certain hospitals receive 
    payments on bases other than where they are geographically located, 
    such as hospitals in rural counties that are deemed urban under 
    section 1886(d)(8)(B) of the Act). The changes in column 7 reflect 
    the per case payment impact of moving from this baseline to a 
    simulation incorporating the MGCRB decisions for FY 1999. As noted 
    below, these decisions affect hospitals' standardized amount and 
    area wage index assignments. In addition, rural hospitals may be 
    reclassified for purposes of receiving a higher DSH adjustment.
        Beginning in 1998, by February 28 of each year, the MGCRB makes 
    reclassification determinations that will be effective for the next 
    fiscal year, which begins on October 1. (In previous years, these 
    determinations were made by March 30.) The MGCRB may approve a 
    hospital's reclassification request for the purpose of using the 
    other area's standardized amount, wage index value, or both. For FYs 
    1999 through 2001, a hospital may reclassify for purposes of 
    qualifying for a DSH adjustment or to receive a higher DSH payment.
        The FY 1999 final wage index values incorporate all of the 
    MGCRB's reclassification decisions for FY 1999. The wage index 
    values also reflect all decisions made by the HCFA Administrator 
    through the appeals and review process. The overall effect of 
    geographic reclassification is required by section 1886(d)(8)(D) of 
    the Act to be budget neutral. Therefore, we applied an adjustment of 
    0.993433 to ensure that the effects of reclassification are budget 
    neutral. (See section II.A.4 of the Addendum to this final rule.)
        As a group, rural hospitals benefit from geographic 
    reclassification. Their payments rise 2.7 percent, while payments to 
    urban hospitals decline 0.4 percent. Hospitals in other urban areas 
    see a decrease in payments of 0.4 percent, while large urban 
    hospitals lose 0.5 percent. Among urban hospital groups (that is, 
    bed size, census division, and special payment status), payments 
    generally decline.
        A positive impact is evident among all rural hospital groups 
    except the smallest hospitals (under 50 beds), which experience no 
    payment impact overall. The smallest increase among the rural census 
    divisions is 1.4 percent for New England. The largest increase is in 
    rural South Atlantic, with an increase of 3.8 percent.
        Among rural hospitals designated as RRCs, 116 hospitals are 
    reclassified for purposes of the wage index only, leading to the 6.4 
    percent increase in payments among RRCs overall. This positive 
    impact on RRCs is also reflected in the category of rural hospitals 
    with 200 or more beds, which has a 5.3 percent increase in payments.
        Rural hospitals reclassified for FY 1998 and FY 1999 experience 
    a 8.3 percent increase in payments. This may be due to the fact that 
    these hospitals have the most to gain from reclassification and have 
    been reclassified for a period of years. Rural hospitals 
    reclassified for FY 1999 only experience a 5.1 percent increase in 
    payments, while rural hospitals reclassified for FY 1998 only 
    experience a 0.5 percent decrease in payments. Urban hospitals 
    reclassified for FY 1998 but not FY 1999 experience a 0.7 percent 
    decline in payments overall. Urban hospitals reclassified for FY 
    1999 but not for FY 1998 experience a 4.6 percent increase in 
    payments.
        The FY 1999 Reclassification rows of Table I show the changes in 
    payments per case for all FY 1999 reclassified and nonreclassified 
    hospitals in urban and rural locations for each of the three 
    reclassification categories (standardized amount only, wage index 
    only, or both). The table illustrates that the largest impact for 
    reclassified rural hospitals is for those hospitals reclassified for 
    both the standardized amount and the wage index. These hospitals 
    receive a 10.0 percent increase in payments. In addition, rural 
    hospitals reclassified just for the wage index receive a 6.9 percent 
    payment increase. The overall impact on reclassified hospitals is to 
    increase their payments per case by an average of 6.2 percent for FY 
    1999.
        Among the 27 rural hospitals deemed to be urban under section 
    1886(d)(8)(B) of the Act, payments increase 1.0 percent due to MGCRB 
    reclassification. This is because, although these hospitals are 
    treated as being attached to an urban area in our baseline (their 
    redesignation is ongoing, rather than annual like the MGCRB 
    reclassifications), they are eligible for MGCRB reclassification. 
    For FY 1999, one hospital in this category reclassified to a large 
    urban area.
        The reclassification of hospitals primarily affects payment to 
    nonreclassified hospitals through changes in the wage index and the 
    geographic reclassification budget neutrality adjustment required by 
    section 1886(d)(8)(D) of the Act. Among hospitals that are not 
    reclassified, the overall impact of hospital reclassifications is an 
    average decrease in payments per case of about 0.4 percent. Urban 
    nonreclassified hospitals decrease slightly more, experiencing a 0.6 
    percent decrease (roughly the amount of the budget neutrality 
    offset).
        The number of reclassifications for purposes of the standardized 
    amount, or for
    
    [[Page 41111]]
    
    both the standardized amount and the wage index, has decreased from 
    149 in FY 1998 to 141 in FY 1999. The number of wage index only 
    reclassifications decreased from 284 in FY 1998 to 281 in FY 1999.
    
    I. All Changes (Column 8)
    
        Column 8 compares our estimate of payments per case, 
    incorporating all changes reflected in this final rule for FY 1999 
    (including statutory changes), to our estimate of payments per case 
    in FY 1998. It includes the effects of the 0.5 percent update to the 
    standardized amounts and the hospital-specific rates for SCHs and 
    MDHs. It also reflects the 0.3 percentage point difference between 
    the projected outlier payments in FY 1999 (5.1 percent of total DRG 
    payments) and the current estimate of the percentage of actual 
    outlier payments in FY 1998 (5.4 percent), as described in the 
    introduction to this Appendix and the Addendum to this final rule.
        Additional changes affecting the difference between FY 1998 and 
    FY 1999 payments are the reductions to the IME and DSH adjustments 
    enacted by the BBA. These changes initially went into effect during 
    FY 1998 and include additional decreases in payment for each of 
    several succeeding years. As noted in the introduction to this 
    impact analysis, for FY 1999, IME is reduced to approximately a 6.5 
    percent rate of increase, and DSH is reduced by 2 percent from what 
    hospitals otherwise would receive. We estimate the overall effect of 
    these statutory changes to be a 0.5 percent reduction in FY 1999 
    payments relative to FY 1998. For hospitals receiving both IME and 
    DSH, the impact is estimated to be a 0.9 percent reduction in 
    payments per case.
        Column 8 also includes the impacts of FY 1999 MGCRB 
    reclassifications compared to the payment impacts of FY 1998 
    reclassifications. Therefore, when comparing FY 1999 payments to FY 
    1998, the percent changes due to FY 1999 reclassifications shown in 
    column 7 need to be offset by the effects of reclassification on 
    hospitals' FY 1998 payments (column 7 of Table 1, August 29, 1997 
    final rule with comment period; 62 FR 46119). For example, the 
    impact of MGCRB reclassifications on rural hospitals' FY 1998 
    payments was approximately a 2.2 percent increase, offsetting much 
    of the 2.7 percent increase in column 7 for FY 1999. Therefore, the 
    net change in FY 1999 payments due to reclassification for rural 
    hospitals is actually closer to an increase of 0.5 percent relative 
    to FY 1998. However, last year's analysis contained a somewhat 
    different set of hospitals, so this might affect the numbers 
    slightly.
        There might also be interactive effects among the various 
    factors comprising the payment system that we are not able to 
    isolate. For these reasons, the values in column 8 may not equal the 
    sum of the changes in columns 1, 6, and 7, plus the other impacts 
    that we are able to identify.
        The overall payment change from FY 1998 to FY 1999 for all 
    hospitals is a 1.0 percent decrease. This reflects the 0.6 percent 
    net change in total payments due to the postacute transfer change 
    for FY 1999 shown in column 1; the 0.5 percent update for FY 1999, 
    the 0.3 percent lower outlier payments in FY 1999 compared to FY 
    1998 (5.1 percent compared to 5.4 percent); and the 0.5 percent 
    reduction due to lower IME and DSH payments.
        Hospitals in urban areas experience a 1.3 percent drop in 
    payments per case compared to FY 1998. Urban hospitals lose 0.9 
    percent due to the combined effects of the expanded transfer 
    definition and the DRG and wage index changes. The 0.4 percent 
    negative impact due to reclassification is offset by an identical 
    negative impact for FY 1998. The impact of reducing IME and DSH is a 
    0.5 percent reduction in FY 1999 payments per case. Most of this 
    negative impact is incurred by hospitals in large urban areas, where 
    payments are expected to fall 1.7 percent per case compared to 0.7 
    percent per case for hospitals in other urban areas.
        Hospitals in rural areas, meanwhile, experience a 1.3 percent 
    payment increase. As discussed previously, this is primarily due to 
    a smaller negative impact due to the expanded transfer definition 
    (0.4 percent decrease compared to 0.6 percent nationally) and the 
    positive effect due to the wage index and DRG changes (1.0 percent 
    increase).
        Among census divisions, urban New England displays the largest 
    negative impact, 2.6 percent. This outcome is primarily related to 
    the 1.1 percent decrease due to the new wage data. Similarly, urban 
    East North Central experiences a 2.2 percent drop in payments per 
    case, due to a 0.9 percent drop due to the combined wage index and 
    DRG changes. The urban Pacific and the urban West South Central also 
    experience overall larger payment declines, with 2.0 and 1.6 percent 
    decreases, respectively. The urban West North Central has the 
    smallest negative change among urban census divisions (0.1 percent), 
    stemming primarily from a 1.0 percent increase due to the DRG and 
    wage index changes. Hospitals in this census division also are less 
    reliant on IME and DSH funding, and are, therefore, impacted less by 
    these reductions.
        The only rural census division to experience a negative payment 
    impact is New England (0.3 percent decrease). This appears to result 
    from a much smaller reclassification effect for rural New England 
    hospitals in FY 1999. For FY 1998, the impact of MGCRB 
    reclassification for these hospitals was a 2.1 percent increase (see 
    62 FR 46119). For FY 1999, the increase is only 1.4 percent. The 
    largest increases by a rural census division are in the South 
    Atlantic and the East South Central, with 1.8 and 1.7 percent 
    increases, respectively. In the South Atlantic, this is primarily 
    due to a larger FY 1999 benefit from MGCRB reclassifications. For 
    the East South Central, it is largely due to a 1.3 percent increase 
    from the FY 1995 wage data.
        Among special categories of rural hospitals, RRCs have the 
    largest increase, 2.2 percent. This carries over to other categories 
    as well: rural hospitals with between 150 and 200 beds have a 2.5 
    percent rise in payments (there are 37 RRCs in this category); and 
    RRCs receiving DSH see a 2.5 percent increase.
        The largest negative payment impacts from FY 1998 to FY 1999 are 
    among hospitals that were reclassified for FY 1998 and are not 
    reclassified for FY 1999. Overall, these hospitals lose 3.6 percent. 
    The urban hospitals in this category lose 2.9 percent, while the 
    rural hospitals lose 5.9 percent. On the other hand, hospitals 
    reclassified for FY 1999 that were not reclassified for FY 1998 
    would experience the greatest payment increases: 5.4 percent 
    overall; 6.3 percent for 155 rural hospitals; and 2.3 percent for 15 
    urban hospitals.
    
