[Federal Register Volume 85, Number 150 (Tuesday, August 4, 2020)]
[Rules and Regulations]
[Pages 47042-47070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16990]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 412 and 482

[CMS-1731-F and CMS-1744-F]
RIN 0938-AU07 and 0938-AU31


Medicare Program; FY 2021 Inpatient Psychiatric Facilities 
Prospective Payment System (IPF PPS) and Special Requirements for 
Psychiatric Hospitals for Fiscal Year Beginning October 1, 2020 (FY 
2021)

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

ACTION: Final rule.

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SUMMARY: This final rule updates the prospective payment rates, the 
outlier threshold, and the wage index for Medicare inpatient hospital 
services provided by Inpatient Psychiatric Facilities (IPF), which 
include psychiatric hospitals and excluded psychiatric units of an 
Inpatient Prospective Payment System hospital or critical access 
hospital. In addition, we are adopting more recent Office of Management 
and Budget statistical area delineations, and applying a 2-year 
transition for all providers negatively impacted by wage index changes. 
We are also removing the term licensed independent practitioner(s) from 
the regulations for psychiatric hospitals. On April 6, 2020, we 
published an interim final rule with comment period to implement this 
statutorily mandated change. This final rule responds to comments on 
the interim final rule regarding changes to the term licensed 
independent practitioner, finalizes the implementing regulation, and 
explains how the new procedure will be put into practice. These changes 
will be effective for IPF discharges beginning with the 2021 Fiscal 
Year (FY), which runs from October 1, 2020 through September 30, 2021 
(FY 2021).

DATES: These regulations are effective on October 1, 2020.

FOR FURTHER INFORMATION CONTACT: The IPF Payment Policy mailbox at 
[email protected] for general information.
    Mollie Knight, (410) 786-7948 or Bridget Dickensheets, (410) 786-
8670, for information regarding the market basket update, or the labor-
related share.
    Theresa Bean, (410) 786-2287 or James Hardesty, (410) 786-2629, for 
information regarding the regulatory impact analysis.
    CAPT Scott Cooper, USPHS, (410) 786-9496, for issues related to 
special requirements for psychiatric hospitals.

SUPPLEMENTARY INFORMATION:

Availability of Certain Tables Exclusively Through the Internet on the 
CMS Website

    Addendum A to this final rule summarizes the FY 2021 IPF PPS 
payment rates, outlier threshold, cost of living adjustment factors for 
Alaska and Hawaii, national and upper limit cost-to-charge ratios, and 
adjustment factors. In addition, the B Addenda to this final rule shows 
the complete listing of International Classification of Diseases (ICD-
10) Clinical Modification (CM) and Procedure Coding System codes 
underlying the Code First table, the FY 2021 IPF PPS comorbidity 
adjustment, and electroconvulsive therapy (ECT) procedure codes. The A 
and B Addenda are available online at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
    Tables setting forth the FY 2021 Wage Index for Urban Areas Based 
on Core-Based Statistical Area (CBSA) Labor Market Areas and the FY 
2021 Wage Index Based on CBSA Labor Market Areas for Rural Areas are 
available exclusively through the internet, on the CMS website at 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/IPFPPS/WageIndex.html.

I. Executive Summary

A. Purpose

    This final rule updates the prospective payment rates, the outlier 
threshold, and the wage index for Medicare inpatient hospital services 
provided by Inpatient Psychiatric Facilities (IPFs) for discharges 
occurring during the Fiscal Year (FY) beginning October 1, 2020 through 
September 30, 2021. In addition, this final rule updates the IPF wage 
index, adopts more recent Office of Management and Budget (OMB) 
statistical area delineations, and applies a 2-year transition for all 
providers negatively impacted by wage index changes.

[[Page 47043]]

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

    We ordinarily provide a 60-day delay in the effective date of final 
rules after the date they are issued in accord with the Congressional 
Review Act (CRA) (5 U.S.C. 801(a)(3)). However, section 808(2) of the 
CRA provides that, if an agency finds good cause that notice and public 
procedure are impracticable, unnecessary, or contrary to the public 
interest, the rule shall take effect at such time as the agency 
determines.
    The United States is responding to an outbreak of respiratory 
disease caused by a novel (new) coronavirus that has now been detected 
in more than 190 locations internationally, including in all 50 States 
and the District of Columbia. The virus has been named ``SARS CoV 2'' 
and the disease it causes has been named ``coronavirus disease 2019'' 
(abbreviated ``COVID 19'').
    On January 30, 2020, the International Health Regulations Emergency 
Committee of the World Health Organization (WHO) declared the outbreak 
a ``Public Health Emergency of international concern''. On January 31, 
2020, Health and Human Services Secretary, Alex M. Azar II, declared a 
PHE for the United States to aid the nation's healthcare community in 
responding to COVID-19. On March 11, 2020, the WHO publicly 
characterized COVID-19 as a pandemic. On March 13, 2020, the President 
of the United States declared the COVID-19 outbreak a national 
emergency.
    Due to CMS prioritizing efforts in support of containing and 
combatting the COVID-19 PHE, and devoting significant resources to that 
end, the work needed on the IPF PPS final rule was not completed in 
accordance with our usual schedule for this rulemaking, which aims for 
a publication date of at least 60 days before the start of the fiscal 
year to which it applies. The IPF PPS final rule is necessary to 
annually review and update the payment system, and it is critical to 
ensure that the payment policies for this payment system are effective 
on the first day of the fiscal year to which they are intended to 
apply. Therefore, due to CMS prioritizing efforts in support of 
containing and combatting the COVID-19 PHE, and devoting significant 
resources to that end, we are hereby waiving the 60-day delay in the 
effective date of the IPF PPS final rule; it would be contrary to the 
public interest for CMS to do otherwise. However, we are providing a 
30-day delay in the effective date of the final rule in accord with 
section 5 U.S.C. 553(d) of the Administrative Procedure Act, which 
ordinarily requires a 30-day delay in the effective date of a final 
rule from the date of its public availability in the Federal Register, 
and section 1871(e)(1)(B)(i) of the Act, which generally prohibits a 
substantive rule from taking effect before the end of the 30-day period 
beginning on the date of its public availability.

C. Summary of the Major Provisions

1. Inpatient Psychiatric Facilities Prospective Payment System (IPF 
PPS)
    In this final rule we:
     Adjust the 2016-based IPF market basket update (2.2 
percent) for economy-wide productivity (0 percentage point) as required 
by section 1886(s)(2)(A)(i) of the Social Security Act (the Act), 
resulting in a final IPF payment rate update of 2.2 percent for FY 
2021.
     Made technical rate setting changes: The IPF PPS payment 
rates will be adjusted annually for inflation, as well as statutory and 
other policy factors. This rule updates:
    ++ The IPF PPS federal per diem base rate from $798.55 to $815.22.
    ++ The IPF PPS federal per diem base rate for providers who failed 
to report quality data to $799.27.
    ++ The Electroconvulsive therapy (ECT) payment per treatment from 
$343.79 to $350.97.
    ++ The ECT payment per treatment for providers who failed to report 
quality data to $344.10.
    ++ The labor-related share from 76.9 percent to 77.3 percent.
    ++ The wage index budget-neutrality factor to 0.9989.
    ++ The fixed dollar loss threshold amount from $14,960 to $14,630 
to maintain estimated outlier payments at 2 percent of total estimated 
aggregate IPF PPS payments.
     Adopt more recent OMB core-based statistical area (CBSA) 
delineations and apply a 2-year transition for all providers negatively 
impacted by wage index changes.
2. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program
    We did not propose any changes to the IPFQR Program for FY 2021 or 
subsequent years; therefore, we are not finalizing any changes to the 
IPFQR Program. However, we received a comment requesting that CMS 
except IPFs from reporting IPFQR data during July 1, 2020 to December 
31, 2020 under the IPFQR Program's Extraordinary Circumstances 
Exception (ECE) policy. We also received many comments requesting that 
we add a patient experience of care measure to the IPFQR Program. We 
appreciate these comments but note that they fall outside the scope of 
this rulemaking. We are evaluating options for potentially proposing to 
adopt a patient experience of care measure into the IPFQR Program in 
the future.

D. Summary of Impacts

------------------------------------------------------------------------
       Provision description          Total transfers & cost reductions
------------------------------------------------------------------------
FY 2021 IPF PPS payment update....  The overall economic impact of this
                                     final rule is an estimated $95
                                     million in increased payments to
                                     IPFs during FY 2021.
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II. Background

A. Overview of the Legislative Requirements of the IPF PPS

    Section 124 of the Medicare, Medicaid, and State Children's Health 
Insurance Program Balanced Budget Refinement Act of 1999 (BBRA) (Pub. 
L. 106-113) required the establishment and implementation of an IPF 
PPS. Specifically, section 124 of the BBRA mandated that the Secretary 
of the Department of Health and Human Services (the Secretary) develop 
a per diem Prospective Payment System (PPS) for inpatient hospital 
services furnished in psychiatric hospitals and excluded psychiatric 
units including an adequate patient classification system that reflects 
the differences in patient resource use and costs among psychiatric 
hospitals and excluded psychiatric units. ``Excluded psychiatric unit'' 
means a psychiatric unit in an inpatient prospective payment system 
(IPPS) hospital that is excluded from the IPPS, or a psychiatric unit 
in a Critical Access Hospital (CAH) that is excluded from the CAH 
payment system. These excluded psychiatric units will be paid under the 
IPF PPS.
    Section 405(g)(2) of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003 (MMA) (Pub. L. 108-173) extended the IPF 
PPS to psychiatric distinct part units of CAHs.

[[Page 47044]]

    Sections 3401(f) and 10322 of the Patient Protection and Affordable 
Care Act (Pub. L. 111-148) as amended by section 10319(e) of that Act 
and by section 1105(d) of the Health Care and Education Reconciliation 
Act of 2010 (Pub. L. 111-152) (hereafter referred to jointly as ``the 
Affordable Care Act'') added subsection (s) to section 1886 of the Act.
    Section 1886(s)(1) of the Act titled ``Reference to Establishment 
and Implementation of System,'' refers to section 124 of the BBRA, 
which relates to the establishment of the IPF PPS.
    Section 1886(s)(2)(A)(i) of the Act requires the application of the 
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of 
the Act to the IPF PPS for the rate year (RY) beginning in 2012 (that 
is, a RY that coincides with a FY) and each subsequent RY.
    Section 1886(s)(2)(A)(ii) of the Act required the application of an 
``other adjustment'' that reduced any update to an IPF PPS base rate by 
a percentage point amount specified in section 1886(s)(3) of the Act 
for the RY beginning in 2010 through the RY beginning in 2019. As noted 
in the FY 2020 IPF PPS final rule, for the RY beginning in 2019, 
section 1886(s)(3)(E) of the Act required that the other adjustment 
reduction be equal to 0.75 percentage point. FY 2021 is the first year 
since the enactment of section 1886(s)(2)(A)(ii) that the ``other 
adjustment'' does not apply.
    Sections 1886(s)(4)(A) through (D) of the Act require that for RY 
2014 and each subsequent RY, IPFs that fail to report required quality 
data with respect to such a RY will have their annual update to a 
standard federal rate for discharges reduced by 2.0 percentage points. 
This may result in an annual update being less than 0.0 for a RY, and 
may result in payment rates for the upcoming RY being less than such 
payment rates for the preceding RY. Any reduction for failure to report 
required quality data will apply only to the RY involved, and the 
Secretary will not take into account such reduction in computing the 
payment amount for a subsequent RY. More information about the 
specifics of the current Inpatient Psychiatric Facilities Quality 
Reporting (IPFQR) Program is available in the FY 2020 IPF PPS final 
rule (84 FR 38459 through 38468).
    To implement and periodically update these provisions, we have 
published various proposed rules, final rules and notices in the 
Federal Register. For more information regarding these documents, see 
the Center for Medicare & Medicaid (CMS) website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/index.html?redirect=/InpatientPsychFacilPPS/.

B. Overview of the IPF PPS

    The November 2004 IPF PPS final rule (69 FR 66922) established the 
IPF PPS, as required by section 124 of the BBRA and codified at 42 CFR 
part 412, subpart N. The November 2004 IPF PPS final rule set forth the 
federal per diem base rate for the implementation year (the 18-month 
period from January 1, 2005 through June 30, 2006), and provided 
payment for the inpatient operating and capital costs to IPFs for 
covered psychiatric services they furnish (that is, routine, ancillary, 
and capital costs, but not costs of approved educational activities, 
bad debts, and other services or items that are outside the scope of 
the IPF PPS). Covered psychiatric services include services for which 
benefits are provided under the fee-for-service Part A (Hospital 
Insurance Program) of the Medicare program.
    The IPF PPS established the federal per diem base rate for each 
patient day in an IPF derived from the national average daily routine 
operating, ancillary, and capital costs in IPFs in FY 2002. The average 
per diem cost was updated to the midpoint of the first year under the 
IPF PPS, standardized to account for the overall positive effects of 
the IPF PPS payment adjustments, and adjusted for budget-neutrality.
    The federal per diem payment under the IPF PPS is comprised of the 
federal per diem base rate described previously and certain patient-and 
facility-level payment adjustments for characteristics that were found 
in the regression analysis to be associated with statistically 
significant per diem cost differences with statistical significance 
defined as p less than 0.05. A complete discussion of the regression 
analysis that established the IPF PPS adjustment factors can be found 
in the November 2004 IPF PPS final rule (69 FR 66933 through 66936).
    The patient-level adjustments include age, Diagnosis-Related Group 
(DRG) assignment, and comorbidities; additionally, there are 
adjustments to reflect higher per diem costs at the beginning of a 
patient's IPF stay and lower costs for later days of the stay. 
Facility-level adjustments include adjustments for the IPF's wage 
index, rural location, teaching status, a cost-of-living adjustment for 
IPFs located in Alaska and Hawaii, and an adjustment for the presence 
of a qualifying emergency department (ED).
    The IPF PPS provides additional payment policies for outlier cases, 
interrupted stays, and a per treatment payment for patients who undergo 
electroconvulsive therapy (ECT). During the IPF PPS mandatory 3-year 
transition period, stop-loss payments were also provided; however, 
since the transition ended as of January 1, 2008, these payments are no 
longer available.

