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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

[CMS-1390-N]

RIN 0938-AP15

Medicare Program; Hospital Inpatient Prospective Payment Systems and Fiscal Year 2009 Rates: Final Fiscal Year 2009 Wage Indices and Payment Rates Including Implementation of Section 124 of the Medicare Improvement for Patients and Providers Act of 2008

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Notice.
SUMMARY: This notice contains tables listing the final wage indices, hospital reclassifications, payment rates, impacts, and other related tables effective for fiscal year (FY) 2009. The tables and impacts included in this notice reflect the extension of the expiration date for certain geographic reclassifications and special exception wage indices as required by section 124 of the Medicare Improvement for Patients and Providers Act of 2008 (MIPPA), Public Law 110-275. These geographic reclassifications and special exception wage indices were previously set to expire on September 30, 2008 and are now extended through September 30, 2009. (Additionally, the final rates, wage indices, budget neutrality factors and tables included in this notice also reflect a correction made to the wage data for one hospital, as discussed in the correction notice for the FY 2009 IPPS final rule published elsewhere within thisFederal Register.)
DATES: Effective Date:This notice is effective on October 1, 2008.
FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487.
SUPPLEMENTARY INFORMATION:

I. Background

In the August 19, 2008Federal Register(73 FR 48434) (hereinafter referred to as the FY 2009 IPPS final rule), we set forth our final rule for the Medicare inpatient prospective payment system (IPPS). Due to the July 15, 2008 enactment of the Medicare Improvement for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275), we stated in the final rule that we would publish the FY 2009 wage index tables, rates, and impacts reflecting the implementation of this legislation in aFederal Registerdocument subsequent to the FY 2009 IPPS final rule. (See the FY 2009 IPPS final rule, 73 FR 48588 and 48589, for a full explanation of the reasons for such subsequent publication.) This notice includes such wage index tables, rates, and impacts. (Additionally, the final rates, wage indices, budget neutrality factors and tables included in this notice also reflect a correction made to the wage data for one hospital, as discussed in the correction notice for the FY 2009 IPPS final rule published elsewhere within thisFederal Register.)

II. Final FY 2009 Wage Indices and Rates A. Final FY 2009 Wage Indices

The final wage index values for FY 2009 (except those for hospitals receiving wage index adjustments under section 505 of Pub. L. 108-173) are included in Tables 4A, 4B, 4C, and 4F of the Addendum to this notice and are posted on our Web site athttp://www.cms.hhs.gov/AcuteInpatientPPS/. For hospitals that are receiving a wage index adjustment under section 505 of Pub. L. 108-173, the hospital's final wage index will reflect the adjustment shown in Table 4J of the Addendum to this notice. In addition, Table 2 of the Addendum to this notice includes the final wage index value and occupational mix adjusted average hourly wage (from the FYs 2003, 2004, and 2005 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 2009.

B. Final FY 2009 Hospital Wage Index Reclassifications/Redesignations 1. Section 508 Extension

On July 15, 2008, the Medicare Improvements for Patients and Providers Act of 2008, Pub. L. 110-275 was enacted. Section 124 of Pub. L. 110-275 extends through FY 2009 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 theFederal Registeron August 11, 2004 (69 FR 49105 and 49107) and extended under section 117 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) (Pub. L. 110-173)).

Under section 508 of Pub. L. 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 theFederal Registeron 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. On March 23, 2007, we published a notice in theFederal Register(72 FR 13799) 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, we published a notice in theFederal Register(73 FR 9807) regarding our implementation of section 117 of the MMSEA.

Section 124 of Pub. L. 110-275 has now extended the hospital reclassification provisions of section 508 and certain special exceptions through September 30, 2009 (FY 2009). Because of the timing of the enactment of Pub. L. 110-275, we were not able to recompute the FY 2009 wage index values for any hospital reclassified under section 508 and special exception hospitals in time for inclusion in the FY 2009 IPPS final rule. Instead, we stated that we would issue the final FY 2009 wage index values and other related tables, as specified in the Addendum to the FY 2009 IPPS final rule, in a separateFederal Registernotice published subsequent to the final rule. We stated that we would analyze the data of hospitals in labor market areas affected by the MIPPA extension, including hospitals with Lugar redesignations, and make best efforts to give those hospitals a wage index value that we believe results in the highest FY 2009 wage index for which they are eligible.

This final notice reflects the reclassification withdrawal and termination decisions we have made on behalf of certain hospitals based on what we perceive would be most advantageous to the hospital and would give the hospital the highest wage index among its available options. (We note one exception where a hospital notified us prior to the publication of this notice to request that we maintain its rural reclassification, although the hospital's section 508 reclassification would have resulted in a higher wage index.) Please note that in some cases we may haveterminated a hospital's Lugar reclassification under section 1886(d)(8)(B) of the Act in order to receive the out-migration adjustment. As explained in the FY 2009 final IPPS rule, the intervening MIPAA legislation affects only those areas including hospitals whose reclassifications/special exceptions are extended, or areas to which such hospitals were reclassified for FY 2009. Therefore, we arenotchoosing wage index values for hospitals reclassified to or located in areas containing no hospitals whose reclassifications or special exceptions were extended by section 124 of Pub. L. 110-275.