                 Table II.--Impact Analysis of Changes for FY 1999 Operating Prospective Payment System             
                                                   [Payments per case]                                              
                                                                                                                    
                                                                                Average FY   Average FY             
                                                                   Number of       1998         1999                
                                                                   hospitals   payment per  payment per  All changes
                                                                                   case         case                
                                                                          (1)      (2) \1\      (3) \1\          (4)
    ----------------------------------------------------------------------------------------------------------------
    (BY GEOGRAPHIC LOCATION):                                                                                       
        ALL HOSPITALS...........................................        4,975        6,773        6,707         -1.0
        URBAN HOSPITALS.........................................        2,810        7,342        7,246         -1.3
        LARGE URBAN AREAS.......................................        1,611        7,891        7,758         -1.7
        OTHER URBAN AREAS.......................................        1,199        6,589        6,544         -0.7
        RURAL AREAS.............................................        2,165        4,460        4,517          1.3
    BED SIZE (URBAN):                                                                                               
        0-99 BEDS...............................................          704        4,931        4,889         -0.9
        100-199 BEDS............................................          937        6,128        6,056         -1.2
        200-299 BEDS............................................          568        6,934        6,851         -1.2
    
    [[Page 41112]]
    
                                                                                                                    
        300-499 BEDS............................................          449        7,846        7,738         -1.4
        500 OR MORE BEDS........................................          152        9,743        9,592         -1.6
    BED SIZE (RURAL):                                                                                               
        0-49 BEDS...............................................        1,137        3,665        3,701          1.0
        50-99 BEDS..............................................          634        4,176        4,207          0.8
        100-149 BEDS............................................          229        4,613        4,662          1.1
        150-199 BEDS............................................           91        4,776        4,895          2.5
        200 OR MORE BEDS........................................           74        5,610        5,704          1.7
    URBAN BY CENSUS DIV:                                                                                            
        NEW ENGLAND.............................................          152        7,887        7,682         -2.6
        MIDDLE ATLANTIC.........................................          425        8,181        8,107         -0.9
        SOUTH ATLANTIC..........................................          414        6,978        6,948         -0.4
        EAST NORTH CENTRAL......................................          476        7,029        6,873         -2.2
        EAST SOUTH CENTRAL......................................          162        6,569        6,524         -0.7
                                                                          (1)      (2) \1\      (3) \1\          (4)
        WEST NORTH CENTRAL......................................          189        7,001        6,996         -0.1
        WEST SOUTH CENTRAL......................................          354        6,830        6,720         -1.6
        MOUNTAIN................................................          129        7,046        6,971         -1.1
        PACIFIC.................................................          461        8,409        8,245         -2.0
        PUERTO RICO.............................................           48        3,065        3,056         -0.3
    RURAL BY CENSUS DIV:                                                                                            
        NEW ENGLAND.............................................           53        5,305        5,287         -0.3
        MIDDLE ATLANTIC.........................................           80        4,818        4,881          1.3
        SOUTH ATLANTIC..........................................          286        4,610        4,694          1.8
        EAST NORTH CENTRAL......................................          285        4,496        4,553          1.3
        EAST SOUTH CENTRAL......................................          269        4,162        4,235          1.7
        WEST NORTH CENTRAL......................................          500        4,178        4,236          1.4
        WEST SOUTH CENTRAL......................................          342        3,991        4,017          0.7
        MOUNTAIN................................................          204        4,750        4,779          0.6
        PACIFIC.................................................          141        5,608        5,647          0.7
        PUERTO RICO.............................................            5        2,374        2,370         -0.2
    (BY PAYMENT CATEGORIES):                                                                                        
        URBAN HOSPITALS.........................................        2,894        7,299        7,207         -1.3
        LARGE URBAN AREAS.......................................        1,698        7,798        7,670         -1.6
        OTHER URBAN AREAS.......................................        1,196        6,570        6,530         -0.6
        RURAL AREAS.............................................        2,081        4,444        4,494          1.1
    TEACHING STATUS:                                                                                                
        NON-TEACHING............................................        3,880        5,468        5,450         -0.3
        FEWER THAN 100 RESIDENTS................................          854        7,228        7,145         -1.1
        100 OR MORE RESIDENTS...................................          241       10,974       10,755         -2.0
    DISPROPORTIONATE SHARE HOSPITALS (DSH):                                                                         
        NON-DSH.................................................        3,089        5,837        5,799         -0.6
        URBAN DSH:                                                                                                  
            100 BEDS OR MORE....................................        1,404        7,951        7,843         -1.4
            FEWER THAN 100 BEDS.................................           88        5,068        5,007         -1.2
                                                                          (1)      (2) \1\      (3) \1\          (4)
        RURAL DSH:                                                                                                  
            SOLE COMMUNITY (SCH)................................          162        4,211        4,251          1.0
            REFERRAL CENTERS (RRC)..............................           53        5,294        5,428          2.5
        OTHER RURAL DSH HOSP:                                                                                       
            100 BEDS OR MORE....................................           60        4,134        4,162          0.7
            FEWER THAN 100 BEDS.................................          119        3,553        3,600          1.3
    URBAN TEACHING AND DSH:                                                                                         
        BOTH TEACHING AND DSH...................................          709        8,975        8,828         -1.6
        TEACHING AND NO DSH.....................................          331        7,384        7,291         -1.3
        NO TEACHING AND DSH.....................................          783        6,318        6,271         -0.7
        NO TEACHING AND NO DSH..................................        1,071        5,664        5,612         -0.9
        SPECIAL UPDATE HOSPITALS (UNDER SEC. 4401(b) OF PUBLIC                                                      
         LAW 105-33.............................................          344        5,276        5,236         -0.8
    RURAL HOSPITAL TYPES:                                                                                           
        NONSPECIAL STATUS                                                                                           
        HOSPITALS...............................................          888        3,920        3,947          0.7
        RRC.....................................................          145        5,170        5,286          2.2
        SCH.....................................................          637        4,484        4,502          0.4
    
    [[Page 41113]]
    
                                                                                                                    
        MDH.....................................................          352        3,715        3,753          1.0
        SCH AND RRC.............................................           59        5,339        5,402          1.2
    TYPE OF OWNERSHIP:                                                                                              
        VOLUNTARY...............................................        2,858        6,956        6,884         -1.0
        PROPRIETARY.............................................          671        6,160        6,096         -1.0
        GOVERNMENT..............................................        1,331        6,243        6,209         -0.5
        UNKNOWN.................................................          115        7,894        7,811         -1.0
    MEDICARE UTILIZATION AS A PERCENT OF INPATIENT DAYS:                                                            
        0-25....................................................          247        8,931        8,755         -2.0
        25-50...................................................        1,264        8,254        8,127         -1.5
        50-65...................................................        1,978        6,170        6,134         -0.6
        OVER 65.................................................        1,371        5,253        5,241         -0.2
        UNKNOWN.................................................          115        7,894        7,811         -1.0
    HOSPITALS RECLASSIFIED BY THE MEDICARE GEOGRAPHIC REVIEW                                                        
     BOARD:                                                                                                         
        RECLASSIFICATION STATUS DURING FY98 AND FY99:                                                               
            RECLASSIFIED DURING BOTH FY98 AND FY99..............          315        5,971        5,944         -0.5
                URBAN...........................................           72        7,376        7,302         -1.0
                RURAL...........................................          243        5,258        5,254         -0.1
            RECLASSIFIED DURING FY99 ONLY.......................          170        5,149        5,427          5.4
                URBAN...........................................           15        8,019        8,207          2.3
                RURAL...........................................          155        4,668        4,960          6.3
            RECLASSIFIED DURING FY98 ONLY.......................          126        6,310        6,084         -3.6
                URBAN...........................................           53        7,218        7,011         -2.9
                RURAL...........................................           73        4,453        4,188         -5.9
    FY 99 RECLASSIFICATIONS:                                                                                        
        ALL RECLASSIFIED HOSP...................................          485        5,683        5,763          1.4
            STAND. AMT. ONLY....................................           94        5,940        5,899         -0.7
            WAGE INDEX ONLY.....................................          281        6,007        5,935         -1.2
            BOTH................................................           47        6,407        6,264         -2.2
            NONRECLASS..........................................        4,526        6,851        6,786         -0.9
        ALL URBAN RECLASS.......................................           87        7,497        7,472         -0.3
            STAND. AMT. ONLY....................................           26        5,630        5,635          0.1
            WAGE INDEX ONLY.....................................           40        8,874        8,872          0.0
            BOTH................................................           21        6,810        6,725         -1.3
            NONRECLASS..........................................        2,696        7,348        7,249         -1.3
        ALL RURAL RECLASS.......................................          398        5,016        5,134          2.4
            STAND. AMT. ONLY....................................           55        4,374        4,494          2.7
            WAGE INDEX ONLY.....................................          314        5,083        5,194          2.2
            BOTH................................................           29        5,039        5,231          3.8
            NONRECLASS..........................................        1,767        4,109        4,127          0.4
        OTHER RECLASSIFIED HOSPITALS (SECTION 1886(d)(8)(B))....           27        4,765        4,714        -1.1 
    ----------------------------------------------------------------------------------------------------------------
    \1\ These payment amounts per case do not reflect any estimates of annual case-mix increase.                    
    
