E9-12907. Medicare Program; Proposed Rate Year (RY) 2010 Medicare Severity-Long-Term Care Diagnosis-Related Group (MS-LTC-DRG) Relative Weights and High-Cost Outlier Fixed-Loss Amount

AGENCY:

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

ACTION:

Proposed rule; supplemental.

SUMMARY:

This supplemental proposed rule presents both proposed rate year (RY) 2010 Medicare severity-long-term care diagnosis-related group (MS-LTC-DRG) relative weights and a proposed RY 2010 high cost outlier (HCO) fixed-loss amount based on the revised fiscal year (FY) 2009 MS-LTC-DRG relative weights presented in an interim final rule with comment period published elsewhere in this Federal Register.

DATES:

To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on June 30, 2009.

ADDRESSES:

In commenting, please refer to file code CMS-1406-P2. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways listed):

1. Electronically. You may submit electronic comments on this regulation to http://www.regulations.gov. Follow the instructions under the “More Search Options” tab.

2. By regular mail. You may mail written comments to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1406-P2, P.O. Box 8011, Baltimore, MD 21244-8011.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3. By express or overnight mail. You may send written comments to the following address only: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1406-P2, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments before the close of the comment period to either of the following addresses: a. For delivery in Washington, DC—Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201.

(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

b. For delivery in Baltimore, MD—Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, please call telephone number [phone] in advance to schedule your arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Tzvi Hefter, [phone].

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone [phone].

I. Background

A. Legislative and Regulatory Authority

Section 123 of the Medicare, Medicaid, and SCHIP (State Children's Health Insurance Program) Balanced Budget Refinement Act of 1999 (BBRA) (Pub. L. 106-113) as amended by section 307(b) of the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-554) provides for payment for both the operating and capital-related costs of hospital inpatient stays in long-term care hospitals (LTCHs) under Medicare Part A based on prospectively set rates. The Medicare prospective payment system (PPS) for LTCHs applies to hospitals that are described in section 1886(d)(1)(B)(iv) of the Social Security Act (the Act), effective for cost reporting periods beginning on or after October 1, 2002.

In the August 30, 2002 (67 FR 55954) Federal Register, we issued a final rule that implemented the LTCH PPS authorized under the BBRA and BIPA. The same final rule established regulations for the LTCH PPS under 42 CFR Part 412, Subpart O. This system currently uses information from LTCH patient records to classify patients into distinct Medicare Severity-long-term care diagnosis-related groups (MS-LTC-DRGs) based on clinical characteristics and expected resource needs. Payments are calculated for each MS-LTC-DRG and provisions are made for appropriate payment adjustments. Payment rates under the LTCH PPS are updated annually and published in the Federal Register. We refer readers to the August 30, 2002 (67 FR 55954) final rule for a comprehensive discussion of the research and data that supported the establishment of the LTCH PPS.

B. Annual Updates to the LTCH PPS

For RYs 2004 through 2009, annual payment rate update and policy changes under the LTCH PPS were effective beginning on July 1 of each year (RY 2009 is the 15-month rate period July 1, 2008 through September 30, 2009 (see § 412.503)). However, the annual update of the LTC-DRG (and, beginning in FY 2008, the MS-LTC-DRG) classifications and relative weights for LTCHs are linked to the annual update of the acute care hospital inpatient prospective payment system (IPPS) DRGs and are effective each October 1.

The most recent annual update to the payment rates and policy changes under the LTCH PPS was established in the RY 2009 LTCH PPS final rule (73 FR 26788 through 26874), and is currently effective for the 15-month rate year of July 1, 2008 through September 30, 2009. The most recent annual update to the MS-LTC-DRGs was established in the FY 2009 IPPS final rule (73 FR 48528 through 48551), and is currently effective October 1, 2008 through September 30, 2009. In an interim final rule with comment period published elsewhere in this Federal Register, we revised the FY 2009 MS-LTC-DRG relative weights. The revised FY 2009 MS-LTC-DRG relative weights are effective for the remainder of FY 2009 (that is, from June 3, 2009 through September 30, 2009).

Beginning October 1, 2009, the annual updates to the LTCH PPS rates, and factors, including the MS-LTC-DRG relative weights, and other payment policy changes are effective on October 1. The proposed changes to the LTCH PPS payment rates, factors, and other payment policies under the LTCH PPS for RY 2010, including the proposed standard federal rate, proposed MS-LTC-DRG relative weights and proposed high cost outlier fixed-loss amount, are presented in the proposed rule entitled “Medicare Program; Proposed Changes to the 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” issued in the May 22, 2009 Federal Register (74 FR 24080) and hereinafter referred to as the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule. These proposed changes would be applicable to LTCH PPS discharges occurring on or after October 1, 2009.

II. Provisions of the Proposed Regulations

A. Proposed RY 2010 MS-LTC-DRG Relative Weights

Beginning with the FY 2008 update, we established a budget neutral requirement for the annual update to the MS-LTC-DRG classifications and relative weights at 42 CFR 412.517(b) (in conjunction with § 412.503), such that estimated aggregate LTCH PPS payments would be unaffected, that is, would be neither greater than nor less than the estimated aggregate LTCH PPS payments that would have been made without the classification and relative weight changes. (See the May 11, 2007 LTCH PPS final rule (72 FR 26882 through 26884).)