We have also created special procedural rules, effective August 19, 2008 the date of publication of the FY 2009 IPPS final rule, allowing hospitals 15 days from theFederal Registerdate of publication of this separate notice to notify us if they wish to revise the decision that CMS makes on their behalf. Members of a group reclassification must ensure that all members of the group (except hospitals whose reclassifications or special exceptions were extended by section 124 of Pub. L. 110-275) have signed the revision request. Written requests to revise CMS's wage index decision (as reflected in this notice) must be received at the following address by no later than 5 p.m., eastern daylight time (e.d.t.) October 20, 2008: Division of Acute Care, Mailstop C4-08-06, 7500 Security Boulevard, Baltimore, MD 21244, Attn: Brian Slater.

If we do not receive notice from the hospital within such 15-day timeframe, the determination we have made on behalf of the hospital in this separate notice is deemed final for FY 2009, and it is as if the hospital made the determination itself, on its own behalf. (Note: In the case of the hospital mentioned above that made the determination itself to maintain its rural reclassification rather than to receive the higher section 508 reclassification for which it was eligible, the hospital's rural reclassification is deemed final for FY 2009. The hospital is ineligible to now request a reversal of the decision that it made on its own behalf.)

Hospitals that seek to revise the CMS decision made on their behalf in this notice may revert back only to the wage index originally accepted for FY 2009 (using the ordinary 45-day process after publication of the proposed rule). In cases where CMS has terminated or withdrawn a reclassification on a hospital's behalf in order to award the hospital the wage index associated with a section 508 reclassification, a special exception, or the hospital's home area for FY 2009, and the hospital does not reverse or modify CMS's decision within the 15-day timeframe, we will deem the hospital's reclassification is withdrawn or terminated for FY 2009 only, as section 508 reclassifications and special exceptions are only extended through FY 2009. Such hospitals, if there is at least one remaining year in their 3-year reclassification, will automatically have the Medicare Geographic Classification Review Board (MGCRB) reclassification they originally accepted for FY 2009 (within the ordinary 45-day time frame) reinstated for FY 2010. To restate, automatic reinstatement will occur only in the following situation: (1) A hospital accepted a particular reclassification for FY 2009 following the ordinary process (that is, the 45-day rule); and (2) CMS withdraws or terminates such reclassification in order for the hospital to receive a 508 wage index, a special exception wage index, or the wage index of the hospital's home area. The hospital will be reinstated for the remaining years of only the reclassification originally accepted.

For example, if, in this notice, we assign a hospital a section 508 reclassification wage index for FY 2009 and the hospital has accepted an MGCRB reclassification for FY 2008 through 2010, the hospital's previous, FY 2008 through 2010 reclassification will be automatically reinstated for the remaining year, FY 2010. By the same token, if the omission of a section 508 or special exception hospital from the calculation of the reclassification wage index in Table 4C results in the reclassification wage index decreasing to the point that a hospital should have terminated the FY 2008 through 2010 MGCRB reclassification it accepted for FY 2009 , we may terminate the reclassification on the hospital's behalf in order to receive the home wage index; however, such reclassification will then be automatically reinstated for FY 2010.

As stated in the FY 2009 IPPS final rule, in the case of overlapping reclassifications, these special procedural rules will not change our policy that hospitals are not permitted to hold one MGCRB reclassification in reserve while another is in effect. Thus, in the case of a hospital with a choice of two possible MGCRB 3-year reclassifications for FY 2009, if CMS chooses one reclassification on the hospital's behalf (and this decision is not reversed within the 15-day timeframe), then any other reclassifications are permanently terminated. Because CMS is acting on behalf of the hospital, it is as if the hospital made the decision to accept the reclassification listed in this notice, and the hospital is then prohibited under 42 CFR 412.273(b)(2)(ii) from reinstating any previous reclassifications. Likewise, if a hospital had a choice of two possible reclassifications, and we assign the hospital a 508 or special exception wage index in this notice (and the decision is not reversed within the 15-day timeframe), then only the reclassification previously accepted by the hospital (using the ordinary 45-day rule) is reinstated—any other reclassification is permanently terminated.

As stated in the FY 2009 IPPS final rule, we will not further recalculate the wage indices, budget neutrality factors, or standardized amounts now that CMS has made decisions regarding what is most advantageous to each hospital. That is, we will not further recalculate the wage indices (including any rural floors or imputed rural floors) or standardized amounts based on hospital decisions that further revise decisions made by CMS on the hospitals' behalf.

When applying section 508, 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 MIPPA, since that legislation simply provides a 1 year continuation for any section 508 reclassifications and special exceptions wage index set to expire September 30, 2008.

2. Special Considerations for Special Exception Wage Indexes

As stated earlier, section 124(b) of MIPPA extended certain special exceptions through the end of FY 2009. MIPPA achieved these extensions through an amendment to the MMSEA. As amended, section 117(a)(2) of the MMSEA now reads as follows:

SPECIAL EXCEPTION RECLASSIFICATIONS.—The Secretary of Health and Human Services shall extend for discharges occurring through the last date of the extension of reclassifications under section 106(a) of the Medicare Improvement and Extension Act of 2006 (division B of Public Law 109-432), the special exception reclassifications made under the authority of section 1886(d)(5)(I)(i) of the Social Security Act (42 U.S.C. 1395ww(d)(5)(I)(i)) and contained in the final rule promulgated by the Secretary in theFederal Registeron August 11, 2004 (69 Fed. Reg. 49105, 49107).