C. Annual Requirements for Updating the IPF PPS

    Section 124 of the BBRA did not specify an annual rate update 
strategy for the IPF PPS and was broadly written to give the Secretary 
discretion in establishing an update methodology. Therefore, in the 
November 2004 IPF PPS final rule, we implemented the IPF PPS using the 
following update strategy:
     Calculate the final federal per diem base rate to be 
budget-neutral for the 18-month period of January 1, 2005 through June 
30, 2006.
     Use a July 1 through June 30 annual update cycle.
     Allow the IPF PPS first update to be effective for 
discharges on or after July 1, 2006 through June 30, 2007.
    In RY 2012, we proposed and finalized switching the IPF PPS payment 
rate update from a RY that begins on July 1 and ends on June 30, to one 
that coincides with the federal FY that begins October 1 and ends on 
September 30. In order to transition from one timeframe to another, the 
RY 2012 IPF PPS covered a 15-month period from July 1, 2011 through 
September 30, 2012. Therefore, the IPF RY has been equivalent to the 
October 1 through September 30 federal FY since RY 2013. For further 
discussion of the 15-month market basket update for RY 2012 and 
changing the payment rate update period to coincide with a FY period, 
we refer readers to the RY 2012 IPF PPS proposed rule (76 FR 4998) and 
the RY 2012 IPF PPS final rule (76 FR 26432).
    In November 2004, we implemented the IPF PPS in a final rule that 
published on November 15, 2004 in the Federal Register (69 FR 66922). 
In developing the IPF PPS, and to ensure that the IPF PPS is able to 
account adequately for each IPF's case-mix, we performed an extensive 
regression analysis of the relationship between the per diem costs and 
certain patient and facility characteristics to determine those 
characteristics associated with statistically significant cost 
differences on a per diem basis. That regression analysis is described 
in detail in our November 28, 2003 IPF proposed rule (68 FR 66923; 
66928 through 66933) and our November 15, 2004 IPF final rule

[[Page 47045]]

(69 FR 66933 through 66960). For characteristics with statistically 
significant cost differences, we used the regression coefficients of 
those variables to determine the size of the corresponding payment 
adjustments.
    In the November 15, 2004 final rule, we explained the reasons for 
delaying an update to the adjustment factors, derived from the 
regression analysis, including waiting until we have IPF PPS data that 
yields as much information as possible regarding the patient-level 
characteristics of the population that each IPF serves. We indicated 
that we did not intend to update the regression analysis and the 
patient-level and facility-level adjustments until we complete that 
analysis. Until that analysis is complete, we stated our intention to 
publish a notice in the Federal Register each spring to update the IPF 
PPS (69 FR 66966).
    On May 6, 2011, we published a final rule in the Federal Register 
titled, ``Inpatient Psychiatric Facilities Prospective Payment System--
Update for Rate Year Beginning July 1, 2011 (RY 2012)'' (76 FR 26432), 
which changed the payment rate update period to a RY that coincides 
with a FY update. Therefore, final rules are now published in the 
Federal Register in the summer to be effective on October 1. When 
proposing changes in IPF payment policy, a proposed rule will be issued 
in the spring, and the final rule in the summer to be effective on 
October 1. For a detailed list of updates to the IPF PPS, we refer 
readers to our regulations at 42 CFR 412.428.
    The most recent IPF PPS annual update was published in a final rule 
on August 6, 2019 in the Federal Register titled, ``Medicare Program; 
FY 2020 Inpatient Psychiatric Facilities Prospective Payment System and 
Quality Reporting Updates for Fiscal Year Beginning October 1, 2019 (FY 
2020)'' (84 FR 38424), which updated the IPF PPS payment rates for FY 
2020. That final rule updated the IPF PPS federal per diem base rates 
that were published in the FY 2019 IPF PPS final rule (83 FR 38576) in 
accordance with our established policies.

III. Provisions of the FY 2021 IPF PPS Final Rule and Responses to 
Comments

    On April 14, 2020, we published the FY 2021 IPF PPS proposed rule 
(85 FR 20625). We received 462 comments on the FY 2021 IPF PPS proposed 
rule from various stakeholders, including patients, providers, national 
organizations, and the Medicare Payment Advisory Commission (MedPAC). 
We received 6 comments on payment policy issues, and 456 comments that 
were outside of the scope of the proposed rule or focused on quality 
reporting.

A. Update to the FY 2021 Market Basket for the IPF PPS

1. Background
    Originally, the input price index that was used to develop the IPF 
PPS was the ``Excluded Hospital with Capital'' market basket. This 
market basket was based on 1997 Medicare cost reports for Medicare 
participating inpatient rehabilitation facilities (IRFs), IPFs, long-
term care hospitals (LTCHs), cancer hospitals, and children's 
hospitals. Although ``market basket'' technically describes the mix of 
goods and services used in providing health care at a given point in 
time, this term is also commonly used to denote the input price index 
(that is, cost category weights and price proxies) derived from that 
market basket. Accordingly, the term market basket as used in this 
document, refers to an input price index.
    Since the IPF PPS inception, the market basket used to update IPF 
PPS payments has been rebased and revised to reflect more recent data 
on IPF cost structures. We last rebased and revised the IPF market 
basket in the FY 2020 IPF PPS rule, where we adopted a 2016-based IPF 
market basket, using Medicare cost report data for both Medicare 
participating freestanding psychiatric hospitals and psychiatric units. 
We refer readers to the FY 2020 IPF PPS final rule for a detailed 
discussion of the 2016-based IPF PPS market basket and its development 
(84 FR 38426 through 38447). References to the historical market 
baskets used to update IPF PPS payments are listed in the FY 2016 IPF 
PPS final rule (80 FR 46656).
2. FY 2021 IPF Market Basket Update
    For FY 2021 (beginning October 1, 2020 and ending September 30, 
2021), we are finalizing our proposal to use an estimate of the 2016-
based IPF market basket increase factor to update the IPF PPS base 
payment rate. Consistent with historical practice, we are finalizing 
the market basket update for the IPF PPS based on the most recent IHS 
Global Inc.'s (IGI) forecast. IGI is a nationally recognized economic 
and financial forecasting firm that contracts with the CMS to forecast 
the components of the market baskets and multifactor productivity 
(MFP).
    In the FY 2021 IPF PPS proposed rule (85 FR 20628), we proposed a 
FY 2021 IPF market basket percentage increase of 3.0 percent based on 
IGI's fourth quarter 2019 forecast of the 2016-based IPF market basket 
with historical data through third quarter 2019. We also proposed that 
if more recent data subsequently became available (for example, a more 
recent estimate of the market basket and/or the MFP), we would use such 
data, if appropriate, to determine the FY 2021 market basket update and 
the MFP adjustment in the final rule.
    For this final rule, based on IGI's second quarter 2020 forecast 
with historical data through the first quarter of 2020, the 2016-based 
IPF market basket percentage increase for FY 2021 is 2.2 percent. 
Therefore, we are finalizing the 2016-based IPF market basket 
percentage increase for FY 2021 of 2.2 percent. We note that the fourth 
quarter 2019 forecast used for the proposed market basket update was 
developed prior to the economic impacts of the COVID-19 pandemic. This 
lower update (2.2 percent) for FY 2021 relative to the proposed rule 
(3.0 percent) is primarily driven by slower anticipated compensation 
growth for both health-related and other occupations as labor markets 
are expected to be significantly impacted during the recession that 
started in February 2020 and throughout the anticipated recovery.
    Section 1886(s)(2)(A)(i) of the Act requires the application of the 
productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of 
the Act to the IPF PPS for the RY beginning in 2012 (a RY that 
coincides with a FY) and each subsequent RY. In the FY 2021 IPF PPS 
proposed rule (85 FR 20628), we proposed a MFP adjustment of 0.4 
percentage point based on IGI's fourth quarter 2019 forecast. Based on 
the more recent data available for this FY 2021 IPF PPS final rule, the 
current estimate of the 10-year moving average growth of MFP for FY 
2021 is projected to be -0.1 percentage point. This MFP estimate is 
based on the most recent macroeconomic outlook from IGI at the time of 
rulemaking (released June 2020) in order to reflect more current 
historical economic data. IGI produces monthly macroeconomic forecasts, 
which include projections of all of the economic series used to derive 
MFP. In contrast, IGI only produces forecasts of the more detailed 
price proxies used in the 2016-based IPF market basket on a quarterly 
basis. Therefore, IGI's second quarter 2020 forecast is the most recent 
forecast of the 2016-based IPF market basket increase factor.
    We note that it has typically been our practice to base the 
projection of the market basket price proxies and MFP in the final rule 
on the second quarter IGI forecast. For this FY 2021 IPF PPS final 
rule, we are using the IGI June

[[Page 47046]]

macroeconomic forecast for MFP because it is a more recent forecast, 
and it is important to use more recent data during this period when 
economic trends, particularly employment and labor productivity, are 
notably uncertain because of the COVID-19 pandemic. Historically, the 
MFP adjustment based on the second quarter IGI forecast has been very 
similar to the MFP adjustment derived with IGI's June macroeconomic 
forecast. Substantial changes in the macroeconomic indicators in 
between monthly forecasts is atypical.
    Given the unprecedented economic uncertainty as a result of the 
COVID-19 pandemic, the changes in the IGI macroeconomic series used to 
derive MFP between the second quarter 2020 IGI forecast and the IGI 
June 2020 macroeconomic forecast is significant. Therefore, we believe 
it is technically appropriate to use IGI's more recent June 2020 
macroeconomic forecast to determine the MFP adjustment for the final 
rule as it reflects more recent historical data. For comparison 
purposes, the 10-year moving average growth of MFP for FY 2021 is 
projected to be -0.1 percentage point based on IGI's June 2020 
macroeconomic forecast compared to a FY 2021 projected 10-year moving 
average growth of MFP of 0.7 percentage point based on IGI's second 
quarter 2020 forecast. Mechanically subtracting the negative 10-year 
moving average growth of MFP from the IPF market basket percentage 
increase using the data from the IGI June 2020 macroeconomic forecast 
would have resulted in a 0.1 percentage point increase in the FY 2021 
IPF payment update percentage. However, under section 1886(s)(2)(A) of 
the Act, the Secretary is required to reduce (not increase) the IPF 
market basket percentage by changes in economy-wide productivity. 
Accordingly, we will be applying a 0.0 percentage point MFP adjustment 
to the IPF market basket percentage. Therefore, the final FY 2021 IPF 
PPS payment rate update is 2.2 percent. For more information on the 
productivity adjustment, we refer readers to the discussion in the FY 
2016 IPF PPS final rule (80 FR 46675).
3. FY 2021 IPF Labor-Related Share
    Due to variations in geographic wage levels and other labor-related 
costs, payment rates under the IPF PPS will continue to be adjusted by 
a geographic wage index, which will apply to the labor-related portion 
of the federal per diem base rate (hereafter referred to as the labor-
related share).
    The labor-related share is determined by identifying the national 
average proportion of total costs that are related to, influenced by, 
or vary with the local labor market. We will continue to classify a 
cost category as labor-related if the costs are labor-intensive and 
vary with the local labor market.
    Based on our definition of the labor-related share and the cost 
categories in the 2016-based IPF market basket, we are finalizing our 
proposal to continue to include in the labor-related share the sum of 
the relative importance of Wages and Salaries; Employee Benefits; 
Professional Fees: Labor-Related; Administrative and Facilities Support 
Services; Installation, Maintenance, and Repair; All Other: Labor-
related Services; and a portion of the Capital-Related cost weight (46 
percent) from the 2016-based IPF market basket. The relative importance 
reflects the different rates of price change for these cost categories 
between the base year (FY 2016) and FY 2021. For more information on 
the labor-related share cost weights and its calculation, we refer 
readers to the FY 2020 IPF PPS final rule (84 FR 38445 through 38447). 
Based on IGI's fourth quarter 2019 forecast of the 2016-based IPF 
market basket, we proposed a total labor-related share for FY 2021 of 
77.2 percent (the sum of 74.1 percent for the operating costs and 3.1 
percent for the labor-related share of Capital). As stated in the FY 
2021 IPF PPS proposed rule (85 FR 20629), we also proposed that if more 
recent data become available, we would use such data, if appropriate, 
to determine the FY 2021 labor-related share for the final rule.
    Comment: One commenter opposed the increase in the labor-related 
share from 76.9 percent to 77.2 percent stating it would negatively 
impact any facility with a wage index below 1.0. This commenter was 
concerned that the growing disparity in wage index values places 
facilities in low wage areas at a significant disadvantage, and this 
proposal would further increase that disparity. The commenter 
encouraged CMS to maintain the FY 2020 labor-related share in FY 2021.
    Response: We appreciate the commenter's concern over the increase 
in the labor-related share; however, we believe it is technically 
appropriate to use the sum of the FY 2021 relative importance values 
for the labor-related cost categories based on the most recent forecast 
of the 2016-based IPF market basket in order to determine the labor-
related share for FY 2021, as it accounts for more recent data 
regarding price pressures and cost structure of IPFs. Our policy to use 
the most recent market basket to determine the labor-related share is a 
policy we have consistently applied for the IPF PPS (such as for the FY 
2020 IPF PPS final rule (84 FR 38446)) as well as for other PPSs, 
including, but not limited to, the IRF PPS (84 FR 39089) and the LTCH 
PPS (84 FR 42642).
    Final Decision: After careful consideration of the comment, we are 
finalizing the use of the sum of the FY 2021 relative importance for 
the labor-related cost categories based on the most recent forecast 
(IGI's second quarter 2020 forecast) of the 2016-based IPF market 
basket.
    Based on IGI's second quarter 2020 forecast of the 2016-based IPF 
market basket, the sum of the FY 2021 relative importance for Wages and 
Salaries; Employee Benefits; Professional Fees: Labor-related; 
Administrative and Facilities Support Services; Installation 
Maintenance & Repair Services; and All Other: Labor-related Services is 
74.2 percent. The portion of Capital costs that is influenced by the 
local labor market is estimated to be 46 percent, which is the same 
percentage applied to the 2012-based IPF market basket. Since the 
relative importance for Capital is 6.8 percent of the 2016-based IPF 
market basket in FY 2021, we took 46 percent of 6.8 percent to 
determine the labor-related share of Capital for FY 2021 of 3.1 
percent. Therefore, we are finalizing a total labor-related share for 
FY 2021 of 77.3 percent (the sum of 74.2 percent for the operating 
costs and 3.1 percent for the labor-related share of Capital). Table 1 
shows the FY 2021 labor-related share and the FY 2020 labor-related 
share using the relative importance of the 2016-based IPF market 
basket.