Consistent with § 412.517(b), we apply a two-step budget neutrality methodology, which is based on the current year MS-LTC-DRG classifications and relative weights. (For additional information on the established two-step budget neutrality methodology, refer to the FY 2008 IPPS final rule (72 FR 47295 through 47296).) Thus, the annual update to the MS-LTC-DRG classifications and relative weights for RY 2010 will be based on the FY 2009 MS-LTC-DRG classifications and relative weights. In the FY 2010 IPPS and LTCH PPS proposed rule (74 FR 24218 through 24227), we proposed RY 2010 MS-LTC-DRG relative weights based on the FY 2009 MS-LTC-DRG relative weights published in the FY 2009 IPPS final rule (73 FR 48528 through 48551 and 49041 through 49062). In an interim final rule with comment period published elsewhere in this Federal Register, we have revised the published FY 2009 MS-LTC-DRG relative weights based on the appropriate application of the FY 2009 budget neutrality factor determined consistent with our established methodology.

Based on the revised FY 2009 MS-LTC-DRG relative weights published in an interim final rule with comment period published elsewhere in this Federal Register, we are proposing budget neutral RY 2010 MS-LTC DRG relative weights in this supplemental proposed rule.

Specifically, we are proposing to apply the same two-step budget neutrality methodology described in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24226 through 24227), which involves calculating and applying a proposed normalization factor and a proposed budget neutrality factor to determine proposed budget neutral MS-LTC DRG relative weights for RY 2010. These proposed RY 2010 MS-LTC-DRG relative weights, which would be effective for LTCH PPS discharges occurring on after October 1, 2009 through September 30, 2010, are shown in Table 11 (Amended) of this supplemental proposed rule. We recalibrated the MS-LTC-DRG relative weights using FY 2008 LTCH claims data from the December 2008 update of the MedPAR files, as described in section VIII.B.3. of the preamble of the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24218 through 24226). After recalibration, we applied our two-step budget neutrality methodology. First we calculated a proposed normalization factor of 1.07264 using the following steps: (1) We used the most recent available LTCH claims data (FY 2008) and grouped them using the proposed RY 2010 GROUPER (Version 27.0) and the proposed recalibrated RY 2010 MS-LTC-DRG relative weights to calculate the average case-mix index (CMI); (2) we grouped the same LTCH claims data (FY 2008) using the FY 2009 GROUPER (Version 26.0) and the revised FY 2009 MS-LTC-DRG relative weights shown in Table 11 of the interim final rule with comment period published elsewhere in this Federal Register to calculate the average CMI; and (3) we computed the ratio of these average CMIs by dividing the average CMI for FY 2009 (determined in Step 2) by the average CMI for RY 2010 (determined in Step 1). In determining the proposed RY 2010 MS-LTC-DRG relative weights, each recalibrated proposed MS-LTC-DRG relative weight is multiplied by 1.07264 in the first step of the proposed budget neutrality process to produce proposed RY 2010 “normalized relative weights.”

In the second step of the proposed RY 2010 budget neutrality methodology, we determined a proposed budget neutrality factor of 0.993343 using the following steps: (1) We simulated estimated total RY 2010 LTCH PPS payments using the proposed RY 2010 MS-LTC-DRG classifications (proposed GROUPER Version 27.0) and the proposed normalized RY 2010 MS-LTC-DRG relative weights; (2) we simulated estimated total RY 2009 LTCH PPS payments using the FY 2009 GROUPER (Version 26.0) and the revised FY 2009 MS-LTC-DRG relative weights shown in Table 11 of the interim final rule with comment period published elsewhere in this Federal Register; and (3) we calculated the ratio of these simulated estimated total LTCH PPS payments by dividing the estimated total RY 2009 LTCH PPS payments using the FY 2009 GROUPER and revised FY 2009 MS-LTC-DRG relative weights (determined in Step 2) by the estimated total RY 2010 LTCH PPS payments using the proposed RY 2010 GROUPER and the proposed RY 2010 normalized MS-LTC-DRG relative weights (determined in Step 1). Then, each of the proposed RY 2010 normalized relative weights is multiplied by the proposed RY 2010 budget neutrality adjustment factor of 0.993343 to determine the proposed budget neutral RY 2010 relative weight for each proposed MS-LTC-DRG.

The proposed RY 2010 MS-LTC-DRG relative weights, that would be effective for LTCH PPS discharges occurring on after October 1, 2009 through September 30, 2010, are shown in Table 11 (Amended) of this supplemental proposed rule. These proposed RY 2010 MS-LTC-DRG relative weights reflect the application of the proposed RY 2010 normalization factor of 1.07264 and the proposed RY 2010 budget neutrality factor 0.993343. (For the convenience of the reader, in addition to the proposed budget neutral RY 2010 MS-LTC-DRG relative weights, Table 11 (Amended) also includes the proposed geometric mean length of stay and five-sixths of the geometric mean length of stay (Short-Stay Outlier (SSO) Threshold for payments under § 412.529) for each proposed MS-LTC-DRG for RY 2010.) The proposed RY 2010 MS-LTC-DRG relative weights do not affect the calculation of the geometric mean length of stay and the SSO threshold for RY 2010 that were presented in Table 11 of the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74FR 24589 through 24608).

B. Proposed RY 2010 High Cost Outlier Fixed-Loss Amount

In the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24268 through 24269), we proposed a high cost outlier (HCO) fixed-loss amount of $16,059 for RY 2010 to maintain that total estimated HCO payments are projected to equal 8 percent of total estimated payments under the LTCH PPS as required under § 412.523(d)(1). This proposed HCO fixed-loss amount of $16,059 for RY 2010 was calculated based in part on the proposed RY 2010 MS-LTC-DRG relative weights presented in Table 11 of that same proposed rule (74 FR 24589 through 24608). Because the estimated payment for most LTCH PPS cases, including any applicable HCO payment, is based in-part on the proposed relative weight of the MS-LTC-DRG presented, in this supplemental proposed rule, we have determined based on the proposed RY 2010 MS-LTC-DRG relative weights presented in Table 11 (Amended) of this supplemental proposed rule, a proposed fixed-loss amount of $18,868 for RY 2010, which would maintain that total estimated HCO payments are projected to equal 8 percent of total estimated payments under the LTCH PPS in RY 2010.