Although MIPPA amended section 117(a)(2) of the MMSEA to extend the specific special exceptions referenced above, MIPPA failed to amend section117(a)(3) of the MMSEA. That provision states: “For purposes of implementation of this subsection, the Secretary shall use the hospital wage index that was promulgated by the Secretary in theFederal Registeron October 10, 2007 (72 FR 57634), and any subsequent corrections.” We believe that the only possible interpretation of this provision is that hospitals whose special exceptions are extended under MIPPA section 124(b) are to receive the special exception wage index assigned to them for FY 2008; not a wage index based upon FY 2009 data. The MMSEA mandates that the wage index for a hospital receiving a special exception must be the wage index promulgated in the October 10, 2007Federal Registerand any subsequent corrections thereto. The FY 2009 wage indices cannot be viewed as corrections to the FY 2008 data, as these FY 2009 indices represent a new fiscal year cycle of ratesetting—and are not corrections of FY 2008 rates. For these reasons, if a hospital is assigned a special exception wage index in this notice under section 117(a)(2) of the MMSEA (as amended by Pub. L. 110-275), its wage index will reflect FY 2008 wage index data. (We note that these special considerations do not affect the rule discussed above allowing a hospital to retain its reclassification or home wage index if such wage index exceeds the special exception wage index, it is only in cases where a hospital receives its special exception wage index under section 117(a)(2) of the MMSEA that such wage index will be based upon FY 2008 data.)

C. Final FY 2009 Prospective Payment Systems Payment Rates for Hospital Operating and Capital Related Costs

As discussed in the FY 2009 IPPS final rule (73 FR 48759), wage data affect the calculation of the outlier threshold as well as the outlier offset and budget neutrality factors that are applied to the standardized amounts. Thus, because we were not able to calculate final wage rates as a result of the intervening legislation contained in section 124 of Pub. L. 110-275, we were only able to provide tentative figures in the FY 2009 IPPS final rule. We stated that such tentative amounts would be revised once we finalized wage index figures as a result of implementing section 124 of Pub. L. 110-275, and that a subsequentFederal Registerdocument would list the final standardized amounts, outlier offsets, and budget neutrality factors effective October 1, 2008, for FY 2009. Additionally, the final rates, wage indices, budget neutrality factors and tables also reflect a correction made to the wage data for one New Hampshire hospital as discussed in the correction notice for the FY 2009 IPPS final rule published elsewhere within thisFederal Register. This notice announces the final FY 2009 prospective payment rates for Medicare hospital inpatient operating costs and Medicare hospital inpatient capital-related costs. We calculated these final rates using the methodology adopted in the FY 2009 IPPS final rule.

We note that, because hospitals excluded from the IPPS are paid on a cost basis (and not under the IPPS), these hospitals were not affected by the tentative figures for standardized amounts, offsets, and budget neutrality factors. Therefore, the rate-of-increase percentages for updating the target amounts for hospitals excluded from the IPPS that are effective October 1, 2008 were finalized in the FY 2009 IPPS final rule (73 FR 48776) and are not included in this notice.

1. Final FY 2009 Prospective Payment Rates for Hospital Inpatient Operating Costs a. Final Budget Neutrality Adjustments Factors for Recalibration of DRG Weights and Updated Wage Index, Reclassified Hospitals and Rural Community Hospital Demonstration Program Adjustment

Using the methodology adopted in the FY 2009 IPPS final rule, for FY 2009 we are establishing the following final budget neutrality factors (which are applied to the standardized amounts): a final FY 2009 DRG recalibration and wage index budget neutrality factor of 0.999553 ( we note that the DRG recalibration and wage index budget neutrality factor changed from the final rule to this notice as a result of the change in the wage data to one New Hampshire hospital as discussed in the correction notice for the FY 2009 IPPS final rule published elsewhere within thisFederal Register); a final reclassified hospital budget neutrality factor of 0.992088 and a final rural community hospital demonstration program adjustment factor of 0.999764.

b. Rural and Imputed Floor Budget Neutrality

As explained and finalized in the final rule, for FY 2009, hospitals will receive a blended wage index that is comprised of 20 percent of the wage index adjusted by applying the State level rural and imputed floor budget neutrality adjustment and 80 percent of the wage index adjusted by applying the national rural and imputed floor budget neutrality adjustment. This adjustment is applied to the wage index and not to the standardized amount.