[[Page 47047]]

[GRAPHIC] [TIFF OMITTED] TR04AU20.014

B. Updates to the IPF PPS Rates for FY Beginning October 1, 2020

    The IPF PPS is based on a standardized federal per diem base rate 
calculated from the IPF average per diem costs and adjusted for budget-
neutrality in the implementation year. The federal per diem base rate 
is used as the standard payment per day under the IPF PPS and is 
adjusted by the patient-level and facility-level adjustments that are 
applicable to the IPF stay. A detailed explanation of how we calculated 
the average per diem cost appears in the November 2004 IPF PPS final 
rule (69 FR 66926).
1. Determining the Standardized Budget-Neutral Federal Per Diem Base 
Rate
    Section 124(a)(1) of the BBRA required that we implement the IPF 
PPS in a budget-neutral manner. In other words, the amount of total 
payments under the IPF PPS, including any payment adjustments, must be 
projected to be equal to the amount of total payments that would have 
been made if the IPF PPS were not implemented. Therefore, we calculated 
the budget-neutrality factor by setting the total estimated IPF PPS 
payments to be equal to the total estimated payments that would have 
been made under the Tax Equity and Fiscal Responsibility Act of 1982 
(TEFRA) (Pub. L. 97-248) methodology had the IPF PPS not been 
implemented. A step-by-step description of the methodology used to 
estimate payments under the TEFRA payment system appears in the 
November 2004 IPF PPS final rule (69 FR 66926).
    Under the IPF PPS methodology, we calculated the final federal per 
diem base rate to be budget-neutral during the IPF PPS implementation 
period (that is, the 18-month period from January 1, 2005 through June 
30, 2006) using a July 1 update cycle. We updated the average cost per 
day to the midpoint of the IPF PPS implementation period (October 1, 
2005), and this amount was used in the payment model to establish the 
budget-neutrality adjustment.
    Next, we standardized the IPF PPS federal per diem base rate to 
account for the overall positive effects of the IPF PPS payment 
adjustment factors by dividing total estimated payments under the TEFRA 
payment system by estimated payments under the IPF PPS. Information 
concerning this standardization can be found in the November 2004 IPF 
PPS final rule (69 FR 66932) and the RY 2006 IPF PPS final rule (71 FR 
27045). We then reduced the standardized federal per diem base rate to 
account for the outlier policy, the stop loss provision, and 
anticipated behavioral changes. A complete discussion of how we 
calculated each component of the budget-neutrality adjustment appears 
in the November 2004 IPF PPS final rule (69 FR 66932 through 66933) and 
in the RY 2007 IPF PPS final rule (71 FR 27044 through 27046). The 
final standardized budget-neutral federal per diem base rate 
established for cost reporting periods beginning on or after January 1, 
2005 was calculated to be $575.95.
    The federal per diem base rate has been updated in accordance with 
applicable statutory requirements and Sec.  412.428 through publication 
of annual notices or proposed and final rules. A detailed discussion on 
the standardized budget-neutral federal per diem base rate and the 
electroconvulsive therapy (ECT) payment per treatment appears in the FY 
2014 IPF PPS update notice (78 FR 46738 through 46740). These documents 
are available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/index.html.
    IPFs must include a valid procedure code for ECT services provided 
to IPF beneficiaries in order to bill for ECT services, as described in 
our Medicare Claims Processing Manual, Chapter 3, Section 190.7.3 
(available at https://

[[Page 47048]]

www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/
clm104c03.pdf.) There were no changes to the ECT procedure codes used 
on IPF claims as a result of the proposed update to the ICD-10-PCS code 
set for FY 2021. Addendum B to this final rule shows the ECT procedure 
codes for FY 2021 and is available on our website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
2. Update of the Federal Per Diem Base Rate and Electroconvulsive 
Therapy Payment Per Treatment
    The current (FY 2020) federal per diem base rate is $798.55 and the 
ECT payment per treatment is $343.79. For the final FY 2021 federal per 
diem base rate, we applied the payment rate update of 2.2 percent that 
is, the 2016-based IPF market basket increase for FY 2021 of 2.2 
percent less the productivity adjustment of 0 percentage point and the 
wage index budget-neutrality factor of 0.9989 (as discussed in section 
III.D.1 of this final rule) to the FY 2020 federal per diem base rate 
of $798.55, yielding a final federal per diem base rate of $815.22 for 
FY 2021. Similarly, we applied the 2.2 percent payment rate update and 
the 0.9989 wage index budget-neutrality factor to the FY 2020 ECT 
payment per treatment of $343.79, yielding a final ECT payment per 
treatment of $350.97 for FY 2021.
    Section 1886(s)(4)(A)(i) of the Act requires that for RY 2014 and 
each subsequent RY, in the case of an IPF that fails to report required 
quality data with respect to such RY, the Secretary will reduce any 
annual update to a standard federal rate for discharges during the RY 
by 2.0 percentage points. Therefore, we are applying a 2.0 percentage 
point reduction to the federal per diem base rate and the ECT payment 
per treatment as follows:
     For IPFs that fail to meet IPFQR Program requirements, we 
applied a 0.2 percent payment rate update (that is, the IPF market 
basket increase for FY 2021 of 2.2 percent less the productivity 
adjustment of 0 percentage point for an update of 2.2 percent, and 
further reduced by 2 percentage points in accordance with section 
1886(s)(4)(A)(i) of the Act), and the wage index budget-neutrality 
factor of 0.9989 to the FY 2020 federal per diem base rate of $798.55, 
yielding a federal per diem base rate of $799.27 for FY 2021.
     For IPFs that fail to meet IPFQR Program requirements, we 
applied the 0.2 percent annual payment rate update and the 0.9989 wage 
index budget-neutrality factor to the FY 2020 ECT payment per treatment 
of $343.79, yielding an ECT payment per treatment of $344.10 for FY 
2021.

C. Updates to the IPF PPS Patient-Level Adjustment Factors

1. Overview of the IPF PPS Adjustment Factors
    The IPF PPS payment adjustments were derived from a regression 
analysis of 100 percent of the FY 2002 Medicare Provider and Analysis 
Review (MedPAR) data file, which contained 483,038 cases. For a more 
detailed description of the data file used for the regression analysis, 
see the November 2004 IPF PPS final rule (69 FR 66935 through 66936). 
We continue to use the existing regression-derived adjustment factors 
established in 2005 for FY 2021. However, we have used more recent 
claims data to simulate payments to finalize the outlier fixed dollar 
loss threshold amount and to assess the impact of the IPF PPS updates.
2. IPF PPS Patient-Level Adjustments
    The IPF PPS includes payment adjustments for the following patient-
level characteristics: Medicare Severity Diagnosis Related Groups (MS-
DRGs) assignment of the patient's principal diagnosis, selected 
comorbidities, patient age, and the variable per diem adjustments.
a. Update to MS-DRG Assignment
    We believe it is important to maintain for IPFs the same diagnostic 
coding and Diagnosis Related Group (DRG) classification used under the 
(IPPS) for providing psychiatric care. For this reason, when the IPF 
PPS was implemented for cost reporting periods beginning on or after 
January 1, 2005, we adopted the same diagnostic code set (ICD-9-CM) and 
DRG patient classification system (MS-DRGs) that were utilized at the 
time under the IPPS. In the RY 2009 IPF PPS notice (73 FR 25709), we 
discussed CMS' effort to better recognize resource use and the severity 
of illness among patients. CMS adopted the new MS-DRGs for the IPPS in 
the FY 2008 IPPS final rule with comment period (72 FR 47130). In the 
RY 2009 IPF PPS notice (73 FR 25716), we provided a crosswalk to 
reflect changes that were made under the IPF PPS to adopt the new MS-
DRGs. For a detailed description of the mapping changes from the 
original DRG adjustment categories to the current MS-DRG adjustment 
categories, we refer readers to the RY 2009 IPF PPS notice (73 FR 
25714).
    The IPF PPS includes payment adjustments for designated psychiatric 
DRGs assigned to the claim based on the patient's principal diagnosis. 
The DRG adjustment factors were expressed relative to the most 
frequently reported psychiatric DRG in FY 2002, that is, DRG 430 
(psychoses). The coefficient values and adjustment factors were derived 
from the regression analysis discussed in detail in the November 28, 
2003 IPF proposed rule (68 FR 66923; 66928 through 66933) and the 
November 15, 2004 IPF final rule (69 FR 66933 through 66960). Mapping 
the DRGs to the MS-DRGs resulted in the current 17 IPF MS-DRGs, instead 
of the original 15 DRGs, for which the IPF PPS provides an adjustment. 
For FY 2021, we did not propose any changes to the IPF MS-DRG 
adjustment factors.
    In the FY 2015 IPF PPS final rule published August 6, 2014 in the 
Federal Register titled, ``Inpatient Psychiatric Facilities Prospective 
Payment System--Update for FY Beginning October 1, 2014 (FY 2015)'' (79 
FR 45945 through 45947), we finalized conversions of the ICD-9-CM-based 
MS-DRGs to ICD-10-CM/PCS-based MS-DRGs, which were implemented on 
October 1, 2015. Further information on the ICD-10-CM/PCS MS-DRG 
conversion project can be found on the CMS ICD-10-CM website at https://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html.
    For FY 2021, we are finalizing our proposal to continue to make the 
existing payment adjustment for psychiatric diagnoses that group to one 
of the existing 17 IPF MS-DRGs listed in Addendum A. Addendum A is 
available on our website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html. Psychiatric 
principal diagnoses that do not group to one of the 17 designated MS-
DRGs will still receive the federal per diem base rate and all other 
applicable adjustments, but the payment will not include an MS-DRG 
adjustment.
    The diagnoses for each IPF MS-DRG will be updated as of October 1, 
2020, using the final IPPS FY 2021 ICD-10-CM/PCS code sets. The FY 2021 
IPPS final rule includes tables of the changes to the ICD-10-CM/PCS 
code sets, which underlie the FY 2021 IPF MS-DRGs. Both the FY 2021 
IPPS final rule and the tables of changes to the ICD-10-CM/PCS code 
sets, which underlie the FY 2021 MS-DRGs are available on the IPPS 
website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.

[[Page 47049]]

Code First
    As discussed in the ICD-10-CM Official Guidelines for Coding and 
Reporting, certain conditions have both an underlying etiology and 
multiple body system manifestations due to the underlying etiology. For 
such conditions, the ICD-10-CM has a coding convention that requires 
the underlying condition be sequenced first followed by the 
manifestation. Wherever such a combination exists, there is a ``use 
additional code'' note at the etiology code, and a ``code first'' note 
at the manifestation code. These instructional notes indicate the 
proper sequencing order of the codes (etiology followed by 
manifestation). In accordance with the ICD-10-CM Official Guidelines 
for Coding and Reporting, when a primary (psychiatric) diagnosis code 
has a ``code first,'' the provider would follow the instructions in the 
ICD-10-CM text. The submitted claim goes through the CMS processing 
system, which will identify the primary diagnosis code as non-
psychiatric and search the secondary codes for a psychiatric code to 
assign a DRG code for adjustment. The system will continue to search 
the secondary codes for those that are appropriate for comorbidity 
adjustment.
    For more information on the code first policy, we refer readers to 
the November 2004 IPF PPS final rule (69 FR 66945) and sections I.A.13 
and I.B.7 of the FY 2020 ICD-10-CM Coding Guidelines, which is 
available at https://www.cdc.gov/nchs/icd/data/10cmguidelines-FY2019-final.pdf. In the FY 2015 IPF PPS final rule, we provided a code first 
table for reference that highlights the same or similar manifestation 
codes where the code first instructions apply in ICD-10-CM that were 
present in ICD-9-CM (79 FR 46009). In FY 2018, FY 2019 and FY 2020, 
there were no changes to the final ICD-10-CM/PCS codes in the IPF Code 
First table. For FY 2021, there were 18 ICD-10-PCS codes deleted from 
the final IPF Code First table. The final FY 2021 Code First table is 
shown in Addendum B on our website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
b. Payment for Comorbid Conditions
    The intent of the comorbidity adjustments is to recognize the 
increased costs associated with comorbid conditions by providing 
additional payments for certain existing medical or psychiatric 
conditions that are expensive to treat. In our RY 2012 IPF PPS final 
rule (76 FR 26451 through 26452), we explained that the IPF PPS 
includes 17 comorbidity categories and identified the new, revised, and 
deleted ICD-9-CM diagnosis codes that generate a comorbid condition 
payment adjustment under the IPF PPS for RY 2012 (76 FR 26451).
    Comorbidities are specific patient conditions that are secondary to 
the patient's principal diagnosis and that require treatment during the 
stay. Diagnoses that relate to an earlier episode of care and have no 
bearing on the current hospital stay are excluded and must not be 
reported on IPF claims. Comorbid conditions must exist at the time of 
admission or develop subsequently, and affect the treatment received, 
length of stay (LOS), or both treatment and LOS.
    For each claim, an IPF may receive only one comorbidity adjustment 
within a comorbidity category, but it may receive an adjustment for 
more than one comorbidity category. Current billing instructions for 
discharge claims, on or after October 1, 2015, require IPFs to enter 
the complete ICD-10-CM codes for up to 24 additional diagnoses if they 
co-exist at the time of admission, or develop subsequently and impact 
the treatment provided.
    The comorbidity adjustments were determined based on the regression 
analysis using the diagnoses reported by IPFs in FY 2002. The principal 
diagnoses were used to establish the DRG adjustments and were not 
accounted for in establishing the comorbidity category adjustments, 
except where ICD-9-CM code first instructions applied. In a code first 
situation, the submitted claim goes through the CMS processing system, 
which will identify the principal diagnosis code as non-psychiatric and 
search the secondary codes for a psychiatric code to assign an MS-DRG 
code for adjustment. The system will continue to search the secondary 
codes for those that are appropriate for comorbidity adjustment.
    As noted previously, it is our policy to maintain the same 
diagnostic coding set for IPFs that is used under the IPPS for 
providing the same psychiatric care. The 17 comorbidity categories 
formerly defined using ICD-9-CM codes were converted to ICD-10-CM/PCS 
in our FY 2015 IPF PPS final rule (79 FR 45947 through 45955). The goal 
for converting the comorbidity categories is referred to as 
replication, meaning that the payment adjustment for a given patient 
encounter is the same after ICD-10-CM implementation as it would be if 
the same record had been coded in ICD-9-CM and submitted prior to ICD-
10-CM/PCS implementation on October 1, 2015. All conversion efforts 
were made with the intent of achieving this goal. For FY 2021, we are 
finalizing our proposal to continue to use the same comorbidity 
adjustment factors in effect in FY 2020, which are found in Addendum A 
and available on our website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
    We have updated the ICD-10-CM/PCS codes which are associated with 
the existing IPF PPS comorbidity categories, based upon the final FY 
2021 update to the ICD-10-CM/PCS code set. The final FY 2021 ICD-10-CM/
PCS updates include 12 ICD10-CM diagnosis codes added to the Poisoning 
comorbidity category and 223 ICD-10-PCS codes added to the Oncology 
Procedures comorbidity category. In addition, 4 ICD10-PCS codes were 
deleted from the Poisoning comorbidity category. These updates are 
detailed in Addenda B-2 and B-3 of this final rule, which are available 
on our website at https://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/InpatientPsychFacilPPS/tools.html.
    In accordance with the policy established in the FY 2015 IPF PPS 
final rule (79 FR 45949 through 45952), we reviewed all new FY 2021 
ICD-10-CM codes to remove codes that were site ``unspecified'' in terms 
of laterality from the FY 2020 ICD-10-CM/PCS codes in instances where 
more specific codes are available. As we stated in the FY 2015 IPF PPS 
final rule, we believe that specific diagnosis codes that narrowly 
identify anatomical sites where disease, injury, or a condition exists 
should be used when coding patients' diagnoses whenever these codes are 
available. We finalized in the FY 2015 IPF PPS rule, that we would 
remove site ``unspecified'' codes from the IPF PPS ICD-10-CM/PCS codes 
in instances when laterality codes (site specified codes) are 
available, as the clinician should be able to identify a more specific 
diagnosis based on clinical assessment at the medical encounter. We 
note that none of the final additions to the FY 2021 ICD-10-CM/PCS 
codes were site ``unspecified'' by laterality; therefore, we are not 
removing any of the new codes.
c. Patient Age Adjustments
    As explained in the November 2004 IPF PPS final rule (69 FR 66922), 
we analyzed the impact of age on per diem cost by examining the age 
variable (range of ages) for payment adjustments. In general, we found 
that the cost per day increases with age. The older age groups are 
costlier than the under 45 age