        Table II presents the projected impact on payments per case of 
    the final changes for FY 1999 for urban and rural hospitals and for 
    the different categories of hospitals shown in Table I. It compares 
    the projected payments per case for FY 1999 with the average 
    estimated per case payments for FY 1998, as calculated under our 
    models. Thus, this table presents, in terms of the average dollar 
    amounts paid per discharge, the combined effects of the changes 
    presented in Table I. The percentage changes shown in the last 
    column of Table II equal the percentage changes in average payments 
    from column 8 of Table I.
    
    VIII. Impact of Changes in the Capital Prospective Payment System
    
    A. General Considerations
    
        We now have data that were unavailable in previous impact 
    analyses for the capital prospective payment system. Specifically, 
    we have cost report data available for the fourth year of the 
    capital prospective payment system (cost reports beginning in FY 
    1995) available through the March 1998 update of the Health Care 
    Provider Cost Report Information System (HCRIS). We also have 
    updated information on the projected aggregate amount of obligated 
    capital approved by the fiscal intermediaries. However, our impact 
    analysis of payment changes for capital-related costs is still 
    limited by the lack of hospital-specific data on several items. 
    These are the hospital's projected new capital costs for each year, 
    its projected old capital costs for each year, and the actual 
    amounts of obligated capital that will be put in use for patient 
    care and recognized as Medicare old capital costs in each year. The 
    lack of this information affects our impact analysis in the 
    following ways:
         Major investment in hospital capital assets (for 
    example in building and major fixed equipment) occurs at irregular 
    intervals. As a result, there can be significant variation in the 
    growth rates of Medicare capital-related costs per case among 
    hospitals. We do not have the necessary hospital-specific budget 
    data to project the hospital capital growth rate for individual 
    hospitals.
         Moreover, our policy of recognizing certain obligated 
    capital as old capital makes it difficult to project future capital-
    related costs for individual hospitals. Under Sec. 412.302(c), a 
    hospital is required to notify
    
    [[Page 41114]]
    
    its intermediary that it has obligated capital by the later of 
    October 1, 1992, or 90 days after the beginning of the hospital's 
    first cost reporting period under the capital prospective payment 
    system. The intermediary must then notify the hospital of its 
    determination whether the criteria for recognition of obligated 
    capital have been met by the later of the end of the hospital's 
    first cost reporting period subject to the capital prospective 
    payment system or 9 months after the receipt of the hospital's 
    notification. The amount that is recognized as old capital is 
    limited to the lesser of the actual allowable costs when the asset 
    is put in use for patient care or the estimated costs of the capital 
    expenditure at the time it was obligated. We have substantial 
    information regarding intermediary determinations of projected 
    aggregate obligated capital amounts. However, we still do not know 
    when these projects will actually be put into use for patient care, 
    the actual amount that will be recognized as obligated capital when 
    the project is put into use, or the Medicare share of the recognized 
    costs. Therefore, we do not know actual obligated capital 
    commitments for purposes of the FY 1999 capital cost projections. In 
    Appendix B of this final rule, we discuss the assumptions and 
    computations that we employ to generate the amount of obligated 
    capital commitments for use in the FY 1999 capital cost projections.
        In Table III of this section, we present the redistributive 
    effects that are expected to occur between ``hold-harmless'' 
    hospitals and ``fully prospective'' hospitals in FY 1999. In 
    addition, we have integrated sufficient hospital-specific 
    information into our actuarial model to project the impact of the 
    final FY 1999 capital payment policies by the standard prospective 
    payment system hospital groupings. While we now have actual 
    information on the effects of the transition payment methodology and 
    interim payments under the capital prospective payment system and 
    cost report data for most hospitals, we still need to randomly 
    generate numbers for the change in old capital costs, new capital 
    costs for each year, and obligated amounts that will be put in use 
    for patient care services and recognized as old capital each year. 
    We continue to be unable to predict accurately FY 1999 capital costs 
    for individual hospitals, but with the most recent data hospitals' 
    experience under the capital prospective payment system, there is 
    adequate information to estimate the aggregate impact on most 
    hospital groupings.
    
    B. Projected Impact Based on the Final FY 1999 Actuarial Model
    
    1. Assumptions
    
        In this impact analysis, we model dynamically the impact of the 
    capital prospective payment system from FY 1998 to FY 1999 using a 
    capital cost model. The FY 1999 model, as described in Appendix B of 
    this final rule, integrates actual data from individual hospitals 
    with randomly generated capital cost amounts. We have capital cost 
    data from cost reports beginning in FY 1989 through FY 1995 as 
    reported on the March 1998 update of HCRIS, interim payment data for 
    hospitals already receiving capital prospective payments through 
    PRICER, and data reported by the intermediaries that include the 
    hospital-specific rate determinations that have been made through 
    April 1, 1998 in the provider-specific file. We used these data to 
    determine the final FY 1999 capital rates. However, we do not have 
    individual hospital data on old capital changes, new capital 
    formation, and actual obligated capital costs. We have data on costs 
    for capital in use in FY 1995, and we age that capital by a formula 
    described in Appendix B. Therefore, we need to randomly generate 
    only new capital acquisitions for any year after FY 1995. All 
    Federal rate payment parameters are assigned to the applicable 
    hospital.
        For purposes of this impact analysis, the FY 1999 actuarial 
    model includes the following assumptions:
         Medicare inpatient capital costs per discharge will 
    change at the following rates during these periods:
    
            Average Percentage Change in Capital Costs Per Discharge        
    ------------------------------------------------------------------------
                                                                  Percentage
                             Fiscal year                            change  
    ------------------------------------------------------------------------
    1997........................................................       -3.02
    1998........................................................       -0.46
    1999........................................................        0.61
    ------------------------------------------------------------------------
    
    We have reduced our estimate of the growth in Medicare costs per 
    discharge from the August 29, 1997 final rule with comment period to 
    this final rule based on later cost data. We are now estimating a 
    much smaller increase in costs per discharge.
         The Medicare case-mix index will increase by 1.0 
    percent in FY 1998 and FY 1999.
         The Federal capital rate and hospital-specific rate 
    were updated in FY 1996 by an analytical framework that considers 
    changes in the prices associated with capital-related costs, and 
    adjustments to account for forecast error, changes in the case-mix 
    index, allowable changes in intensity, and other factors. The final 
    FY 1999 update for inflation is 0.10 percent (see section IV of the 
    Addendum).
    
    2. Results
    
        We have used the actuarial model to estimate the change in 
    payment for capital-related costs from FY 1998 to FY 1999. Table III 
    shows the effect of the capital prospective payment system on low 
    capital cost hospitals and high capital cost hospitals. We consider 
    a hospital to be a low capital cost hospital if, based on a 
    comparison of its initial hospital-specific rate and the applicable 
    Federal rate, it will be paid under the fully prospective payment 
    methodology. A high capital cost hospital is a hospital that, based 
    on its initial hospital-specific rate and the applicable Federal 
    rate, will be paid under the hold-harmless payment methodology. 
    Based on our actuarial model, the breakdown of hospitals is as 
    follows:
    
                                   Capital Transition Payment Methodology for FY 1999                               
    ----------------------------------------------------------------------------------------------------------------
                                                                                             Percent of   Percent of
                          Type of hospital                         Percent of   Percent of    capital      capital  
                                                                   hospitals    discharges     costs       payments 
    ----------------------------------------------------------------------------------------------------------------
    Low Cost Hospital...........................................           66           62           53           58
    High Cost Hospital..........................................           34           38           47           42
    ----------------------------------------------------------------------------------------------------------------
    
        A low capital cost hospital may request to have its hospital-
    specific rate redetermined based on old capital costs in the current 
    year, through the later of the hospital's cost reporting period 
    beginning in FY 1994 or the first cost reporting period beginning 
    after obligated capital comes into use (within the limits 
    established in Sec. 412.302(e) for putting obligated capital in to 
    use for patient care). If the redetermined hospital-specific rate is 
    greater than the adjusted Federal rate, these hospitals will be paid 
    under the hold-harmless payment methodology. Regardless of whether 
    the hospital became a hold-harmless payment hospital as a result of 
    a redetermination, we continue to show these hospitals as low 
    capital cost hospitals in Table III.
        Assuming no behavioral changes in capital expenditures, Table 
    III displays the percentage change in payments from FY 1998 to FY 
    1999 using the above described actuarial model. With the final 
    Federal rate, we estimate aggregate Medicare capital payments will 
    increase by 2.78 percent in FY 1999.
    