Using the methodology established in the FY 2009 IPPS final rule (73 FR 48762), we are establishing the following final rural and imputed floor budget neutrality factors: a national rural and imputed floor budget neutrality adjustment factor of 0.996272; an additional adjustment factor of 0.999785 to ensure that the blended wage indices remain budget neutral (as explained in the FY 2009 IPPS final rule (73 FR 48762)). The final State-level rural and imputed floor budget neutrality adjustment factors are in table 4D-1 of this notice.

c. Final FY 2009 Standardized Amount

We calculated the final FY 2009 standardized amounts using the methodology we adopted in the FY 2009 IPPS final rule. For a complete description of this methodology, please see the FY 2009 IPPS final rule (73 FR 48759 through 48768). Tables 1A and 1B in 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 final 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 69.7 percent, and the labor-related share applied to the final standardized amounts in Table 1B is 62 percent. (The labor-related share is 62 percent for all hospitals (other than those in Puerto Rico) whose wage indices are less than or equal to 1.0000.)

In addition, Tables 1A and 1B include final standardized amounts reflecting the full 3.6 percent update for FY 2009, and final standardized amounts reflecting the 2.0 percentage point reduction to the update (a 1.6 percent update) applicable for hospitals that fail to submit quality data consistent with section 1886(b)(3)(B)(viii) of the Act.

In the FY 2009 IPPS final rule, we did not supply a table that illustrated the changes from the FY 2008 national average standardized amount because at that time we were only setting the standardized amounts tentatively, but we stated that we would provide the table in the subsequentFederal Registernotice. Therefore, in this notice, we include below a table that details the calculation of the final FY 2009 standardized amounts.

EN03OC08.000

The final labor-related and nonlabor-related portions of the national average standardized amounts for Puerto Rico hospitals for FY 2009 are set forth in Table 1C in the Addendum to this notice. (The labor-related share applied to the Puerto Rico-specific standardized amount is either 58.7 percent or 62 percent, depending on which is more advantageous to the hospital.)

d. Final Adjustments for Area Wage Levels

The final occupational mix adjusted wage indices by geographic area are listed in Tables 4A, 4B, 4C, and 4F in the Addendum to this notice. (These tables are also available on the CMS Web site.)

e. FY 2009 Final Outlier Adjustment Factors and Fixed-loss Cost Threshold

Using the methodology we adopted in the FY 2009 IPPS final rule, we are establishing a final outlier fixed-loss cost threshold for FY 2009 equal to the prospective payment rate for the DRG, plus any IME and DSH payments, and any add-on payments for new technology, plus $20,045.

The final outlier adjustment factors that are applied to the standardized amount for the FY 2009 outlier threshold are as follows:

Operating standardized amounts Capital federal rate National 0.948996 0.946458 Puerto Rico 0.954304 0.931050 2. Final FY 2009 Prospective Payment Rates for Acute Care Hospital Inpatient Capital-Related Costs

We have calculated the final FY 2009 capital Federal rates, offsets, and budget neutrality factors using the same methodology we adopted in the FY 2009 IPPS final rule (CMS-1390-F) that was used to calculate the tentative rates included in that rule. (We note that for the remainder of the section we will use the term “FY 2009 IPPS final rule” when referring to CMS-1390-F, which was published in theFederal Registeron August 19, 2008.) For a complete description of this methodology, please see the FY 2009 IPPS final rule (73 FR 48769 through 48773).

a. Inpatient Hospital Capital-Related Prospective Payment Rate Update

The factors used in the update framework are not affected by the extension of the expiration date for certain geographic reclassifications and special exception wage indices as required by section 124 of the MIPPA, Pub. L. 110-275. Therefore, the update factor for FY 2009 was not revised from the capital IPPS standard Federal rate update factor discussed in section III.A.1. of the FY 2009 IPPS final rule and remains at 0.9 percent for FY 2009. A full discussion of the update framework is provided in that final rule (73 FR 48769 through 48711).

b. Outlier Payment Adjustment Factor

Based on the final thresholds as set forth in section IIC.1.e. of this notice, we estimate that outlier payments for capital-related costs will equal 5.35 percent for inpatient capital-related payments based on the final Federal rate in FY 2009. Our estimate of outlier payments for capital-related for FY 2009 remains unchanged from our estimate discussed in section III.A.2. of the FY 2009 IPPS final rule (73 FR 48771). Therefore, in determining the final FY 2009 capital Federal rate in this notice, we will apply a final outlier adjustment factor of 0.9465 for FY 2009.

As discussed in the FY 2009 IPPS final rule, we estimate that the percentage of capital outlier payments to total capital standard payments for FY 2009 will be higher than the percentages for FY 2008. The final outlier thresholds for FY 2009 are in section IIC.1.e. of this notice. For FY 2009, a case qualifies as a cost outlier ifthe cost for the case plus the IME and DSH payments are greater than the prospective payment rate for the MS-DRG plus $20,045.

c. Budget Neutrality Adjustment Factor for Changes in MS-DRG Classifications and Weights and the GAFs

Using the methodology discussed in section III.A.3. of the FY 2009 IPPS final rule (73 FR 48771 through 48773), for FY 2009, we are establishing a final GAF/DRG budget neutrality factor of 1.0015, which is the product of the incremental GAF budget neutrality factor of 1.0021 and the DRG budget neutrality of 0.9995 (calculations were done with unrounded numbers). 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 from 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 final cumulative change in the capital Federal rate due to this adjustment is 0.9917 (the product of the incremental factors for FYs 1993 though 2008 and the final incremental factor of 1.0015 for FY 2009). (We note that averages of the incremental factors that were in effect during FYs 2005 and 2006, respectively, were used in the calculation of the final cumulative adjustment for FY 2009.)