[[Page 47050]]

group, the differences in per diem cost increase for each successive 
age group, and the differences are statistically significant. For FY 
2021, we are finalizing our proposal to continue to use the patient age 
adjustments currently in effect in FY 2020, as shown in Addendum A of 
this rule (see https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html).
d. Variable Per Diem Adjustments
    We explained in the November 2004 IPF PPS final rule (69 FR 66946) 
that the regression analysis indicated that per diem cost declines as 
the LOS increases. The variable per diem adjustments to the federal per 
diem base rate account for ancillary and administrative costs that 
occur disproportionately in the first days after admission to an IPF. 
As discussed in the November 2004 IPF PPS final rule, we used a 
regression analysis to estimate the average differences in per diem 
cost among stays of different lengths (69 FR 66947 through 66950). As a 
result of this analysis, we established variable per diem adjustments 
that begin on day 1 and decline gradually until day 21 of a patient's 
stay. For day 22 and thereafter, the variable per diem adjustment 
remains the same each day for the remainder of the stay. However, the 
adjustment applied to day 1 depends upon whether the IPF has a 
qualifying ED. If an IPF has a qualifying ED, it receives a 1.31 
adjustment factor for day 1 of each stay. If an IPF does not have a 
qualifying ED, it receives a 1.19 adjustment factor for day 1 of the 
stay. The ED adjustment is explained in more detail in section III.D.4 
of this rule.
    For FY 2021, we are finalizing our proposal to continue to use the 
variable per diem adjustment factors currently in effect, as shown in 
Addendum A of this rule (available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html). A 
complete discussion of the variable per diem adjustments appears in the 
November 2004 IPF PPS final rule (69 FR 66946).

D. Updates to the IPF PPS Facility-Level Adjustments

    The IPF PPS includes facility-level adjustments for the wage index, 
IPFs located in rural areas, teaching IPFs, cost of living adjustments 
for IPFs located in Alaska and Hawaii, and IPFs with a qualifying ED.
1. Wage Index Adjustment
a. Background
    As discussed in the RY 2007 IPF PPS final rule (71 FR 27061), RY 
2009 IPF PPS (73 FR 25719) and the RY 2010 IPF PPS notices (74 FR 
20373), in order to provide an adjustment for geographic wage levels, 
the labor-related portion of an IPF's payment is adjusted using an 
appropriate wage index. Currently, an IPF's geographic wage index value 
is determined based on the actual location of the IPF in an urban or 
rural area, as defined in Sec.  412.64(b)(1)(ii)(A) and (C).
    Due to the variation in costs and because of the differences in 
geographic wage levels, in the November 15, 2004 IPF PPS final rule, we 
required that payment rates under the IPF PPS be adjusted by a 
geographic wage index. We proposed and finalized a policy to use the 
unadjusted, pre-floor, pre-reclassified IPPS hospital wage index to 
account for geographic differences in IPF labor costs. We implemented 
use of the pre-floor, pre-reclassified IPPS hospital wage data to 
compute the IPF wage index since there was not an IPF-specific wage 
index available. We believe that IPFs generally compete in the same 
labor market as IPPS hospitals so the pre-floor, pre-reclassified IPPS 
hospital wage data should be reflective of labor costs of IPFs. We 
believe this pre-floor, pre-reclassified IPPS hospital wage index to be 
the best available data to use as proxy for an IPF specific wage index. 
As discussed in the RY 2007 IPF PPS final rule (71 FR 27061 through 
27067), under the IPF PPS, the wage index is calculated using the IPPS 
wage index for the labor market area in which the IPF is located, 
without taking into account geographic reclassifications, floors, and 
other adjustments made to the wage index under the IPPS. For a complete 
description of these IPPS wage index adjustments, we refer readers to 
the FY 2019 IPPS/LTCH PPS final rule (83 FR 41362 through 41390). Our 
wage index policy at Sec.  412.424(a)(2), requires us to use the best 
Medicare data available to estimate costs per day, including an 
appropriate wage index to adjust for wage differences.
    When the IPF PPS was implemented in the November 15, 2004 IPF PPS 
final rule, with an effective date of January 1, 2005, the pre-floor, 
pre-reclassified IPPS hospital wage index that was available at the 
time was the FY 2005 pre-floor, pre-reclassified IPPS hospital wage 
index. Historically, the IPF wage index for a given RY has used the 
pre-floor, pre-reclassified IPPS hospital wage index from the prior FY 
as its basis. This has been due in part to the pre-floor, pre-
reclassified IPPS hospital wage index data that were available during 
the IPF rulemaking cycle, where an annual IPF notice or IPF final rule 
was usually published in early May. This publication timeframe was 
relatively early compared to other Medicare payment rules because the 
IPF PPS follows a RY, which was defined in the implementation of the 
IPF PPS as the 12-month period from July 1 to June 30 (69 FR 66927). 
Therefore, the best available data at the time the IPF PPS was 
implemented was the pre-floor, pre-reclassified IPPS hospital wage 
index from the prior FY (for example, the RY 2006 IPF wage index was 
based on the FY 2005 pre-floor, pre-reclassified IPPS hospital wage 
index).
    In the RY 2012 IPF PPS final rule, we changed the reporting year 
timeframe for IPFs from a RY to the FY, which begins October 1 and ends 
September 30 (76 FR 26434 through 26435). In that FY 2012 IPF PPS final 
rule, we continued our established policy of using the pre-floor, pre-
reclassified IPPS hospital wage index from the prior year (that is, 
from FY 2011) as the basis for the FY 2012 IPF wage index. This policy 
of basing a wage index on the prior year's pre-floor, pre-reclassified 
IPPS hospital wage index has been followed by other Medicare payment 
systems, such as hospice and IRF. By continuing with our established 
policy, we remained consistent with other Medicare payment systems.
    In FY 2020, we finalized the IPF wage index methodology to align 
the IPF PPS wage index with the same wage data timeframe used by the 
IPPS for FY 2020 and subsequent years. Specifically, we finalized to 
use the pre-floor, pre-reclassified IPPS hospital wage index from the 
FY concurrent with the IPF FY as the basis for the IPF wage index. For 
example, the FY 2020 IPF wage index would be based on the FY 2020 pre-
floor, pre-reclassified IPPS hospital wage index rather than on the FY 
2019 pre-floor, pre-reclassified IPPS hospital wage index.
    We explained in the FY 2020 proposed rule (84 FR 16973), that using 
the concurrent pre-floor, pre-reclassified IPPS hospital wage index 
would result in the most up-to-date wage data being the basis for the 
IPF wage index. In addition, it would result in more consistency and 
parity in the wage index methodology used by other Medicare payment 
systems. The Medicare SNF PPS already used the concurrent IPPS hospital 
wage index data as the basis for the SNF PPS wage index. Thus, the wage 
adjusted Medicare payments of various provider types would be based 
upon wage index data from the same timeframe. CMS proposed similar 
policies to use the concurrent pre-floor, pre-reclassified IPPS 
hospital wage index data in other Medicare payment systems, such as 
hospice facilities and IRFs. For FY 2021,

[[Page 47051]]

we proposed to continue to use the concurrent pre-floor, pre-
reclassified IPPS hospital wage index as the basis for the IPF wage 
index.
    Comment: We received two comments agreeing with our longstanding 
belief that IPFs generally compete in the same labor market as IPPS 
hospitals; however, the commenters recommend that CMS incorporate a 
frontier state floor for the IPF wage index. In addition, we received a 
comment encouraging CMS to consider developing, as an alternative to 
the current hospital wage index, a market-level wage index that would 
use wage data from all employers and industry-specific occupational 
weights, adjust for geographic differences in the ratio of benefits to 
wages, adjust at the county level and smooth large differences between 
counties, and include a transition period to mitigate large changes in 
wage index values.
    Response: We appreciate these commenters' suggestions regarding 
opportunities to improve the accuracy of the IPF wage index. We did not 
propose the specific policies suggested by commenters, but we will take 
them into consideration to potentially inform future rulemaking.
    Final Decision: For FY 2021, we are finalizing our proposal to 
continue to use the concurrent pre-floor, pre-reclassified IPPS 
hospital wage index as the basis for the IPF wage index.
    We will apply the IPF wage index adjustment to the labor-related 
share of the national base rate and ECT payment per treatment. The 
labor-related share of the national rate and ECT payment per treatment 
will change from 76.9 percent in FY 2020 to 77.3 percent in FY 2021. 
This percentage reflects the labor-related share of the 2016-based IPF 
market basket for FY 2021 (see section III.A of this rule).
b. Office of Management and Budget (OMB) Bulletins
(i) Background
    The wage index used for the IPF PPS is calculated using the 
unadjusted, pre-reclassified and pre-floor inpatient PPS (IPPS) wage 
index data and is assigned to the IPF on the basis of the labor market 
area in which the IPF is geographically located. IPF labor market areas 
are delineated based on the CBSAs established by the OMB.
    Generally, OMB issues major revisions to statistical areas every 10 
years, based on the results of the decennial census. However, OMB 
occasionally issues minor updates and revisions to statistical areas in 
the years between the decennial censuses through OMB Bulletins. These 
bulletins contain information regarding CBSA changes, including changes 
to CBSA numbers and titles. OMB bulletins may be accessed online at 
https://www.whitehouse.gov/omb/information-for-agencies/bulletins/. In 
accordance with our established methodology, the IPF PPS has 
historically adopted any CBSA changes that are published in the OMB 
bulletin that corresponds with the IPPS hospital wage index used to 
determine the IPF wage index.
    In the RY 2007 IPF PPS final rule (71 FR 27061 through 27067), we 
adopted the changes discussed in the OMB Bulletin No. 03-04 (June 6, 
2003), which announced revised definitions for Metropolitan Statistical 
Areas and the creation of Micropolitan Statistical Areas and Combined 
Statistical Areas. In adopting the OMB CBSA geographic designations in 
RY 2007, we did not provide a separate transition for the CBSA-based 
wage index since the IPF PPS was already in a transition period from 
TEFRA payments to PPS payments.
    In the RY 2009 IPF PPS notice, we incorporated the CBSA 
nomenclature changes published in the most recent OMB bulletin that 
applied to the IPPS hospital wage index used to determine the current 
IPF wage index and stated that we expected to continue to do the same 
for all the OMB CBSA nomenclature changes in future IPF PPS rules and 
notices, as necessary (73 FR 25721).
    On February 28, 2013, OMB issued OMB Bulletin No. 13-01, which 
established revised delineations for Metropolitan Statistical Areas, 
Micropolitan Statistical Areas, and Combined Statistical Areas in the 
United States and Puerto Rico based on the 2010 Census, and provided 
guidance on the use of the delineations of these statistical areas 
using standards published in the June 28, 2010 Federal Register (75 FR 
37246 through 37252). These OMB Bulletin changes were reflected in the 
FY 2015 pre-floor, pre-reclassified IPPS hospital wage index, upon 
which the FY 2016 IPF wage index was based. We adopted these new OMB 
CBSA delineations in the FY 2016 IPF wage index and subsequent IPF wage 
indexes. We refer readers to the FY 2016 IPF PPS final rule (80 FR 
46682 through 46689) for a full discussion of our implementation of the 
OMB labor market area delineations beginning with the FY 2016 wage 
index.
    On July 15, 2015, OMB issued OMB Bulletin No. 15-01, which provided 
updates to and superseded OMB Bulletin No. 13-01 that was issued on 
February 28, 2013. The attachment to OMB Bulletin No. 15-01 provided 
detailed information on the update to statistical areas since February 
28, 2013. The updates provided in OMB Bulletin No. 15-01 were based on 
the application of the 2010 Standards for Delineating Metropolitan and 
Micropolitan Statistical Areas to Census Bureau population estimates 
for July 1, 2012 and July 1, 2013. The complete list of statistical 
areas incorporating these changes is provided in OMB Bulletin No. 15-
01. A copy of this bulletin may be obtained at https://www.whitehouse.gov/omb/information-for-agencies/bulletins/.
    OMB Bulletin No. 15-01 established revised delineations for the 
Nation's Metropolitan Statistical Areas, Micropolitan Statistical 
Areas, and Combined Statistical Areas. The bulletin also provided 
delineations of Metropolitan Divisions as well as delineations of New 
England City and Town Areas. As discussed in the FY 2017 IPPS/LTCH PPS 
final rule (81 FR 56913), the updated labor market area definitions 
from OMB Bulletin 15-01 were implemented under the IPPS beginning on 
October 1, 2016 (FY 2017). Therefore, we implemented these revisions 
for the IPF PPS beginning October 1, 2017 (FY 2018), consistent with 
our historical practice of modeling IPF PPS adoption of the labor 
market area delineations after IPPS adoption of these delineations 
(historically the IPF wage index has been based upon the pre-floor, 
pre-reclassified IPPS hospital wage index from the prior year).
    On August 15, 2017, OMB issued OMB Bulletin No. 17-01, which 
provided updates to and superseded OMB Bulletin No. 15-01 that was 
issued on July 15, 2015. The attachments to OMB Bulletin No. 17-01 
provide detailed information on the update to statistical areas since 
July 15, 2015, and are based on the application of the 2010 Standards 
for Delineating Metropolitan and Micropolitan Statistical Areas to 
Census Bureau population estimates for July 1, 2014 and July 1, 2015. 
In the FY 2020 IPF PPS final rule (84 FR 38453 through 38454), we 
adopted the updates set forth in OMB Bulletin No. 17-01 effective 
October 1, 2019, beginning with the FY 2020 IPF wage index. Given that 
the loss of the rural adjustment was mitigated in part by the increase 
in wage index value, and that only a single IPF was affected by this 
change, we did not believe it was necessary to transition this provider 
from its rural to newly urban status. We refer readers to the FY 2020 
IPF PPS final rule (84 FR 38453 through 38454) for a more detailed 
discussion about the decision to forego a transition plan in FY 2020.