To determine the proposed fixed-loss amount for RY 2010 for this supplemental proposed rule, we are proposing to use the same proposed methodology used to calculate the proposed RY 2010 fixed-loss amount in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24268). Specifically, we propose to use LTCH claims data from the December 2008 update of the FY 2008 MedPAR files and cost-to-charge (CCRs) from the December 2008 update of the provider-specific file (PSF) to calculate the proposed RY 2010 fixed-loss amount. Furthermore, we propose to calculate the proposed RY 2010 fixed-loss amount using the MS-LTC-DRG classifications and relative weights from the version of the GROUPER that will be in effect as of the beginning of RY 2010 (October 1, 2009), that is, proposed Version 27.0 of the GROUPER and the proposed RY 2010 MS-LTC-DRG relative weights presented in Table 11 (Amended) of this supplemental proposed rule.

Applying the proposed methodology described above, we have determined that a proposed RY 2010 fixed-loss amount of $18,868 would result in estimated HCO payments equal to 8 percent of estimated total LTCH PPS payments, as required under § 412.523(d)(1), for LTCH PPS discharges occurring during RY 2010. Therefore, in this supplemental proposed rule, under the broad authority of section 123(a)(1) of the BBRA and section 307(b)(1) of BIPA, we are proposing a fixed-loss amount for RY 2010 of $18,868. The proposed RY 2010 fixed-loss amount of $18,868 would be effective for LTCH PPS discharges occurring on October 1, 2009 through September 30, 2010. Thus, for RY 2010, we would propose to pay a HCO case 80 percent of the difference between the estimated cost of the case and the proposed outlier threshold (the sum of the proposed adjusted Federal LTCH payment for the discharge and the proposed fixed-loss amount of $18,868).

As we proposed in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule and consistent with our historical practice of using the most recent data available, we are proposing in this supplemental proposed rule that if more recent LTCH data become available, we will use them for determining the fixed-loss amount for RY 2010 in the final rule.

III. Waiver of 60-Day Comment Period

We ordinarily publish a notice of proposed rulemaking in the Federal Register and permit a 60-day comment period, as provided in section 1871(b)(1) of the Act. This period, however, may be shortened, as provided under section 1871(b)(2)(C), when the Secretary finds good cause that a 60-day comment period would be impracticable, unnecessary, or contrary to the public interest and incorporates a statement of the finding and its reasons in the rule issued. For this supplemental proposed rule, we are waiving the 60-day comment period for good cause and allowing a comment period that coincides with the comment period provided for on the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24080).

Ordinarily, we begin our preparations for issuing an LTCH PPS proposed rule early so that our proposals may be on public display by May 1 of that year. This schedule allows for a 60-day comment period closing within a sufficient amount of time to also allow for a 1- to 2-month period to consider all comments received and appropriately respond to them. In this case, elsewhere in this Federal Register an interim final rule with public comment is issued that provides for revised FY 2009 MS-LTC-DRG relative weights. The revised MS-LTC-DRG relative weights affect some of the proposals contained in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule, which went on display on May 1, 2009, and was published in the Federal Register on May 22, 2009. Therefore, we need to immediately replace those affected proposals. A 60-day comment period on this supplemental proposed rule would be both impracticable and contrary to the public interest because it would not allow for coordinated consideration of the comments on this supplemental proposed rule with those on the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule. Because the issues raised in this supplemental proposed rule are integral to our consideration of comments on certain proposals in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule, we do not believe it would be appropriate to review comments on the issues raised in this supplemental proposed rule in isolation from the comments received on the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule. We further note that a full 60-day comment period would end on a date that would not allow the agency sufficient time to process the comments and respond to them in a meaningful manner by the August 1, 2009 date for issuing the final rule. Timely filed comments would receive a shorter period of time for consideration by the agency, and the agency would be left with insufficient time to properly respond to comments and appropriately resolve whether any of the proposed policies should be modified in light of comments received. For all of these reasons, we find good cause to waive the 60-day comment period for this rule of proposed rulemaking, and we are instead providing for a comment period that coincides with the comment period provided for on the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24080).

IV. 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).

V. Response to Comments

Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the DATES section of this preamble, and, when we proceed with a subsequent document, we will respond to the comments in the preamble to that document.

VI. Regulatory Impact Analysis

A. Introduction and Overall Impact

In this section of this supplemental proposed rule, we discuss the impact of these proposed RY 2010 MS-LTC-DRG relative weights and proposed RY 2010 HCO threshold presented in the preamble of this supplemental proposed rule and the proposed rates, factors and policies presented in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule, in terms of their estimated fiscal impact on the Medicare budget and on LTCHs. We note that this impact analysis replaces the analysis included in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079). As discussed in the interim final rule with comment period published elsewhere in this Federal Register, we are revising the FY 2009 MS-LTC-DRG relative weights. This prospective revision to the FY 2009 MS-LTC-DRG relative weights affects the determination of the proposed RY 2010 MS-LTC-DRG relative weights. The FY 2009 MS-LTC-DRG relative weights (73 FR 48528 through 48552) were the basis for determining the proposed normalization factor and proposed budget neutrality factor that were applied in determining the proposed RY 2010 MS-LTC-DRG relative weights presented in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079). Consequently, based on this revision to the FY 2009 MS-LTC-DRG relative weights issued in an interim rule with comment period published elsewhere in this Federal Register, we are proposing budget neutral MS-LTC-DRG relative weights for RY 2010 and a HCO fixed loss amount for RY 2010 in this supplemental proposed rule.