This factor accounts for MS-DRG reclassifications and recalibration and for changes in the GAFs, which include the revisions to wage index that result from the extension of the expiration date for certain geographic reclassifications and special exception wage indices as required by section 124 of the MIPPA, Pub. L. 110-275 (discussed in section II.B. of this notice). It also incorporates the effects on the final GAFs of FY 2009 geographic reclassification decisions made by the MGCRB compared to FY 2008 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 adjustments made to the wage index as a result of the extension of the expiration date for certain geographic reclassifications and special exception wage indices as required by section 124 of the MIPPA, Pub. L. 110-275 had no effect on capital exceptions payments. Therefore, the special exceptions adjustment factor remains at 0.9999 as discussed in section III.A.4. of FY 2009 IPPS final rule (73 FR 48773).

e. Capital Standard Federal Rate for FY 2009

We are providing a chart that shows how each of the factors and adjustments for FY 2009 affect the computation of the final FY 2009 capital Federal rate in comparison to the FY 2008 capital Federal rate. The FY 2009 update factor has the effect of increasing the final capital Federal rate by 0.9 percent compared to the FY 2008 capital Federal rate. The final GAF/DRG budget neutrality factor has the effect of increasing the final capital Federal rate by 0.15 percent. The final FY 2009 outlier adjustment factor has the effect of decreasing the final capital Federal rate by 0.61 percent compared to the FY 2008 outlier adjustment factor. The FY 2009 exceptions payment adjustment factor has the effect of increasing the final capital Federal rate by 0.02 percent compared to the FY 2008 exceptions payment adjustment factor. As discussed in the FY 2009 IPPS final rule (73 FR 48773 through 48774), the adjustment for improvements in documentation and coding under the MS-DRGs, which was unaffected by the extension of the expiration date for certain geographic reclassifications and special exception wage indices as required by section 124 of the MIPPA, Pub. L. 110-275, has the effect of decreasing the FY 2009 capital Federal rate by 0.9 percent as compared to the FY 2008 capital Federal rate. The combined effect of all the changes is to decrease the capital Federal rate by 0.46 percent compared to the average FY 2008 capital Federal rate.

Comparison of Factors and Adjustments—FY 2008 Capital Federal Rate and FY 2009 Capital Federal Rate FY 2008 FY 2009 Change Percent change4 Update Factor1 1.0090 1.0090 1.0090 0.90 GAF/DRG Adjustment Factor1 0.9996 1.0015 1.0015 0.15 Outlier Adjustment Factor2 0.9523 0.9465 0.9939 −0.61 Exceptions Adjustment Factor2 0.9997 0.9999 1.0002 0.02 MS-DRG Coding and Documentation Improvements Adjustment Factor3 0.9940 0.9910 0.9910 −0.90 Capital Federal Rate $426.14 $424.17 0.9954 −0.46 1The update factor and the GAF/DRG budget neutrality factors are built permanently into the capital rates. Thus, for example, the incremental change from FY 2008 to FY 2009 resulting from the application of the 1.0015 GAF/DRG budget neutrality factor for FY 2009 is 1.0015. 2The 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 2009 outlier adjustment factor is 0.9465/0.9523, or 0.9939. 3Adjustment to FY 2009 IPPS rates to account for documentation and coding improvements expected to result from the adoption of the MS-DRGs, as discussed above in section III.D. of the Addendum to the FY 2009 IPPS final rule. 4Percent change of individual factors may not sum due to rounding.

We provided a chart in the FY 2009 IPPS final rule that compared the tentative FY 2009 capital Federal rate to the proposed FY 2009 capital Federal rate (see 73 FR 48775). We are now providing a chart that shows how the final FY 2009 capital Federal rate differs from the proposed FY 2009 capital Federal rate presented in the FY 2009 IPPS proposed rule (73 FR 23721).

Comparison of Factors and Adjustments—Proposed FY 2009 Capital Federal Rate and Final FY 2009 Capital Federal Rate Proposed FY 2008 Final FY 2009 Change Percent change Update Factor 1.0070 1.0090 1.0020 0.20 GAF/DRG Adjustment Factor 1.0007 * 1.0015 1.0008 0.08 Outlier Adjustment Factor 0.9427 0.9465 1.0040 0.40 Exceptions Adjustment Factor 0.9998 0.9999 1.0001 0.01 MS-DRG Coding and Documentation Improvements Adjustment Factor 0.9910 0.9910 0.0000 0.00 Capital Federal Rate $421.29 * $424.17 1.0068 0.68 * Final factor/rate for FY 2009, as discussed in section IIC.2. of this notice, which were revised from the tentative factors published in the FY 2009 IPPS final rule.

As a final comparison, we are providing a chart that shows how the final FY 2009 capital Federal rate differs from the tentative FY 2009 capital Federal rate as presented in the FY 2009 IPPS final rule.

