2010-12563. Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 2010 Rates and to the Long-Term Care Hospital Prospective Payment System and Rate Year 2010 Rates: Final Fiscal Year 2010 Wage ...

AGENCY:

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

ACTION:

Notice.

SUMMARY:

This notice contains the final wage indices, hospital reclassifications, payment rates, impacts, and other related tables effective for the fiscal year (FY) 2010 hospital inpatient prospective payment systems (IPPS) and rate year 2010 long-term care hospital (LTCH) prospective payment system (PPS). The rates, tables, and impacts included in this notice reflect changes required by or resulting from the implementation of several provisions of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. These provisions require the extension of the expiration date for certain geographic reclassifications and special exception wage indices through September 30, 2010; and certain market basket updates for the IPPS and LTCH PPS.

DATES:

Effective Date: The revised standard Federal rates described in this notice are effective for payment years beginning October 1, 2009. Hospitals are paid based on the rates published in this notice for discharges on or after April 1, 2010.

FOR FURTHER INFORMATION CONTACT:

Tzvi Hefter, [phone].

SUPPLEMENTARY INFORMATION:

I. Background

The final rule setting forth the Medicare fiscal year (FY) 2010 hospital inpatient prospective payment systems (IPPS) for acute care hospitals and the rate year (RY) 2010 long-term care hospital (LTCH) prospective payment system (PPS) final rule (hereinafter referred to as the FY 2010 IPPS/RY 2010 LTCH PPS final rule) was published in the August 27, 2009 Federal Register (74 FR 43754) and subsequently corrected in an October 7, 2009 notice (74 FR 51496).

On March 23, 2010, the Patient Protection and Affordable Care Act (Pub. L. 111-148) was enacted. Following enactment of Public Law 111-148, the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (enacted on March 30, 2010), amended certain provisions of Public Law 111-148. (These public laws are collectively known as the Affordable Care Act.) Several of the provisions of the Affordable Care Act affect the FY 2010 IPPS and the RY 2010 LTCH PPS. However, due to the timing of the passage of the legislation, we noted in the FY 2011 IPPS and LTCH PPS proposed rule published in the May 4, 2010 Federal Register (75 FR 23852) that we would issue separate Federal Register documents addressing the provisions of the Affordable Care Act that affect our final policies and payment rates for FY 2010 IPPS and the RY 2010 LTCH PPS and proposed policies for FY 2011 under the IPPS and the LTCH PPS.

This notice addresses the provisions of the Affordable Care Act that impact the FY 2010 IPPS/RY 2010 LTCH PPS final wage index tables, rates, and impacts.

II. Final FY 2010 Wage Indices and Payment Rates

A. Final FY 2010 Hospital Wage Index Reclassifications/Redesignations

1. Section 508 Extension

Section 3137(a) of Public Law 111-148, as amended by section 10317 of Public Law 111-148, extends through the end of FY 2010 wage index reclassifications under section 508 of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) (Pub. L. 108-173) and certain special exceptions (for example, those special exceptions contained in the final rule promulgated in the Federal Register on August 11, 2004 (69 FR 49105 and 49107) extended under section 117 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) (Pub. L. 110-173)) and further extended under section 124 of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275).

Under section 508 of Public Law 108-173, a qualifying hospital could appeal the wage index classification otherwise applicable to the hospital and apply for reclassification to another area of the State in which the hospital is located (or, at the discretion of the Secretary), to an area within a contiguous State. We implemented this process through notices published in the Federal Register on January 6, 2004 (69 FR 661), and February 13, 2004 (69 FR 7340). Such reclassifications were applicable to discharges occurring during the 3-year period beginning April 1, 2004, and ending March 31, 2007. Section 106(a) of the Medicare Improvements and Extension Act, Division B of the Tax Relief and Health Care Act of 2006 (MIEA-TRHCA) extended any geographic reclassifications of hospitals that were made under section 508 and that would expire on March 31, 2007. In the March 23, 2007 Federal Register (72 FR 3799), we published a notice that indicated how we were implementing section 106(a) of the MIEA-TRHCA through September 30, 2007. Section 117 of the MMSEA further extended section 508 reclassifications and certain special exceptions through September 30, 2008. On February 22, 2008 in the Federal Register (73 FR 9807), we published a notice regarding our implementation of section 117 of the MMSEA. Section 124 of MIPPA, Public Law 110-275, then further extended section 508 reclassifications and certain special exceptions through September 30, 2009. Final rates incorporating these MIPPA extensions were published in a Federal Register notice on October 3, 2008 (73 FR 57888).

Section 3137(a) of Public Law 111-148, as amended by section 10317 of Public Law 111-148 has now extended the hospital reclassification provisions of section 508 and certain special exceptions through September 30, 2010 (FY 2010). Furthermore, section 3137(a)(2)(B) of Public Law 111-148 contains a new provision not previously included in prior mid-year extensions to section 508 requiring that “beginning on April 1, 2010, in determining the wage index applicable to hospitals that qualify for wage index reclassification, the Secretary shall include the average hourly wage data of hospitals whose reclassification was extended pursuant to the amendment made by paragraph (1) only if including such data results in a higher applicable reclassified wage index.” Finally, section 3401 of Public Law 111-148, as amended by section 10319 of Public Law 111-148 and section 1105 of Public Law 111-152, imposes a 0.25 percent decrease in the market basket calculated under section 1886(b)(3)(B) of the Social Security Act. As a result of these changes, we have recalculated certain wage indexes, recalculated the standardized amounts, and revised budget neutrality factors (including rural floor budget neutrality) to account for the new legislation.

For hospitals receiving an extension of their section 508 reclassifications or special exceptions, we have used the rates contained in the August 27, 2009 Federal Register, and as corrected in the October 7, 2009 Federal Register, unless the rates published in this notice result in a higher applicable wage index. Those section 508 and special exception providers that are receiving an extension through September 30, 2010 are shown in Table 9B of the Addendum to this notice. Please note we are not making reclassification decisions on behalf of hospitals in this extension as we did with the MIPPA provision. (Because MIPPA was enacted prior to the finalization of the FY 2009 rates, we were able to modify reclassifications that had not yet taken effect. In contrast, the Affordable Care Act has been enacted in the middle of the fiscal year, and reclassifications are already in effect). As explained in this notice, the intervening Affordable Care Act legislation affects only those labor market areas including hospitals whose reclassifications/special exceptions are extended, or areas to which such hospitals were reclassified for FY 2010.

When originally implementing section 508 of the MMA, we required each hospital to submit a request in writing by February 15, 2004, to the Medicare Geographic Classification Review Board (MGCRB), with a copy to CMS. We will neither require nor accept written requests for the extension required by the Affordable Care Act, since that legislation simply provides a 1-year continuation through the end of FY 2010 for any section 508 reclassifications and special exceptions wage indexes that expired September 30, 2009.

2. FY 2010 Final Wage Indices

The final wage index values for FY 2010 (except those for hospitals receiving wage index adjustments under section 505 of Pub. L. 108-173) are included in Tables 4A, 4B, and 4C of the Addendum to this notice and are posted on our Web site at http://www.cms.hhs.gov/​AcuteInpatientPPS/​. For hospitals that are receiving a wage index adjustment under section 505 of Public Law 108-173, only one county's adjustment factor changed due to the implementation of section 3137(a)(2)(B) of Public Law 111-148; therefore only that revised factor is shown in abbreviated Table 4J of the Addendum to this notice. In addition, Table 2 of the Addendum to this notice includes the final wage index values and occupational mix adjusted average hourly wage (from the FYs 2004, 2005, and 2006 cost reporting periods) for each hospital. Table 4D-1 of the Addendum of this notice lists the State rural floor budget neutrality factors for FY 2010. Table 4D-2 of this Addendum of this notice lists the urban areas with hospitals receiving the State rural floor or imputed rural floor wage index. Table 9B of the Addendum of this notice lists hospitals that are section 508 and special exception providers which have their reclassifications extended until September 30, 2010.

B. Inpatient Hospital Market Basket Update

1. FY 2010 Inpatient Hospital Update

In accordance with section 1886(b)(3)(B)(i) of the Act, each year we update the national standardized amount for inpatient operating costs by a factor called the “applicable percentage increase.” Prior to enactment of the Affordable Care Act, section 1886(b)(3)(B)(i)(XX) of the Act set the applicable percentage increase for FY 2007 and each subsequent fiscal year as equal to the rate-of-increase in the hospital market basket for IPPS hospitals in all areas, subject to the hospital submitting quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act. For hospitals that do not provide these data, the update is equal to the market basket percentage increase less an additional 2.0 percentage points. In accordance with these statutory provisions, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43850), we finalized an applicable percentage increase equal to the full market basket update of 2.1 percent based on IHS Global Insight, Inc.'s second quarter 2009 forecast of the FY 2010 market basket increase, provided the hospital submits quality data in accordance with our rules. For hospitals that do not submit quality data, the FY 2010 update to the operating standardized amount equals 0.1 percent (that is, the FY 2010 estimate of the market basket rate-of-increase minus 2.0 percentage points).

Sections 3401(a) and 10319(a) of Public Law 111-148 and section 1105 of Public Law 111-152, amend section 1886(b)(3)(B) of the Act. Specifically, section 1886(b)(3)(B)(xii)(I) of the Act, as added and amended by these sections of the Affordable Care Act, requires the Secretary to reduce the applicable percentage increase for FY 2010 by 0.25 percentage point, subject to the hospital submitting quality information under rules established by the Secretary in accordance with section 1886(b)(3)(B)(viii) of the Act. For hospitals that do not provide these data, the update is equal to the market basket percentage increase minus 0.25 percentage point less an additional 2.0 percentage points. Section 1886(b)(3)(B)(xii) of the Act, as added and amended by these sections of the Affordable Care Act, further states that the application of this adjustment “may result in the applicable percentage increase described in clause (i) being less than 0.0 for a fiscal year.” Although these amendments modify the applicable percentage increase applicable to the FY 2010 rates under the IPPS, section 3401(p) of Public Law 111-148 states that the amendments made by section 3401(a) of Public Law 111-148 shall not apply to discharges occurring prior to April 1, 2010. In other words, for discharges occurring on or after October 1, 2009 and prior to April 1, 2010, payment for a hospital's inpatient operating costs under the IPPS will be based on the applicable percentage increase set forth in the FY 2010 IPPS/RY 2010 LTCH PPS final rule.

Consistent with section 3401(p) of Public Law 111-148, for the first half of FY 2010 (that is, discharges on or after October 1, 2009 through March 30, 2010), payment will be made based on the applicable percentage increase equaling the market basket index for IPPS hospitals (which is defined in 42 CFR 413.40(a)(3)) in all areas for hospitals that submit quality data in accordance with our rules, and the market basket index for IPPS hospitals in all areas less 2.0 percentage for hospitals that fail to submit quality data in accordance with our rules. As noted previously, in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we calculated that the full market basket update equals 2.1 percent based on IHS Global Insight, Inc.'s second quarter 2009 forecast of the FY 2010 market basket increase. Consistent with section 1886(b)(3)(B)(xii) of the Act, as added and amended by sections 3401(a) and 10319(a) of Public Law 111-148 and section 1105 of Public Law 111-152, and section 3401(p) of Public Law 111-148, payment for discharges during the second half of FY 2010 (discharges on or after April 1, 2010 through September 30, 2010), will reflect the revised FY 2010 rate, which includes the 0.25 percentage point reduction for hospitals that submit quality data in accordance with our rules. For those hospitals that fail to submit quality data in accordance with our rules, we are reducing the market basket index for IPPS hospitals by an additional 2.0 percentage points (which is in addition to the 0.25 percentage point reduction required by section 1886(b)(3)(B)(xii) of the Act, as added and amended by sections 3401(a) and 10319(a) of Pub. L. 111-148 and section 1105 of Pub. L. 111-152). Therefore, based on IHS Global Insight, Inc.'s second quarter 2009 forecast of the FY 2010 market basket increase, the FY 2010 applicable percentage increase, on which payment for discharges occurring in the second half of FY 2010 is based, is 1.85 percent (that is, the FY 2010 estimate of the market basket rate-of-increase of 2.1 percent minus 0.25 percentage points) for hospitals in all areas, provided the hospital submits quality data in accordance with our rules. For hospitals that do not submit quality data, the payment update to the operating standardized amount is −0.15 percent (that is, the adjusted FY 2010 estimate of the market basket rate-of-increase of 1.85 percent minus 2.0 percentage points). As provided by these provisions, we are proposing to revise 42 CFR 412.64(d) in a supplemental proposed rule published elsewhere in this Federal Register.

Section 1886(b)(3)(B)(iv)(IV) of the Act provides that the applicable percentage increase applicable to the hospital-specific rates for SCHs and MDHs equals the applicable percentage increase set forth in section 1886(b)(3)(B)(i) of the Act (that is, the same update factor as for all other hospitals subject to the IPPS). Because the statute defines the applicable percentage increase for SCHs and MDHs as equal to the applicable percentage increase under section 1886(b)(3)(B)(i) of the Act for other IPPS hospitals, the update to the hospital specific rates for SCHs and MDHs is also subject to the amendments to section 1886(b)(3)(B)(i) of the Act made by sections 3401(a) and 10319(a) of Public Law 111-148 and section 1105 of Public Law 111-152, as well as to section 3401(p) of Public Law 111-148. Accordingly, for hospitals paid for their inpatient operating costs on the basis of a hospital-specific rate, the rates paid to such hospitals for discharges occurring during the first half of FY 2010 will be based on an annual update estimated to be 2.1 percent for hospitals submitting quality data or 0.1 percent for hospitals that fail to submit quality data; and the rates paid to such hospitals for the second half of FY 2010 will be based on the revised FY 2010 applicable percentage increase that is estimated to be 1.85 percent for hospitals submitting quality data or −0.15 percent for hospitals that fail to submit quality data. Similarly, we are proposing to revise 42 CFR 412.73(c)(15), 42 CFR 412.75(d), 42 CFR 412.77(e), 42 CFR 412.78(e), and 42 CFR 412.79(d) to reflect the changes made to section 1886(b)(3)(B) by sections 3401(a) and 10319(a) of Public Law 111-148 and section 1105 of Public Law 111-152, in a supplemental proposed rule published elsewhere in this Federal Register.