    [[Page 41115]]
    
    
    
                                          Table III.--Impact of Proposed Changes for FY 1999 on Payments per Discharge                                      
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                     Percent
                                                           Number of                  Adjusted   Average  Hospital    Hold    Exceptions    Total    change 
                                                           hospitals    Discharges     Federal   Federal  specific  harmless    payment    payment   over FY
                                                                                       payment   percent   payment   payment                          1998  
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    FY 1998 Payments per Discharge:                                                                                                                         
        Low Cost Hospitals...............................      3,258       6,777,970   $458.00     72.42    $86.30     $3.85      $8.89    $557.04  ........
            Fully Prospective............................      3,024       6,149,617    441.23     70.00     95.12  ........       7.61     543.95  ........
            100% Federal Rate............................        204         554,222    650.05    100.00  ........     17.77     667.82   ........          
            Hold Harmless................................         30          74,130    413.10     61.17  ........    351.63      49.36     814.09  ........
        High Cost Hospitals..............................      1,643       4,203,327    635.31     95.72  ........     37.11      15.30     687.72  ........
            100% Federal Rate............................      1,415       3,748,353    660.94    100.00  ........  ........      10.62     671.56  ........
            Hold Harmless................................        228         454,974    424.09     61.78  ........    342.86      53.86     820.81  ........
                                                          --------------------------------------------------------------------------------------------------
                Total Hospitals..........................      4,901      10,981,297    525.87     81.61     53.27     16.58      11.35     607.06  ........
    FY 1999 Payments per Discharge:                                                                                                                         
        Low Cost Hospitals...............................      3,258       6,626,732    527.01     81.53     58.33      3.13       9.57     598.04      7.36
            Fully Prospective............................      3,024       6,012,484    515.37     80.00     64.29  ........       8.28     587.94      8.09
            100% Federal Rate............................        207         545,059    663.77    100.00  ........  ........      17.97     681.75      2.09
            Hold Harmless................................         27          69,188    460.62     66.21  ........    300.02      55.73     816.37      0.28
        High Cost Hospitals..............................      1,643       4,107,081    656.33     96.98  ........     26.89      20.02     703.24      2.26
            100% Federal Rate............................      1,438       3,730,929    674.49    100.00  ........  ........      14.16     688.65      2.54
            Hold Harmless................................        205         376,151    476.26     68.09  ........    293.59      78.14     847.99      3.31
                                                          --------------------------------------------------------------------------------------------------
                Total Hospitals..........................      4,901      10,733,812    576.49     87.61     36.01     12.22      13.57     638.29      5.15
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    
        We project that low capital cost hospitals paid under the fully 
    prospective payment methodology will experience an average increase 
    in payments per case of 7.36 percent, and high capital cost 
    hospitals will experience an average increase of 2.26 percent.
        For hospitals paid under the fully prospective payment 
    methodology, the Federal rate payment percentage will increase from 
    70 percent to 80 percent and the hospital-specific rate payment 
    percentage will decrease from 30 to 20 percent in FY 1999. The 
    Federal rate payment percentage for hospitals paid under the hold-
    harmless payment methodology is based on the hospital's ratio of new 
    capital costs to total capital costs. The average Federal rate 
    payment percentage for high cost hospitals receiving a hold-harmless 
    payment for old capital will increase from 61.78 percent to 68.09 
    percent. We estimate the percentage of hold-harmless hospitals paid 
    based on 100 percent of the Federal rate will increase from 86.3 
    percent to 87.6 percent. We estimate that high cost hold-harmless 
    hospitals will experience an increase in payments of 3.31 per cent 
    from FY 1998 to FY 1999. This is different from our projection in 
    the proposed rule, which projected a decrease in payments. This 
    change is a result of lower projected capital costs, which means 
    some hospitals who otherwise would have been paid hold-harmless will 
    now receive 100 percent of the federal rate. Since these are the 
    lowest cost hospitals in the hold-harmless grouping, removing these 
    hospitals from the mix increased the average projected hold-harmless 
    payment and, consequently, the average projected total payment.
        We expect that the average hospital-specific rate payment per 
    discharge will decrease from $53.27 in FY 1998 to $36.01 in FY 1999. 
    This is partly due to the decrease in the hospital-specific rate 
    payment percentage from 30 percent in FY 1998 to 20 percent in FY 
    1999.
        We are making no changes in our exceptions policies for FY 1999. 
    As a result, the minimum payment levels would be:
         90 percent for sole community hospitals;
         80 percent for urban hospitals with 100 or more beds 
    and a disproportionate share patient percentage of 20.2 percent or 
    more; or
         70 percent for all other hospitals.
        We estimate that exceptions payments will be 2.13 percent of the 
    total capital payments in FY 1999. Since the August 29, 1997 final 
    rule with comment period, we have reduced our estimates of capital 
    cost per case based on more recent data. Although we still estimate 
    that more hospitals will receive exceptions payment in FY 1999 than 
    in FY 1998 fewer hospitals will have costs over the exceptions 
    threshold then we previously estimated. The projected distribution 
    of the eligible hospitals and exception payments is shown in the 
    table below:
    
                      Estimated FY 1999 Exceptions Payments                 
    ------------------------------------------------------------------------
                                                                  Percent of
                   Type of hospital                  Number of    exceptions
                                                     hospitals     payments 
    ------------------------------------------------------------------------
    Low Capital Cost..............................          185           44
    High Capital Cost.............................          215           56
                                                   -------------------------
        Total.....................................          400          100
    ------------------------------------------------------------------------
    
    C. Cross-Sectional Comparison of Capital Prospective Payment 
    Methodologies
    
        Table IV presents a cross-sectional summary of hospital 
    groupings by capital prospective payment methodology. This 
    distribution is generated by our actuarial model.
    
      Table IV.--Distribution by Method of Payment (Hold-Harmless/Fully Prospective) of Hospitals Receiving Capital 
                                                        Payments                                                    
                                                                                                                    
                                                                                  (2)  Hold-harmless         (3)    
                                                                   (1)  Total --------------------------  Percentage
                                                                     No. of     Percentage   Percentage   paid fully
                                                                   Hospitals    paid hold-   paid fully  prospective
                                                                                 harmless     federal        rate   
                                                                                       (A)          (B)             
    ----------------------------------------------------------------------------------------------------------------
    By Geographic Location:                                                                                         
        All hospitals...........................................        4,901          4.7         33.6         61.7
        Large urban areas (populations over 1 million)..........        1,574          5.4         41.1         53.5
    Other urban areas (populations of 1 million of fewer).......        1,178          5.4         41.6         53.0
    
    [[Page 41116]]
    
                                                                                                                    
        Rural areas.............................................        2,149          3.9         23.6         72.5
        Urban hospitals.........................................        2,752          5.4         41.3         53.3
            0-99 beds...........................................          656          5.3         34.8         59.9
            100-199 beds........................................          929          7.3         47.0         45.6
            200-299 beds........................................          567          5.5         41.4         53.1
            300-499 beds........................................          448          1.8         40.8         57.4
            500 or more beds....................................          152          4.6         35.5         59.9
        Rural hospitals.........................................        2,149          3.9         23.6         72.5
            0-49 beds...........................................        1,124          3.6         15.7         80.6
            50-99 beds..........................................          632          4.6         28.5         66.9
            100-149 beds........................................          229          3.1         39.7         57.2
            150-199 beds........................................           90          5.6         26.7         67.8
            200 or more beds....................................           74          1.4         48.6         50.0
    By Region:                                                                                                      
        Urban by Region.........................................        2,752          5.4         41.3         53.3
            New England.........................................          151          0.0         27.8         72.2
            Middle Atlantic.....................................          421          5.0         33.3         61.8
            South Atlantic......................................          409          5.1         53.8         41.1
            East North Central..................................          472          4.7         31.4         64.0
            East South Central..................................          157          7.0         52.2         40.8
            West North Central..................................          183          6.6         36.1         57.4
            West South Central..................................          334         12.0         57.2         30.8
            Mountain............................................          125          4.8         52.0         43.2
            Pacific.............................................          452          3.3         37.6         59.1
            Puerto Rico.........................................           48          2.1         27.1         70.8
        Rural by Region.........................................        2,149          3.9         23.6         72.5
            New England.........................................           53          0.0         22.6         77.4
            Middle Atlantic.....................................           79          5.1         24.1         70.9
            South Atlantic......................................          282          2.5         33.0         64.5
            East North Central..................................          283          3.2         19.1         77.7
            East South Central..................................          267          0.7         35.2         64.0
            West North Central..................................          498          3.4         16.3         80.3
            West South Central..................................          339          3.5         28.0         68.4
            Mountain............................................          203         11.3         14.3         74.4
            Pacific.............................................          140          6.4         22.1         71.4
        Large urban areas (populations over 1 million)..........        1,661          5.5         40.9         53.6
        Other urban areas (populations of 1 million of fewer)...        1,175          5.1         41.8         53.1
        Rural areas.............................................        2,065          3.9         23.0         73.1
        Teaching Status:                                                                                            
            Non-teaching........................................        3,809          4.8         33.1         62.1
            Fewer than 100 Residents............................          852          4.9         35.7         59.4
            100 or more Residents...............................          240          2.9         32.9         64.2
        Disproportionate share hospitals (DSH):                                                                     
            Non-DSH.............................................        3,030          5.1         29.2         65.6
            Urban DSH:                                                                                              
                100 or more beds................................        1,398          4.6         44.1         51.3
                Less than 100 beds..............................           82          2.4         26.8         70.7
            Rural DSH:                                                                                              
                Sole Community (SCH/EACH).......................          162          4.3         22.8         72.8
                Referral Center (RRC/EACH)......................           53          3.8         49.1         47.2
                Other Rural:                                                                                        
                    100 or more beds............................           60          1.7         40.0         58.3
                    Less than 100 beds..........................          116          0.0         28.4         71.6
            Urban teaching and DSH:.............................                                                    
            Both teaching and DSH...............................          707          3.8         36.8         59.4
            Teaching and no DSH.................................          330          6.1         32.1         61.8
            No teaching and DSH.................................          773          5.0         49.0         45.9
            No teaching and no DSH..............................        1,026          6.3         41.5         52.1
        Rural Hospital Types:                                                                                       
            Non special status hospitals........................          875          1.7         24.2         74.1
            RRC/EACH............................................          145          1.4         39.3         59.3
            SCH/EACH............................................          636          8.8         19.5         71.7
            Medicare-dependent hospitals (MDH)..................          350          0.9         18.0         81.1
    
    [[Page 41117]]
    