Comparison of Factors and Adjustments—Tentative FY 2009 Capital Federal Rate and Final FY 2009 Capital Federal Rate FY 20091 FY 20092 Change Percent change Update Factor 1.0090 1.0090 0.0000 0.00 GAF/DRG Adjustment Factor 1.0010 1.0015 1.0005 0.05 Outlier Adjustment Factor 0.9465 0.9465 0.0000 0.00 Exceptions Adjustment Factor 0.9999 0.9999 0.0000 0.00 MS-DRG Coding and Documentation Improvements Adjustment Factor 0.9910 0.9910 0.0000 0.00 Capital Federal Rate $423.96 $424.17 1.0005 0.05 1As published in the FY 2009 IPPS final rule without the implementation of the extension of the expiration date for certain geographic reclassifications and special exception wage indices as required by section 124 of the MIPPA, Pub. L. 110-275. 2Final capital factors and rates after implementation of the extension of the expiration date for certain geographic reclassifications and special exception wage indices as required by section 124 of the MIPPA, Pub. L. 110-275. f. Special Capital Rate for Puerto Rico Hospitals

Using the methodology discussed in the FY 2009 IPPS final rule (73 FR 48775), the final FY 2009 special capital rate for Puerto Rico is $198.77. (See the FY 2009 IPPS final rule (73 FR 48775) for additional information on the calculation of FY 2009 capital PPS payments.)

III. 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).

IV. Regulatory Impact Analysis A. Overall Impact

We have examined the impacts of this notice 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 (as amended by Executive Order 13258) 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 this rulemaking is “economically significant” as measured by the $100 million threshold, and hence also a major rule under the Congressional Review Act. Accordingly, we have prepared a Regulatory Impact Analysis, that to the best of our ability, presents the costs and benefits of the rulemaking.

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 suppliers 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 $31.5 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 athttp://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 constitutes our 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 tothe 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. That threshold level is currently approximately $130 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 impact analysis for the policy changes under the IPPS for operating costs was included in the FY 2009 IPPS final rule. As stated in the impact analysis of the FY 2009 IPPS final rule (73 FR 49064), we were unable to provide final wage indices because we were unable to account for the recently enacted legislation (that is, section 124 of Pub. L. 110-275), that extended certain special exceptions and reinstated the provisions of section 508 of Public Law 108-173 relating to the wage index reclassifications of hospitals for an additional year, through FY 2009. Therefore, at the time of the FY 2009 IPPS final rule, we were also unable to finalize budget neutrality calculations, the outlier threshold and outlier offsets to the standardized amounts because these figures were all dependent on the final wage indices. However, we indicated that we would recalculate the impacts and provide in a subsequentFederal Registernotice prior to October 1, 2008. Now that we have recalculated the new wage indices to reflect the extension for reclassification for section 508 of MMA and special exception providers, we are providing final impacts for FY 2009. Because the extension of section 508 is a nonbudget neutral provision, overall estimates for hospitals have changed from our estimate that was published in the FY 2009 IPPS final rule (73 FR 49064). We estimate that the changes in the FY 2009 IPPS final rule, in conjunction with the final IPPS rates and wage index included in this notice, will result in an approximate $5.0 billion increase in operating payments.

B. Final FY 2009 Impacts on IPPS Operating Costs 1. Analysis of Table I

Table I displays the results of our analysis of the payment changes for FY 2009 after implementing section 124 of Public Law 110-275, which extended section 508 of MMA and special exception reclassifications through FY 2009. These impacts update the tentative ones that were published in the FY 2009 IPPS final rule. As explained in the FY 2009 final rule and in this notice, we were unable to implement the section 124 of Public Law 110-275 that extended reclassifications for section 508 of MMA and special exception providers, so we were unable to finalize the wage index, standardized amounts, outlier threshold and budget neutrality factors. In this notice, we can now finalize the wage index, standardized amounts, outlier thresholds and budget neutrality factors, and we are only displaying the impact columns that were affected by the Section 508 and special exception reclassifications. Therefore, we are not reprinting the impacts of the DRG relative weights, the wage data, the DRG and wage index changes that were published in the FY 2009 IPPS final rule because those columns are based on pre-reclassification wage data that is not affected by the Section 508 and special exception reclassifications. (See the FY 2009 IPPS final rule (73 FR 49065 through 49072) for a full discussion of the FY 2009 regulatory impact analysis.) In addition, we are adding a column to display the impact of the implementation of section 508 of MMA and special exceptions.

Table I displays the results of our analysis of the changes for FY 2009. 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 3,538 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 2,553 hospitals located in urban areas included in our analysis. Among these, there are 1,408 hospitals located in large urban areas (populations over 1 million), and 1,145 hospitals in other urban areas (populations of 1 million or fewer). In addition, there are 985 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 2009 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 section 1886(d)(8)(B) and section 1886(d)(8)(E) of the Act that have implications for capital payments) are 2,594, 1,430, 1,164 and 944, 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 2,495 nonteaching hospitals in our analysis, 808 teaching hospitals with fewer than 100 residents, and 235 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 after geographic reclassification, 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 were196 RRCs, 356 SCHs, 157 MDHs, 104 hospitals that are both SCHs and RRCs, and 12 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 2005 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 2009. The second grouping shows the MGCRB rural reclassifications. In addition, the last grouping reflects the 114 hospitals currently reclassified as Section 508 and special exception hospitals.