[[Page 47052]]

    On April 10, 2018, OMB issued OMB Bulletin No. 18-03, which 
superseded the August 15, 2017 OMB Bulletin No. 17-01, and on September 
14, 2018, OMB issued, OMB Bulletin No. 18-04, which superseded the 
April 10, 2018 OMB Bulletin No. 18-03. These bulletins established 
revised delineations for Metropolitan Statistical Areas, Micropolitan 
Statistical Areas, and Combined Statistical Areas, and provided 
guidance on the use of the delineations of these statistical areas. A 
copy of OMB Bulletin No. 18-04 may be obtained at https://www.whitehouse.gov/wp-content/uploads/2018/09/Bulletin-18-04.pdf. 
According to OMB, ``[t]his bulletin provides the delineations of all 
Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan 
Statistical Areas, Combined Statistical Areas, and New England City and 
Town Areas in the United States and Puerto Rico based on the standards 
published on June 28, 2010, in the Federal Register [75 FR 37246], and 
Census Bureau data.'' (We note that, on March 6, 2020, OMB issued OMB 
Bulletin 20-01 (available on the web at https://www.whitehouse.gov/wp-content/uploads/2020/03/Bulletin-20-01.pdf) but it was not issued in 
time for development of this final rule.)
    While OMB Bulletin No. 18-04 is not based on new census data, it 
includes some material changes to the OMB statistical area delineations 
that are necessary to incorporate into the IPF PPS. These changes 
include some new CBSAs, urban counties that would become rural, rural 
counties that would become urban, and existing CBSAs that would be 
split apart. We discuss these changes in more detail in the sections 
below.
(ii) Implementation of New Labor Market Area Delineations
    We believe it is important for the IPF PPS to use, as soon as is 
reasonably possible, the latest available labor market area 
delineations in order to maintain a more accurate and up-to-date 
payment system that reflects the reality of population shifts and labor 
market conditions. We believe that using the most current delineations 
will increase the integrity of the IPF PPS wage index system by 
creating a more accurate representation of geographic variations in 
wage levels. We explained in the proposed rule (85 FR 20633) that we 
carefully analyzed the impacts of adopting the new OMB delineations, 
and found no compelling reason to further delay implementation. 
Therefore, we proposed (85 FR 20633 through 20639) to implement the new 
OMB delineations as described in the September 14, 2018 OMB Bulletin 
No. 18-04, effective beginning with the FY 2021 IPF PPS wage index. We 
proposed to adopt the updates to the OMB delineations announced in OMB 
Bulletin No. 18-04 effective for FY 2021 under the IPF PPS. As noted 
above, the March 6, 2020 OMB Bulletin 20-01 was not issued in time for 
development of this final rule. We also proposed to implement a wage 
index transition policy that would be applicable to all IPFs that may 
experience negative impacts due to the implementation of the revised 
OMB delineations. This transition is discussed in more detail below in 
section III.D.1.b.iii of this final rule.
(a.) Micropolitan Statistical Areas
    OMB defines a ``Micropolitan Statistical Area'' as a CBSA 
associated with at least one urban cluster that has a population of at 
least 10,000, but less than 50,000 (75 FR 37252). We refer to these as 
Micropolitan Areas. After extensive impact analysis, consistent with 
the treatment of these areas under the IPPS as discussed in the FY 2005 
IPPS final rule (69 FR 49029 through 49032), we determined the best 
course of action would be to treat Micropolitan Areas as ``rural'' and 
include them in the calculation of each state's IPF PPS rural wage 
index. We refer the reader to the FY 2007 IPF PPS final rule (71 FR 
27064 through 27065) for a complete discussion regarding treating 
Micropolitan Areas as rural.
(b.) Urban Counties That Would Become Rural Under the Revised OMB 
Delineations
    As previously discussed, in the FY 2021 proposed rule (85 FR 20633 
through 20639), we proposed to implement the new OMB labor market area 
delineations (based upon OMB Bulletin No. 18-04) beginning in FY 2021. 
Our analysis shows that a total of 34 counties (and county equivalents) 
and 5 providers are located in areas that were previously considered 
part of an urban CBSA but would be considered rural beginning in FY 
2021 under these revised OMB delineations. Table 2 lists the 34 urban 
counties that would be rural if we finalize our proposal to implement 
the revised OMB delineations.

[[Page 47053]]

[GRAPHIC] [TIFF OMITTED] TR04AU20.015

    We proposed that the wage data for all providers located in the 
counties listed above would now be considered rural, beginning in FY 
2021, when calculating their respective state's rural wage index. This 
rural wage index value would also be used under the IPF PPS. We 
recognize that rural areas typically have lower area wage index values 
than urban areas, and providers located in these counties may 
experience a negative impact in their IPF payment due to the proposed 
adoption of the revised OMB delineations. We refer readers to section 
iii of this final rule for a discussion of the finalized wage index 
transition policy, particularly, the discussion of the finalized wage 
index transition policy regarding the 5-percent cap for providers that 
may experience a decrease in their wage index from the prior FY.
(c.) Rural Counties That Would Become Urban Under the Revised OMB 
Delineations
    As previously discussed, we proposed to implement the new OMB labor 
market area delineations (based upon OMB Bulletin No. 18-04) beginning 
in FY 2021. Analysis of these OMB labor market area delineations shows 
that a total of 47 counties (and county equivalents) and 4 providers 
are located in areas that were previously considered rural but would 
now be considered urban under the revised OMB delineations. Table 3 
lists the 47 rural counties that would be urban if we finalize our 
proposal to implement the revised OMB delineations.

[[Page 47054]]

[GRAPHIC] [TIFF OMITTED] TR04AU20.016


[[Page 47055]]


[GRAPHIC] [TIFF OMITTED] TR04AU20.017

    When calculating the area wage index, beginning with FY 2021, the 
wage data for providers located in these counties would be included in 
their new respective urban CBSAs. Typically, providers located in an 
urban area receive a wage index value higher than or equal to providers 
located in their state's rural area. We refer readers to section iii of 
this final rule for a discussion of the finalized wage index transition 
policy.
(d.) Urban Counties That Would Move to a Different Urban CBSA Under the 
New OMB Delineations
    In certain cases, adopting the new OMB delineations would involve a 
change only in CBSA name and/or number, while the CBSA continues to 
encompass the same constituent counties. For example, CBSA 19380 
(Dayton, OH) would experience both a change to its number and its name, 
and become CBSA 19430 (Dayton-Kettering, OH), while all of its three 
constituent counties would remain the same. In other cases, only the 
name of the CBSA would be modified, and none of the currently assigned 
counties would be reassigned to a different urban CBSA. Table 4 shows 
the current CBSA code and our proposed CBSA code where we have proposed 
to change either the name or CBSA number only. We are not discussing 
further in this section these changes because they are inconsequential 
changes with respect to the IPF PPS wage index.

[[Page 47056]]

[GRAPHIC] [TIFF OMITTED] TR04AU20.018

    In some cases, if we adopt the new OMB delineations, counties would 
shift between existing and new CBSAs, changing the constituent makeup 
of the CBSAs. We consider this type of change, where CBSAs are split 
into multiple new CBSAs, or a CBSA loses one or more counties to 
another urban CBSA to be significant modifications.
    Table 5 lists the urban counties that will move from one urban CBSA 
to another newly created or modified CBSA if we adopt the new OMB 
delineations.

[[Page 47057]]

[GRAPHIC] [TIFF OMITTED] TR04AU20.019

    We have identified 49 IPF providers located in the affected 
counties listed in Table 5. If providers located in these counties move 
from one CBSA to another under the revised OMB delineations, there may 
be impacts, both negative and positive, upon their specific wage index 
values.
    We received mixed comments on the proposal to adopt the revised 
CBSA delineations. Several commenters recognized the impact of these 
delineation changes, and some commenters were supportive of this 
action, while others voiced concerns.
    Comment: One commenter recommended that CMS delay changes to the 
labor market delineations until FY 2022 to ensure that providers stay 
focused on the COVID-19 Public Health Emergency (PHE).
    Response: The methodology for determining Medicare payments to 
providers uses the most recent data available. We recognize the impact 
that the COVID-19 PHE is having on all providers, which is why we have 
issued waivers and flexibilities to ease burden and allow providers to 
respond effectively during the COVID-19 PHE. As we have previously 
stated, implementing the updated wage index values along with the 
revised OMB delineations would result in wage index values being more 
representative of the actual costs of labor in a given area. Delaying 
the implementation of these provisions would mean delaying substantial 
wage index increases for some facilities whose wage index values have 
not been representative of actual costs of labor in that area. For 
those providers whose wage index would decrease as a result of the 
proposed changes, we have stated our belief that it is appropriate to 
provide a transition period to mitigate the resulting short-term 
instability and negative impacts on these providers, providing time for 
them to adjust to their new labor market area delineations and wage 
index values. This approach is discussed in further detail below in 
section III.D.1.b.iii of this final rule.
    Comment: One commenter suggested that the adoption of the New 
Brunswick-Lakewood, New Jersey CBSA would result in a reduction in 
reimbursement for the four New Jersey

[[Page 47058]]

counties that would make up the new CBSA and recommended that CMS delay 
finalizing the proposal to implement the new OMB delineations.
    Response: We appreciate the detailed concerns sent in by the 
commenter regarding the impact of implementing the New Brunswick-
Lakewood, NJ CBSA designation on their specific counties. We understand 
the commenter's concern regarding the potential financial impact; 
however, we believe that implementing the revised OMB delineations will 
create more accurate representations of labor market areas and result 
in IPF wage index values being more representative of the actual costs 
of labor in a given area. We note that there are many geographic 
locations and IPF providers that will experience positive impacts upon 
implementation of the revised CBSA designations. Therefore, we believe 
that the OMB standards for delineating Metropolitan and Micropolitan 
Statistical Areas are appropriate for determining wage area differences 
and that the values computed under the revised delineations will result 
in more appropriate payments to providers by more accurately accounting 
for and reflecting the differences in area wage levels.
    We recognize that there are areas that will experience a decrease 
in their wage index. As such, it is our longstanding policy to provide 
a temporary transition to mitigate negative impacts from the adoption 
of new policies or procedures. In the FY 2021 IPF proposed rule, we 
proposed a two-year transition in order to mitigate the resulting 
short-term instability and negative impacts on certain providers and to 
provide time for providers to adjust to their new labor market 
delineations. We proposed that in the first year, FY 2021, a 5-percent 
cap on wage index decreases would be applied for all providers, and in 
the second year there would be no cap on decreases to a provider's wage 
index value. We continue to believe that the one-year 5-percent cap 
transitional policy provides an adequate safeguard against any 
significant payment reductions, allows for sufficient time to make 
operational changes for future FYs, and provides a reasonable balance 
between mitigating some short-term instability in IPF payments and 
improving the accuracy of the payment adjustment for differences in 
area wage levels. Therefore, we believe that it is appropriate to 
implement the new OMB delineations without delay.
    Final Decision: For FY 2021, we are finalizing the proposal to 
adopt the revised CBSA delineations based on OMB Bulletin No. 18-04 in 
order to determine the wage index for all IPF providers.
(iii) Transition Policy for Providers Negatively Impacted by Wage Index 
Changes
    Overall, we believe implementing updated wage index values along 
with the revised OMB delineations will result in wage index values 
being more representative of the actual costs of labor in a given area. 
However, we recognize that implementing these wage index changes will 
have distributional effects among IPF providers, and that some 
providers will experience decreases in wage index values as a result of 
our proposals. Therefore, we believe it would be appropriate to 
consider, as we have in the past, whether or not a transition period 
should be used to implement these finalized changes to the wage index.
    We considered having no transition period and fully implementing 
the updated wage index values and new OMB delineations beginning in FY 
2021. This would mean that we would adopt the updated wage index and 
revised OMB delineations for all providers on October 1, 2020. However, 
this would not provide any time for providers to adapt to the new OMB 
delineations or wage index values. As previously stated, some providers 
will experience a decrease in wage index due to implementation of the 
finalized new OMB delineations and wage index updates. Thus, we believe 
that it would be appropriate to provide for a transition period to 
mitigate the resulting short-term instability and negative impacts on 
these providers to provide time for them to adjust to their new labor 
market area delineations and wage index values. Furthermore, in light 
of the comments received during the RY 2007 and FY 2016 rulemaking 
cycles on our proposals to adopt revised CBSA definitions without a 
transition period, we believe that a transition period is appropriate 
for FY 2021.
    We considered transitioning the finalized wage index changes over a 
number of years to minimize their impact in a given year. However, as 
discussed in the FY 2016 IPF PPS final rule (80 FR 46689), we continue 
to believe that a longer transition period would reduce the accuracy of 
the overall labor market area wage index system. The wage index is a 
relative measure of the value of labor in prescribed labor market 
areas; therefore, we believe it is important to implement the new 
delineations with as minimal a transition as is reasonably possible. As 
such, we believe that utilizing a 2-year (rather than a multiple year) 
transition period would strike the most appropriate balance between 
giving providers time to adapt to the new wage index changes while 
maintaining the accuracy of the overall labor market area wage index 
system.
    We considered a transition methodology similar to that used to 
address past decreases in the wage index, as in FY 2016 (80 FR 46689) 
when major changes to CBSA delineations were introduced. Under that 
methodology, all IPF providers would receive a 1-year blended wage 
index using 50 percent of their FY 2021 wage index based on the 
proposed new OMB delineations and 50 percent of their FY 2021 wage 
index based on the OMB delineations used in FY 2020. However, if we 
were to propose a similar blended adjustment for FY 2021, we would have 
to calculate wage indexes for all providers using both old and new 
labor market definitions even though the blended wage index would only 
apply to providers that experienced a decrease in wage index values due 
to a change in labor market area definitions.
    Because of the administrative complexity involved in implementing a 
blended adjustment, we decided to consider alternative transition 
methodologies that might provide greater transparency. Moreover, for FY 
2021, we are not proposing the same transition policy we established in 
FY 2016 when we adopted new OMB delineations based on the decennial 
census data. However, consistent with our past practice of using 
transition policies to help mitigate negative impacts on hospitals of 
certain wage index proposals, we do believe it is appropriate to 
propose a transition policy for our proposed implementation of the 
revised OMB delineations.
    In the proposed rule (85 FR 20638 through 20639) we stated that we 
believe adopting a transition of the 5-percent cap on a decrease in an 
IPFs wage index from the IPF's final wage index from the prior FY is an 
appropriate transition for FY 2021 for the revised OMB delineations as 
it provides greater transparency and consistency with other payment 
systems. We stated that this 2-year transition would allow the adoption 
of the revised CBSA delineations to be phased in over 2 years, where 
the estimated reduction in an IPF's wage index would be capped at 5 
percent in FY 2021. We noted that this approach strikes an appropriate 
balance by providing for a transition period to mitigate the resulting 
short-term instability and negative impacts on these providers and 
provide time for