                                                                                                                    
            SCH, RRC and EACH...................................           59          8.5         30.5         61.0
        Type of Ownership:                                                                                          
            Voluntary...........................................        2,848          4.7         33.1         62.2
            Proprietary.........................................          658          8.2         60.2         31.6
            Government..........................................        1,329          3.2         21.1         75.6
        Medicare Utilization as a Percent of Inpatient Days:                                                        
            0-25................................................          237          3.8         32.1         64.1
            25-50...............................................        1,259          5.3         41.5         53.1
            50-65...............................................        1,972          5.3         33.4         61.4
            Over 65.............................................        1,367          3.7         26.5         69.8
    ----------------------------------------------------------------------------------------------------------------
    
        As we explain in Appendix B, we were not able to determine a 
    hospital-specific rate for 74 of the 4,975 hospitals in our 
    database. Consequently, the payment methodology distribution is 
    based on 4,901 hospitals. These data should be fully representative 
    of the payment methodologies that will be applicable to hospitals.
        The cross-sectional distribution of hospital by payment 
    methodology is presented by: (1) Geographic location, (2) region, 
    and (3) payment classification. This provides an indication of the 
    percentage of hospitals within a particular hospital grouping that 
    will be paid under the fully prospective payment methodology and the 
    hold-harmless payment methodology.
        The percentage of hospitals paid fully Federal (100 percent of 
    the Federal rate) as hold-harmless hospitals is expected to increase 
    to 33.6 percent in FY 1999. We note that the number of hospitals 
    paid fully Federal as hold-harmless hospitals has not increased as 
    quickly as we predicted in the August 29, 1997 final rule with 
    comment period because of revised estimates.
        Table IV indicates that 61.7 percent of hospitals will be paid 
    under the fully prospective payment methodology. (This figure, 
    unlike the figure of 66 percent for low cost capital hospitals in 
    the previous section, takes account of the effects of 
    redeterminations. In other words, this figure does not include low 
    cost hospitals that, following a hospital-specific rate 
    redetermination, are now paid under the hold-harmless methodology.) 
    As expected, a relatively higher percentage of rural and 
    governmental hospitals (72.5 percent and 75.6 percent, respectively 
    by payment classification) are being paid under the fully 
    prospective methodology. This is a reflection of their lower than 
    average capital costs per case. In contrast, only 31.6 percent of 
    proprietary hospitals are being paid under the fully prospective 
    methodology. This is a reflection of their higher than average 
    capital costs per case. (We found at the time of the August 30, 1991 
    final rule (56 FR 43430) that 62.7 percent of proprietary hospitals 
    had a capital cost per case above the national average cost per 
    case.)
    
    D. Cross-Sectional Analysis of Changes in Aggregate Payments
    
        We used our FY 1999 actuarial model to estimate the potential 
    impact of our final changes for FY 1999 on total capital payments 
    per case, using a universe of 4,901 hospitals. The individual 
    hospital payment parameters are taken from the best available data, 
    including: the April 1, 1998 update to the provider-specific file, 
    cost report data, and audit information supplied by intermediaries. 
    In Table V we present the results of the cross-sectional analysis 
    using the results of our actuarial model and the aggregate impact of 
    the FY 1999 payment policies. Columns 3 and 4 show estimates of 
    payments per case under our model for FY 1998 and FY 1999. Column 5 
    shows the total percentage change in payments from FY 1998 to FY 
    1999. Column 6 presents the percentage change in payments that can 
    be attributed to Federal rate changes alone.
        Federal rate changes represented in Column 6 include the 1.8 
    percent increase in the Federal rate, a 1.0 percent increase in case 
    mix, changes in the adjustments to the Federal rate (for example, 
    the effect of the new hospital wage index on the geographic 
    adjustment factor), and reclassifications by the MGCRB. Column 5 
    includes the effects of the Federal rate changes represented in 
    Column 6. Column 5 also reflects the effects of all other changes, 
    including: the change from 70 percent to 80 percent in the portion 
    of the Federal rate for fully prospective hospitals, the hospital-
    specific rate update, changes in the proportion of new to total 
    capital for hold-harmless hospitals, changes in old capital (for 
    example, obligated capital put in use), hospital-specific rate 
    redeterminations, and exceptions. The comparisons are provided by: 
    (1) Geographic location, (2) region, and (3) payment classification.
        The simulation results show that, on average, capital payments 
    per case can be expected to increase 5.1 percent in FY 1999. The 
    results show that the effect of the Federal rate changes alone is to 
    increase payments by 1.8 percent. In addition to the increase 
    attributable to the Federal rate changes, a 3.3 percent increase is 
    attributable to the effects of all other changes.
        Our comparison by geographic location shows that urban and rural 
    hospitals will experience slightly different rates of increase in 
    capital payments per case (4.9 percent and 6.7 percent, 
    respectively). This difference is due to the lower rate of increase 
    for urban hospitals relative to rural hospitals (1.6 percent and 3.4 
    percent, respectively) from the Federal rate changes alone. Urban 
    hospitals will gain approximately the same as rural hospitals (3.3 
    percent for both) from the effects of all other changes.
        All regions are estimated to receive increases in total capital 
    payments per case, partly due to the increased share of payments 
    that are based on the Federal rate (from 70 to 80 percent). Changes 
    by region vary from a low of 4.0 percent increase (West South 
    Central urban region) to a high of 8.6 percent increase (Middle 
    Atlantinc Rural Region).
        By type of ownership, government hospitals are projected to have 
    the largest rate of increase (6.6 percent, 2.2 percent due to 
    Federal rate changes and 4.4 percent from the effects of all other 
    changes). Payments to voluntary hospitals will increase 5.2 percent 
    (a 1.8 percent increase due to Federal rate changes and a 3.4 
    percent increase from the effects of all other changes) and payments 
    to proprietary hospitals will increase 3.1 percent (a 1.5 percent 
    increase due to Federal rate changes and a 1.6 percent increase from 
    the effects of all other changes).
        Section 1886(d)(10) of the Act established the MGCRB. Hospitals 
    may apply for reclassification for purposes of the standardized 
    amount, wage index, or both and for purposes of DSH, for FY 1999-
    2001. Although the Federal capital rate is not affected, a 
    hospital's geographic classification for purposes of the operating 
    standardized amount does affect a hospital's capital payments as a 
    result of the large urban adjustment factor and the disproportionate 
    share adjustment for urban hospitals with 100 or more beds. 
    Reclassification for wage index purposes affects the geographic 
    adjustment factor since that factor is constructed from the hospital 
    wage index.
    
    [[Page 41118]]
    
        To present the effects of the hospitals being reclassified for 
    FY 1999 compared to the effects of reclassification for FY 1998, we 
    show the average payment percentage increase for hospitals 
    reclassified in each fiscal year and in total. For FY 1999 
    reclassifications, we indicate those hospitals reclassified for 
    standardized amount purposes only, for wage index purposes only, and 
    for both purposes. The reclassified groups are compared to all other 
    nonreclassified hospitals. These categories are further identified 
    by urban and rural designation.
        Hospitals reclassified for FY 1999 as a whole are projected to 
    experience a 7.1 percent increase in payments (a 3.8 percent 
    increase attributable to Federal rate changes and a 3.3 percent 
    increase attributable to the effects of all other changes). Payments 
    to nonreclassified hospitals will increase slightly less (6.2 
    percent) than reclassified hospitals (7.1 percent) overall. Payments 
    to nonreclassified hospitals will increase less than reclassified 
    hospitals from the Federal rate changes (1.9 percent compared to 3.8 
    percent), but they will gain about the same from the effects of all 
    other changes (3.3 percent for both).
    
                                     Table V.--Comparison of Total Payments Per Case                                
                                     [FY 1998 Payments Compared to FY 1999 Payments]                                
    ----------------------------------------------------------------------------------------------------------------
                                                                                                           Portion  
                                                     Number of    Average FY   Average FY               attributable
                                                     hospitals    1998 pay-    1999 pay-   All changes   to Federal 
                                                                  ments/case   ments/case                rate change
    ----------------------------------------------------------------------------------------------------------------
    By Geographic Location:                                                                                         
        All hospitals.............................        4,901          607          638          5.1           1.8
        Large urban areas (populations over 1                                                                       
         million).................................        1,574          700          733          4.7           1.4
        Other urban areas (populations of 1                                                                         
         million or fewer)........................        1,178          596          628          5.3           1.9
        Rural areas...............................        2,149          406          433          6.7           3.4
        Urban hospitals...........................        2,752          656          688          4.9           1.6
            0-99 beds.............................          656          482          502          4.3           1.5
            100-199 beds..........................          929          581          606          4.4           1.5
            200-299 beds..........................          567          626          655          4.8           1.6
            300-499 beds..........................          448          682          718          5.4           1.6
            500 or more beds......................          152          830          872          5.1           1.6
        Rural hospitals...........................        2,149          406          433          6.7           3.4
            0-49 beds.............................        1,124          323          346          7.2           3.0
            50-99 beds............................          632          389          413          6.2           2.8
            100-149 beds..........................          229          423          450          6.4           3.2
            150-199 beds..........................           90          437          468          7.2           4.2
            200 or more beds......................           74          499          534          7.0           4.1
    By Region:                                                                                                      
        Urban by Region...........................        2,752          656          688          4.9           1.6
            New England...........................          151          663          700          5.7           0.9
            Middle Atlantic.......................          421          711          747          5.1           2.0
            South Atlantic........................          409          642          674          5.0           2.3
            East North Central....................          472          615          646          4.9           0.9
            East South Central....................          157          602          626          4.0           1.4
            West North Central....................          183          638          677          6.1           2.6
            West South Central....................          334          664          691          4.0           1.2
            Mountain..............................          125          684          715          4.6           1.5
            Pacific...............................          452          717          752          4.9           1.1
            Puerto Rico...........................           48          272          286          5.5           2.6
        Rural by Region...........................        2,149          406          433          6.7           3.4
            New England...........................           53          474          505          6.3           2.4
            Middle Atlantic.......................           79          427          463          8.6           3.9
            South Atlantic........................          282          437          467          7.0           3.7
            East North Central....................          283          402          431          7.2           3.5
            East South Central....................          267          376          400          6.3           3.5
            West North Central....................          498          387          410          6.0           3.4
            West South Central....................          339          372          394          6.1           2.8
            Mountain..............................          203          421          442          4.9           2.3
            Pacific...............................          140          466          501          7.3           3.0
    By Payment Classification:                                                                                      
        All hospitals.............................        4,901          607          638          5.1           1.8
        Large urban areas (populations over 1                                                                       
         million).................................        1,661          693          725          4.7           1.4
        Other urban areas (populations of 1                                                                         
         million or fewer)........................        1,175          594          626          5.4           2.0
        Rural areas...............................        2,065          404          430          6.5           3.2
        Teaching Status:                                                                                            
            Non-teaching..........................        3,809          513          538          4.9           2.0
            Fewer than 100 Residents..............          852          643          678          5.5           1.7
            100 or more Residents.................          240          897          944          5.2           1.5
            Urban DSH:                                                                                              
                100 or more beds..................        1,398          690          725          5.0           1.6
                Less than 100 beds................           82          457          475          3.9           1.0
            Rural DSH:                                                                                              
                Sole Community (SCH/EACH).........          162          362          379          4.7           2.7
                Referral Center (RRC/EACH)........           53          472          507          7.4           4.6
            Other Rural:                                                                                            
                100 or more beds..................           60          378          397          5.1           2.8
                Less than 100 beds................          116          318          339          6.5           3.4
    