2. FY 2010 Puerto Rico Hospital Update

Puerto Rico hospitals are paid a blended rate for their inpatient operating costs based on 75 percent of the national standardized amount and 25 percent of the Puerto Rico-specific standardized amount. Section 1886(d)(9)(C)(i) of the Act is the basis for determining the annual adjustment to the Puerto Rico-specific standardized amount. Section 1886(d)(9)(C)(i) of the Act provides that the Puerto Rico standardized amount shall be adjusted in accordance with the final determination of the Secretary under section 1886(e)(4) of the Act. Section 1886(e)(4)(A) of the Act in turn directs the Secretary to recommend an appropriate change factor for inpatient hospital services for discharges in that fiscal year, taking in to account amounts necessary for the efficient and effective delivery of medically appropriate and necessary care of high quality, as well as the recommendations of MedPAC. In order to maintain consistency between the portion of the rates paid to Puerto Rico hospitals based on the national standardized amount and the portion based on the Puerto Rico-specific standardized rate, beginning in FY 2004 we have set the update to the Puerto Rico-specific operating standardized amount equal to the update to the national operating standardized amount for all IPPS hospitals. This policy is reflected in our regulations at 42 CFR 412.211.

The amendments to section 1886(b)(3)(B) of the Act by sections 3401(a) and 10319(a) of Public Law 111-148 and section 1105 of Public Law 111-152, affect only the update factor applicable to the national standardized rate for IPPS hospitals and the hospital-specific rates; they do not mandate any revisions to the update factor applicable to the Puerto Rico-specific standardized amount. Rather, as noted above, sections 1886(d)(9)(C)(i) and (e)(4) of the Act direct us to adopt an appropriate change factor for the FY 2010 Puerto Rico-specific standardized amount, which we did in the FY 2010 IPPS/LTCH PPS final rule after notice and comment rulemaking. Therefore, we do not believe we have the authority to revise the FY 2010 update factor for the Puerto Rico-specific operating standardized amount equal to the update factor applicable to the national standardized amount or the hospital-specific rates (that is the market basket minus 0.25 percentage points). Accordingly, the FY 2010 update to the Puerto Rico-specific operating standardized amount remains 2.1 percent (that is, the FY 2010 estimate of the market basket rate-of-increase).

C. Changes to Payment Rates for IPPS for Capital-Related Costs for FY 2010

Although the Affordable Care Act does not directly the amend provisions regarding payment for the IPPS for capital-related costs, in section II.E.2. of this notice we are establishing revised capital IPPS standard Federal rates for FY 2010. The revised FY 2010 capital Federal rates are effective for discharges occurring on or after April 1, 2010, consistent with section 3401(p) of Public Law 111-148. This is necessary because the operating IPPS market basket and wage index changes required by the provisions of this legislation (discussed above in section II.A. of this notice) affect the budget neutrality adjustment factor for changes in DRG classifications and weights and the geographic adjustment factor (GAF) since the GAF values are derived from the wage index values (see § 412.316(a)). In addition, these changes necessitate a revision to the outlier payment adjustment factor since a single set of thresholds is used to identify outlier cases for both inpatient operating and inpatient capital-related payments (see § 412.312(c)). The outlier thresholds are set so that operating outlier payments are projected to be 5.1 percent of total operating IPPS DRG payments. 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 capital-related outlier payments to total inpatient capital-related PPS payments. The revised capital IPPS standard Federal rates for FY 2010 (effective for discharges occurring on or after April 1, 2010) are discussed in section II.E.2. of this notice.

D. Long-Term Care Hospital Market Basket Update and Other Changes

1. Background

In the FY 2010 IPPS/RY 2010 LTCH PPS final rule that appeared in the August 27, 2009 Federal Register (74 FR 43754), we established policies, payment rates, and factors for determining payments under the LTCH PPS for RY 2010 (October 1, 2009 through September 30, 2010). Below we discuss revised RY 2010 LTCH PPS rates and factors consistent with the provisions of section 1886(m)(3) as added by section 3401(c) of Public Law 111-148, section 1886(m)(4) as added by section 3401(c) of Public Law 111-148 and amended by section 10319(b) of Public Law 111-148, as further amended by section 1105(b) of Public Law 111-152, as well as section 3401(p) of Public Law 111-148. Section 1886(m)(3)(A) of the Act provides that in implementing the system described in paragraph (1) [of 1886(m) of the Act] for rate year 2010 and each subsequent rate year, any annual update to the standard Federal rate for discharges for the hospital during the rate year, shall be reduced (i) for rate year 2012 and each subsequent rate year, by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) [of the Act]; and (ii) for each of the rate years 2010 through 2019, by the other adjustment described in paragraph (4) [of 1886(m) of the Act]. Section 1886(m)(3)(A) of the Act on its face explicitly provides for a revised annual update to the standard Federal rate beginning RY 2010, thus resulting in a single revised RY 2010 standard Federal rate. With respect to section 3401(p) of Public Law 111-148, this section provides that, notwithstanding the previous provisions of this section, the amendments made by subsections (a), (c), and (d) shall not apply to discharges occurring before April 1, 2010. When read in conjunction we believe section 1886(m)(3)(A) of the Act and section 3401(p) of Public Law 111-148 provide for a single revised RY 2010 standard Federal rate; however, for payment purposes, discharges occurring on or after October 1, 2009 and before April 1, 2010, simply will not be based on the revised RY 2010 standard Federal rate. In other words, for discharges occurring on or after October 1, 2009 through March 31, 2010, LTCH PPS payments will be based on the payment rates and factors established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (see (74 FR 43754)).

2. Market Basket Update for LTCHs for RY 2010

As discussed in section VII.C.2. of the preamble of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43967 through 43968), we continued to use the FY 2002-based rehabilitation, psychiatric, long-term care (RPL) hospital market basket under the LTCH PPS for RY 2010. Also, in that final rule, we stated that at that time, the most recent estimate of the increase in the LTCH PPS market basket for RY 2010 was 2.5 percent. This increase is based on IHS Global Insight, Inc.'s second quarter 2009 forecast of the FY 2002-based RPL market basket increase for RY 2010. We note, as discussed in the FY 2010 IPPS/RY 2010 final rule (74 FR 44022), in determining the update to the standard Federal rate for RY 2010, in addition to the full market basket increase, we also applied a −0.5 percent adjustment to account for the increase in case-mix due to changes in documentation and coding practices that do not reflect increased patient severity of illness from a prior period (that is, FY 2007).

As indicated above, section 3401(c) of Public Law 111-148 adds section 1886(m)(3)(A)(ii) of the Act which specifies that for RY 2010 and subsequent rate years, any update to the standard Federal rate shall be reduced, for each of RYs 2010 through 2019, by the other adjustment specified in new section 1886(m)(4) of the Act. Specifically, newly added section 1886(m)(4)(A) of the Act requires a 0.25 percentage point reduction to the annual update for RY 2010. Consequently, the market basket update under the LTCH PPS for RY 2010 is 2.25 percent (that is, the second quarter 2009 forecast estimate of the RY 2010 LTCH PPS market basket increase of 2.5 percent minus the 0.25 percentage points required by sections 1886(m)(3)(A)(ii) and (m)(4)(A) of the Act). (We note that to determine the revised standard Federal rate for RY 2010 in this notice, we applied the reduced market basket update (2.25 percent) as well as a −0.5 percent adjustment to account for the increase in case-mix due to changes in documentation and coding practices that do not reflect increased patient severity of illness from a prior period (FY 2007) that we established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43972).) In addition, in section II.F. of the Addendum of this notice, this revision to the standard Federal rate for RY 2010 requires us to revise the high cost outlier fixed-loss amount for RY 2010, under which the discharges occurring on or after April 1, 2010 will be evaluated, in order to maintain the requirement that the fixed-loss amount will result in estimated total outlier payments being projected to be equal to 8 percent of projected total LTCH PPS payments. (We also note that we determined that it is not necessary to revise the FY 2010 MS-LTC-DRG relative weights as a result of the change to the RY 2010 LTCH PPS standard Federal rate resulting from the revision to the RY 2010 annual update required by the Affordable Care Act. Although the standard Federal rate is used in our established methodology for updating the annual update to the MS-LTC-DRG classifications and relative weights in a manner such that estimated aggregate LTCH PPS payments would be unaffected, our payment simulations using the same budget neutrality methodology used in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43966 through 43967) show that this revision to the RY 2010 LTCH PPS standard Federal rate resulting from the revision to the RY 2010 annual update required by the Affordable Care Act, would not change the RY 2010 budget neutrality factor originally established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule. Therefore, the FY 2010 MS-LTC-DRG relative weights remain unchanged from those established in Table 11 of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44183 through 44192).)

E. Final FY 2010 Prospective Payment Systems Payment Rates for Hospital Inpatient Operating and Capital Related Costs

1. Final FY 2010 Prospective Payment Rates for Hospital Inpatient Operating Costs

In the FY 2010 IPPS and RY 2010 LTCH PPS final rule published in the Federal Register on August 27, 2009 (74 FR 43754), we established our methodology to determine the policies, payment rates and factors for determining payments under the IPPS for the entire FY 2010 (74 FR 44002 through 44014). Some of these rates also were corrected, as reflected in an October 7, 2009 correction notice (74 FR 51496). Below we establish revised FY 2010 IPPS rates and factors consistent with the provisions of section 3137(a) of Public Law 111-148, as amended by section 10319(a) of Public Law 111-148 and section 1105 of Public Law 111-152, and section 1886(b)(3)(B), as amended by sections 3401(a) and 10310(a) of Public Law 111-148 and section 1105 of Public Law 111-152. Although these changes modify the FY 2010 rates under the IPPS, in accordance with section 3401(p) of Public Law 111-148, the revised IPPS payment rates and factors do not apply to discharges occurring prior to April 1, 2010. In other words, for discharges occurring on or after October 1, 2009 through discharges on or before March 31, 2010, IPPS payments will be based on the payment rates and factors established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, and for discharges on or after April 1, 2010 through discharges on or before September 30, 2010 payments will be based on the FY 2010 payment rates and factors outlined in this notice.

The 0.25 percentage point reduction to the applicable percentage increase for FY 2010 (as required by section 1886(b)(3)(B)(xii), as added and amended by sections 3401(a) and section 10319(a) of Pub. L. 111-148 and section 1105 of Pub. L. 111-152) affects all the budget neutrality factors described below. In general, to compute the budget neutrality factors that are applied to the standardized amounts, in our simulations of FY 2010 payments we used the standardized amount updated by the market basket update percentage (for FY 2010). Because the statute now requires a reduction to the FY 2010 market basket update, it is necessary to recompute the FY 2010 budget neutrality factors applied to the standardized amount by resimulating payments with the revised FY 2010 market basket update.

To calculate the FY 2010 revised payment rates and factors, we used the same methodology from the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44002 through 44014) incorporating the additional reduction required by section 1886(b)(3)(B)(xii) of the Act (as discussed below). We note that in calculating the budget neutrality factors discussed below, we included the wage data corrections discussed in the FY 2010 IPPS/LTCH PPS final rule correction notice (74 FR 51497 through 51498).

a. Updating the Average Standardized Amounts

As explained in section II.B. of this notice, in accordance with section 3401(p) of Public Law 111-148, for the first half of FY 2010 (that is, discharges on or after October 1, 2009 through March 30, 2010), payments will be based on an applicable percentage increase that is equal to the market basket index for IPPS hospitals (which is defined in 42 CFR 413.40(a)(3)) in all areas for hospitals that submit quality data in accordance with our rules, and the market basket index for IPPS hospitals in all areas less 2.0 percentage for hospitals that fail to submit quality data in accordance with our rules. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44235), we calculated that the full market basket update equals 2.1 percent based on IHS Global Insight, Inc.'s second quarter 2009 forecast of the FY 2010 market basket increase. For the second half of FY 2010 (discharges on or after April 1, 2010 through September 30, 2010), in accordance with section 1886(b)(3)(B)(xii) of the Act, as added and amended by sections 3401(a) and 10319(a) of Public Law 111-148 and section 1105 of Public Law 111-152, as well as section 3401(p) of Public Law 111-148, hospitals are paid based on the revised FY 2010 applicable percentage increase. That amount is equal to the market basket index for IPPS hospitals in all areas reduced by 0.25 percentage points for hospitals that submit quality data in accordance with our rules. For those hospitals that fail to submit quality data in accordance with our rules, the market basket index for IPPS hospitals will continue to be reduced by an additional 2.0 percentage points (which is in addition to the 0.25 percentage point reduction required by new section 1886(b)(3)(B)(xii) of the Act). Therefore, based on IHS Global Insight, Inc.'s second quarter 2009 forecast of the FY 2010 market basket increase, the revised FY 2010 applicable percentage increase is 1.85 percent (that is, the FY 2010 estimate of the market basket rate-of-increase of 2.1 percent minus 0.25 percentage points) for hospitals in all areas, provided the hospital submits quality data in accordance with our rules. For hospitals that do not submit quality data, the payment update to the operating standardized amount is −0.15 percent (that is, the adjusted FY 2010 estimate of the market basket rate-of-increase of 1.85 percent minus 2.0 percentage points). Hospitals will be paid based on these revised payment update amounts for discharges occurring in the second half of FY 2010. We note that in order to implement the requirements of section 1886(b)(3)(B) of the Act, as amended by sections 3401(a) and 10319(a) of Public Law 111-148 and section 1105 of Public Law 111-152, we are proposing to revise 42 CFR 412.64(d) in a supplemental proposed rule published elsewhere in this Federal Register.