[[Page 47059]]

them to adjust to their new labor market area delineations and wage 
index values. We indicated that no cap would be applied to the 
reduction in the wage index for the second year, that is, FY 2022.
    Comment: MedPAC suggested alternatives to the 5-percent cap 
transition policy. MedPAC recommended that the 5-percent cap limit 
should apply to both increases and decreases in the wage index because 
they believe that no provider should have its wage index value increase 
or decrease by more than 5 percent for FY 2021.
    Response: We appreciate MedPAC's suggestion that the cap on wage 
index movements of more than 5 percent should also be applied to 
increases in the wage index. We do not believe it would be appropriate 
to apply the 5-percent cap on wage index increases as well. As we 
discussed in the FY 2021 IPF PPS proposed rule (85 FR 20638), the 
purpose of the proposed transition policy, as well as those we have 
implemented in the past, is to help mitigate the significant negative 
impacts of certain wage index changes, not to curtail the positive 
impacts of such changes.
    Final Decision: For FY 2021, we are finalizing the proposal to 
implement a 2-year transition to mitigate any negative effects of wage 
index changes by applying a 5-percent cap on any decrease in an IPF's 
wage index from the IPF's final wage index from the prior FY.
    Following the rationale outlined in the FY 2020 IPPS/LTCH PPS final 
rule (84 FR 42336), we continue to believe 5 percent is a reasonable 
level for the cap because it will effectively mitigate any significant 
decreases in the wage index for FY 2021. Therefore, for FY 2021, we are 
finalizing our proposal to provide for a transition of a 5-percent cap 
on any decrease in an IPF's wage index from the IPF's final wage index 
from the prior FY, which is FY 2020. Consistent with the application of 
the 5-percent cap transition provided in FY 2020 for the IPPS, this 5-
percent cap on wage index decreases will be applied to all IPF 
providers that have any decrease in their wage indexes, regardless of 
the circumstance causing the decline, so that an IPF's final wage index 
for FY 2021 will not be less than 95 percent of its final wage index 
for FY 2020, regardless of whether the IPF is part of an updated CBSA.
e. Adjustment for Rural Location
    In the November 2004 IPF PPS final rule, (69 FR 66954) we provided 
a 17 percent payment adjustment for IPFs located in a rural area. This 
adjustment was based on the regression analysis, which indicated that 
the per diem cost of rural facilities was 17 percent higher than that 
of urban facilities after accounting for the influence of the other 
variables included in the regression. This 17 percent adjustment has 
been part of the IPF PPS each year since the inception of the IPF PPS. 
For FY 2021, we are finalizing our proposal to continue to apply a 17 
percent payment adjustment for IPFs located in a rural area as defined 
at Sec.  412.64(b)(1)(ii)(C) (see 69 FR 66954) for a complete 
discussion of the adjustment for rural locations.
f. Budget Neutrality Adjustment
    Changes to the wage index are made in a budget-neutral manner so 
that updates do not increase expenditures. Therefore, for FY 2021, we 
are continuing to apply a budget-neutrality adjustment in accordance 
with our existing budget-neutrality policy. This policy requires us to 
update the wage index in such a way that total estimated payments to 
IPFs for FY 2021 are the same with or without the changes (that is, in 
a budget-neutral manner) by applying a budget neutrality factor to the 
IPF PPS rates. We use the following steps to ensure that the rates 
reflect the update to the wage indexes (based on the FY 2016 hospital 
cost report data) and the labor-related share in a budget-neutral 
manner:
    Step 1. Simulate estimated IPF PPS payments, using the FY 2020 IPF 
wage index values (available on the CMS website) and labor-related 
share (as published in the FY 2020 IPF PPS final rule (84 FR 38424)).
    Step 2. Simulate estimated IPF PPS payments using the finalized FY 
2021 IPF wage index values (available on the CMS website) and final FY 
2021 labor-related share (based on the latest available data as 
discussed previously).
    Step 3. Divide the amount calculated in step 1 by the amount 
calculated in step 2. The resulting quotient is the FY 2021 budget-
neutral wage adjustment factor of 0.9989.
    Step 4. Apply the FY 2021 budget-neutral wage adjustment factor 
from step 3 to the FY 2020 IPF PPS federal per diem base rate after the 
application of the market basket update described in section III.A of 
this rule, to determine the FY 2021 IPF PPS federal per diem base rate.
2. Teaching Adjustment
    In the November 2004 IPF PPS final rule, we implemented regulations 
at Sec.  412.424(d)(1)(iii) to establish a facility-level adjustment 
for IPFs that are, or are part of, teaching hospitals. The teaching 
adjustment accounts for the higher indirect operating costs experienced 
by hospitals that participate in graduate medical education (GME) 
programs. The payment adjustments are made based on the ratio of the 
number of full-time equivalent (FTE) interns and residents training in 
the IPF and the IPF's average daily census (ADC).
    Medicare makes direct GME payments (for direct costs such as 
resident and teaching physician salaries, and other direct teaching 
costs) to all teaching hospitals including those paid under a PPS, and 
those paid under the TEFRA rate-of-increase limits. These direct GME 
payments are made separately from payments for hospital operating costs 
and are not part of the IPF PPS. The direct GME payments do not address 
the estimated higher indirect operating costs teaching hospitals may 
face.
    The results of the regression analysis of FY 2002 IPF data 
established the basis for the payment adjustments included in the 
November 2004 IPF PPS final rule. The results showed that the indirect 
teaching cost variable is significant in explaining the higher costs of 
IPFs that have teaching programs. We calculated the teaching adjustment 
based on the IPF's ``teaching variable,'' which is (1 + (the number of 
FTE residents training in the IPF/the IPF's ADC)). The teaching 
variable is then raised to 0.5150 power to result in the teaching 
adjustment. This formula is subject to the limitations on the number of 
FTE residents, which are described in this section of this rule.
    We established the teaching adjustment in a manner that limited the 
incentives for IPFs to add FTE residents for the purpose of increasing 
their teaching adjustment. We imposed a cap on the number of FTE 
residents that may be counted for purposes of calculating the teaching 
adjustment. The cap limits the number of FTE residents that teaching 
IPFs may count for the purpose of calculating the IPF PPS teaching 
adjustment, not the number of residents teaching institutions can hire 
or train. We calculated the number of FTE residents that trained in the 
IPF during a ``base year'' and used that FTE resident number as the 
cap. An IPF's FTE resident cap is ultimately determined based on the 
final settlement of the IPF's most recent cost report filed before 
November 15, 2004 (publication date of the IPF PPS final rule). A 
complete discussion of the temporary adjustment to the FTE cap to 
reflect residents due to hospital closure or residency program closure 
appears in the RY 2012 IPF PPS proposed rule (76

[[Page 47060]]

FR 5018 through 5020) and the RY 2012 IPF PPS final rule (76 FR 26453 
through 26456).
    In the regression analysis, the logarithm of the teaching variable 
had a coefficient value of 0.5150. We converted this cost effect to a 
teaching payment adjustment by treating the regression coefficient as 
an exponent and raising the teaching variable to a power equal to the 
coefficient value. We note that the coefficient value of 0.5150 was 
based on the regression analysis holding all other components of the 
payment system constant. A complete discussion of how the teaching 
adjustment was calculated appears in the November 2004 IPF PPS final 
rule (69 FR 66954 through 66957) and the RY 2009 IPF PPS notice (73 FR 
25721). As with other adjustment factors derived through the regression 
analysis, we do not plan to rerun the teaching adjustment factors in 
the regression analysis until we more fully analyze IPF PPS data as 
part of the IPF PPS refinement we discuss in section IV of this rule. 
Therefore, in this FY 2021 final rule, we will continue to retain the 
coefficient value of 0.5150 for the teaching adjustment to the federal 
per diem base rate.
3. Cost of Living Adjustment for IPFs Located in Alaska and Hawaii
    The IPF PPS includes a payment adjustment for IPFs located in 
Alaska and Hawaii based upon the area in which the IPF is located. As 
we explained in the November 2004 IPF PPS final rule, the FY 2002 data 
demonstrated that IPFs in Alaska and Hawaii had per diem costs that 
were disproportionately higher than other IPFs. Other Medicare 
prospective payment systems (for example: The IPPS and LTCH PPS) 
adopted a COLA to account for the cost differential of care furnished 
in Alaska and Hawaii.
    We analyzed the effect of applying a COLA to payments for IPFs 
located in Alaska and Hawaii. The results of our analysis demonstrated 
that a COLA for IPFs located in Alaska and Hawaii would improve payment 
equity for these facilities. As a result of this analysis, we provided 
a COLA in the November 2004 IPF PPS final rule.
    A COLA for IPFs located in Alaska and Hawaii is made by multiplying 
the non-labor-related portion of the federal per diem base rate by the 
applicable COLA factor based on the COLA area in which the IPF is 
located.
    The COLA factors through 2009 were published by the Office of 
Personnel Management (OPM), and the OPM memo showing the 2009 COLA 
factors is available at https://www.chcoc.gov/content/nonforeign-area-retirement-equity-assurance-act.
    We note that the COLA areas for Alaska are not defined by county as 
are the COLA areas for Hawaii. In 5 CFR 591.207, the OPM established 
the following COLA areas:
     City of Anchorage, and 80-kilometer (50-mile) radius by 
road, as measured from the federal courthouse.
     City of Fairbanks, and 80-kilometer (50-mile) radius by 
road, as measured from the federal courthouse.
     City of Juneau, and 80-kilometer (50-mile) radius by road, 
as measured from the federal courthouse.
     Rest of the state of Alaska.
    As stated in the November 2004 IPF PPS final rule, we update the 
COLA factors according to updates established by the OPM. However, 
sections 1911 through 1919 of the Nonforeign Area Retirement Equity 
Assurance Act, as contained in subtitle B of title XIX of the National 
Defense Authorization Act (NDAA) for FY 2010 (Pub. L. 111-84, October 
28, 2009), transitions the Alaska and Hawaii COLAs to locality pay. 
Under section 1914 of NDAA, locality pay was phased in over a 3-year 
period beginning in January 2010, with COLA rates frozen as of the date 
of enactment, October 28, 2009, and then proportionately reduced to 
reflect the phase-in of locality pay.
    When we published the proposed COLA factors in the RY 2012 IPF PPS 
proposed rule (76 FR 4998), we inadvertently selected the FY 2010 COLA 
rates, which had been reduced to account for the phase-in of locality 
pay. We did not intend to propose the reduced COLA rates because that 
would have understated the adjustment. Since the 2009 COLA rates did 
not reflect the phase-in of locality pay, we finalized the FY 2009 COLA 
rates for RY 2010 through RY 2014.
    In the FY 2013 IPPS/LTCH final rule (77 FR 53700 through 53701), we 
established a new methodology to update the COLA factors for Alaska and 
Hawaii, and adopted this methodology for the IPF PPS in the FY 2015 IPF 
final rule (79 FR 45958 through 45960). We adopted this new COLA 
methodology for the IPF PPS because IPFs are hospitals with a similar 
mix of commodities and services. We think it is appropriate to have a 
consistent policy approach with that of other hospitals in Alaska and 
Hawaii. Therefore, the IPF COLAs for FY 2015 through FY 2017 were the 
same as those applied under the IPPS in those years. As finalized in 
the FY 2013 IPPS/LTCH PPS final rule (77 FR 53700 and 53701), the COLA 
updates are determined every 4 years, when the IPPS market basket 
labor-related share is updated. Because the labor-related share of the 
IPPS market basket was updated for FY 2018, the COLA factors were 
updated in FY 2018 IPPS/LTCH rulemaking (82 FR 38529). As such, we also 
updated the IPF PPS COLA factors for FY 2018 (82 FR 36780 through 
36782) to reflect the updated COLA factors finalized in the FY 2018 
IPPS/LTCH rulemaking. We are continuing to apply the same COLA factors 
in FY 2021 that were used in FY 2018 through FY 2020.