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

BILLING CODE 4120-01-P EN03OC08.001 EN03OC08.002 EN03OC08.003 BILLING CODE 4120-01-C a. Effects of MGCRB Reclassifications (Column 1)

The changes in Column 1 reflect the per case payment impact of moving from this baseline to a simulation incorporating the MGCRB decisions for FY 2009 which affect hospitals' wage index area assignments. For information on the payment impacts prior to geographic reclassification, please see the FY 2009 IPPS Final Rule (73 FR 49069 through 49070).

By Spring of each year, the MGCRB makes reclassification determinations that will be effective for the next fiscal year, which begins on October 1. The MGCRB may approve a hospital's reclassification request for the purpose of using another area's wage index value. Hospitals may appeal denials of MGCRB decisions to the CMS Administrator. Further, hospitals have 45 days from publication of the IPPS rule in theFederal Registerto decide whether to withdraw or terminate an approved geographic reclassification for the following year. This column reflects all MGCRB decisions, Administrator appeals and decisions of hospitals for FY 2009 geographic reclassifications.

Because section 124 of Pub. L. 110-275 extended certain special exceptions and section 508 reclassifications through FY 2009, we analyzed the data of hospitals in labor market areas affected by legislation, including hospitals with Lugar redesignations, and make best efforts to give those hospitals a wage index value that we believe results in the highest FY 2009 wage index for which they are eligible. Hospitals will have 15 days from the date ofFederal Registerpublication of this separate notice to notify us if they wish to revise the decision that we made on their behalf.

The impacts shown in Column 1 of Table 1 reflect our reclassification decisions on behalf of hospitals, which reflect the area that would give the hospital the highest wage index. The overall effect of geographic reclassification is required by section 1886(d)(8)(D) of the Act to be budget neutral. The geographic budget neutrality factor reflects the effect of the geographic reclassifications based on our reclassification decisions. Therefore, for the purposes of this impact analysis, we are applying an adjustment of 0.992088 to ensure that the effects of the section 1886(d)(10) reclassifications are budget neutral. Geographic reclassification generally benefits hospitals in rural areas. We estimate that geographic reclassification will increase payments to rural hospitals by an average of 2.2 percent.

b. Effects of the Rural Floor and Imputed Floor, Including the Transition To Apply Budget Neutrality at the State Level (Column 2)

As discussed in the FY 2009 IPPS final rule (73 FR 49070), we are applying the rural floor and imputed floor budget neutrality at the State level through a 3-year transition. In FY 2009, hospitals will receive a blended wage index that is 20 percent of a wage index with the State level rural and imputed floor budget neutrality adjustment and 80 percent of a wage index with the national budget neutrality adjustment. At the time of publication of the FY 2009 IPPS final rule, we could only apply tentative rural floor budget neutrality factors because we were unable to finalize the wage index to account for the section 124 of Pub. L. 110-275 that extended that the reclassification for section 508 and special exception hospitals. The finalized national rural floor budget neutrality applied to the wage index is 0.996272. The within-State rural floor budget neutrality factors applied to the wage index is available in Table 4D of the Addendum to this notice. After the wage index is blended, an additional adjustment of 0.999785 is applied to the wage index to ensure that payments before the application of the rural floor are equivalent to the payments under the blended budget neutral rural floor wage index.

The column compares the post-reclassification FY 2009 wage index of providers before the rural floor adjustment and the post-reclassification FY 2009 wage index of providers with the rural floor and imputed floor adjustment with the transitional rural floor budget neutrality factor applied. We project that, in aggregate, rural hospitals will experience a 0.2 percent decrease in payments as a result of the application of the rural floor including the transition to within-State rural floor budget neutrality. We project hospitals located in other urban areas (populations of 1 million or fewer) will experience a 0.1 percent increase in payments because only providers can benefit from the rural floor. Rural New England hospitals can expect the greatest decrease in payment, 0.3 percent, because under the blended rural floor budget neutrality adjustment, hospitals in New Hampshire will receive a rural floor budget neutrality adjustment of 0.99236 or a reduction of 0.8 percent, and hospitals in Connecticut will receive a rural floor budget neutrality adjustment of 0.99000 or a reduction of 1 percent. New Jersey, which is the only State that benefits from the imputed floor, is expected to receive a rural floor budget neutrality adjustment of 0.99455, or a reduction of less than 1 percent.

c. Effects of the Application of Section 508 Reclassification (Column 3)

This column displays the impact of extending the reclassification for Section 508 and special exception providers through FY 2009. 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 andEast North Central can expect increases in payments by 0.5 percent because those regions have Section 508 and special exception providers. Providers in the urban Middle Atlantic region will experience a 0.7 percent increase in estimated payments because there are several section 508 and special exception providers located in New Jersey.

d. Effects of the Wage Index Adjustment for Out-Migration (Column 4)

Section 1886(d)(13) of the Act, as added by section 505 of Pub. L. 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 are to 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 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 2009 IPPS final rule will now receive their section 508 or special exception reclassification wage index. With the out-migration adjustment, rural providers will experience a 0.1 percent increase in payments in FY 2009 relative to no adjustment at all. We included these additional payments to providers in the impact table shown above, and we estimate the impact of these providers receiving the out-migration increase to be approximately $31 million.

e. Effects of All Changes With CMI Adjustment and Estimated Growth (Column 5)

Column 5 compares our estimate of payments per case between FY 2008 and FY 2009, incorporating all changes reflected in this notice for FY 2009 (including statutory changes). This column includes the FY 2009 documentation and coding adjustment of −0.9 percent and the projected 1.8 percent increase in case-mix from improved documentation and coding (with the 1.8 percent case-mix increase assumed to occur equally across all hospitals).