The amendments to section 1886(b)(3)(B) of the Act by sections 3401(a) and 10319(a) of Public Law 111-148 and section 1105 of Public Law 111-152, affect only the update factor applicable to the national standardized rate for IPPS hospitals and the hospital-specific rates; they do not mandate any revisions to the update factor applicable to the Puerto Rico-specific standardized amount. Rather, sections 1886(d)(9)(C)(i) and (e)(4) of the Act direct us to adopt an appropriate change factor for the FY 2010 Puerto Rico-specific standardized amount, which we did in the FY 2010 IPPS/RY 2010 LTCH PPS final rule after notice and consideration of public comments. Therefore, we do not believe that we have the authority to revise the FY 2010 update factor for the Puerto Rico-specific operating standardized amount equal to the update factor applicable to the national standardized amount or the hospital-specific rates (that is the market basket minus 0.25 percentage points). Accordingly, the FY 2010 update to the Puerto Rico-specific operating standardized amount remains 2.1 percent (that is, the FY 2010 estimate of the market basket rate-of-increase).

b. Final FY 2010 Budget Neutrality Adjustments Factors for Recalibration of DRG Weights and Updated Wage Index

Using the methodology finalized in the FY 2010 IPPS/LTCH PPS final rule for calculating budget neutrality, for FY 2010 (74 FR 44005), we are setting the following budget neutrality factors in order to account for the changes made by the Affordable Care Act: A DRG reclassification and recalibration factor of 0.997935 and a budget neutrality factor of 1.000418 for changes to the wage index. We multiplied the DRG reclassification and recalibration budget neutrality factor of 0.997935 by the budget neutrality factor of 1.000418 for changes to the wage index to determine the DRG reclassification and recalibration and updated wage index budget neutrality factor of 0.998352 (as required by sections 1886(d)(4)(C)(iii) and 1886(d)(3)(E)(i) of the Act). Consistent with section 3401(p) of Public Law 111-148, we applied these revised factors to the Federal rate on which payments are made for discharges occurring on or after April 1, 2010.

c. Final FY 2010 Reclassified Hospitals-Budget Neutrality Adjustment

Using the methodology finalized in the FY 2010 IPPS/LTCH PPS final rule for calculating reclassification budget neutrality (74 FR 44005 through 44006), we computed the following factor in order to account for the changes made by the Affordable Care Act: A 0.991985 factor for reclassification budget neutrality, as required by section 1886(d)(8)(D) of the Act. Consistent with sections 3137(a) and 3401(p) of the Public Law 111-148, we applied this factor to the Federal rate that is applied in determining payments for FY 2010 discharges occurring on or after April 1, 2010.

We note, as discussed in section II.A. of this notice, section 3137(a) of Public Law 111-148, as amended by section 10317 of Public Law 111-148 has now extended the hospital reclassification provisions of section 508 and certain special exceptions through September 30, 2010 (FY 2010). Consistent with section 106(a) of Public Law 109-432, payments for providers reclassified under section 508 and under the special exception policy are not budget neutral. However, section 3137(a)(2)(B) of Public Law 111-148 requires us to also recalculate the reclassification wage indices of areas by excluding those hospitals whose section 508 reclassifications and special exceptions wage indices have been extended, if doing so would increase the reclassification wage index. These payments of providers located in section 508 and special exception areas (that are not section 508 or special exception providers), as well as hospitals reclassified to those areas, are subject to budget neutrality. Therefore, we included the additional payments associated with the increased payments being made to such hospitals as a result of section 3137(a) of Public Law 111-148 in our calculation of the reclassified wage index budget neutrality factor, pursuant to section 1886(d)(8)(D) of the Act. This section requires that aggregate payments under section 1886 of the Act do not increase as a result of the costs associated with reclassifications. Our analysis relied on the most up-to-date wage data, that is, the corrected wage indexes from the FY 2010 IPPS/RY 2010 LTCH PPS correction notice (74 FR 51497 through 51498) in the calculation of the reclassified wage index budget neutrality factor. Guidance to FIs and A/B MACs will be issued separate from this notice for hospital wage indexes that are increasing as a result of the extension of section 508 reclassifications and special exceptions.

d. Final FY 2010 Rural and Imputed Floor Budget Neutrality

We make an adjustment to the wage index to ensure that aggregate payments to hospitals are not affected by the rural floor under section 4410 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) and the imputed floor under § 412.64(h)(4) of the regulations. As discussed in section III.B. of the preamble to the FY 2009 IPPS final rule (73 FR 48570 through 48574), we adopted State-level budget neutrality for the rural and imputed floors, effective beginning with the FY 2009 wage index. In response to the public's concerns and taking into account the potentially significant payment cuts that could occur to hospitals in some States if we implemented this change with no transition, we phased in, over a 3-year period, the transition from a national rural floor budget neutrality adjustment on the wage index to a State-level rural floor budget neutrality adjustment on the wage index. For FY 2010, the blended wage index was determined by adding 50 percent of the wage index adjusted by applying the State-level rural and imputed floor budget neutrality adjustment and 50 percent of the wage index adjusted by applying the national budget neutrality adjustment.

Similar to the budget neutrality factors above, we included the corrected wage data from the FY 2010 IPPS/LTCH PPS final rule correction notice and the post reclassified wage index changes that resulted from the extension of the hospital reclassification provisions of section 508 and certain special exceptions in our calculation of the FY 2010 rural and imputed floor budget neutrality factors. We note that section 3137(a)(2)(B) of Public Law 111-148, as amended by section 10317 of Public Law 111-148, requires that beginning April 1, 2010, we include the average hourly wage data of hospitals whose section 508 reclassifications and special exception wage indices were extended, only if doing so results in a higher reclassification wage index. We interpret this language as referring to the reclassification wage index that is calculated pursuant to section 1886(d)(8)(C) of the Act, as that is the reclassification wage index calculation that employs average hourly wage data. We do not interpret the language as referring to the reclassification wage index after it is subsequently adjusted for rural/imputed floor budget neutrality, as that budget neutrality adjustment is not based upon average hourly wage data, and is not made to adjust for the effects of reclassifications.

Using the methodology finalized in the FY 2010 IPPS/LTCH PPS final rule (74 FR 44006), we calculated a national rural and imputed floor budget neutrality adjustment factor of 0.996686. Each State's rural or imputed floor budget neutrality adjustment can be found in table 4D-1 of the Addendum of this notice. Additionally, in order to ensure that national payments overall remain budget neutral after application of the blended national and state rural and imputed floors, an additional adjustment factor of 1.000010 must be applied to the blended post reclassified, post-floor (including budget neutrality) wage indices. Consistent with section 3401(p) of Public Law 111-148, we applied these factors to the wage indexes that are applied in determining payments for FY 2010 discharges occurring on or after April 1, 2010.

e. Final FY 2010 Rural Community Hospital Demonstration Program Adjustment

Using the methodology finalized in the FY 2010 IPPS/LTCH PPS final rule and accounting for the projected total annual impact of $27,141,815 for FY 2010 (74 FR 44012; and reflecting the provisions of the Affordable Care Act) we computed a budget neutrality adjustment of 0.999739 for the rural community hospital demonstration, in order to satisfy section 410A(c)(2) of Public Law 108-173. We note, after re-simulating payments reflecting the provisions of the Affordable Care Act, the adjustment factor in this notice is the same as the adjustment factor computed in the FY 2010 IPPS/LTCH PPS final rule. Consistent with section 3401(p) of Public Law 111-148, we applied this factor to the Federal rate that is applied in determining payments for FY 2010 discharges occurring on or after April 1, 2010.

f. Final FY 2010 Outlier Fixed-Loss Cost Threshold

We are revising the FY 2010 outlier fixed-loss cost threshold due to the change in the market basket and other budget neutrality factors described above. Using the methodology we finalized in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44007 through 44011) and taking into account the provisions of the Affordable Care Act as discussed above, we are finalizing an outlier fixed-loss cost threshold for FY 2010 equal to the prospective payment rate for the DRG, plus any IME and DSH payments, and any add-on payments for new technology, plus $23,135. Consistent with section 3401(p) of the Public Law 111-148, we are applying this threshold for FY 2010 discharges occurring on or after April 1, 2010.

g. Final FY 2010 Outlier Adjustment Factors

The FY 2010 outlier adjustment factors that are applied to the FY 2010 standardized amount for the FY 2010 outlier threshold are as follows:

	Operating standardized amounts	Capital federal rate
National	0.948998	0.947766
Puerto Rico	0.957417	0.935787

Consistent with section 3401(p) of Public Law 111-148, we applied these revised factors to the Federal rate on which payments are made for discharges occurring on or after April 1, 2010.

h. FY 2010 Standardized Amount

We recalculated the FY 2010 final standardized amounts using the methodology finalized in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44002 through 44014) and taking into account the changes required by the provisions of the Affordable Care Act as discussed above. Tables 1A and 1B of the Addendum to this notice contain the final national standardized amount that we are applying to all hospitals, except hospitals in Puerto Rico. The final Puerto Rico-specific amounts are shown in Table 1C. The amounts shown in Tables 1A and 1B differ only in that the labor-related share applied to the final standardized amounts in Table 1A is 68.8 percent, and the labor-related share applied to the final standardized amounts in Table 1B is 62 percent.

In addition, Tables 1A and 1B include the final standardized amounts reflecting the FY 2010 adjusted market basket update of 1.85 percent update and final standardized amounts reflecting the additional 2.0 percentage point reduction to the update applicable for hospitals that fail to submit quality data consistent with section 1886(b)(3)(B)(viii) of the Act (resulting in a −0.15 percent update). Below is a revised table reflecting the changes required by the provisions of the Affordable Care Act that details the calculation of the final FY 2010 standardized amounts. Consistent with section 3401(p) of Public Law 111-148, hospitals are paid based on these rates for discharges occurring on or after April 1, 2010.

Comparison of FY 2009 Standardized Amounts to the FY 2010 Standardized Amount With Full and Reduced Update

	Full update (1.85 percent); wage index is greater than 1.0000	Full update (1.85 percent); wage index is less than or equal to 1.0000	Reduced update (−0.15 percent); wage index is greater than 1.0000	Reduced update (−0.15 percent); wage index is less than or equal to 1.0000
FY 2009 Base Rate, after removing geographic reclassification budget neutrality, demonstration budget neutrality and outlier offset (based on the labor-related share percentage for FY 2010)	Labor: $3,748.52 Nonlabor: $1,699.91	Labor: $3,378.03 Nonlabor: $2,070.40	Labor: $3,748.52 Nonlabor: $1,699.91	Labor: $3,378.03. Nonlabor: $2,070.40.
FY 2010 Update Factor	1.0185	1.0185	0.9985	0.9985.
FY 2010 DRG Recalibration and Wage Index Budget Neutrality Factor	0.998352	0.998352	0.998352	0.998352.
FY 2010 Reclassification Budget Neutrality Factor	0.991985	0.991985	0.991985	0.991985.
FY 2010 Outlier Factor	0.948998	0.948998	0.948998	0.948998.
Rural Demonstration Budget Neutrality Factor	0.999739	0.999739	0.999739	0.999739.
Rate for FY 2010	Labor: $3,587.24 Nonlabor: $1,626.78	Labor: $3,232.69 Nonlabor: $1,981.33	Labor: $3,516.80 Nonlabor: $1,594.84	Labor: $3,169.22. Nonlabor: $1,942.42.

The labor-related and nonlabor-related portions of the national average standardized amounts for Puerto Rico hospitals for FY 2010 are set forth in Table 1C in this notice. (The labor-related share applied to the Puerto Rico-specific standardized amount is either 62.1 percent or 62 percent, depending on which is more advantageous to the hospital.)

i. Final FY 2010 Adjustments for Area Wage Levels

The following wage index tables were revised in this notice as a result of the provisions of the Affordable Care Act: Tables 2, 4A, 4B, 4C, 4D-1, 4D-2, 4J, and 9B. (These tables can be found in the Addendum to this notice and are also available on the CMS Web site at http://www.cms.gov/​AcuteInpatientPPS/​WIFN/​itemdetail.asp?​filterType=​none&​filterByDID=​0&​sortByDID=​3&​sortOrder=​descending&​itemID=​CMS1234175&​intNumPerPage=​10.)

2. FY 2010 Prospective Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs

Although the provisions of the Affordable Care Act do not directly affect the payment rates and policies for the IPPS for capital-related costs, as discussed in section II.C. of this notice, we are revising the capital IPPS standard Federal rates for FY 2010. The revised FY 2010 capital Federal rates are effective for discharges occurring on or after April 1, 2010, consistent with section 3401(p) of Public Law 111-148. The revision to the FY 2010 capital Federal rates is necessary because the operating IPPS market basket and wage index changes required by the provisions of the Affordable Care Act (discussed in section II.A. of this notice) affect the budget neutrality adjustment factor for changes in DRG classifications and weights and the geographic adjustment factor (GAF) since the GAF values are derived from the wage index values (see § 412.316(a)). In addition, the provisions of the Affordable Care Act also necessitate a revision to the outlier payment adjustment factor for FY 2010 since a single set of thresholds is used to identify outlier cases for both inpatient operating and inpatient capital-related payments (see § 412.312(c)).