We have examined the impacts of this rule as required by Executive Order 12866 on Regulatory Planning and Review (September 30, 1993, as further amended), 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). Based on the 399 LTCHs in our database, we estimate RY 2009 LTCH PPS payments based on the FY 2009 MS-LTC-DRG relative weights issued in an interim final rule with comment period published elsewhere in this Federal Register, to be approximately $4.634 billion and RY 2010 LTCH PPS payments to be approximately $4.735 billion.

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small government jurisdictions. Most hospitals and most other providers and suppliers are considered to be small entities, either by being nonprofit organizations or by meeting the Small Business Administration definition of a small business (having revenues of $34.5 million or less in any 1 year). (For details on the latest standards for health care providers, we refer readers to the Table of Small Business Size Standards for NAIC 622 found on the Small Business Administration Office of Size Standards Web site at: http://www.sba.gov/​contractingopportunities/​officials/​size/​GC-SMALL-BUS-SIZE-STANDARDS.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. Because we lack data on individual hospital receipts, we cannot determine the number of small proprietary LTCHs. Therefore, we are assuming that all LTCHs are considered small entities for the purpose of this analysis. Because we acknowledge that many of the affected entities are small entities, the analysis discussed throughout the preamble of this supplemental proposed rule constitutes our proposed regulatory flexibility analysis. Therefore, we are soliciting public comments on our estimates and analysis of the impact of this supplemental proposed rule on those small entities.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis for any proposed or final rule that 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 603 of the RFA. With the exception of hospitals located in certain New England counties, for purposes of section 1102(b) of the Act, we 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 LTCH PPS, 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. That threshold level is currently approximately $133 million. This supplemental proposed rule will not mandate any requirements for State, local, or tribal governments, nor would 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. As stated above, this supplemental proposed rule would not have a substantial effect on State and local governments.

B. General Considerations

In the impact analysis of this supplemental proposed rule, we are using the revised FY 2009 MS-LTC-DRG relative weights as established in an interim final rule with comment period published elsewhere in this Federal Register and the rates, factors and policies established in the LTCH PPS RY 2009 final rule (73 FR 26788 through 24881) to estimate payments for the 2009 LTCH PPS rate year. To estimate payments for the RY 2010, we are using the proposed RY 2010 MS-LTC-DRG relative weights and the proposed RY 2010 HCO threshold presented in this supplemental proposed rule, and the proposed rates, factors, and policies presented in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079), including proposed updated wage index values the labor-related share, and the best available claims and CCR data. Furthermore, as discussed in section V.A.2. of the Addendum to the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079), consistent with our historical policy, we have proposed to update the standard Federal rate for RY 2009 by 0.6 percent in order to calculate the proposed RY 2010 standard Federal rate at $39,349.05.

Moreover, in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079), we proposed a HCO threshold of $16,059. As discussed in detail in section II.B. of this supplemental proposed rule, this HCO threshold was calculated based in part on the proposed RY 2010 MS-LTC-DRG relative weights presented in Table 11 of that same proposed rule. Because the estimated payment for most LTCH PPS cases, including any applicable HCO payment, is based in-part on the relative weight of the MS-LTC-DRG, the revision to the proposed RY 2010 MS-LTC-DRG relative weights also affects the proposed HCO threshold for RY 2010. Therefore, in this supplemental proposed rule, we are proposing a HCO fixed-loss amount for RY 2010 of $18,868, based on the proposed RY 2010 MS-LTC-DRG relative weights presented in this supplemental proposed rule, that would maintain that total estimated HCO payments are projected to equal 8 percent of total estimated payments under the LTCH PPS in RY 2010. 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. Based on the best available data for the 399 LTCHs in our database used in the impact analysis for this supplemental proposed rule, we estimate that the proposed update to the standard Federal rate for RY 2010 and the proposed changes to the area wage adjustment for the 2010 LTCH PPS rate year would result in an increase in estimated payments from the 2009 LTCH PPS rate year of approximately $101 million (or about 2.2 percent). That is, based on the 399 LTCHs in our database, we estimate RY 2009 LTCH PPS payments based on the FY 2009 MS-LTC-DRG relative weights issued in an interim final rule with comment period published elsewhere in this Federal Register to be approximately $4.634 billion and RY 2010 LTCH PPS payments to be approximately $4.735 billion. We note that the impact analysis in this supplemental proposed rule replaces the impact analysis presented in the proposed rule published on May 22, 2009 in which we estimated RY 2009 LTCH PPS payments to be approximately $4.76 billion and RY 2010 LTCH PPS payments to be approximately $4.90 billion, resulting in a projected increase in estimated payments from RY 2009 to RY 2010 of approximately 2.8 percent. Because the combined distributional effects and estimated changes to the Medicare program payments would be greater than $100 million, this proposed rule is considered a major economic rule, as defined in this section.