    [[Page 41119]]
    
                                                                                                                    
        Urban teaching and DSH:                                                                                     
            Both teaching and DSH.................          707          759          799          5.2           1.6
            Teaching and no DSH...................          330          662          701          5.8           1.6
            No teaching and DSH...................          773          580          607          4.7           1.8
            No teaching and no DSH................        1,026          554          576          3.9           1.6
        Rural Hospital Types:                                                                                       
            Nonspecial status hospitals...........          875          368          391          6.1           2.7
            RRC/EACH..............................          145          469          503          7.3           4.3
            SCH/EACH..............................          636          390          412          5.9           2.3
            Medicare-dependent hospitals (MDH)....          350          323          352          9.0           3.7
            SCH, RRC and EACH.....................           59          499          526          5.5           3.2
        Hospitals Reclassified by the Medicare                                                                      
         Geographic Classification:                                                                                 
            Review Board:                                                                                           
                Reclassification Status During                                                                      
                 FY98 and FY99:                                                                                     
                    Reclassified During Both FY98                                                                   
                     and FY99.....................          315          541          568          5.0           1.9
                Reclassified During FY99 Only.....          170          466          521         11.8           7.8
                Reclassified During FY98 Only.....          106          598          607          1.6          -1.4
            FY99 Reclassifications:                                                                                 
                All Reclassified Hospitals........          485          515          551          7.1           3.8
                All Nonreclassified Hospitals.....        4,453          613          645          5.2           1.9
                All Urban Reclassified Hospitals..           87          651          695          6.7           2.3
                Urban Nonreclassified Hospitals...        2,638          657          689          4.9           1.6
                All Reclassified Rural Hospitals..          398          464          498          7.4           4.5
                Rural Nonreclassified Hospitals...        1,751          369          392          6.1           2.4
            Other Reclassified Hospitals (Section                                                                   
             1886(D)(8)(B)).......................           27          470          492          4.6           1.3
        Type of Ownership:                                                                                          
            Voluntary.............................        2,848          621          654          5.2           1.8
            Proprietary...........................          658          612          631          3.1           1.5
            Government............................        1,329          530          566          6.6           2.2
        Medicare Utilization as a Percent of                                                                        
         Inpatient Days:                                                                                            
            0-25..................................          237          687          736          7.2           1.2
            25-50.................................        1,259          726          761          4.7           1.5
            50-65.................................        1,972          561          591          5.3           2.0
    ----------------------------------------------------------------------------------------------------------------
    
    Appendix B--Technical Appendix on the Capital Cost Model and Required 
    Adjustments
    
        Under section 1886(g)(1)(A) of the Act, we set capital 
    prospective payment rates for FY 1992 through FY 1995 so that 
    aggregate prospective payments for capital costs were projected to 
    be 10 percent lower than the amount that would have been payable on 
    a reasonable cost basis for capital-related costs in that year. To 
    implement this requirement, we developed the capital acquisition 
    model to determine the budget neutrality adjustment factor. Even 
    though the budget neutrality requirement expired effective with FY 
    1996, we must continue to determine the recalibration and geographic 
    reclassification budget neutrality adjustment factor, and the 
    reduction in the Federal and hospital-specific rates for exceptions 
    payments. To determine these factors, we must continue to project 
    capital costs and payments.
        We have used the capital acquisition model since the start of 
    prospective payments for capital costs. We now have 4 years of cost 
    reports under the capital prospective payment system. For FY 1998, 
    we developed a new capital cost model to replace the capital 
    acquisition model. This revised model makes use of the data from 
    these cost reports.
        The following cost reports are used in the capital cost model 
    for this final rule: the March 31, 1998 update of the cost reports 
    for PPS-IX (cost reporting periods beginning in FY 1992), PPS-X 
    (cost reporting periods beginning in FY 1993), PPS-XI (cost 
    reporting periods beginning in FY 1994), and PPS-XII (cost reporting 
    periods beginning in FY 1995). In addition, to model payments, we 
    use the April 1, 1998 update of the provider-specific file, and the 
    March 1994 update of the intermediary audit file.
        Since hospitals under alternative payment system waivers (that 
    is, hospitals in Maryland) are currently excluded from the capital 
    prospective payment system, we excluded these hospitals from our 
    model.
        We developed FY 1992 through FY 1998 hospital-specific rates 
    using the provider-specific file and the intermediary audit file. 
    (We used the cumulative provider-specific file, which includes all 
    updates to each hospital's records, and chose the latest record for 
    each fiscal year.) We checked the consistency between the provider-
    specific file and the intermediary audit file. We ensured that 
    increases in the hospital-specific rates were at least as large as 
    the published updates (increases) for the hospital-specific rates 
    each year. We were able to match hospitals to the files as shown in 
    the following table:
    
    ------------------------------------------------------------------------
                                                                  Number of 
                               Source                             hospitals 
    ------------------------------------------------------------------------
    Provider-Specific File Only................................          118
    Provider-Specific and Audit File...........................        4,857
                                                                ------------
        Total..................................................        4,975
    ------------------------------------------------------------------------
    
        Ninety-seven of the 4,975 hospitals had unusable or missing data 
    or had no cost reports available. We determined from the cost 
    reports that 23 of the 97 hospitals were paid under the hold-
    harmless methodology. Since the hospital-specific amount is not used 
    to determine payments for these hospitals, we were able to include 
    these 23 hospitals in the analysis. We used the cost report data of 
    4,901 hospitals for the analysis. Seventy-four hospitals could not 
    be used in the analysis because of insufficient information. These 
    hospitals account for approximately 0.3 percent of admissions, 
    therefore, any effects from the elimination of their cost report 
    data should be minimal.
        We analyzed changes in capital-related costs (depreciation, 
    interest, rent, leases, insurance, and taxes) reported in the cost 
    reports. We found a wide variance among hospitals in the growth of 
    these costs. For hospitals with more than 100 beds, the distribution 
    and mean of these cost increases were different for large changes in 
    bed-size
    
    [[Page 41120]]
    