[[Page 47061]]

[GRAPHIC] [TIFF OMITTED] TR04AU20.020

    The final IPF PPS COLA factors for FY 2021 are also shown in 
Addendum A to this final rule, and are available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html.
4. Adjustment for IPFs with a Qualifying Emergency Department (ED)
    The IPF PPS includes a facility-level adjustment for IPFs with 
qualifying EDs. We provide an adjustment to the federal per diem base 
rate to account for the costs associated with maintaining a full-
service ED. The adjustment is intended to account for ED costs incurred 
by a psychiatric hospital with a qualifying ED or an excluded 
psychiatric unit of an IPPS hospital or a CAH, for preadmission 
services otherwise payable under the Medicare Hospital Outpatient 
Prospective Payment System (OPPS), furnished to a beneficiary on the 
date of the beneficiary's admission to the hospital and during the day 
immediately preceding the date of admission to the IPF (see Sec.  
413.40(c)(2)), and the overhead cost of maintaining the ED. This 
payment is a facility-level adjustment that applies to all IPF 
admissions (with one exception which we described), regardless of 
whether a particular patient receives preadmission services in the 
hospital's ED.
    The ED adjustment is incorporated into the variable per diem 
adjustment for the first day of each stay for IPFs with a qualifying 
ED. Those IPFs with a qualifying ED receive an adjustment factor of 
1.31 as the variable per diem adjustment for day 1 of each patient 
stay. If an IPF does not have a qualifying ED, it receives an 
adjustment factor of 1.19 as the variable per diem adjustment for day 1 
of each patient stay.
    The ED adjustment is made on every qualifying claim except as 
described in this section of the final rule. As specified in Sec.  
412.424(d)(1)(v)(B), the ED adjustment is not made when a patient is 
discharged from an IPPS hospital or CAH and admitted to the same IPPS 
hospital's or CAH's excluded psychiatric unit. We clarified in the 
November 2004 IPF PPS final rule (69 FR 66960) that an ED adjustment is 
not made in this case because the costs associated with ED services are 
reflected in the DRG payment to the IPPS hospital or through the 
reasonable cost payment made to the CAH.
    Therefore, when patients are discharged from an IPPS hospital or 
CAH and admitted to the same hospital's or CAH's excluded psychiatric 
unit, the IPF receives the 1.19 adjustment factor as the variable per 
diem adjustment for the first day of the patient's stay in the IPF. For 
FY 2021, we are finalizing our proposal to continue to retain the 1.31 
adjustment factor for IPFs with qualifying EDs. A complete discussion 
of the steps involved in the calculation of the ED adjustment factors 
are in the November 2004 IPF PPS final rule (69 FR 66959 through 66960) 
and the RY 2007 IPF PPS final rule (71 FR 27070 through 27072).

E. Other Payment Adjustments and Policies

1. Outlier Payment Overview
    The IPF PPS includes an outlier adjustment to promote access to IPF 
care for those patients who require expensive care and to limit the 
financial risk of IPFs treating unusually costly patients. In the 
November 2004 IPF PPS final rule, we implemented regulations at Sec.  
412.424(d)(3)(i) to provide a per-case payment for IPF stays that are 
extraordinarily costly. Providing additional payments to IPFs for 
extremely costly cases strongly improves the accuracy of the IPF PPS in 
determining resource costs at the patient and facility level. These 
additional payments reduce the financial losses that would otherwise be 
incurred in treating patients who require costlier care, and therefore, 
reduce the incentives for IPFs to under-serve these patients. We make 
outlier payments for discharges in which an IPF's estimated total cost 
for a case (which is calculated by multiplying the IPF's overall cost-
to-charge ratio (CCR) by the Medicare allowable covered charge) exceeds 
a fixed dollar loss threshold amount (multiplied by the IPF's facility-
level adjustments) plus the federal per diem payment amount for the 
case.
    In instances when the case qualifies for an outlier payment, we pay 
80 percent of the difference between the estimated cost for the case 
and the adjusted threshold amount for days 1 through 9 of the stay 
(consistent with the median LOS for IPFs in FY 2002), and 60 percent of 
the difference for day 10 and thereafter. The adjusted threshold amount 
is equal to the outlier threshold amount adjusted for wage area, 
teaching status, rural area, and the COLA adjustment (if applicable), 
plus the amount of the Medicare IPF payment for the case. We 
established the 80 percent and 60 percent loss sharing ratios because 
we were concerned that a single ratio established at 80 percent (like 
other Medicare PPSs) might provide an incentive under the IPF per diem 
payment system to

[[Page 47062]]

increase LOS in order to receive additional payments.
    After establishing the loss sharing ratios, we determined the 
current fixed dollar loss threshold amount through payment simulations 
designed to compute a dollar loss beyond which payments are estimated 
to meet the 2 percent outlier spending target. Each year when we update 
the IPF PPS, we simulate payments using the latest available data to 
compute the fixed dollar loss threshold so that outlier payments 
represent 2 percent of total estimated IPF PPS payments.
2. Update to the Outlier Fixed Dollar Loss Threshold Amount
    In accordance with the update methodology described in Sec.  
412.428(d), we are updating the fixed dollar loss threshold amount used 
under the IPF PPS outlier policy. Based on the regression analysis and 
payment simulations used to develop the IPF PPS, we established a 2 
percent outlier policy, which strikes an appropriate balance between 
protecting IPFs from extraordinarily costly cases while ensuring the 
adequacy of the federal per diem base rate for all other cases that are 
not outlier cases.
    Based on an analysis of the latest available data (the March 2020 
update of FY 2019 IPF claims and most recent CCRs from the CY 2020 
Provider Specific File) and rate increases, we believe it is necessary 
to update the fixed dollar loss threshold amount to maintain an outlier 
percentage that equals 2 percent of total estimated IPF PPS payments. 
We are updating the IPF outlier threshold amount for FY 2021 using FY 
2019 claims data and the same methodology that we used to set the 
initial outlier threshold amount in the RY 2007 IPF PPS final rule (71 
FR 27072 and 27073), which is also the same methodology that we used to 
update the outlier threshold amounts for years 2008 through 2020. In 
the proposed rule (85 FR 20642), based on an analysis of the December 
2019 update of these data, we originally estimated that IPF outlier 
payments as a percentage of total estimated payments are approximately 
2.2 percent in FY 2020. Therefore, we proposed to update the outlier 
threshold amount to $16,520 to maintain estimated outlier payments at 2 
percent of total estimated aggregate IPF payments for FY 2021.
    Comment: We received one comment that opposed increasing the fixed 
dollar threshold amount for 2 years in a row in order to maintain the 2 
percent outlier policy. The commenter also acknowledged that an 
increase in the threshold is necessary, but stated that it should be 
limited to no more than 5 percent in any given year.
    Response: The outlier fixed dollar threshold amount is calculated 
by simulating aggregate payments and using an iterative process to 
determine a threshold that results in outlier payments being equal to 2 
percent of total payments under the simulation. To determine the IPF 
outlier threshold amount for FY 2021, we estimated the FY 2021 IPF PPS 
aggregate and outlier payments using the most recent claims available 
(March 2020 update of the FY 2019 MedPAR claims), the latest CCRs from 
the Provider Specific File, and the FY 2021 final payment rates. The 
outlier threshold was varied in this simulation until estimated outlier 
payments equaled 2 percent of estimated aggregate payments. Based on 
the regression analysis and payment simulations used to develop the IPF 
PPS, we established a 2 percent outlier policy in our November 2004 IPF 
PPS final rule (69 FR 66960 through 66962), which strikes an 
appropriate balance between protecting IPFs from extraordinarily costly 
cases while ensuring the adequacy of the federal per diem base rate for 
all other cases that are not outlier cases. This outlier fixed dollar 
loss threshold update methodology is based on longstanding IPF payment 
policy and is described in detail in the RY 2007 IPF PPS final rule (71 
FR 27072 and 27073).
    Based on an analysis of the latest updated data, we estimate that 
IPF outlier payments as a percentage of total estimated payments are 
approximately 1.9 percent in FY 2020. Therefore, we are finalizing to 
update the outlier threshold amount to $14,630 to maintain estimated 
outlier payments at 2 percent of total estimated aggregate IPF payments 
for FY 2021. This final rule update is a decrease from the FY 2020 
threshold of $14,960. To maintain this established 2 percent outlier 
policy, we must raise or lower the IPF PPS outlier fixed dollar 
threshold amount as indicated by the latest updated data. If the fixed 
dollar threshold amount increase were limited to 5 percent for any 
year, as suggested by the commenter, we would not meet the established 
2 percent outlier policy if the data indicated that a greater increase 
to the fixed dollar loss threshold were required.
    Final Decision: We are finalizing the annual updates in accordance 
with existing policy.
3. Update to IPF Cost-to-Charge Ratio Ceilings
    Under the IPF PPS, an outlier payment is made if an IPF's cost for 
a stay exceeds a fixed dollar loss threshold amount plus the IPF PPS 
amount. In order to establish an IPF's cost for a particular case, we 
multiply the IPF's reported charges on the discharge bill by its 
overall cost-to-charge ratio. This approach to determining an IPF's 
cost is consistent with the approach used under the IPPS and other 
PPSs. In the FY 2004 IPPS final rule (68 FR 34494), we implemented 
changes to the IPPS policy used to determine CCRs for IPPS hospitals, 
because we became aware that payment vulnerabilities resulted in 
inappropriate outlier payments. Under the IPPS, we established a 
statistical measure of accuracy for CCRs to ensure that aberrant CCR 
data did not result in inappropriate outlier payments.
    As we indicated in the November 2004 IPF PPS final rule (69 FR 
66961), we believe that the IPF outlier policy is susceptible to the 
same payment vulnerabilities as the IPPS; therefore, we adopted a 
method to ensure the statistical accuracy of CCRs under the IPF PPS. 
Specifically, we adopted the following procedure in the November 2004 
IPF PPS final rule:
     Calculated two national ceilings, one for IPFs located in 
rural areas and one for IPFs located in urban areas.
     Computed the ceilings by first calculating the national 
average and the standard deviation of the CCR for both urban and rural 
IPFs using the most recent CCRs entered in the most recent Provider 
Specific File available.
    For FY 2021, we are finalizing to continue to follow this 
methodology.
    To determine the rural and urban ceilings, we multiplied each of 
the standard deviations by 3 and added the result to the appropriate 
national CCR average (either rural or urban). The upper threshold CCR 
for IPFs in FY 2021 is 2.0082 for rural IPFs, and 1.7131 for urban 
IPFs, based on CBSA-based geographic designations. If an IPF's CCR is 
above the applicable ceiling, the ratio is considered statistically 
inaccurate, and we assign the appropriate national (either rural or 
urban) median CCR to the IPF.
    We apply the national median CCRs to the following situations:
     New IPFs that have not yet submitted their first Medicare 
cost report. We continue to use these national median CCRs until the 
facility's actual CCR can be computed using the first tentatively or 
final settled cost report.
     IPFs whose overall CCR is in excess of three standard 
deviations above the corresponding national geometric mean (that is, 
above the ceiling).

[[Page 47063]]

     Other IPFs for which the Medicare Administrative 
Contractor (MAC) obtains inaccurate or incomplete data with which to 
calculate a CCR.
    We are continuing to update the FY 2021 national median and ceiling 
CCRs for urban and rural IPFs based on the CCRs entered in the latest 
available IPF PPS Provider Specific File. Specifically, for FY 2021, to 
be used in each of the three situations listed previously, using the 
most recent CCRs entered in the CY 2020 Provider Specific File, we 
provide an estimated national median CCR of 0.5720 for rural IPFs and a 
national median CCR of 0.4200 for urban IPFs. These calculations are 
based on the IPF's location (either urban or rural) using the CBSA-
based geographic designations. A complete discussion regarding the 
national median CCRs appears in the November 2004 IPF PPS final rule 
(69 FR 66961 through 66964).

IV. Update on IPF PPS Refinements

    For RY 2012, we identified several areas of concern for future 
refinement, and we invited comments on these issues in the RY 2012 IPF 
PPS proposed and final rules. For further discussion of these issues 
and to review the public comments, we refer readers to the RY 2012 IPF 
PPS proposed rule (76 FR 4998) and final rule (76 FR 26432).
    We have delayed making refinements to the IPF PPS until we have 
completed a thorough analysis of IPF PPS data on which to base those 
refinements. Specifically, we would delay updating the adjustment 
factors derived from the regression analysis until we have IPF PPS data 
that include as much information as possible regarding the patient-
level characteristics of the population that each IPF serves. We have 
begun and will continue the necessary analysis to better understand IPF 
industry practices so that we may refine the IPF PPS in the future, as 
appropriate. Our preliminary analysis has also revealed variation in 
cost and claim data, particularly related to labor costs, drugs costs, 
and laboratory services. Some providers have very low labor costs, or 
very low or missing drug or laboratory costs or charges, relative to 
other providers. As we noted in the FY 2016 IPF PPS final rule (80 FR 
46693 through 46694), our preliminary analysis of 2012 to 2013 IPF data 
found that over 20 percent of IPF stays reported no ancillary costs, 
such as laboratory and drug costs, in their cost reports, or laboratory 
or drug charges on their claims. Because we expect that most patients 
requiring hospitalization for active psychiatric treatment would need 
drugs and laboratory services, we again remind providers that the IPF 
PPS federal per diem base rate includes the cost of all ancillary 
services, including drugs and laboratory services.
    On November 17, 2017, we issued Transmittal 12, which made changes 
to the hospital cost report form CMS-2552-10 (OMB No. 0938-0050), and 
included the requirement that cost reports from psychiatric hospitals 
include certain ancillary costs, or the cost report will be rejected. 
On January 30, 2018, we issued Transmittal 13, which changed the 
implementation date for Transmittal 12 to be for cost reporting periods 
ending on or after September 30, 2017. For details, we refer readers to 
see these Transmittals, which are available on the CMS website at 
https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/index.html. CMS suspended the requirement that cost reports from 
psychiatric hospitals include certain ancillary costs effective April 
27, 2018, in order to consider excluding all-inclusive rate providers 
from this requirement. CMS issued Transmittal 15 on October 19, 2018, 
reinstating the requirement that cost reports from psychiatric 
hospitals, except all-inclusive rate providers, include certain 
ancillary costs.
    We only pay the IPF for services furnished to a Medicare 
beneficiary who is an inpatient of that IPF (except for certain 
professional services), and payments are considered to be payments in 
full for all inpatient hospital services provided directly or under 
arrangement (see 42 CFR 412.404(d)), as specified in 42 CFR 409.10.