Column 5 reflects the impact of all FY 2009 changes relative to FY 2008. The average increase for all hospitals is approximately 5.0 percent. This increase includes the effects of the 3.6 percent market basket update. It also reflects the 0.4 percentage point difference between the projected outlier payments in FY 2008 (5.1 percent of total DRG payments) and the current estimate of the percentage of actual outlier payments in FY 2008 (4.7 percent), as described in the FY 2009 IPPS final rule (73 FR 48766). As a result, payments are projected to be 0.4 percentage points lower in FY 2008 than originally estimated, resulting in a 0.4 percentage point greater increase for FY 2009 than would otherwise occur. This analysis accounts for the impact of section 124 of Pub. L. 110-275, which extended certain special exceptions and section 508 reclassifications for FY 2009. This nonbudget neutral provision, that increases the wage index for 114 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. For these reasons, the values in Column 5 may not equal the product of the percentage changes described above.

The overall change in payments per case for hospitals in FY 2009 is estimated to increase by 5.0 percent. Hospitals in urban areas will experience an estimated 5.1 percent increase in payments per case compared to FY 2008. Hospitals in large urban areas will experience an estimated 5.2 percent increase and hospitals in other urban areas will experience an estimated 4.9 percent increase in payments per case in FY 2008. Hospital payments per case in rural areas are estimated to increase 4.1 percent. The increases that are larger than the national average for larger urban areas and smaller than the national average for other urban and rural areas are largely attributed to the differential impact of adopting MS-DRGs.

Among urban census divisions, the largest estimated payment increases will be 6.5 percent in the Pacific region (generally attributed to MS-DRGs, wage data and section 508 and special exception reclassifications) and 5.5 percent in the Mountain region (mostly due to MS-DRGs). The smallest urban increase is estimated at 3.9 percent in the Puerto Rico region.

Among the rural regions in Column 5, the providers in the New England region experience the smallest increase in payments (3.5 percent) primarily due to the transition to the within-State rural floor budget neutrality adjustment. The Pacific and South Atlantic regions will have the highest increases among rural regions, with 5.6 percent and 4.4 percent estimated increases, respectively. Again, increases in rural areas are generally less than the national average due to the adoption of MS-DRGs.

Among special categories of rural hospitals in Column 9, the MDHs and the RRCs will receive an estimated increase in payments of 4.8 percent, and the SCHs will experience an estimated increase in payments by 3.7 percent.

Urban hospitals reclassified for FY 2009 are anticipated to receive an increase of 5.2 percent, while urban hospitals that are not reclassified for FY 2009 are expected to receive an increase of 5.1 percent. Rural hospitals reclassifying for FY 2009 are anticipated to receive a 4.3 percent payment increase and rural hospitals that are not reclassifying are estimated to receive a payment increase of 3.8 percent. Section 508 and special exception providers are estimated to receive a payment increase of 5.8 percent relative to last year.

2. Analysis of Table II

Table II presents the projected impact of the changes for FY 2009 for urban and rural hospitals and for the different categories shown in Table I. It compares the estimated payments per case for FY 2008 with the average estimated payments per case for FY 2009, as calculated under our models. 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 5 of Table I.

BILLING CODE 4120-01-P EN03OC08.004 BILLING CODE 4120-01-C EN03OC08.005 BILLING CODE 4120-01-C C. Final FY 2009 Capital-Related Impacts (Including the Quantitative Effects of the Extension of the Expiration Date for Certain Geographic Reclassifications and Special Exception Wage Indices as Required by Section 124 of the MIPPA, Pub. L. 110-275) 1. General Considerations

In accordance with § 412.312, the basic methodology for determining capital IPPS payments in FY 2009 is as follows: (Standard Federal Rate) x (DRG weight) x (GAF) x (COLA for hospitals located in Alaska and Hawaii) x (1 + DSH Adjustment Factor + IME Adjustment Factor, if applicable). In addition, hospitals may also receive outlier payments for those cases that qualify under the threshold established for each fiscal year.

The data used in developing the impact analysis presented below are taken from the March 2008 update of the FY 2007 MedPAR file and the March 2008 update of the Provider-Specific File that is used for payment purposes. Although the analyses of the changes to the capital prospective payment system do not incorporate cost data, we used the March 2008 update of the most recently available hospital cost report data (FYs 2005 and 2006) to categorize hospitals. Our analysis has several qualifications. We use the best data available and make assumptions about case-mix and beneficiary enrollment as described below. In addition, as discussed in section III.A.5. of the Addendum to the FY 2009 IPPS final rule (73 FR 48773 through 48774), we adjusted the national capital rate to account for improvements in documentation and coding under the MS-D