In this notice, we have calculated the final FY 2010 capital Federal rates, offsets, and budget neutrality factors using the same methodology we adopted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44014 through 44021), as revised by the FY 2010 IPPS/RY 2010 LTCH PPS correction notice (October 7, 2009; (74 FR 51496 through 51499)), that was used to calculate the final rates and factors included in that rule which did not reflect the provisions of the Affordable Care Act. For a complete description of this methodology, please see the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44014 through 44021), as revised by the FY 2010 IPPS/RY 2010 LTCH PPS correction notice (74 FR 51496 through 51499).

a. Capital Standard Federal Rate Update for FY 2010

The final factors used in the FY 2010 update framework are not affected by the provisions of the Affordable Care Act. Therefore, the final update factor for FY 2010 is not being revised from the final capital IPPS standard Federal rate update factor discussed in section III.A.1. of the FY 2010 IPPS/RY 2010 LTCH PPS final rule, as revised by the FY 2010 IPPS/RY 2010 LTCH PPS correction notice and remains at 1.2 percent for FY 2010. A full discussion of the update framework is provided in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44015 through 44017) in conjunction with the FY 2010 IPPS/RY 2010 LTCH PPS correction notice (74 FR 51498 through 51499).

b. Outlier Payment Adjustment Factor

Based on the thresholds as set forth in section II.E.2. of this notice, we estimate that outlier payments for capital-related costs will equal 5.22 percent for inpatient capital-related payments based on the final capital Federal rate in FY 2010. Therefore, we are applying an outlier adjustment factor of 0.9478 in determining the FY 2010 capital Federal rate. For FY 2009, we estimated that outlier payments for capital will equal 5.35 percent of inpatient capital-related payments, and we established an outlier adjustment factor of 0.9465 for FY 2009 based on the capital Federal rate in FY 2009 (73 FR 57891). Thus, we estimate that the percentage of capital outlier payments to total capital standard payments for FY 2010 will be lower than the percentage for FY 2009. This decrease in capital outlier payments is primarily due to the estimated increase in capital IPPS payments per discharge. That is, because capital payments per discharge are projected to increase in FY 2010 compared to FY 2009, as shown in Table III. in section IV.C. of this notice, fewer cases will qualify for outlier payments.

The outlier reduction factors are not built permanently into the capital rates; that is, they are not applied cumulatively in determining the capital Federal rate. The FY 2010 outlier adjustment of 0.9478 is a 0.14 percent change from the FY 2009 outlier adjustment of 0.9465. Therefore, the net change in the outlier adjustment to the capital Federal rate for FY 2010 is 1.0014 (0.9478/0.9465). Thus, the outlier adjustment increases the FY 2010 capital Federal rate by 0.14 percent compared to the FY 2009 outlier adjustment.

A single set of thresholds is used to identify outlier cases for both inpatient operating and inpatient capital-related payments (see § 412.312(c)). The outlier thresholds are set so that operating outlier payments are projected to be 5.1 percent of total operating IPPS DRG payments. The outlier thresholds for FY 2010 are in section II.E.1. of this notice. For FY 2010, for discharges occurring on or after April 1, 2010, a case qualifies as a cost outlier if the cost for the case plus the IME and DSH payments is greater than the prospective payment rate for the MS-DRG plus the fixed-loss amount of $23,135.

c. Budget Neutrality Adjustment Factor for Changes in DRG Classifications and Weights and the GAF

Using the methodology discussed in section III.A.3. of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44018 through 44019), for FY 2010, we are establishing a GAF/DRG budget neutrality factor of 0.9994, which is the product of the incremental GAF budget neutrality factor of 0.9999 and the DRG budget neutrality factor of 0.9995 (the DRG budget neutrality factor remains unchanged from the FY 2010 IPPS/RY 2010 LTCH PPS final rule). The GAF/DRG budget neutrality factors are built permanently into the capital rates; that is, they are applied cumulatively in determining the capital Federal rate. This follows the requirement that estimated aggregate payments each year be no more or less than they would have been in the absence of the annual DRG reclassification and recalibration and changes in the GAFs. The incremental change in the adjustment from FY 2009 to FY 2010 is 0.9994. The cumulative change in the FY 2010 capital Federal rate due to this adjustment is 0.9911 (the product of the incremental factors for FYs 1995 though 2009 and the incremental factor of 0.9994 for FY 2010). (We note that averages of the incremental factors that were in effect during FYs 2005 and 2006, respectively, and the revised FY 2010 factor of 0.9994 that reflect the effect of the provisions of the Affordable Care Act (as discussed in section II.C. of this notice) were used in the calculation of the cumulative adjustment of 0.9911 for FY 2010.) The cumulative adjustments for MS-DRG classifications and changes in relative weights and for changes in the national GAFs through FY 2010 is 0.9911. The following table summarizes the adjustment factors for each fiscal year:

The factor accounts for the MS-DRG reclassifications and recalibration and for changes in the GAFs, which include the changes to the operating IPPS market basket update and wage index as required by the provisions of the Affordable Care Act (as discussed in section II.A. of this notice). It also incorporates the effects on the GAFs of FY 2010 geographic reclassification decisions made by the MGCRB compared to FY 2009 decisions. However, it does not account for changes in payments due to changes in the DSH and IME adjustment factors.

d. Exceptions Payment Adjustment Factor

The provisions of the Affordable Care Act have no effect on capital exceptions payments. Therefore, the special exceptions adjustment factor remains at 0.9998 as discussed in section III.A.4. of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44019).

e. Capital Standard Federal Rate for FY 2010

As a result of the 1.2 percent update and other budget neutrality factors discussed above, we are establishing a national capital Federal rate of $429.56 for FY 2010. As stated above, this rate will apply to discharges occurring on or after April 1, 2010, consistent with section 3401(p) of Public Law 111-148. We are providing the following chart that shows how each of the factors and adjustments for FY 2010 affects the computation of the FY 2010 national capital Federal rate in comparison to the FY 2009 national capital Federal rate. The FY 2010 update factor has the effect of increasing the capital Federal rate by 1.2 percent compared to the FY 2009 capital Federal rate. The GAF/DRG budget neutrality factor of 0.9994 has the effect of decreasing the capital Federal rate by 0.06 percent compared to the FY 2009 capital Federal rate. The FY 2010 outlier adjustment factor has the effect of increasing the capital Federal rate by 0.14 percent compared to the FY 2009 capital Federal rate. The FY 2010 exceptions payment adjustment factor has the effect of decreasing the capital Federal rate by 0.01 percent compared to the FY 2009 capital Federal rate. As discussed in section VI.E.1. of the preamble of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43926 through 43928), we did not apply an additional adjustment to the FY 2010 capital Federal rate for changes in documentation and coding that do not reflect real changes in patients' severity of illness. A permanent cumulative adjustment of −1.5 percent (that is, a factor of 0.985) was applied in determining the FY 2009 capital Federal rate for changes in documentation and coding that do not reflect real changes in patients' severity of illness. The combined effect of all the changes increase the national capital Federal rate by approximately 1.27 percent compared to the FY 2009 national capital Federal rate.

Comparison of Factors and Adjustments: FY 2009 Capital Federal Rate and FY 2010 Capital Federal Rate

	FY 2009	FY 2010	Change	Percent change
Update Factor 1	1.0090	1.0120	1.0120	1.20
GAF/DRG Adjustment Factor 1	1.0004	0.9994	0.9994	−0.06
Outlier Adjustment Factor 2	0.9465	0.9478	1.0014	0.14
Exceptions Adjustment Factor 2	0.9999	0.9998	0.9999	−0.01
MS-DRG Documentation and Coding Adjustment Factor	3 0.9850	3 0.9850	1.0000	0.00
Capital Federal Rate	$424.17	$429.56	1.0127	1.27
1 The update factor and the GAF/DRG budget neutrality factors are built permanently into the capital rates. Thus, for example, the incremental change from FY 2009 to FY 2010 resulting from the application of the 0.9994 GAF/DRG budget neutrality factor for FY 2010 is a net change of 0.9994.
2 The outlier reduction factor and the exceptions adjustment factor are not built permanently into the capital rates; that is, these factors are not applied cumulatively in determining the capital rates. Thus, for example, the net change resulting from the application of the FY 2010 outlier adjustment factor is 0.9478//0.9465, or 1.0014.
3 The documentation and coding adjustment factor includes the −0.6 percent in FY 2008, −0.9 percent in FY 2009, and no additional reduction in FY 2010.

We are also providing a chart that shows how the revised FY 2010 capital Federal rate, which reflects the effect of the provisions of the Affordable Care Act differs from the FY 2010 capital Federal rate as presented in the FY 2010 IPPS final rule (74 FR 44020), as revised by the FY 2010 IPPS/RY 2010 LTCH PPS correction notice (74 FR 52499).

Comparison of Factors and Adjustments: FY 2010 Capital Federal Rate Prior to the Enactment of the Affordable Care Act and Revised FY 2010 Capital Federal Rate Reflecting the Effect of the Provisions of the Affordable Care Act

	FY 2010 *	Revised FY 2010 **	Change	Percent change
Update Factor	1.0120	1.0120	1.0000	0.00
GAF/DRG Adjustment Factor	0.9990	0.9994	1.0004	0.04
Outlier Adjustment Factor	0.9475	0.9478	1.0003	0.03
Exceptions Adjustment Factor	0.9998	0.9998	1.0000	0.00
MS-DRG Documentation and Coding Adjustment Factor	1.0000	1.0000	1.0000	0.00
Capital Federal Rate	$429.26	$429.56	1.0007	0.07
* FY 2010 capital IPPS rates and factors established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44020), as revised by the FY 2010 IPPS/RY 2010 LTCH PPS correction notice (74 FR 52499), developed prior to the enactment of the Affordable Care Act.
** Final FY 2010 capital IPPS rates and factors reflecting the effect of the provisions of the Affordable Care Act.

f. Special Capital Rate for Puerto Rico Hospitals

Using the methodology discussed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44020), with the changes we are making to the factors used to determine the capital rate, the FY 2010 special capital rate for hospitals in Puerto Rico is $203.57. (See the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44015 through 44020) and FY 2010 IPPS/RY 2010 LTCH PPS correction notice (74 FR 51499) for additional information on the calculation of the FY 2010 capital Puerto Rico specific rate.)

F. Changes to the Payment Rates for the LTCH PPS for RY 2010

1. LTCH PPS Standard Federal Rate for RY 2010

a. Revision of Certain Market Basket Updates as Required by the Affordable Care Act

In section V. of the Addendum of the FY 2010 IPPS/RY 2010 final rule (74 FR 44021 through 44022), we discuss the changes to the payment rates and factors under the LTCH PPS for RY 2010. Below we establish revised RY 2010 LTCH PPS rates and factors consistent with the provisions of section 1886(m)(3) of the Act as added by section 3401(c) of Public Law 111-148, and section 1886(m)(4) as added by section 3401(c) of Public Law 111-148 and amended by section 10319(b) of Public Law 111-148, as further amended by section 1105(b) of Public Law 111-152, as well as section 3401(p) of Public Law 111-148. Section 1886(m)(3)(A) of the Act provides that in implementing the system described in paragraph (1) [of 1886(m) of the Act] for rate year 2010 and each subsequent rate year, any annual update to the standard Federal rate for discharges for the hospital during the rate year, shall be reduced (i) for rate year 2012 and each subsequent rate year, by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) [of the Act]; and (ii) for each of the rate years 2010 through 2019, by the other adjustment described in paragraph (4) [of 1886(m) of the Act]. As explained above in section II.D. of this notice, section 1886(m)(3)(A) of the Act on its face explicitly provides for a revised annual update to the standard Federal rate beginning RY 2010, thus resulting in a single revised RY 2010 standard Federal rate. Under section 1886(m)(3)(A)(ii), the annual update to the standard Federal rate shall be reduced for each of the rate years 2010 through 2019, by the other adjustment described in paragraph (4) [of 1886(m) of the Act]. Section 1886(m)(4)(A) of the Act provides for a 0.25 percentage point reduction to the annual update for RY 2010. Therefore, we are reducing the applicable market basket update for RY 2010 by 0.25 percentage points, as described in greater detail below. With respect to section 3401(p) of Public Law 111-148, this section provides that, notwithstanding the previous provisions of this section, the amendments made by subsections (a), (c) and (d) shall not apply to discharges occurring before April 1, 2010. When read in conjunction, we believe section 1886(m)(3)(A)(ii) of the Act and section 3401(p) of Public Law 111-148 provide for a single revised RY 2010 standard Federal rate; however, for payment purposes, discharges occurring on or after October 1, 2009 and before April 1, 2010, simply will not be based on the revised RY 2010 standard Federal rate. (In other words, for discharges occurring on or after October 1, 2009 and on or before March 31, 2010, the update to the LTCH PPS Federal rate will be based on the applicable update factor set forth in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44022).) For discharges occurring on or after April 1, 2010 through September 30, 2010, payment is based on the revised RY 2010 standard Federal rate established below in this notice.

b. Development of the RY 2010 LTCH PPS Standard Federal Rate

As discussed in section V.A. of the Addendum of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44022), while we continue to believe that an update to the LTCH PPS standard Federal rate should be based on the most recent estimate of the increase in the LTCH PPS market basket, we also believe it is appropriate that the standard Federal rate be offset by an adjustment to account for any changes in documentation and coding practices that do not reflect increased patient severity of illness. Such an adjustment protects the integrity of the Medicare Trust Funds by ensuring that the LTCH PPS payment rates better reflect the true costs of treating LTCH patients.

As discussed in section II.D. of this notice, consistent with sections 1886(m)(3)(A)(ii) and (4)(A) of the Act, the market basket update under the LTCH PPS for RY 2010 is 2.25 percent (that is, the second quarter 2009 forecast estimate of the RY 2010 LTCH PPS market basket increase of 2.5 percent minus the 0.25 percentage points required by sections 1886(m)(3)(A)(ii) and (4)(A) of the Act. Furthermore, as discussed in greater detail in the FY 2010 IPPS/RY 2010 final rule (74 FR 44022), while we continued to believe that an update to the LTCH PPS standard Federal rate should be based on the most recent estimate of the increase in the LTCH PPS market basket, we also believed it is appropriate that the standard Federal rate be offset by an adjustment to account for any changes in documentation and coding practices that do not reflect increased patient severity of illness. Therefore, in determining the update to the standard Federal rate for RY 2010 in that same final rule, based on an analysis of FY 2007 claims data, we established a −0.5 adjustment to account for the increase in case-mix due to changes in documentation and coding practices that do not reflect increased patient severity of illness from a prior period (FY 2007).