    (greater than +20 percent). We also analyzed changes in the growth 
    in old capital and new capital for cost reports that provided this 
    information. For old capital, we limited the analysis to decreases 
    in old capital. We did this since the opportunity for most hospitals 
    to treat ``obligated'' capital put into service as old capital has 
    expired. Old capital costs should, therefore, decrease as assets 
    become fully depreciated, and as interest costs decrease as the loan 
    is amortized.
        The new capital cost model separates the hospitals into three 
    mutually exclusive groups. Hold-harmless hospitals with data on old 
    capital were placed in the first group. Of the remaining hospitals, 
    those hospitals with fewer than 100 beds comprise the second group. 
    The third group consists of all hospitals that did not fit into 
    either of the groups. Each of these groups displayed unique patterns 
    of growth in capital costs. We found that the gamma distribution is 
    useful in explaining and describing the patterns of increase in 
    capital costs. A gamma distribution is a statistical distribution 
    that can be used to describe patterns of growth rates, with greatest 
    proportion of rates being at the low end. We use the gamma 
    distribution to estimate individual hospital rates of increase as 
    follows:
        (1) For hold-harmless hospitals, old capital cost changes were 
    fitted to a truncated gamma distribution, that is, a gamma 
    distribution covering only the distribution of cost decreases. New 
    capital costs changes were fitted to the entire gamma distribution 
    allowing for both decreases and increases.
        (2) For hospitals with fewer than 100 beds (small), total 
    capital cost changes were fitted to the gamma distribution allowing 
    for both decreases and increases.
        (3) Other (large) hospitals were further separated into three 
    groups:
         Bed-size decreases over 20 percent (decrease).
         Bed-size increases over 20 percent (increase).
         Other (no-change).
        Capital cost changes for large hospitals were fitted to gamma 
    distributions for each bed-size change group, allowing for both 
    decreases and increases in capital costs. We analyzed the 
    probability distribution of increases and decreases in bed-size for 
    large hospitals. We found the probability somewhat dependent on the 
    prior year change in bed-size and factored this dependence into the 
    analysis. Probabilities of bed-size change were determined. Separate 
    sets of probability factors were calculated to reflect the 
    dependence on prior year change in bed-size (increase, decrease, and 
    no change).
        The gamma distributions were fitted to changes in aggregate 
    capital costs for the entire hospital. We checked the relationship 
    between aggregate costs and Medicare per discharge costs. For large 
    hospitals, there was a small variance, but the variance was larger 
    for small hospitals. Since costs are used only for the hold-harmless 
    methodology and to determine exceptions, we decided to use the gamma 
    distributions fitted to aggregate cost increases for estimating 
    distributions of cost per discharge increases.
        Capital costs per discharge calculated from the cost reports 
    were increased by random numbers drawn from the gamma distribution 
    to project costs in future years. Old and new capital were projected 
    separately for hold-harmless hospitals. Aggregate capital per 
    discharge costs were projected for all other hospitals. Because the 
    distribution of increases in capital costs varies with changes in 
    bed-size for large hospitals, we first projected changes in bed-size 
    for large hospitals before drawing random numbers from the gamma 
    distribution. Bed-size changes were drawn from the uniform 
    distribution with the probabilities dependent on the previous year 
    bed-size change. The gamma distribution has a shape parameter and a 
    scaling parameter. (We used different parameters for each hospital 
    group, and for old and new capital.)
        We used discharge counts from the cost reports to calculate 
    capital cost per discharge. To estimate total capital costs for FY 
    1997 (the MedPR data year) and later, we use the number of 
    discharges from the MedPAR data. Some hospitals have considerably 
    more discharges in FY 1997 than in the years for which we calculated 
    cost per discharge from the cost report data. Consequently, a 
    hospital with few cost report discharges would have a high capital 
    cost per discharge since fixed costs would be allocated over only a 
    few discharges. If discharges increase substantially, the cost per 
    discharge would decrease because fixed costs would be allocated over 
    more discharges. If the projection of capital cost per discharge is 
    not adjusted for increases in discharges, the projection of 
    exceptions would be overstated. We address this situation by 
    recalculating the cost per discharge with the MedPAR discharges if 
    the MedPAR discharges exceed the cost report discharges by more than 
    20 percent. We do not adjust for increases of less than 20 percent 
    because we have not received all of the FY 1997 discharges, and we 
    have removed some discharges from the analysis because they are 
    statistical outliers. This adjustment reduces our estimate of 
    exceptions payments, and consequently, the reduction to the Federal 
    rate for exceptions is smaller. We will continue to monitor our 
    modeling of exceptions payments and make adjustments as needed.
        The average national capital cost per discharge generated by 
    this model is the combined average of many randomly generated 
    increases. This average must equal the projected average national 
    capital cost per discharge, which we projected separately (outside 
    this model). We adjusted the shape parameter of the gamma 
    distributions so that the modeled average capital cost per discharge 
    matches our projected capital cost per discharge. The shape 
    parameter for old capital was not adjusted since we are modeling the 
    aging of ``existing'' assets. This model provides a distribution of 
    capital costs among hospitals that is consistent with our aggregate 
    capital projections.
        Once each hospital's capital-related costs are generated, the 
    model projects capital payments. We use the actual payment 
    parameters (for example, the case-mix index and the geographic 
    adjustment factor) that are applicable to the specific hospital.
        To project capital payments, the model first assigns the 
    applicable payment methodology (fully prospective or hold-harmless) 
    to the hospital as determined from the provider-specific file and 
    the cost reports. The model simulates Federal rate payments using 
    the assigned payment parameters and hospital-specific estimated 
    outlier payments. The case-mix index for a hospital is derived from 
    the FY 1997 MedPAR file using the FY 1999 DRG relative weights 
    published in section V. of the Addendum to this final rule. The 
    case-mix index is increased each year after FY 1997 based on 
    analysis of past experiences in case-mix increases. Based on 
    analysis of recent case-mix increases, we estimate that case-mix 
    will increase 1.0 percent in FY 1998 and 1.0 percent in FY 1999. 
    (Since we are using FY 1997 cases for our analysis, the FY 1997 
    increase in case mix has no effect on projected capital payments.)
        Changes in geographic classification and revisions to the 
    hospital wage data used to establish the hospital wage index affect 
    the geographic adjustment factor. Changes in the DRG classification 
    system and the relative weights affect the case-mix index.
        Section 412.308(c)(4)(ii) requires that the estimated aggregate 
    payments for the fiscal year, based on the Federal rate after any 
    changes resulting from DRG reclassifications and recalibration and 
    the geographic adjustment factor, equal the estimated aggregate 
    payments based on the Federal rate that would have been made without 
    such changes. For FY 1998, the budget neutrality adjustment factor 
    was 1.00015.
        Since we implemented a separate geographic adjustment factor for 
    Puerto Rico, we applied separate budget neutrality adjustments for 
    the national geographic adjustment factor and the Puerto Rico 
    geographic adjustment factor. We applied the same budget neutrality 
    factor for DRG reclassifications and recalibration nationally and 
    for Puerto Rico. Separate adjustments were unnecessary for FY 1998 
    since the geographic adjustment factor for Puerto Rico was 
    implemented in 1998.
        To determine the factors for FY 1999, we first determined the 
    portions of the Federal national and Puerto Rico rates that would be 
    paid for each hospital in FY 1999 based on its applicable payment 
    methodology. Using our model, we then compared, separately for the 
    national rate and the Puerto Rico rate, estimated aggregate Federal 
    rate payments based on the FY 1998 DRG relative weights and the FY 
    1998 geographic adjustment factor to estimated aggregate Federal 
    rate payments based on the FY 1998 relative weights and the FY 1999 
    geographic adjustment factor. In making the comparison, we held the 
    FY 1999 Federal rate portion constant and set the other budget 
    neutrality adjustment factor and the exceptions reduction factor to 
    1.00. We determined that, to achieve budget neutrality for the 
    changes in the national geographic adjustment factor, an incremental 
    budget neutrality adjustment of 0.99930 for FY 1999 should be 
    applied to the previous cumulative FY 1998 adjustment of 1.00015, 
    yielding a cumulative adjustment of 0.99945 through FY 1999. Since 
    this is the first adjustment for Puerto Rico, the incremental and 
    cumulative adjustment for Puerto Rico would be 0.99883 through FY
    
    [[Page 41121]]
    
    1999. We apply these new adjustments, then compare estimated 
    aggregate Federal rate payments based on the FY 1998 DRG relative 
    weights and the FY 1999 geographic adjustment factors to estimated 
    aggregate Federal rate payments based on the FY 1999 DRG relative 
    weights and the FY 1999 geographic adjustment factors. The 
    incremental adjustment for DRG classifications and changes in 
    relative weights would be 1.00336 nationally and for Puerto Rico. 
    The cumulative adjustments for DRG classifications and changes in 
    relative weights and for changes in the geographic adjustment 
    factors through 1999 would be 1.00281 nationally, and 1.00219 for 
    Puerto Rico. The following table summarizes the adjustment factors 
    for each fiscal year:
    
                         Budget Neutrality Adjustment for DRG Reclassifications and Recalibration and the Geographic Adjustment Factors                     
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        National                                             Puerto Rico                    
                                                 -----------------------------------------------------------------------------------------------------------
                                                           Incremental adjustment                                Incremental adjustment                     
                     Fiscal year                 ------------------------------------------            -----------------------------------------------------
                                                  Geographic         DRG                    Cumulative  Geographic         DRG                              
                                                  adjustment  reclassifications   Combined              adjustment  reclassifications   Combined  Cumulative
                                                    factor    and recalibration                           factor    and recalibration                       
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    1992........................................  ..........  .................  .........     1.00000  ..........  .................  .........  ..........
    1993........................................  ..........  .................    0.99800     0.99800  ..........  .................  .........  ..........
    1994........................................  ..........  .................    1.00531     1.00330  ..........  .................  .........  ..........
    1995........................................  ..........  .................    0.99980     1.00310  ..........  .................  .........  ..........
    1996........................................  ..........  .................    0.99940     1.00250  ..........  .................  .........  ..........
    1997........................................  ..........  .................    0.99873     1.00123  ..........  .................  .........  ..........
    1998........................................  ..........  .................    0.99892     1.00015  ..........  .................  .........     1.00000
    1999........................................     0.99930        1.00336        1.00266     1.00281     0.99883        1.00336        1.00219     1.00219
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    
        The methodology used to determine the recalibration and 
    geographic (DRG/GAF) budget neutrality adjustment factor is similar 
    to that used in establishing budget neutrality adjustments under the 
    prospective payment system for operating costs. One difference is 
    that, under the operating prospective payment system, the budget 
    neutrality adjustments for the effect of geographic 
    reclassifications are determined separately from the effects of 
    other changes in the hospital wage index and the DRG relative 
    weights. Under the capital prospective payment system, there is a 
    single DRG/GAF budget neutrality adjustment factor (the national 
    rate and the Puerto Rico rate are determined separately) for changes 
    in the geographic adjustment factor (including geographic 
    reclassification) and the DRG relative weights. In addition, there 
    is no adjustment for the effects that geographic reclassification 
    has on the other payment parameters, such as the payments for 
    serving low-income patients or the large urban add-on payments.
        In addition to computing the DRG/GAF budget neutrality adjustment 
    factor, we used the model to simulate total payments under the 
    prospective payment system.
        Additional payments under the exceptions process are accounted for 
    through a reduction in the Federal and hospital-specific rates. 
    Therefore, we used the model to calculate the exceptions reduction 
    factor. This exceptions reduction factor ensures that aggregate 
    payments under the capital prospective payment system, including 
    exceptions payments, are projected to equal the aggregate payments that 
    would have been made under the capital prospective payment system 
    without an exceptions process. Since changes in the level of the 
    payment rates change the level of payments under the exceptions 
    process, the exceptions reduction factor must be determined through 
    iteration.
        In the August 30, 1991 final rule (56 FR 43517), we indicated that 
    we would publish each year the estimated payment factors generated by 
    the model to determine payments for the next 5 years. The table below 
    provides the actual factors for fiscal years 1992 through 1999, and the 
    estimated factors that would be applicable through FY 2003. We caution 
    that these are estimates for fiscal years 2000 and later, and are 
    subject to revisions resulting from continued methodological 
    refinements, receipt of additional data, and changes in payment policy 
    changes. We note that in making these projections, we have assumed that 
    the cumulative national DRG/GAF budget neutrality adjustment factor 
    will remain at 1.00281 (1.00219 for Puerto Rico) for FY 1999 and later 
    because we do not have sufficient information to estimate the change 
    that will occur in the factor for years after FY 1999.
        The projections are as follows:
    