As Table I shows, the proposed change in the standard Federal rate is projected to result in an increase of 0.5 percent in estimated payments per discharge from RY 2009 to RY 2010, on average, for all LTCHs. As discussed in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079), payments for cost-based SSO cases and a portion of payments for SSO cases that are paid based on the “blend” option (that is, SSO cases paid under § 412.529(c)(2)(iv)) are not affected by the proposed update to the standard Federal rate. Accordingly, we estimate that the effect of the proposed 0.6 percent update to the standard Federal rate would result in a 0.5 percent increase (as shown in Column 6 of Table I) on estimated aggregate LTCH PPS payments for all LTCH PPS cases, including SSO cases.

While the effect of the proposed change to the standard Federal rate is projected to increase estimated payments from RY 2009 to RY 2010, the proposed changes to the area wage adjustment from RY 2009 to RY 2010 are expected to result in neither an increase nor a decrease in estimated aggregate LTCH PPS payments from RY 2009 to RY 2010 (Column 7 of Table I).

We note that the overall percent change in estimated LTCH payments from RY 2009 to RY 2010 for all proposed changes (shown in Column 8) cannot be determined by adding the incremental effect of the proposed standard Federal rate (Column 6) and the proposed area wage adjustment changes (Column 7) on estimated aggregate LTCH PPS payments. Each of those two columns are intended to show the isolated impact of the respective change (that is, the proposed change to the standard Federal rate or the proposed change to the area wage adjustment) on estimated payments for RY 2010 as compared to RY 2009. Since, the interactive effects resulting from both the proposed change to the standard Federal rate and the proposed change to the area wage adjustment, as well as estimated changes to HCO and SSO payments, are not reflected in each of these columns the overall percent change in estimated LTCH payments from RY 2009 to RY 2010 for all proposed changes cannot be determined by simply adding Column 6 and Column 7. However, the interactive effects of all proposed changes, including the change in estimated HCO and SSO payments, are reflected in the estimated change in payments for all proposed changes for RY 2010 as compared to RY 2009 (shown in Column 8 of Table I).

Notwithstanding this limitation in comparing the various columns in Table I, the projected increase in payments per discharge from RY 2009 to RY 2010 is 2.2 percent (shown in Column 8). This projected increase in payments is attributable to the proposed impacts of the proposed change to the standard Federal rate (0.5 percent in Column 6), and the proposed change due to the area wage adjustment (0 percent in Column 7), and the effect of the estimated increase in payments for HCO and SSO cases in RY 2010 as compared to RY 2009, as well as interactive effects, as discussed previously. Specifically, estimated total HCO payments are projected to increase from RY 2009 to RY 2010 in order to ensure that estimated HCO payments will be 8 percent of total estimated LTCH PPS payments in RY 2010. As discussed in detail in the IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079), an analysis of the most recent available LTCH PPS claims data (that is, FY 2008 claims from the December 2008 update of the MedPAR files) indicates that the RY 2009 HCO threshold of $22,960 may result in HCO payments in RY 2009 that fall below the estimated 8 percent. Specifically, we currently estimate that HCO payments will be approximately 6.7 percent of estimated total LTCH PPS payments in RY 2009. Consequently, it is necessary to propose to decrease the HCO threshold for RY 2010 in order to ensure that estimated HCO payments will be 8 percent of total estimated LTCH PPS payments in RY 2010. We estimate that the impact of the increase in HCO payments would result in approximately a 1.3 percent increase in estimated payments from RY 2009 to RY 2010. Furthermore, in calculating the estimated increase in payments from RY 2009 to RY 2010 for HCO and SSO cases, we increased estimated costs by the applicable market basket percentage increase as projected by our actuaries. We note that estimated payments for SSO cases comprise approximately 15 percent of estimated total LTCH PPS payments, and estimated payments for HCO cases comprise approximately 8 percent of estimated total LTCH PPS payments. Payments for HCO cases are based on 80 percent of the estimated cost above the HCO threshold, and the majority of the payments for SSO cases (over 70 percent) are based on the estimated cost of the SSO case. Accordingly, we estimate that of the 2.2 percent increase in payments per discharge from RY 2009 to RY 2010, 1.3 percent is attributable to the projected increase in HCO payments and 0.4 percent is attributable to the projected increase in costs of SSO cases and the interactive effects which we have discussed previously.

The results of this impact analysis are summarized in Table I. As we discuss in detail throughout this regulatory impact analysis, based on the most recent available data, we believe that the proposed provisions of this supplemental proposed rule and the proposed provisions relating to the LTCH PPS contained in the FY 2010 IPPS and RY 2010 proposed rule (that is, the proposed update to the standard Federal rate and the proposed changes to the area wage adjustment) would result in an increase in estimated aggregate LTCH PPS payments and that the resulting LTCH PPS payment amounts result in appropriate Medicare payments.

C. 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 I, we are projecting a 3.1 percent increase in estimated payments per discharge for the 2010 LTCH PPS rate year as compared to the 2009 LTCH PPS rate year for rural LTCHs that would result from the proposed changes presented in this supplemental proposed rule and the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079) (that is, the update to the standard Federal rate and the proposed changes to the area wage adjustment). This estimated impact is based on the data of the 26 rural LTCHs in our database of 399 LTCHs for which complete data were available.

The estimated increase in LTCH PPS payments from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year for rural LTCHs is due to the proposed change to the standard Federal rate, and the proposed change in the area wage adjustments, as well as the estimated change in HCO payments. That is, estimated HCO payments in RY 2009 are currently projected to be less than 8 percent of total estimated LTCH PPS payments. We believe that the proposed changes to the area wage adjustments presented in the FY 2010 IPPS and RY 2010 LTCH PPS 2010 proposed rule (74 FR 24079) (that is, the proposed use of updated wage data and the proposed change in the labor-related share) would result in accurate and appropriate LTCH PPS payments in RY 2010 because they are based on the most recent available data. Such updated data appropriately reflect national differences in area wage levels and appropriately identify the portion of the standard Federal rate that should be adjusted to account for such differences in area wages, thereby resulting in accurate and appropriate LTCH PPS payments.