Consistent with our historical practice and the methodology used in the FY 2010 IPPS/RY 2010 final rule, in this notice, we are establishing an update to the LTCH PPS standard Federal rate for RY 2010 based on the full forecasted estimated increase in the LTCH PPS market basket of 2.5 percent, adjusted by the 0.25 percentage point reduction required by sections 1886(m)(3)(A)(ii) and (4)(A) of the Act and an adjustment to account for the increase in case-mix in a prior period (FY 2007) resulting from changes in documentation and coding practices of −0.5 percent. Consequently, the update factor to the standard Federal rate for RY 2010 is 1.74 percent (that is, we are applying a factor of 1.0174 in determining the LTCH PPS standard Federal rate for RY 2010, calculated as 1.0225 × 1 divided by 1.005 = 1.0174 or 1.74 percent).) Furthermore, consistent with our historical practice of updating the standard Federal rate for the previous rate year, in determining the standard Federal rate for RY 2010 in this notice, we are applying the update factor of 1.0174 to the RY 2009 standard Federal rate of $39,114.36 (established in the RY 2009 LTCH PPS final rule (73 FR 26788)). Furthermore, consistent with section 3401(p) of Public Law 111-148, this update factor to the standard Federal rate for RY 2010 will not be applied in determining LTCH PPS payments for discharges occurring prior to April 1, 2010. In other words, for discharges occurring on or after October 1, 2009 through March 31, 2010, LTCH PPS payments will be based on the standard Federal rate established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (that is, 2.0 percent).

Therefore, in this notice, under the authority of sections 1886(m)(3)(A)(ii) and (4)(A) of the Act, we are specifying that the standard Federal rate for the LTCH PPS rate year beginning October 1, 2009 and ending September 30, 2010, is the standard Federal rate for the previous rate year updated by 1.74 percent. In a supplemental proposed rule published elsewhere in this Federal Register, we are proposing to revise the regulations text at § 412.523(c)(3)(vi) consistent with the 1.74 percent update for RY 2010 that we are establishing in this notice. In determining the standard Federal rate for RY 2010, we are applying the 1.0174 update factor to the RY 2009 Federal rate of $39,114.36 (73 FR 26812). Consequently, the standard Federal rate for RY 2010, developed consistent with sections 1886(m)(3)(A)(ii) and (4)(A) of the Act is $39,794.95. Furthermore, consistent with section 3401(p) of Public Law 111-148, we are proposing to revise § 412.523(c)(3)(vi)(B) in a supplemental proposed rule published elsewhere in this Federal Register. Section 412.523(c)(3(vi)(B) would specify that with respect to discharges occurring on or after October 1, 2009 and before April 1, 2010, payments are based on the standard Federal rate in § 412.523(c)(v) updated by 2.0 percent (that is, a standard Federal rate of $39,896.65 (see 74 FR 44022).

2. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases

a. Background

When we implemented the LTCH PPS in the FY 2003 LTCH PPS final rule, in the regulations at § 412.525(a), we established an adjustment for additional payments for outlier cases that have extraordinarily high costs relative to the costs of most discharges (see (67 FR 56022 through 56027)). We refer to these cases as high cost outliers (HCOs). Providing additional payments for outliers strongly improves the accuracy of the LTCH PPS in determining resource costs at the patient and hospital level. These additional payments reduce the financial losses that would otherwise be incurred when treating patients who require more costly care and, therefore, reduce the incentives to underserve these patients. We set the outlier threshold before the beginning of the applicable rate year so that total estimated outlier payments are projected to equal 8 percent of total estimated payments under the LTCH PPS.

Under § 412.525(a) in the regulations (in conjunction with § 412.503), we make outlier payments for any discharges if the estimated cost of a case exceeds the adjusted LTCH PPS payment for the MS-LTC-DRG plus a fixed-loss amount. Specifically, in accordance with § 412.525(a)(3) (in conjunction with § 412.503), we pay outlier cases 80 percent of the difference between the estimated cost of the patient case and the outlier threshold, which is the sum of the adjusted Federal prospective payment for the MS-LTC-DRG and the fixed-loss amount. The fixed-loss amount is the amount used to limit the loss that a hospital will incur under the outlier policy for a case with unusually high costs. This results in Medicare and the LTCH sharing financial risk in the treatment of extraordinarily costly cases. Under the LTCH PPS HCO policy, the LTCH's loss is limited to the fixed-loss amount and a fixed percentage of costs above the outlier threshold (MS-LTC-DRG payment plus the fixed-loss amount). The fixed percentage of costs is called the marginal cost factor. We calculate the estimated cost of a case by multiplying the Medicare allowable covered charge by the hospital's overall hospital cost-to-charge ratio (CCR).

Under the LTCH PPS, we determine a fixed-loss amount, that is, the maximum loss that a LTCH can incur under the LTCH PPS for a case with unusually high costs before the LTCH will receive any additional payments. We calculate the fixed-loss amount by estimating aggregate payments with and without an outlier policy. The fixed-loss amount results in estimated total outlier payments being projected to be equal to 8 percent of projected total LTCH PPS payments. Currently, MedPAR claims data and CCRs based on data from the most recent provider specific file (PSF) (or from the applicable statewide average CCR if a LTCH's CCR data are faulty or unavailable) are used to establish a fixed-loss threshold amount under the LTCH PPS.

As discussed in section II.F.1.c. of this notice, various sections of Public Law 111-148 and Public Law 111-152 amended section 1886(m) of the Act by adding new paragraphs (3) and (4). Consistent with the provisions of sections 1886(m)(3)(A)(ii) and (4)(A) of the Act, we are establishing a revised standard Federal rate for RY 2010 by applying the required 0.25 percentage point reduction to the annual update for RY 2010. Notwithstanding these provisions, section 3401(p) of Public Law 111-148 provides that the amendments made by subsections (a), (c) and (d) of section 3401 of of Public Law 111-148 shall not apply to discharges occurring before April 1, 2010. When read in conjunction we believe section 1886(m)(3)(A) of the Act and section 3401(p) of Public Law 111-148 provide for a single revised RY 2010 standard Federal rate; however, for payment purposes, discharges occurring on or after October 1, 2009 and before April 1, 2010, simply will not be based on the revised RY 2010 standard Federal rate.

This legislative change to the standard Federal rate for RY 2010 requires us to revise the HCO fixed-loss amount for RY 2010 discharges occurring on or after April 1, 2010. This is necessary in order to maintain the requirement that the fixed-loss amount results in estimated total outlier payments being projected to be equal to 8 percent of projected total LTCH PPS payments since projected total payments LTCH PPS for RY 2010 have changed relative to the projected total LTCH PPS payments for RY 2010 when we established the original RY 2010 fixed-loss amount in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44029) due to the legislative change to the standard Federal rate for RY 2010. Specifically, the original RY 2010 HCO fixed-loss amount of $18,425 was determined based on the RY 2010 update of 2.0 percent and the standard Federal rate of $39,896.65 (as established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44022)). However, for RY 2010 LTCH discharges occurring on or after April 1, 2010, LTCH PPS payments are based on the revised update of 1.74 percent and the revised standard Federal rate of $39,794.95 (as established in this notice). In order to maintain that estimated total outlier payments are projected to be equal to 8 percent of projected total LTCH PPS payments in RY 2010, as adopted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44028 though 44030), we are revising the HCO fixed-loss amount for RY 2010 discharges occurring on or after April 1, 2010 (as discussed below in the next section). (For an explanation of our rationale for establishing an HCO payment “target” of 8 percent of total estimated LTCH payments, we refer readers to the August 30, 2002 LTCH PPS final rule (67 FR 56022 through 56024).) Consistent with section 3401(p) of Public Law 111-148, the revised HCO fixed-loss amount established in this notice will not apply to discharges occurring prior to April 1, 2010. In other words, for discharges occurring on or after October 1, 2009 through March 31, 2010, LTCH PPS payments will be based on the HCO fixed-loss amount established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (that is, $18,425 (see 74 FR 44029)).

b. The LTCH PPS Fixed-Loss Amount for RY 2010 Discharges Occurring On or After April 1, 2010

For this notice, to calculate a fixed-loss amount that will maintain estimated HCO payments at the projected 8 percent of total estimated LTCH PPS payments for RY 2010 discharges occurring on or after April 1, 2010, we used the same methodology and data that we used to establish the original RY 2010 HCO fixed-loss amount in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44028). Specifically, we used LTCH claims data from the March 2009 update of the FY 2008 MedPAR files and CCRs from the March 2009 update of the PSF to determine a fixed-loss amount that would result in estimated outlier payments projected to be equal to 8 percent of total estimated payments in RY 2010. In addition, we continued to use the MS-LTC-DRG classifications and relative weights from the version of the GROUPER that is in effect as of the beginning of RY 2010, that is, Version 27.0 of the GROUPER and the FY 2010 MS-LTC-DRG relative weights (discussed in section VIII.B. of the preamble of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 43951 through 43967) to determine the revised fixed-loss amount for RY 2010 discharges occurring on or after April 1, 2010.

In order to maintain estimated HCO payments at the projected 8 percent of total estimated LTCH PPS payments for RY 2010, in this notice, under the broad authority of section 123(a)(1) of the BBRA and section 307(b)(1) of BIPA, we are revising the HCO fixed-loss amount for RY 2010 from $18,425 (as established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44028)) to $18,615 for RY 2010 discharges occurring on or after April 1, 2010 (consistent with section 3401(p) of Pub. L. 111-148). Thus, for RY 2010 discharges occurring on or after April 1, 2010, we will pay an outlier case 80 percent of the difference between the estimated cost of the case and the outlier threshold (the sum of the adjusted Federal LTCH payment for the MS-LTC-DRG and the fixed-loss amount of $18,615). The revised HCO fixed-loss amount of $18,615 results in estimated total HCO payments being projected to be equal to 8 percent of projected total LTCH PPS payments for RY 2010 discharges occurring on or after April 1, 2010.

The revised fixed-loss amount of $18,615 for RY 2010 discharges occurring on or after April 1, 2010 is slightly higher than the original RY 2010 fixed-loss amount of $18,425 (established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44029)). Because of the 0.25 percentage point reduction to the annual update to the standard Federal rate for RY 2010 required by sections 1886(m)(3)(A)(i) and (4)(A) of the Act, the slight increase in the fixed-loss amount for RY 2010 is necessary to maintain the existing requirement that estimated outlier payments would equal 8 percent of estimated total LTCH PPS payments. (For further information on the existing 8 percent HCO “target” requirement, we refer readers to the August 30, 2002 LTCH PPS final rule (67 FR 56022 through 56024.) Maintaining the fixed-loss amount at the level established in the FY 2010 IPPS/RY 2010 LTCH PPS final rule would result in HCO payments that are greater than the current 8 percent regulatory requirement because a lower fixed-loss amount would result in more cases qualifying as outlier cases as well as increases the amount of the additional payment for a HCO case because the maximum loss that a LTCH must incur before receiving an HCO payment (that is, the fixed-loss amount) would be smaller. For these reasons, we believe that raising the fixed-loss amount is appropriate and necessary to maintain that estimated outlier payments would equal 8 percent of estimated total LTCH PPS payments as required under § 412.525(a).

As we noted in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44030), under some rare circumstances, a LTCH discharge could qualify as a SSO case (as defined in the regulations at § 412.529 in conjunction with § 412.503) and also as a HCO case. In this scenario, a patient could be hospitalized for less than five-sixths of the geometric average length of stay for the specific MS-LTC-DRG, and yet incur extraordinarily high treatment costs. If the costs exceeded the HCO threshold (that is, the SSO payment plus the fixed-loss amount), the discharge is eligible for payment as a HCO. Thus, effective for discharges occurring on or after April 1, 2010 in RY 2010 for a SSO case, the HCO payment would be 80 percent of the difference between the estimated cost of the case and the outlier threshold (the sum of the fixed-loss amount of $18,615 and the amount paid under the SSO policy as specified in § 412.529).

3. Computing the Adjusted LTCH PPS Federal Prospective Payments for RY 2010

In accordance with § 412.525, the standard Federal rate is adjusted to account for differences in area wages by multiplying the labor-related share of the standard Federal rate by the appropriate LTCH PPS wage index (as shown in Tables 12A and 12B of the Addendum of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44192 through 44213)). The standard Federal rate is also adjusted to account for the higher costs of hospitals in Alaska and Hawaii by multiplying the nonlabor-related share of the standard Federal rate by the appropriate cost-of-living factor (shown in the chart in section V.C.5. of the Addendum of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44026). In this notice, we are establishing a standard Federal rate for RY 2010 of $39,794.95, as discussed above in section II.F.1.c. of this notice. (As discussed above in that section, discharges occurring on or after April 1, 2010 will be paid under the revised RY 2010 standard Federal rate established in this notice, consistent with section 3401(p) of Pub. L. 111-148.) We illustrate the methodology to adjust the LTCH PPS Federal rate for RY 2010 in the following example:

Example:

During RY 2010, a Medicare patient is in a LTCH located in Chicago, Illinois (CBSA 16974). The RY 2010 LTCH PPS wage index value for CBSA 16974 is 1.0573 (Table 12A of the Addendum of the FY 2010 IPPS/RY 2010 LTCH PPS final rule(74 FR 44196)). The Medicare patient is classified into MS-LTC-DRG 28 (Spinal Procedures with MCC), which has a relative weight for FY 2010 of 1.0834 (Table 11 of the Addendum of the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44183)).