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                   Federal  
                                                                      Update     Exceptions     Budget      DRG/GAF      Outlier      Federal    rate (after
                             Fiscal year                              factor     reduction    neutrality   adjustment   adjustment      rate       outlier  
                                                                                   factor       factor     factor \1\     factor     adjustment   reduction)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    1992.........................................................          N/A       0.9813       0.9602                     .9497                    415.59
    1993.........................................................         6.07        .9756        .9162        .9980        .9496                    417.29
    1994.........................................................         3.04        .9485        .8947       1.0053        .9454    \2\ .9260       378.34
    1995.........................................................         3.44        .9734        .8432        .9998        .9414                    376.83
    1996.........................................................         1.20        .9849          N/A        .9994        .9536    \3\ .9972       461.96
    1997.........................................................         0.70        .9358          N/A        .9987        .9481                    438.92
    1998.........................................................         0.90        .9659          N/A        .9989        .9382    \4\ .8222       371.51
    1999.........................................................         0.10        .9783          N/A       1.0027        .9392                    378.05
    2000.........................................................         0.70        .9763          N/A   \5\ 1.0000    \5\ .9392                    379.92
    2001.........................................................         0.70        .9735          N/A       1.0000        .9392                    381.48
    2002.........................................................         0.70   \6\ 1.0000          N/A       1.0000        .9392                    394.61
    2003.........................................................         0.80   \6\ 1.0000          N/A       1.0000        .9392   \4\ 1.0255      407.92 
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Note: The incremental change over the previous year.                                                                                                
    \2\ Note: OBRA 1993 adjustment.                                                                                                                         
    
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    \3\ Note: Adjustment for change in the transfer policy.                                                                                                 
    \4\ Note: Balanced Budget Act of 1997 adjustment.                                                                                                       
    \5\ Note: Future adjustments are, for purposes of this projection, assumed to remain at the same level.                                                 
    \6\ Note: We are unable to estimate exceptions payments for the year under the special exceptions provision (Sec.  412.348(g) of the regulations)       
      because the regular exceptions provision (Sec.  412.348(e)) expires.                                                                                  
    
    Appendix C--Recommendation of Update Factors for Operating Cost Rates 
    of Payment for Inpatient Hospital Services
    
    I. Background
    
        Several provisions of the Act address the setting of update 
    factors for inpatient services furnished in FY 1999 by hospitals 
    subject to the prospective payment system and those excluded from 
    the prospective payment system. Section 1886(b)(3)(B)(i)(XIV) of the 
    Act sets the FY 1999 percentage increase in the operating cost 
    standardized amounts equal to the rate of increase in the hospital 
    market basket minus 1.9 percent for prospective payment hospitals in 
    all areas. Section 1886(b)(3)(B)(iv) of the Act sets the FY 1999 
    percentage increase in the hospital-specific rates applicable to 
    sole community and Medicare-dependent, small rural hospitals equal 
    to the rate set forth in section 1886(b)(3)(B)(i) of the Act, that 
    is, the same update factor as all other hospitals subject to the 
    prospective payment system, or the rate of increase in the market 
    basket minus 1.9 percentage points. Under section 
    1886(b)(3)(B)(ii)(VII) of the Act, the FY 1999 percentage increase 
    in the rate of increase limits for hospitals excluded from the 
    prospective payment system can range from the rate of increase in 
    the excluded hospital market basket to zero, depending on the 
    hospital's costs in relation to its limit for the most recent cost 
    reporting period for which information is available.
        In accordance with section 1886(d)(3)(A) of the Act, we are 
    updating the standardized amounts, the hospital-specific rates, and 
    the rate-of-increase limits for hospitals excluded from the 
    prospective payment system as provided in section 1886(b)(3)(B) of 
    the Act. Based on the second quarter 1998 forecast of the FY 1999 
    market basket increase of 2.4 percent for hospitals subject to the 
    prospective payment system, the updates in the standardized amounts 
    are 0.5 percent for hospitals in both large urban and other areas. 
    The update in the hospital-specific rate applicable to sole 
    community and Medicare-dependent, small rural hospitals is also 0.5 
    percent. The update for hospitals excluded from the prospective 
    payment system can be as high as the percentage increase in the 
    excluded hospital market basket (currently estimated at 2.4 percent) 
    or as low as zero, depending on the hospital's costs in relation to 
    its rate-of-increase limit. (See section V of the addendum to this 
    final rule.)
        Section 1886(e)(4) of the Act requires that the Secretary, 
    taking into consideration the recommendations of the Medicare 
    Payment Advisory Commission (MedPAC), recommend update factors for 
    each fiscal year that take into account the amounts necessary for 
    the efficient and effective delivery of medically appropriate and 
    necessary care of high quality. In its March 1, 1998 report, MedPAC 
    stated that, although a somewhat lower update could be justified in 
    light of changes in the utilization and provision of hospital 
    inpatient care, the legislated update of the market basket increase 
    minus 1.9 percentage points will provide a reasonable level of 
    payments to hospitals.
        Under section 1886(e)(5) of the Act, we are required to publish 
    the update factors recommended under section 1886(e)(4) of the Act. 
    Accordingly, we published the FY 1999 update factors recommended by 
    the Secretary as Appendix D of the May 8, 1998 proposed rule (63 FR 
    25704).
    
    II. Secretary's Final Recommendations
    
        We received two comments concerning our proposed 
    recommendations, neither of which took issue with the update 
    recommendation itself. Therefore, our final recommendations for the 
    operating update for both prospective and excluded hospitals do not 
    differ from the proposed, except that the forecast of the market 
    basket percentage increase has been revised from 2.6 to 2.4 percent 
    for prospective payment hospitals and from 2.5 to 2.4 percent for 
    excluded hospitals.
        Comment: The commenters suggested that HCFA's update framework 
    take into account the impact of ``Year 2000'' (Y2K) systems'' 
    conversions on hospital expenditures.
        Response: The purpose of the hospital input price indexes in the 
    hospital market basket is to measure the price escalation associated 
    with the inputs needed to provide hospital services, not to measure 
    changes in the quantity and quality of inputs used to provide these 
    services. The increased costs associated with Y2K systems 
    conversions are in the form of 3 factors: (1) Increased quantities 
    (such as more workers), (2) increased price levels for higher 
    quality workers (with higher wage levels) or other inputs, and (3) 
    increased price escalation, holding constant the quantity and 
    quality of inputs (such as faster wage and input price escalation 
    rates). The third factor of increased escalation for wages and 
    prices should be picked up by the hospital input price indexes.
        Since the input price indexes measure the ``pure price'' changes 
    associated with the inputs needed to provide hospital services, they 
    would reflect the potentially faster rate of price escalation faced 
    by hospitals from Y2K. An example would be higher market prices paid 
    by hospitals for goods and services purchased from suppliers that 
    also incurred higher production costs due to the Y2K conversion. We 
    believe that the price proxies used in the hospital input price 
    indexes, such as CPIs, PPIs, and ECIs, will reflect any escalating 
    prices since all sectors of the economy are faced with additional 
    costs of Y2K. This escalation will show up in the monthly or 
    quarterly updates of the price proxies from the Bureau of Labor 
    Statistics.
        Any change in the mix of inputs caused by Y2K would not be 
    picked up in the index until it is rebased. Such a change would 
    cause a modification of the weights in the input price index. 
    However, any changes in the weights are likely to have a minimal 
    effect on the overall percent change in the index. For example, we 
    did a sensitivity analysis of this effect by increasing the weight 
    for professional and technical wages and benefits by 10 percent with 
    a corresponding 10 percent decrease in the non-professional and 
    technical wages and benefits. Altering the weights in this manner 
    had no impact on the overall percent change in the index.
        Comment: MedPAC commented that HCFA's recommendations differed 
    from those of MedPAC in the proposed rule because HCFA did not 
    separately account for hospital product change. Hospital product 
    change reflects the dramatic change in recent years in the role of 
    the hospital inpatient setting in the continuum of care. More 
    patients are receiving postacute care after a hospital stay, and the 
    average length of acute care stays has declined sharply.
        Response: HCFA recognizes the changes in hospital inpatient care 
    delivery noted by MedPAC and for FY 1999, accounted for them in the 
    determination of the intensity factor. To the extent that there is a 
    mismatch in component designation between HCFA and MedPAC, HCFA is 
    willing to work with MedPAC to set more clearly defined and mutually 
    agreeable categories for future update recommendations.
    
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    [FR Doc. 98-20459 Filed 7-30-98; 8:45 am]
    BILLING CODE 4120-01-C
    
    
    

Document Information

Effective Date:
10/1/1998
Published:
07/31/1998
Department:
Health Care Finance Administration
Entry Type:
Rule
Action:
Final rule.
Document Number:
98-20459
Dates:
The provisions of this final rule are effective October 1, 1998. This rule is a major rule as defined in Title 5, United States Code, section 804(2). Pursuant to 5 U.S.C. section 801(a)(1)(A), we are submitting a report to the Congress on this rule on July 31, 1998.
Pages:
40954-41131 (178 pages)
Docket Numbers:
HCFA-1003-F
RINs:
0938-AI22: Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 1999 Rates (HCFA-1003-P)
RIN Links:
https://www.federalregister.gov/regulations/0938-AI22/changes-to-the-hospital-inpatient-prospective-payment-systems-and-fiscal-year-1999-rates-hcfa-1003-p
PDF File:
98-20459.pdf
CFR: (18)
42 CFR 413.86(b)
42 CFR 413.85(c)
42 CFR 412.308(c)(1)
42 CFR 413.85(d)
42 CFR 413.30(g)
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