D. Anticipated Effects

We discuss the impact of the proposed 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 this supplemental proposed rule. We note that this impact analysis replaces the analysis included in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079).

1. Budgetary Impact

As discussed in this section of the supplemental proposed rule, we project an increase in aggregate RY 2010 LTCH PPS payments of approximately $101 million (or 2.2 percent) based on the 399 LTCHs in our database.

2. 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 SSOs. Furthermore, LTCHs may also receive HCO payments for those cases that qualify based on the threshold established each rate year.

To understand the impact of the proposed changes to the LTCH PPS payments presented in this supplemental proposed rule on different categories of LTCHs for the 2010 LTCH PPS rate year, it is necessary to estimate payments per discharge for the 2009 LTCH PPS rate year using the rates, factors and policies established in the RY 2009 LTCH PPS final rule (73 FR 26788 through 26874) including the FY 2009 GROUPER (Version 26.0), and FY 2009 MS-LTC-DRG relative weights, revised in the FY 2009 interim final rule with comment period published elsewhere in this Federal Register. Furthermore, we note that RY 2009 was a 15-month rate year due to the consolidation of the LTCH PPS updating cycles while RY 2010 is a 12-month rate year. In order to produce a meaningful comparison of the change in estimated payments from RY 2009 to RY 2010, for purposes of this impact analysis, we estimated payments for RY 2009 as if it was a 12-month rate year (that is, October 1, 2008 through September 30, 2009). To estimate the payments per discharge for RY 2010 the proposed LTCH PPS rates, factors, policies, and GROUPER for the 2010 LTCH PPS rate year (as discussed in section II. of the preamble and section V. of the Addendum to the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079)) and the proposed MS-LTC-DRG relative weights and HCO fixed-loss amount (as discussed in section II. of this supplemental proposed rule). These estimates of both RY 2009 and RY 2010 LTCH PPS payments are based on the best available (FY 2008) LTCH claims data (that is, for both the RY 2009 and RY 2010 estimates we used only 12 months of claims data) and other factors such as the application of inflation factors to estimate costs for SSO and HCO cases in each year. We also evaluated the change in estimated 2009 LTCH PPS rate year payments to estimated 2010 LTCH PPS rate year payments (on a per discharge basis) for each category of LTCHs.

Hospital groups were based on characteristics provided in the OSCAR data, FY 2004 through FY 2006 cost report data in HCRIS, and Provider-Specific File 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 proposed 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 2009 and to estimate payments for RY 2010 for 399 LTCHs. While currently there are just over 400 LTCHs, the most recent growth is predominantly in for-profit LTCHs that provide respiratory and ventilator-dependent patient care. We believe that the discharges based on the FY 2008 MedPAR data for the 399 LTCHs in our database, which includes 267 proprietary LTCHs, provide sufficient representation in the MS-LTC-DRGs containing discharges for patients who received LTCH care for the most commonly treated LTCH patients' diagnoses.

3. 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 2009, we applied the RY 2009 standard Federal rate (that is, $39,114.36, which is effective for LTCH discharges occurring on or after July 1, 2008, and through September 30, 2009). For modeling estimated LTCH PPS payments for RY 2010, we applied the proposed RY 2010 standard Federal rate of $39,349.05, which would be effective for LTCH discharges occurring on or after October 1, 2009, and through September 30, 2010).

Furthermore, in modeling estimated LTCH PPS payments for both RY 2009 and RY 2010 in this impact analysis, we applied the RY 2009 and proposed RY 2010 adjustments for area wage differences and the COLA for Alaska and Hawaii. Specifically, we adjusted for area wage differences for estimated 2009 LTCH PPS rate year payments using the current LTCH PPS labor-related share of 75.662 percent (73 FR 26815), the wage index values established in the Tables 1 and 2 of the Addendum of the RY 2009 LTCH final rule (73 FR 26840 through 26863) and the COLA factors established in Table III of the preamble of the RY 2009 LTCH final rule (73 FR 26819). Similarly, we adjusted for area wage differences for estimated proposed 2010 LTCH PPS rate year payments using the LTCH PPS proposed RY 2010 labor-related share of 75.904 percent (72 FR 24079), the proposed RY 2010 wage index values presented in the Tables 12A and 12B of the Addendum to the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079), and the proposed RY 2010 COLA factors shown in the table in section V. of the Addendum to the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079).

As discussed above, our impact analysis reflects an estimated change in payments for SSO cases. In modeling payments for SSO cases in RY 2009, we applied an inflation factor of 1.024 percent (determined by OACT) to the estimated costs of each case determined from the charges reported on the claims in the FY 2008 MedPAR files and the best available Cost-to-Charge Ratios (CCRs) from the December 2008 update of the Provider-Specific File. In modeling proposed payments for SSO cases in RY 2010, we applied an inflation factor of 1.049 (determined by OACT) to the estimated costs of each case determined from the charges reported on the claims in the FY 2008 MedPAR files and the best available CCRs from the December 2008 update of the Provider-Specific File.