To calculate the LTCH's total adjusted Federal prospective payment for this Medicare patient, we compute the wage-adjusted Federal prospective payment amount by multiplying the unadjusted standard Federal rate ($39,794.95) by the labor-related share (75.779 percent) and the wage index value (1.0471). This wage-adjusted amount is then added to the nonlabor-related portion of the unadjusted standard Federal rate (24.221 percent; adjusted for cost of living, if applicable) to determine the adjusted Federal rate, which is then multiplied by the MS-LTC-DRG relative weight (1.0933) to calculate the total adjusted Federal LTCH PPS prospective payment for RY 2010 ($45,060.59). The table below illustrates the components of the calculations in this example.

Unadjusted Standard Federal Prospective Payment Rate	$39,794.95
Labor-Related Share	× 0.75779
Labor-Related Portion of the Federal Rate	= $30,156.22
Wage Index (CBSA 16974)	× 1.0471
Wage-Adjusted Labor Share of Federal Rate	= $31,576.57
Nonlabor-Related Portion of the Federal Rate ($39,794.95 × 0.24221)	+ $9,638.73
Adjusted Federal Rate Amount	= $41,215.30
MS-LTC-DRG 28 Relative Weight	× 1.0933
Total Adjusted Federal Prospective Payment	= $45,060.59

III. Other Required Information

A. Collection of Information Requirements

This document does not impose information collection and recordkeeping requirements. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

B. Waiver of Proposed Rulemaking and Delay of Effective Date

We ordinarily publish a notice of proposed rulemaking in the Federal Register and invite public comment prior to a rule taking effect in accordance with section 553(b) of the Administrative Procedure Act (APA) and section 1871 of the Act. In addition, in accordance with section 553(d) of the APA and section 1871(e)(1)(B)(i) of the Act, we ordinarily provide a 30-day delay to a substantive rule's effective date. For substantive rules that constitute major rules, in accordance with 5 U.S.C. 801, we ordinarily provide a 60-day delay in the effective date.

None of the above processes or effective date requirements apply, however, when the rule in question is interpretive, a general statement of policy, or a rule of agency organization, procedure or practice. They also do not apply, when Congress, itself, has created the rules that are to be applied, leaving no discretion or gaps for an agency to fill in through rulemaking.

In addition, an agency may waive notice and comment rulemaking, as well as any delay in effective date, when the agency for good cause finds that notice and public comment on the rule as well the effective date delay are impracticable, unnecessary, or contrary to the public interest. In cases where an agency finds good cause, the agency must incorporate a statement of this finding and its reasons in the rule issued.

The policies being publicized in this notice do not constitute agency rulemaking. Rather, Congress, in the Affordable Care Act, has already required that the agency make these changes, and we are simply notifying the public of certain required revisions to standard Federal rates that are effective for payment years beginning October 1, 2009 and their implication on payments made for discharges on or after April 1, 2010. We also are notifying the public of the extension of section 508 reclassifications and special exception wage indexes for FY 2010, as well as the wage indexes resulting from Congress' requirement that certain reclassification wage indexes be recalculated (effective April 1, 2010) to account for such extensions. As this notice merely informs the public of these required modifications to the payment rates under the IPPS and LTCH PPS, it is not a rule and does not require any notice and comment rulemaking. To the extent any of the policies articulated in this notice constitute interpretations of Congress's requirements or procedures that will be used to implement Congress's directive, they are interpretive rules, general statements of policy, and/or rules of agency procedure or practice, which are not subject to notice-and-comment rulemaking or a delayed effective date.

However, to the extent that notice and comment rulemaking or a delay in effective date or both would otherwise apply, we find good cause to waive such requirements. Specifically, we find it unnecessary to undertake notice and comment rulemaking in this instance as this notice does not propose to make any substantive changes to IPPS or LTCH PPS policies or methodologies already in effect as a matter of law, but simply applies rate adjustments required by Public Law 111-148 and Public Law 111-152 to these existing policies and methodologies. Therefore, we would be unable to change any of the policies governing the IPPS for FY 2010 or the LTCH PPS for RY 2010 in response to public comment on this notice. As the changes outlined in this notice have already taken effect, it would also be impracticable to undertake notice and comment rulemaking. For these reasons, we also find that a waiver of any delay in effective date, if it were otherwise applicable, is necessary to comply with the requirements of sections 1886(b)(3)(B)(xii) and 1886(m)(3)(A)(ii) and (4), as added and amended by Public Law 111-148 and Public Law 111-152, and sections 3137(a) and 3401(p) of Public Law 111-148, which require that hospitals be paid on the basis of revised rates for discharges on or after April 1, 2010. Therefore, we find good cause to waive notice and comment procedures as well as any delay in effective date, if such procedures or delays are required at all.

IV. Regulatory Impact Analysis

A. Overall Impact

Although this notice merely reflects the implementation of provisions of the Affordable Care Act and does not constitute a substantive rule, we are nevertheless preparing this impact analysis in the interest of ensuring that the impacts of these changes are fully understood. The changes in this notice are already in effect with changes made to PRICER and announced through a Joint-Signature Memorandum. We have examined the impacts of this notice as required by Executive Order 12866 on Regulatory Planning and Review (September 30, 1993), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). We have determined that the rates announced in this notice are “economically significant” as measured by the $100 million threshold. Therefore, although we do not consider this notice to constitute a substantive rule, we have prepared a Regulatory Impact Analysis, that to the best of our ability, presents the costs and benefits of this notice.

The RFA requires agencies to analyze options for regulatory relief of small businesses, if a rule has a significant impact on a substantial number of small entities. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small government jurisdictions. We estimate that most hospitals and most other providers and supplies are small entities as that term is used in the RFA. The great majority of hospitals and most other health care providers and suppliers are small entities, either by being nonprofit organizations or by meeting the SBA definition of a small business (having revenues of less than $34.5 million in any 1 year). (For details on the latest standard for health care providers, we refer readers to page 33 of the Table of Small Business Size Standards at the Small Business Administration's Web site at http://www.sba.gov/​services/​contractingopportunities/​sizestandardstopics/​tableofsize/​index.html.) For purposes of the RFA, all hospitals and other providers and suppliers are considered to be small entities. Individuals and States are not included in the definition of a small entity. We believe that this notice will have a significant impact on small entities. Because we acknowledge that many of the affected entities are small entities, the analysis discussed in this section would fulfill any requirement for a final regulatory flexibility analysis.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. With the exception of hospitals located in certain New England counties, for purposes of section 1102(b) of the Act, we now define a small rural hospital as a hospital that is located outside of an urban area and has fewer than 100 beds. Section 601(g) of the Social Security Amendments of 1983 (Pub. L. 98-21) designated hospitals in certain New England counties as belonging to the adjacent urban area. Thus, for purposes of the IPPS, we continue to classify these hospitals as urban hospitals.

Section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2010, that threshold is approximately $135 million. This notice will not mandate any requirements for State, local, or tribal governments, nor will it affect private sector costs.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. This notice will not have a substantial effect on State and local governments.

The following analysis, in conjunction with the remainder of this document, demonstrates that this notice is consistent with the regulatory philosophy and principles identified in Executive Order 12866, the RFA, and section 1102(b) of the Act. The notice will affect payments to a substantial number of small rural hospitals, as well as other classes of hospitals, and the effects on some hospitals may be significant.

The FY 2010 IPPS/RY 2010 LTCH PPS final rule included an impact analysis for the changes to the IPPS included in that rule. This notice updates those impacts to the IPPS operating payment system as to reflect certain changes required by the Affordable Care Act. Because provisions in the Affordable Care Act were non-budget neutral, the overall estimates for hospitals have changed from our estimate that was published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44215). We estimate that the changes in the FY 2010 IPPS/RY 2010 LTCH PPS final rule, in conjunction with the final IPPS rates and wage index included in this notice, will result in an approximate $1.8 billion increase in operating payments relative to FY 2009 or an additional 0.1 billion relative to what was projected in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44215). Capital payments are estimated to increase by $173 million relative to FY 2009 due to the changes under the Affordable Care Act or an additional 19 million relative to what was published in the FY 2010 IPPS/RY 2010 LTCH PPS correction notice (74 FR 51507).

B. Revised FY 2010 Impacts on IPPS Operating Costs

1. Analysis of Table I

Table I displays the results of our analysis of the payment changes for FY 2010 after implementing provisions of the Affordable Care Act, which extended section 508 reclassifications and special exception wage indices through FY 2010 and which reduced the market basket update to the standardized amount by 0.25 percent for discharges occurring on or after April 1, 2010. In this notice, we describe these revisions to the wage index, standardized amounts, outlier thresholds and budget neutrality factors resulting from implementation of the Affordable Care Act. Because of these revisions, we are displaying all of the impact columns that were affected by the market basket reduction and the section 508/special exception extension. In addition, we are adding a column to display the impact of the section 508/special exception extension. These columns show the impact of the FY 2010 changes in this notice compared to the FY 2010 impacts as published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44216).

Table I displays the results of our analysis of the changes for FY 2010 resulting from the Affordable Care Act provisions. 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 3,517 acute care hospitals included in the analysis.

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; and rural. There are 2,525 hospitals located in urban areas included in our analysis. Among these, there are 1,377 hospitals located in large urban areas (populations over 1 million), and 1,148 hospitals in other urban areas (populations of 1 million or fewer). In addition, there are 992 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 2010 payment classifications, including any reclassifications under section 1886(d)(10) of the Act. For example, the rows labeled urban, large urban, other urban, and rural show that the numbers of hospitals paid based on these categorizations after consideration of geographic reclassifications (including reclassifications under sections 1886(d)(8)(B) and (d)(8)(E) of the Act) are 2,593; 1,422; 1,171; and 924, respectively.

The next three groupings examine the impacts of the changes on hospitals grouped by whether or not they have GME residency programs (teaching hospitals that receive an IME adjustment) or receive DSH payments, or some combination of these two adjustments. There are 2,475 nonteaching hospitals in our analysis, 804 teaching hospitals with fewer than 100 residents, and 238 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 for DSH purposes. The next category groups together hospitals considered urban or rural, in terms of whether they receive the IME adjustment, the DSH adjustment, both, or neither.

The next five rows examine the impacts of the changes on rural hospitals by special payment groups (SCHs, RRCs, and MDHs). There were 187 RRCs, 337 SCHs, 186 MDHs, and 106 hospitals that are both SCHs and RRCs, and 15 hospitals that are both an MDH and an RRC.

The next series of groupings are based on the type of ownership and the hospital's Medicare utilization expressed as a percent of total patient days. These data were taken from the FY 2007 or FY 2006 Medicare cost reports.

The next two groupings concern the geographic reclassification status of hospitals. The first grouping displays all urban hospitals that were reclassified by the MGCRB for FY 2010. The second grouping shows the MGCRB rural reclassifications. The last row of this section identifies the 104 section 508 and special exception hospitals.

The final category shows the impact of the policy changes on the 20 cardiac hospitals in our analysis.

1. Effects of the Changes to the MS-DRG Reclassifications and Relative Cost-Based Weights With the Application of Recalibration Budget Neutrality (Column 1)

Column 1 shows the effects of the changes to the MS-DRGs and relative weights with the application of the recalibration budget neutrality factor to the standardized amounts as compared to the FY 2010 IPPS/RY 2010 LTCH PPS final rule. The recalibration budget neutrality factor was revised due to the 0.25 percentage point reduction to the applicable percentage increase applied to the Federal standardized amount, as required by section 1886(b)(3)(B) of the Act, as amended by the Affordable Care Act. The recalibration budget neutrality factor published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule was 0.997941, which is applied to the standardized amount as determined in the final rule. The revised recalibration budget neutrality is now 0.997935, applied to the revised FY 2010 standardized amount. Consistent with section 1886(d)(4)(C)(iii) of the Act, we have calculated a recalibration budget neutrality factor to account for the changes in MS-DRGs and relative weights to ensure that the overall payment impact is budget neutral. The change in the budget neutrality factor did not change the impact to most hospital categories as compared to the FY 2010 IPPS/RY 2010 LTCH PPS final rule.

2. Effect of the Wage Index Changes With the Application of the Wage Budget Neutrality Factor (Column 2)

Column 2 shows the impact of the FY 2010 wage data, FY 2010 labor share with the application of the wage budget neutrality factor. For FY 2010, we calculate the wage budget neutrality factor without regard to the lower labor share of 62 percent for hospitals with a wage index less than or equal to 1, in accordance with section 1886(d)(3)(E)(i) of the Act. We refer readers to our FY 2010 final rule (74 FR 44005) for a discussion of this policy. Because the market basket update to the standardized amount was reduced by 0.25 percent as required under the Affordable Care Act, the wage budget neutrality factor was revised. The wage budget neutrality factor published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule was 1.000407. For this notice, the wage budget neutrality factor is revised to 1.000418. This column shows the impact of the revised wage budget neutrality factor relative to the impact in the FY 2010 IPPS/RY 2010 LTCH PPS final rule. The change in the budget neutrality factor did not change the impact to most hospital categories as compared to the FY 2010 IPPS/RY 2010 LTCH PPS final rule.

3. Combined Effects of MS-DRG and Wage Index Changes (Column 3)

Section 1886(d)(4)(C)(iii) of the Act requires that changes to MS-DRG reclassifications and the relative weights cannot increase or decrease aggregate payments. 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. The FY 2010 MS-DRG reclassification, relative weights and wage index have not changed in this notice. As required by section 1886(b)(3)(B)(xii), as added by the Affordable Care Act, the market basket update was reduced by −0.25 percent and applied to the Federal standardized amount and the hospital-specific rates for SCHs and MDHs. Consequentially, the wage and recalibration budget neutrality factors were revised. In the FY 2010 IPPS/RY 2010 LTCH PPS final rule, we computed a wage budget neutrality factor of 1.000411, and a recalibration budget neutrality factor of 0.997926 (which is applied to the Puerto Rico specific standardized amount and the hospital-specific rates). The product of the two budget neutrality factors is the cumulative wage and recalibration budget neutrality factor. The cumulative wage and recalibration budget neutrality adjustment is 0.998347 or approximately −0.2 percent which is applied to the national standardized amounts. In this notice, the recalibration budget neutrality factor is revised to 0.997935 and the wage budget neutrality factor has been revised to 1.000418, so the cumulative wage and recalibration budget neutrality factor has been revised to 0.998352. This impact column shows the impact of these changes for FY 2010 relative to the impact of these changes as published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule.

4. Effects of MGCRB Reclassifications (Column 4)

Because section 3137(a) of Public Law 111-148 extended certain special exceptions and section 508 reclassifications through FY 2010, we analyzed the data of hospitals in labor market areas affected by legislation, including hospitals with Lugar redesignations, and made our best effort to give those extended hospitals a wage index value that we believe results in the highest FY 2010 wage index for which they are eligible.

The impacts shown in Column 4 of Table 1 reflect the effects of MGCRB reclassifications (and excludes the effects of extending the section 508 reclassifications and special exception wage indices). The overall effect of geographic reclassification is required by section 1886(d) (8) (D) of the Act to be budget neutral. For the purposes of this impact analysis, we apply an adjustment of 0.991985, which ensures that the effects of the section 1886(d) (10) reclassifications are budget neutral. The number of providers receiving a geographic reclassification has been reduced from 807 providers in the FY 2010 IPPS/RY 2010 LTCH PPS final rule to 766 hospitals because many of the providers that received geographic reclassification will now be reclassified as a section 508 or receive a special exception wage index. Urban New England hospitals and rural Pacific hospitals will experience a −0.3 and −0.2 percent change in payments, respectively due to reclassification changes compared to the FY 2010 IPPS Final rule because many of the New England and Pacific hospitals that had been reclassified in the FY 2010 IPPS/RY 2010 LTCH PPS final rule are no longer reclassified, and are instead section 508 hospitals.

5. Effects of the Rural Floor and Imputed Floor (Column 5)

As discussed in the FY 2009 IPPS/RY 2010 LTCH PPS final rule (73 FR 49070), for FY 2010, hospitals receive a blended wage index that is 50 percent of a wage index with the State level rural and imputed floor budget neutrality adjustment and 50 percent of a wage index with the national budget neutrality adjustment.

The column compares the revised post-reclassification FY 2010 wage index of providers with the rural floor and imputed floor adjustment with the transitional rural floor budget neutrality factors applied to the post-reclassification FY 2010 wage index of providers with the rural floor and imputed floor adjustment with the transitional rural floor budget neutrality factors applied as published in the FY 2010 IPPS final rule. Many of the section 508 and special exception providers had been eligible for the rural floor, but they are no longer eligible for the rural floor because of the higher section 508/special exception wage index they now receive. As a result, the rural floor budget neutrality figures have been revised. (The revised figures are calculated using the corrected wage data published October 7, 2009). The revised national rural floor budget neutrality factor is 0.996686. The revised State rural floor budget neutrality factors are listed in Table 4D-1in this notice. The budget neutrality factors are blended where the transitional rural floor budget neutrality factor is based on 50 percent of the State rural floor budget neutrality factor and 50 percent of the national rural floor budget neutrality factor. A smoothing factor of 1.000010 is applied to the blended rural floor budget neutrality factor to ensure that the blended budget neutrality factors achieve overall budget neutrality.

Generally, the decreases in this column can be attributed to section 508 hospitals that had been receiving the rural floor in the FY 2010 IPPS/RY 2010 LTCH PPS final no longer needing a rural floor due to their section 508 reclassification. Urban New England and Pacific hospitals will experience a −0.1 percent decrease in payments compared to the payment estimates published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule due to the floor because many of the hospitals in these regions had been receiving the rural floor but are now receiving a section 508 reclassification.

6. Effects of the Application of Section 508 Reclassification (Column 6)

This column displays the impact of the section 508/special exception extensions through FY 2010. Because this provision is not budget neutral, hospitals, overall, will experience a 0.2 percent increase in payments. All the hospital categories, depending on whether section 508 and special exception providers are represented in those categories, will either experience an increase or no change in payments. Providers in urban New England and Middle Atlantic can expect increases in payments by 0.8 and 0.6 percent respectively because those regions have section 508 and special exception providers. Similarly, rural Pacific will experience a 0.6 percent increase in payments due to the extensions.

7. Effects of the Wage Index Adjustment for Out-Migration (Column 7)

Section 1886(d) (13) of the Act, as added by section 505 of Public Law 108-173, provides for an increase in the wage index for hospitals located in certain counties that have a relatively high percentage of hospital employees who reside in the county, but work in a different area with a higher wage index. Hospitals located in counties that qualify for the payment adjustment receive an increase in the wage index that is equal to a weighted average of the difference between the wage index of the resident county, post-reclassification, post-floor (including budget neutrality), and the higher wage index work area(s), weighted by the overall percentage of workers who are employed in an area with a higher wage index. Section 508 providers and special exception providers that may have qualified for the out-migration adjustment in the FY 2010 IPPS/RY 2010 LTCH PPS final rule will now receive their section 508 reclassification or special exception wage index instead. This column shows the impact of the out-migration adjustment in this notice compared to the out-migration adjustment in the FY 2010 IPPS/RY 2010 LTCH PPS final rule. The provisions in the Affordable Care Act did not have a significant impact on the section 505 outmigration adjustment which is reflected in the 0.0 percent change in payments compared to the FY 2010 IPPS/RY 2010 LTCH PPS final rule.

8. Effects of All Changes for FY 2010 (Column 8)

Column 8 compares our estimate of the percent change in payments per case for FY 2010 including the provisions in this notice compared to our percent change in payments per case for FY 2010 as published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule. The average increase for all hospitals is approximately 0.1 percent compared to the original estimated increase of payments per case for FY 2010 published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule. This increase includes the effects of the 0.25 percent reduction to the market basket update for FY 2010, which is used for determining payment for discharges on or after April 1, 2010, reducing FY 2010 payments by 0.1 percent. This analysis accounts for the impact of the extension of certain special exceptions and section 508 reclassifications for FY 2010. This non-budget neutral provision, which increases the wage index for 104 providers, results in an estimated increase in payments by 0.2 percent. There might also be interactive effects among the various factors comprising the payment system that we are not able to isolate.

The overall change in payments per case for hospitals in FY 2010 as specified in this notice is estimated to increase by 0.1 percent compared to the payment estimates published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule. Hospitals in urban areas will experience an estimated 0.1 percent increase in payments per case compared to the estimate published FY 2010 IPPS/RY 2010 LTCH PPS final rule. Hospital payments per case in rural areas are estimated to decrease 0.1 percent. Urban hospitals experience increases under the Affordable Care Act due to the extension of section 508 reclassifications, which offset the 0.25 market basket reduction; while rural hospitals experience decreases under the Affordable Care Act due to the -0.25 market basket reduction.

Among urban census divisions, the largest estimated payment increases compared to the FY 2010 IPPS/RY 2010 LTCH PPS final rule will be 0.2 in New England and 0.3 percent in the Middle Atlantic region, generally attributed to section 508 reclassifications and special exception wage indexes. Urban hospitals located in the West South Central, West North Central, and Mountain region will experience a 0.1 percent decrease in payments compared to the FY 2010 IPPS/RY 2010 LTCH PPS final rule because of the 0.25 market basket reduction applied to the second half of FY 2010.

Among the rural regions in Column 8, rural mountain hospitals can expect a -0.5 percent decrease in payments due to the market basket reduction and changes in the outlier estimates under the Affordable Care Act. Rural Pacific hospitals can expect a 0.2 percent increase in payments compared to the FY 2010 IPPS/RY 2010 LTCH PPS final rule because of higher wage indexes as a result of section 508 reclassification.

Among special categories of rural hospitals in Column 8, the MDHs will receive an estimated decrease in payments of 0.2 percent, and the SCHs will experience an estimated decrease in payments by 0.3 percent due to the market basket reduction.

Urban hospitals reclassified for FY 2010 are anticipated to receive an increase of 0.2 percent, while urban hospitals that are not reclassified for FY 2010 will not experience a change in payments. Rural hospitals reclassifying for FY 2010 are anticipated to receive a 0.1 percent payment decrease and rural hospitals that are not reclassifying are estimated to receive a payment decrease of 0.2 percent compared to the FY 2010 IPPS/RY 2010 LTCH PPS final rule.

9. Analysis of Table II

Table II presents the projected impact of the changes for FY 2010 for urban and rural hospitals and for the different categories shown in Table I. It compares the estimated payments per case for FY 2010 including the provisions in this notice with the average estimated payments per case for FY 2010 as published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule. Thus, the table presents, in terms of 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.

D. Effects of Payment Rate Changes and Policy Changes Under the LTCH PPS

1. Introduction and General Considerations

In section II.F. of this notice, we are setting forth the revised payment rates for the RY 2010 LTCH PPS in accordance with the Affordable Care Act. In this section of the notice, we discuss the impact of the changes to the payment rates, factors, and other payment rate policies related to the LTCH PPS that are presented in the notice in terms of their estimated fiscal impact on the Medicare budget and on LTCHs.

Currently, our database of 399 LTCHs includes the data for 81 nonprofit (voluntary ownership control) LTCHs and 267 proprietary LTCHs. Of the remaining 51 LTCHs, 12 LTCHs are government-owned and operated and the ownership type of the other 39 LTCHs is unknown. In the impact analysis, we are using the rates, factors, and policies presented in this notice, including the revised RY 2010 rate that accounts for the 0.25 reduction to the market basket update under which discharges on or after April 1, 2010 are paid. As discussed in the FY 2010 IPPS/RY 2010 LTCH PPS final rule (74 FR 44022), we updated the RY 2009 standard Federal rate by 2.0 percent to establish the RY 2010 standard Federal rate at $39,896.65. As required under Public Law 111-148 and Public Law 111-152, we have reduced the annual update to the standard Federal rate by 0.25 percentage points such that that RY 2010 standard Federal rate is $39,794.95. Discharges occurring on or after April 1, 2010 are paid under the revised standard Federal rate consistent with section 3401(p) of Public Law 111-148. In the FY 2010 IPPS/RY 2010 LTCH final rule (74 FR 44233), we had estimated that LTCH payments would increase by 3.3 percent relative to RY 2009. Because only discharges for half of RY 2010 (that is, discharges occurring on or after April 1, 2010) are paid under the revised RY 2010 standard Federal rate which incorporates the 0.25 percentage point reduction, we estimate that LTCH payments will increase by 3.2 percent relative to RY 2009. In other words, we estimate that LTCH payments will be reduced by 0.1 percent relative to our estimates published in the FY 2010 IPPS/RY 2010 LTCH final rule.

In the FY 2010 IPPS/RY 2010 LTCH final rule (74 FR 44230), we had estimated RY 2009 LTCH PPS payments to be approximately $4.609 billion and RY 2010 LTCH PPS payments to be approximately $4.762 billion which resulted in a $153 million projected increase in estimated aggregate LTCH PPS payments from RY 2009 to RY 2010. Based on the changes in this notice, we now estimate RY 2010 LTCH PPS payments to be approximately $4.752 billion, which results in a projected increase in aggregate LTCH PPS payments of $142 million in RY 2010 relative to RY 2009. Our RY 2010 estimate is approximately $11 million less than our estimate in the FY 2010 IPPS/RY 2010 LTCH final rule.

Table IV shows the payment impact of the changes described in this notice required under the Affordable Care Act effective for RY 2010. Table IV shows the impact of the payments as projected in the FY 2010 IPPS/RY 2010 LTCH final rule and the change in payments effective in this notice for RY 2010. We estimate a 0.1 percent decrease in payments per discharge in this notice compared to the RY 2010 estimated payments per discharge published in the FY 2010 IPPS/RY 2010 LTCH final rule. This decrease is attributable to the 0.25 percentage point reduction to the annual update applied to the standard Federal rate as required by sections 1886(m)(3)(ii) and (4) of the Act. As Table IV shows, the change attributable solely to the standard Federal rate is projected to result in a decrease of 0.2 percent in estimated RY 2010 payments per discharge from the FY 2010 IPPS/RY 2010 LTCH final rule to the revised RY 2010 payments per discharge in this notice.

The projected change in payments per discharge from the RY 2010 published in the FY 2010 IPPS/RY 2010 LTCH final rule to estimated RY 2010 payments per discharge in this notice is −0.1 percent (shown in Column 7). This projected decrease in payments is attributable to the impacts of the change to the standard Federal rate required under the Affordable Care Act under which discharges occurring on or after April 1, 2010 (−0.2 percent in Column 6) are paid.

2. Impact on Rural Hospitals

For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area and has fewer than 100 beds. As shown in Table IV, we are projecting a 0.1 decrease in estimated payments per discharge for the RY 2010 LTCH as compared to the RY 2010 estimated payments per discharge published in the FY 2010 IPPS/RY 2010 LTCH final rule for rural LTCHs that will result from the changes presented in this notice (that is, the revised update to the standard Federal rate discussed in section II.F.1. of this notice). This estimated impact is based on the data for the 26 rural LTCHs in our database of 399 LTCHs, for which complete data were available.