These impacts reflect the estimated “losses” or “gains” among the various classifications of LTCHs from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year based on the proposed payment rates and policy changes presented in this supplemental proposed rule and the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079). Table I 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 payment per discharge for the 2009 LTCH PPS rate year (as described above).
• The fifth column shows the estimated payment per discharge for the 2010 LTCH PPS rate year (as described above).
• The sixth column shows the percentage change in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year for proposed changes to the standard Federal rate (as discussed in section V. of the Addendum to the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079)).
• The seventh column shows the percentage change in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year for proposed changes to the area wage adjustment at § 412.525(c) (as discussed in section V.B.4. of the Addendum to the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule (74 FR 24079)).
• The eighth column shows the percentage change in estimated payments per discharge from the 2009 LTCH PPS rate year (Column 4) to the 2010 LTCH PPS rate year (Column 5) for all proposed changes (and includes the effect of estimated changes to SSO payments).

4. 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 I) of the proposed LTCH PPS payment rate and policy changes presented in this supplemental proposed rule and those presented in the FY 2010 IPPS and RY 2010 LTCH proposed rule for the 2010 LTCH rate year. The impact analysis in Table I shows that estimated payments per discharge are expected to increase approximately 2.2 percent, on average, for all LTCHs from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year as a result of the proposed payment rate and policy changes presented in FY 2010 IPPS and RY 2010 proposed rule and the proposed MS-LTC-DRG relative weights and HCO fixed-loss amount presented in this supplemental proposed rule, as well as estimated increases in HCO and SSO payments. We note that we are proposing a 0.6 percent increase to the standard Federal rate for RY 2010, based on the latest market basket estimate (2.4 percent) and the proposed documentation and coding adjustment (−1.8 percent). We noted earlier in this section that for most categories of LTCHs, as shown in Table I (Column 6), the impact of the proposed increase of 0.6 percent to the standard Federal rate is projected to result in a 0.5 percent increase in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year. In addition to the proposed 0.6 percent increase to the standard Federal rate for RY 2010, the projected percent increase in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year of 2.2 percent shown in Table I (Column 8) reflects the effect of estimated increases in HCO and SSO payments, as discussed previously. Furthermore, as discussed previously in this regulatory impact analysis, the average increase in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year for all LTCHs of approximately 2.2 percent (as shown in Table I) was determined by comparing estimated proposed RY 2010 LTCH PPS payments (using the proposed rates and policies discussed in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule and those discussed in this supplemental proposed rule) to estimated RY 2009 LTCH PPS payments.

a. Location

Based on the most recent available data, the majority of LTCHs are in urban areas. Approximately 7 percent of the LTCHs are identified as being located in a rural area, and approximately 5 percent of all LTCH cases are treated in these rural hospitals. The impact analysis presented in Table I shows that the average percent increase in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year for all hospitals is 2.2 percent for all proposed changes. For rural LTCHs, the percent change for all proposed changes is estimated to be 3.1 percent, while for urban LTCHs, we estimate this increase to be nearly average, that is 2.1 percent. Large urban LTCHs are projected to experience a near to average increase (2.3 percent) in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year, while other urban LTCHs are projected to experience a slightly lower than average increase (2.0 percent) in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year, as shown in Table I.

b. Participation Date

LTCHs are grouped by participation date into four categories: (1) Before October 1983; (2) between October 1983 and September 1993; (3) between October 1993 and September 2002; and (4) after October 2002. Based on the most recent available data, the majority (approximately 51 percent) of the LTCH cases are in hospitals that began participating between October 1993 and September 2002, and are projected to experience a near average increase (2.0 percent) in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year, as shown in Table I.

In the two participation categories where LTCHs began participating in Medicare before September 1993, LTCHs are projected to experience higher than average percent increases (3.1 percent and 2.7 percent, respectively) in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year, as shown in Table I, due to proposed changes in the wage index and an estimated increase in HCO and SSO payments. Approximately 4 percent of LTCHs began participating in Medicare before October 1983. The LTCHs in this category are projected to experience a higher than average increase in estimated payments because 65 percent of these LTCHs are located in areas where the proposed RY 2010 wage index value is greater than the RY 2009 wage index value, and also because the majority of these LTCHs have a proposed wage index value greater than 1.0. Approximately 11 percent of LTCHs began participating in Medicare between October 1983 and September 1993. These LTCHs are projected to experience a higher than average increase in estimated payments because the majority (57 percent) are located in areas where the proposed RY 2010 wage index value would be greater than the RY 2009 wage index value. The majority of LTCHs, that is, those that began participating in Medicare since October 1993, are projected to experience near average increases in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year, as shown in Table I.

c. Ownership Control

Other than LTCHs whose ownership control type is unknown, LTCHs are grouped into three categories based on ownership control type: Voluntary, proprietary, and government. Based on the most recent available data, approximately 20 percent of LTCHs are identified as voluntary (Table I). We expect that, for these LTCHs in the voluntary category, estimated 2010 LTCH PPS rate year payments per discharge would increase higher than average (2.5 percent) in comparison to estimated payments in the 2009 LTCH PPS rate year, as shown in Table I, primarily because the change in estimated HCO payments is projected to be higher than average for these LTCHs. The majority (67 percent) of LTCHs are identified as proprietary and these LTCHs are projected to experience a near average (2.0 percent) increase in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year. Finally, government owned and operated LTCHs (3.0 percent) are expected to experience a higher than the average increase (2.8 percent) in estimated payments primarily due to a larger than average increase in estimated HCO payments.