3. Anticipated Effects of LTCH PPS Payment Rate Change and Policy Changes

We discuss the impact of the changes to the payment rates, factors, and other payment rate policies under the LTCH PPS for RY 2010 (in terms of their estimated fiscal impact on the Medicare budget and on LTCHs) in section II.F. of this notice.

a. Budgetary Impact

Section 123(a)(1) of the BBRA requires that the PPS developed for LTCHs “maintain budget neutrality.” We believe that the statute's mandate for budget neutrality applies only to the first year of the implementation of the LTCH PPS (that is, FY 2003). Therefore, in calculating the FY 2003 standard Federal rate under § 412.523(d)(2), we set total estimated payments for FY 2003 under the LTCH PPS so that estimated aggregate payments under the LTCH PPS were estimated to equal the amount that would have been paid if the LTCH PPS had not been implemented.

As discussed in section IV.D.1. of this notice, we project an increase in aggregate LTCH PPS payments in RY 2010 of approximately $142 million based on the 399 LTCHs in our database.

b. Impact on Providers

The basic methodology for determining a per discharge LTCH PPS payment is set forth in § 412.515 through § 412.536. In addition to the basic MS-LTC-DRG payment (standard Federal rate multiplied by the MS-LTC-DRG relative weight), we make adjustments for differences in area wage levels, COLA for Alaska and Hawaii, and short-stay outliers (SSOs). Furthermore, LTCHs may also receive high cost outlier (HCO) payments for those cases that qualify based on the threshold established each rate year.

Hospital groups were based on characteristics provided in the OSCAR data, FY 2004 through FY 2006 cost report data in HCRIS, and PSF data. Hospitals with incomplete characteristics were grouped into the “unknown” category. Hospital groups include the following:

• Location: Large urban/other urban/rural.
• Participation date.
• Ownership control.
• Census region.
• Bed size.

To estimate the impacts of the payment rates and policy changes among the various categories of existing providers, we used LTCH cases from the FY 2008 MedPAR file to estimate payments for RY 2010 published in the FY 2010 IPPS/RY 2010 LTCH final rule and to estimate revised payments for RY 2010 in accordance with the changes in this notice for 399 LTCHs.

c. Calculation of Prospective Payments

For purposes of this impact analysis, to estimate per discharge payments under the LTCH PPS, we simulated payments on a case-by-case basis using LTCH claims from the FY 2008 MedPAR files. For modeling estimated LTCH PPS payments for RY 2010 in this notice, we applied the revised RY 2010 standard Federal rate (that is, $39,794.95, under which LTCH discharges occurring on or after April 1, 2010, and through September 30, 2010 are paid). For modeling estimated LTCH PPS payments for RY 2010 as published in the FY 2010 IPPS/RY 2010 LTCH final rule, we applied the published RY 2010 standard Federal rate of $39,896.65, under which LTCH discharges occurring on or after October 1, 2009 through March 31, 2010 are paid).

These impacts reflect the estimated “losses” or “gains” among the various classifications of LTCHs from the previously published 2010 LTCH PPS rate year to the revised 2010 LTCH PPS rate year based on the payment rates and policy changes presented in this notice. Table IV illustrates the estimated aggregate impact of the LTCH PPS among various classifications of LTCHs.

• The first column, LTCH Classification, identifies the type of LTCH.
• The second column lists the number of LTCHs of each classification type.
• The third column identifies the number of LTCH cases.
• The fourth column shows the estimated original RY 2010 payment per discharge (that is, prior to the enactment of the Affordable Care Act, as described above).
• The fifth column shows the estimated revised RY 2010 payment per discharge (that is, reflecting the provisions of the Affordable Care Act, as described above).
• The sixth column shows the percentage change in estimated payments per discharge due to changes to the standard Federal rate (as discussed in section II.F. of this notice). It compares the percent change in estimated payments per discharge in the originally published FY 2010 IPPS/RY 2010 LTCH PPS final rule (prior to the enactment of the Affordable Care Act) to the revised estimated payments per discharge in this RY 2010 LTCH PPS notice (reflecting the provisions of the Affordable Care Act).
• The seventh column shows the percentage change in estimated payments per discharge from the originally published RY 2010 LTCH PPS (prior to the enactment of the Affordable Care Act, as shown in Column 4) to the revised RY 2010 LTCH PPS (reflecting the provisions of the Affordable Care Act, as shown in Column 5) for all changes.

d. Results

Based on the most recent available data (as described previously for 399 LTCHs), we have prepared the following summary of the impact (as shown in Table IV) of the LTCH PPS payment rate and policy changes presented in this notice. The impact analysis in Table IV shows that estimated payments per discharge are expected to decrease approximately 0.1 percent, on average, for all LTCHs comparing the RY 2010 estimated LTCH PPS payments published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule to the RY 2010 estimated LTCH PPS payments as a result of the payment rate and policy changes presented in this notice. The 0.1 percent decrease is due to the 0.25 percentage point reduction to the annual update to the standard Federal rate required under the Affordable Care Act. Because only discharges on or after April 1, 2010 will be paid under the revised standard Federal rate, which incorporates the 0.25 percentage point reduction to the annual update for RY 2010, the required 0.25 percentage point reduction will only reduce aggregate RY 2010 payments by 0.1 percent. All hospital categories are equally affected by the provision and will all experience an approximate 0.1 percent decrease in payments relative to the payment estimates in the FY 2010 IPPS/RY 2010 LTCH final rule.

4. Effect on the Medicare Program

As noted previously, we project that the provisions of this notice will result in an increase in estimated aggregate LTCH PPS payments in RY 2010 of approximately $142 million (or about 0.1 percent less than previously estimated in the FY 2010 IPPS/RY 2010 LTCH final rule) for the 399 LTCHs in our database.

5. Effect on Medicare Beneficiaries

Under the LTCH PPS, hospitals receive payment based on the average resources consumed by patients for each diagnosis. We do not expect any changes in the quality of care or access to services for Medicare beneficiaries under the LTCH PPS, but we expect that paying prospectively for LTCH services would enhance the efficiency of the Medicare program.

E. Alternatives Considered

This notice provides descriptions of the statutory provisions that are addressed, identifies policies, and presents rationales for our decisions and, where relevant, alternatives that were considered.

F. Overall Conclusion

1. Acute Care Hospitals

Table I of section IV.B. of this notice demonstrates the estimated distributional impact of the IPPS budget neutrality requirements for the MS-DRG and wage index changes, and for the wage index reclassifications under the MGCRB. Table I also shows an overall increase of 0.1 percent in operating payments in this notice relative to the operating payments published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule. We estimate that operating payments will increase by approximately $75.7 million in FY 2010 relative to our published FY 2010 estimate in the FY 2010 IPPS/RY 2010 LTCH PPS final rule. This accounts for the projected savings associated with the 0.25 percentage point reduction to the market basket required by section 1886(b)(3)(B) of the Act, as amended by the Affordable Care Act, and the extension of section 508 reclassification (a non-budget neutral provision) required under the Affordable Care Act. We estimate that capital payments will increase by 1.9 percent per case relative to FY 2009, as shown in Table III of section IV.C. of this notice. Therefore, we project that the increase in capital payments in FY 2010 compared to FY 2009 will be approximately $173 million, which is $19 million higher than what was published in the FY 2010 IPPS/RY 2010 LTCH PPS correction notice (74 FR 51507). The cumulative operating and capital payments should result in a net increase of $94.7 million to IPPS providers under the changes in this notice relative to our previously published estimates in the FY 2010 IPPS/RY 2010 LTCH PPS final rule and correction notice. The discussions presented in the previous pages, in combination with the rest of this notice, constitute a regulatory impact analysis.

2. LTCHs

Overall, LTCHs are projected to experience an increase in estimated payments per discharge in RY 2010 relative to RY 2009. However, our projected increase in estimated payments per discharge in RY 2010 has decreased due to the applicable changes specified under the Affordable Care Act. Specifically, the decrease in our RY 2010 payment estimates is primarily due to the −0.25 percentage point reduction to annual update applied to the standard Federal rate under which discharges occurring on or after April 1, 2010 are paid. In the impact analysis, we are using the rates, factors, and policies presented in this notice to estimate the change in payments for the 2010 LTCH PPS rate year. Accordingly, based on the best available data for the 399 LTCHs in our database, we estimate that RY 2010 LTCH PPS payments will increase $142 million relative to RY 2009, which is a decrease of approximately $11 million (or about 0.1 percent) relative to the estimates of RY 2010 LTCH PPS payments previously published in the FY 2010 IPPS/RY 2010 LTCH PPS final rule.

G. Accounting Statements

1. Acute Care Hospitals

As required by OMB Circular A-4 (available at http://www.whitehousegov/​omb/​circulars/​a004/​a-4.pdf), in Table V. below, we have prepared an accounting statement showing the classification of the expenditures associated with the provisions of this notice as they relate to acute care hospitals. This table provides our best estimate of the change in Medicare payments to providers as a result of the changes to the IPPS presented in this notice. All expenditures are classified as transfers to Medicare providers.

Table V—Accounting Statement: Classification of Estimated Expenditures Under the IPPS From Published FY 2010 to Revised FY 2010

Category	Transfers
Annualized Monetized Transfers	$94.7 million.
From Whom to Whom	Federal Government to IPPS Medicare Providers.
Total	$94.7 million.

2. LTCHs

As discussed in section IV.D. of this notice, the impact analysis for the changes under the LTCH PPS for this notice projects an increase in estimated aggregate payments of approximately $142 million compared to RY 2009, a decrease of $11 million compared our previously published estimates for the 399 LTCHs in our database that are subject to payment under the LTCH PPS. Therefore, as required by OMB Circular A-4 (available at http://www.whitehouse.gov/​omb/​circulars/​a004/​a-4.pdf), in Table VI below, we have prepared an accounting statement showing the classification of the expenditures associated with the provisions of this notice as they relate to changes to the LTCH PPS. Table VI provides our best estimate of the increase in Medicare payments under the LTCH PPS as a result of the provisions presented in this notice based on the data for the 399 LTCHs in our database. All expenditures are classified as transfers to Medicare providers (that is, LTCHs).

TABLE VI—Accounting Statement: Classification of Estimated Expenditures From the Published 2010 LTCH PPS Rate Year to the Revised 2010 LTCH PPS Rate Year

Category	Transfers
Annualized Monetized Transfers	Positive transfer—Estimated increase in expenditures: $11 million.
From Whom to Whom	LTCH PPS Medicare Providers to Federal Government.
Total	$11 million.

H. Executive Order 12866

In accordance with the provisions of Executive Order 12866, the Executive Office of Management and Budget reviewed this notice.

Authority: (Catalog of Federal Domestic Assistance Program No. 93.773, Medicare—Hospital Insurance; and Program No. 93.774, Medicare—Supplementary Medical Insurance Program)

Dated: May 13, 2010.

Marilyn Tavenner,

Acting Administrator, Centers for Medicare & Medicaid Services.

Approved: May 18, 2010.

Kathleen Sebelius,

Secretary.

Addendum

This addendum includes tables referred to throughout the notice which contain data relating to the final FY 2010 wage indices and the hospital reclassifications and payment amounts for operating and capital-related costs discussed in section II. of this notice.

Table 1A—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (69.7 Percent Labor Share/30.3 Percent Nonlabor Share If Wage Index Is Greater Than 1); Applicable to payments made for discharges on or after October 1, 2009 through discharges on or before September 30, 2010

Table 1B—National Adjusted Operating Standardized Amounts, Labor/Nonlabor (62 Percent Labor Share/38 Percent Nonlabor Share If Wage Index Is Less Than or Equal To 1); Applicable to payments made for discharges on or after October 1, 2009 through discharges on or before September 30, 2010

Table 1C—Adjusted Operating Standardized Amounts for Puerto Rico, Labor/Nonlabor; Applicable to payments made for discharges on or after October 1, 2009 through discharges on or before September 30, 2010

Table 1D—Capital Standard Federal Payment Rate: Applicable to payments made for discharges on or after October 1, 2009 through discharges on or before September 30, 2010

Table 1E.—LTCH Standard Federal Prospective Payment Rate; Applicable to payments made for discharges on or after October 1, 2009 through discharges on or before September 30, 2010

Table 2.—Hospital Case-Mix Indexes For Discharges Occurring In Federal Fiscal Year 2008; Hospital Wage Indexes For Federal Fiscal Year 2010 (April 1, 2010 through September 30, 2010); Hospital Average Hourly Wages For Federal Fiscal Years 2008 (2004 Wage Data), 2009 (2005 Wage Data), And 2010 (2006 Wage Data); and 3-Year Average of Hospital Average Hourly Wages

Table 4A.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Urban Areas by CBSA—FY 2010 (April 1, 2010 through September 30, 2010)

Table 4B.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Rural Areas by CBSA—FY 2010 (April 1, 2010 through September 30, 2010)

Table 4C.—Wage Index and Capital Geographic Adjustment Factor (GAF) for Hospitals That Are Reclassified by CBSA—FY 2010 (April 1, 2010 through September 30, 2010)

Table 4D-1.—State Specific Rural Floor Budget Neutrality Factors—FY 2010 (April 1, 2010 through September 30, 2010)

Table 4D-2.—Urban Areas with Hospitals Receiving the Statewide Rural Floor or Imputed Wage Index— FY 2010 (April 1, 2010 through September 30, 2010)

Table 4J.—Out-Migration Adjustment—FY 2010 (April 1, 2010 through September 30, 2010)

Table 9B.—Hospital Reclassifications and Redesignations by Individual Hospital Under Section 508 of Pub. L. 108-173 for FY 2010 (Revised as of April 1, 2010 and Effective October 1, 2009 through September 30, 2010)

Table 10.—Geometric Mean Plus the Lesser of 0.75 of the National Adjusted Operating Standardized Payment Amount (Increased to Reflect the Difference Between Costs and Charges) or 0.75 of One Standard Deviation of Mean Charges by Diagnosis-Related Group (DRG)—April 2010 (Applicable to Applications for FY 2011 New Technology Add-On Payments)