d. Census Region

Of the 9 census regions, we project that the increase in estimated payments per discharge would have the largest impact on LTCHs in the New England, Mountain, and Pacific regions (3.3 percent, 3.4 percent, 3.3 percent, respectively, as shown in Table I). As explained in greater detail above, the estimated percent increase in payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year for most regions is attributable to the projected increase in estimated HCO and SSO payments, the proposed increase in the standard Federal rate and the proposed changes to the area wage adjustment. Specifically, for the New England region, all the LTCHs located in this region have a proposed wage index value greater than 1.0; and the majority (87 percent) of these LTCHs are located in areas where the proposed RY 2010 wage index value is greater than the RY 2009 wage index value. The projected increase in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year for LTCHs in the Mountain and Pacific regions is also due to the projected increase in estimated HCO and SSO payments and the significantly higher than average estimated impact from the proposed changes to the area wage adjustment. That is, the majority (60 percent) of the LTCHs located in the Mountain region have a proposed wage index value greater than 1.0, and in addition, most of these LTCHs are located in areas where the proposed RY 2010 wage index value is greater than the RY 2009 wage index value. Furthermore, all the LTCHs located in the Pacific region have a proposed wage index value greater than 1.0 and are located in areas where the proposed RY 2010 wage index value would be greater than the RY 2009 wage index value.

In contrast, LTCHs located in the Middle Atlantic and East North Central regions are projected to experience a lower than average increase in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year. The projected increase in payments of 1.2 percent for LTCHs in the Middle Atlantic region is primarily due to the 59 percent of LTCHs in this region that are located in areas where the proposed RY 2010 wage index value would be less than the RY 2009 wage index value. Similarly, the lower than average increase (1.3 percent) in payments per discharge for LTCHs in the East North Central region is largely due to the majority of LTCHs in this region that are expected to experience a decrease in estimated payments per discharge due to the proposed changes in the area wage adjustment. The remaining regions, South Atlantic, East South Central, West North Central, and West South Central, are expected to experience near the national average increase in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year.

e. Bed Size

LTCHs were grouped into six categories based on bed size: 0-24 beds; 25-49 beds; 50-74 beds; 75-124 beds; 125-199 beds; and greater than 200 beds.

We are projecting an increase in estimated 2010 LTCH PPS rate year payments per discharge in comparison to the 2009 LTCH PPS rate year for all bed size categories. Approximately 38 percent of LTCHs are in bed size categories where estimated 2010 LTCH PPS rate year payments per discharge are projected to increase near the average increase for all LTCHs in comparison to estimated 2009 LTCH PPS rate year payments per discharge. That is, LTCHs in bed size categories of 50-74 beds, 75-124 beds, and 125-199 beds are projected to experience an overall increase of 2.3 percent. LTCHs in the bed size category of 0-24 beds are projected to experience a higher than average increase (2.8 percent) in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year due primarily to their estimated increase in HCO payments. For LTCHs with 200+ beds, the higher than average projected increase in estimated payments of 2.6 percent is due to the projected increase in estimated HCO and SSO payments and the significantly higher than average impact from the proposed changes to the area wage adjustment. Specifically, 69 percent of LTCHs in this category are expected to have a proposed RY 2010 wage index value greater than 1.0, and 62 percent of the LTCHs in this category are located in areas where the proposed RY 2010 wage index value is greater than the RY 2009 wage index value. We are projecting a lower than the average increase in estimated 2010 LTCH PPS rate year payments per discharge in comparison to the 2009 LTCH PPS rate year for LTCHs in bed size category 25-49 beds, which is largely due to the 87 percent of LTCHs in this category expected to have a proposed RY 2010 wage index value of less than 1.0. In addition, 54 percent of the LTCHs in this category are located in areas where the proposed RY 2010 wage index value is less than the RY 2009 wage index value.

E. Effect on the Medicare Program

As noted previously, we project that the provisions of the FY 2010 IPPS and RY 2010 proposed rule relating to the LTCH PPS and the provisions of this supplemental proposed rule would result in an increase in estimated aggregate LTCH PPS payments in RY 2010 of approximately $101 million (or about 2.2 percent) for the 399 LTCHs in our database.

F. 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.

G. Alternatives Considered

The preamble of this supplemental proposed rule provides descriptions of the statutory provisions that are addressed, identifies implementing policies where discretion has been exercised, and presents rationales for our decisions and, where relevant, alternatives that were considered.

H. Overall Conclusion

Overall, LTCHs are projected to experience an increase in estimated payments per discharge in RY 2010. In the impact analysis, we are using the proposed rates, factors, and policies presented in this supplemental proposed rule and those in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule, including proposed MS-DRG relative weights, updated proposed wage index values, and the best available claims and CCR data 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 approximately $101 million (or about 2.2 percent).

I. Accounting Statement

As discussed previously, the impact analysis for the proposed changes to the LTCH PPS presented in the FY 2010 IPPS and RY 2010 LTCH PPS proposed rule and those presented in this proposed rule projects an increase in estimated aggregate payments of approximately $101 million (or about 2.2 percent) 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 II we have prepared an accounting statement showing the classification of the expenditures associated with these provisions as they relate to proposed changes to the LTCH PPS. Table II provides our best estimate of the proposed increase in Medicare payments under the LTCH PPS as a result of the proposed provisions presented in FY 2010 IPPS and RY 2010 LTCH PPS proposed rule and those presented in this supplemental proposed rule based on the data for the 399 LTCHs in our database. All expenditures are classified as transfers to Medicare providers (that is, LTCHs).

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 21, 2009 .

Charlene Frizzera,

Acting Administrator, Centers for Medicare & Medicaid Services.

Approved: May 27, 2009 .

Kathleen Sebelius,

Secretary.