V. Special Requirements for Psychiatric Hospitals (Sec.  482.61(d))

    In the CMS interim final rule with comment period, ``Medicare and 
Medicaid Programs; Policy and Regulatory Revisions in Response to the 
COVID-19 Public Health Emergency'' (85 FR 19230) (``IFC''), published 
on April 6, 2020, we revised the provision at Sec.  482.61(d) in the 
``Special Medical Record Requirements for Psychiatric Hospitals'' 
conditions of participation (CoP) by deleting an inappropriate 
reference to Sec.  482.12(c), and deleting the modifier ``independent'' 
from the term ``licensed independent practitioner(s).''
    This and other revisions in the April 6, 2020 IFC reflect our 
belief that advanced practice providers (APPs), including physician 
assistants (PAs), nurse practitioners (NPs), psychologists, and 
clinical nurse specialists (CNSs) (as well as other qualified, licensed 
practitioners to whom this revision may also be applicable), when 
acting in accordance with state law, their scope of practice, and 
hospital policy, should have the authority to practice more broadly and 
to the highest level of their education, training, and qualifications 
as allowed under their respective state requirements and laws in this 
area. Additionally, non-physician practitioners practicing in the 
psychiatric hospital setting should be able to record progress notes of 
psychiatric patients for whom they are responsible. Therefore, we now 
allow the use of non-physician practitioners, or APPs, to document 
progress notes of patients receiving services in psychiatric hospitals, 
in addition to medical doctors, doctors of osteopathy (MDs)/(DOs) as is 
currently allowed.
    Given the changes made to the requirements under Sec.  482.13 
regarding the removal of the word ``independent'' from the phrase 
``licensed independent practitioner'' when referencing non-physician 
practitioners that we previously discussed in the final rule published 
on September 30, 2019 Federal Register (the ``Medicare and Medicaid 
Programs; Hospital and Critical Access Hospital (CAH) Changes To 
Promote Innovation, Flexibility, and Improvement in Patient Care'' 
final rule (84 FR 51775)), we have made the same change for this 
provision at Sec.  482.61(d) in the April 6, 2020 IFC. We believe that 
the regulatory language should be as consistent as possible throughout 
the hospital CoPs and with the requirement under Sec.  482.13. We also 
believe using the term ``licensed independent practitioner'' may 
inadvertently exacerbate workforce shortage concerns, and unnecessarily 
impose regulatory burden on hospitals by restricting a hospital's 
ability to allow APPs and other non-physician practitioners to operate 
within the scope of practice allowed by state law. In addition, we 
believe it does not recognize the benefits to patient care that might 
be derived from fully utilizing APPs and their clinical skills to the 
highest levels of their training, education, and experience, as allowed 
by hospital policy in accordance with state law.
    In response to the April 6, 2020 IFC, we received several public 
comments from patient advocacy organizations as well as professional 
organizations and societies. The comments were generally supportive of 
the changes and are as follows:
    Comment: Several commenters fully supported the changes made 
regarding APPs, expressed appreciation for CMS recognizing the changing 
dynamics of the healthcare system for both patients and for those 
practicing within it, and encouraged CMS to continue to evaluate other 
regulatory barriers limiting efficient practice by APPs. One

[[Page 47064]]

commenter expressed appreciation for the clarification that now allows 
non-physician practitioners to practice to the full extent of their 
licenses and certifications in the psychiatric hospital setting. The 
commenter referenced evidence of the safe practice of nurse 
practitioners and other practitioners in other settings, which the 
commenter stated confirms that this change is appropriate to make for 
psychiatric hospitals. Another commenter expressed appreciation for 
this increased flexibility and asked CMS to consider other Medicare 
regulations for future revisions, particularly those that might limit 
other types of advanced practice nurses from practicing to the full 
extent of their licenses, such as those practicing in oncology.
    Response: We thank the commenters for their support of these 
changes and agree that evidence supports allowing these practitioners 
to practice to full extent of their training, education, and 
qualifications. Since the revisions discussed here are limited in scope 
to the psychiatric hospital CoP, we can only address the requirements 
for APPs, which we note currently allow APPs, regardless of area of 
practice, to practice to the full extent of their respective state laws 
and licenses and as allowed by their respective hospitals. However, we 
will continue to review the CoPs for other provider-types.
    Comment: A few commenters, while supportive of these changes, 
emphasized that APPs, while practicing in accordance with state scope-
of-practice laws, must also continue to practice as part of physician-
led teams and that CMS should reinstate general supervision of APPs by 
physicians after the expiration of the current PHE declaration period. 
These commenters also stated that they believe the current revisions to 
allow for APPs to document progress notes for patients in psychiatric 
hospitals for whom they are responsible should only be temporary for 
the duration of the PHE.
    Response: We appreciate the qualified support expressed by 
commenters and agree that APPs should practice in accordance with their 
respective state laws with regard to their roles on physician-led 
teams. However, we respectfully disagree that the changes made in the 
April 6, 2020 IFC should only be temporary in nature. Further, with 
regard to the revisions to the hospital CoPs discussed here, we defer 
to state law and hospital policy regarding the requirement of general 
supervision of APPs by physicians.
    Final Decision: After consideration of the public comments, we are 
confirming as final the revisions to the provision at Sec.  482.61(d) 
in the ``Special Medical Record Requirements for Psychiatric 
Hospitals'' CoP published in the April 6, 2020 IFC (85 FR 19230), 
without change.

VI. Collection of Information Requirements

    This rule finalizes proposed updates to the prospective payment 
rates, outlier threshold, and wage index for Medicare inpatient 
hospital services provided by IPFs. It also finalizes our proposal to 
expand the IPPS wage index disparities policy and revise CBSA 
delineations. While discussed in section IV (Update on IPF PPS 
Refinements) of this preamble, the active requirements and burden 
associated with our hospital cost report form CMS-2552-10 (OMB control 
number 0938-0050) are unaffected by this rule. At Sec.  482.61(d), this 
rule will allow licensed non-physician practitioners (specifically PAs, 
NPs, and CNSs) to document progress notes in accordance with state laws 
and scope-of-practice requirements. The recording of progress notes is 
not new as it is currently allowed by medical doctors and doctors of 
osteopathy. We believe that the recording of progress notes is a usual 
and customary practice that would be performed in the absence of 
federal regulation. In that regard it is not subject (see 5 CFR 
1320.3(b)(2)) to the requirements of the Paperwork Reduction Act of 
1995 (PRA; 44 U.S.C. 3501 et seq.).
    Since this rule does not impose any new or revised collection of 
information requirements/burden, the rule is not subject to the 
requirements of the PRA. With respect to this section of the preamble, 
``collection of information'' is defined under 5 CFR 1320.3(c) of OMB's 
implementing regulations.

VII. Regulatory Impact Analysis

A. Statement of Need

    This rule finalizes updates to the prospective payment rates for 
Medicare inpatient hospital services provided by IPFs for discharges 
occurring during FY 2021 (October 1, 2020 through September 30, 2021). 
We are finalizing our proposal to apply the 2016-based IPF market 
basket increase of 2.2 percent, less the productivity adjustment of 0 
percentage point as required by 1886(s)(2)(A)(i) of the Act resulting 
in a final FY 2021 IPF payment rate update of 2.2 percent. In this 
final rule, we are updating the IPF labor-related share and the IPF 
wage index to reflect the FY 2021 hospital inpatient wage index, and 
adopting more recent Office of Management and Budget (OMB) statistical 
area delineations.

B. Overall Impact

    We have examined the impacts of this final rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 18, 2011), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96 354), section 1102(b) of the Social 
Security Act (the Act), section 202 of the Unfunded Mandates Reform Act 
of 1995 (March 22, 1995; Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), and Executive Order 13771 on Reducing 
Regulation and Controlling Regulatory Costs (January 30, 2017).
    Executive Orders 12866 and 13563 direct 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). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) Having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order. In accordance with the 
provisions of Executive Order 12866, this regulation was reviewed by 
the Office of Management and Budget.
    We estimate that this rulemaking is not economically significant as 
measured by the $100 million threshold, and hence not 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.
    We estimate that the total impact of these changes for FY 2021 
payments compared to FY 2020 payments will be

[[Page 47065]]

a net increase of approximately $95 million. This reflects a $90 
million increase from the update to the payment rates ($90 million 
increase from the second quarter 2020 IGI forecast of the 2016-based 
IPF market basket of 2.2 percent, and a $0 reduction for the 
productivity adjustment of 0 percentage point), as well as a $5 million 
increase as a result of the update to the outlier threshold amount. 
Outlier payments are estimated to change from 1.9 percent in FY 2020 to 
2.0 percent of total estimated IPF payments in FY 2021.

C. Detailed Economic Analysis

    In this section, we discuss the historical background of the IPF 
PPS and the impact of this final rule on the Federal Medicare budget 
and on IPFs.
1. Budgetary Impact
    As discussed in the November 2004 and RY 2007 IPF PPS final rules, 
we applied a budget neutrality factor to the federal per diem base rate 
and ECT payment per treatment to ensure that total estimated payments 
under the IPF PPS in the implementation period would equal the amount 
that would have been paid if the IPF PPS had not been implemented. The 
budget neutrality factor includes the following components: Outlier 
adjustment, stop-loss adjustment, and the behavioral offset. As 
discussed in the RY 2009 IPF PPS notice (73 FR 25711), the stop-loss 
adjustment is no longer applicable under the IPF PPS.
    As discussed in section III.D.1 of this final rule, we are updating 
the wage index and labor-related share in a budget neutral manner by 
applying a wage index budget neutrality factor to the federal per diem 
base rate and ECT payment per treatment. Therefore, the budgetary 
impact to the Medicare program of this final rule will be due to the 
market basket update for FY 2021 of 2.2 percent (see section III.A.4 of 
this final rule) less the productivity adjustment of 0 percentage point 
required by section 1886(s)(2)(A)(i) of the Act and the update to the 
outlier fixed dollar loss threshold amount.
    We estimate that the FY 2021 impact will be a net increase of $95 
million in payments to IPF providers. This reflects an estimated $90 
million increase from the update to the payment rates and a $5 million 
increase due to the update to the outlier threshold amount to set total 
estimated outlier payments at 2.0 percent of total estimated payments 
in FY 2021. This estimate does not include the implementation of the 
required 2.0 percentage point reduction of the market basket increase 
factor for any IPF that fails to meet the IPF quality reporting 
requirements (as discussed in section V.A. of this final rule).
2. Impact on Providers
    To show the impact on providers of the changes to the IPF PPS 
discussed in this final rule, we compare estimated payments under the 
IPF PPS rates and factors for FY 2021 versus those under FY 2020. We 
determined the percent change in the estimated FY 2021 IPF PPS payments 
compared to the estimated FY 2020 IPF PPS payments for each category of 
IPFs. In addition, for each category of IPFs, we have included the 
estimated percent change in payments resulting from the update to the 
outlier fixed dollar loss threshold amount; the updated wage index data 
including the updated labor-related share; the adoption of the revised 
CBSA delineations based on the OMB Bulletin No. 18-04 published 
September 14, 2018; the implementation of the 2 year transition with a 
5-percent cap on decreases to providers' wage index values; and the 
market basket update for FY 2021, as adjusted by the productivity 
adjustment according to section 1886(s)(2)(A)(i) of the Act.
    To illustrate the impacts of the FY 2021 changes in this final 
rule, our analysis begins with FY 2019 IPF PPS claims (based on the 
2019 MedPAR claims, March 2020 update). We estimate FY 2020 IPF PPS 
payments using these 2019 claims and the finalized FY 2020 IPF PPS 
federal per diem base rates and the finalized FY 2020 IPF PPS patient 
and facility level adjustment factors (as published in the FY 2020 IPF 
PPS final rule (84 FR 38424 through 38482)). We then estimate the FY 
2020 outlier payments based on these simulated FY 2020 IPF PPS payments 
using the same methodology as finalized in the FY 2020 IPF PPS final 
rule (84 FR 38457) where total outlier payments are maintained at 2 
percent of total estimated FY 2020 IPF PPS payments.
    Each of the following changes is added incrementally to this 
baseline model in order for us to isolate the effects of each change:
     The update to the outlier fixed dollar loss threshold 
amount.
     The FY 2021 IPF wage index and the FY 2021 labor-related 
share.
     The adoption of the revised CBSAs based on OMB Bulletin 
No. 18-04 and the 5-percent cap on decreases to the wage index for 
providers whose wage index decreases from FY 2020.
     The market basket update for FY 2021 of 2.2 percent less 
the productivity adjustment of 0 percentage point in accordance with 
section 1886(s)(2)(A)(i) of the Act for a payment rate update of 2.2 
percent.
    Our final column comparison in Table 7 illustrates the percent 
change in payments from FY 2020 (that is, October 1, 2019, to September 
30, 2020) to FY 2021 (that is, October 1, 2020, to September 30, 2021) 
including all the payment policy changes in this final rule.

[[Page 47066]]

[GRAPHIC] [TIFF OMITTED] TR04AU20.021


[[Page 47067]]


[GRAPHIC] [TIFF OMITTED] TR04AU20.022

3. Impact Results
    Table 7 displays the results of our analysis. The table groups IPFs 
into the categories listed here based on characteristics provided in 
the Provider of Services (POS) file, the IPF provider specific file, 
and cost report data from the Healthcare Cost Report Information 
System:
     Facility Type.
     Location.
     Teaching Status Adjustment.
     Census Region.
     Size.
    The top row of the table shows the overall impact on the 1,550 IPFs 
included in this analysis. In column 3, we present the effects of the 
update to the outlier fixed dollar loss threshold amount. We estimate 
that IPF outlier payments as a percentage of total IPF payments are 1.9 
percent in FY 2020. Thus, we are adjusting the outlier threshold amount 
in this final rule to set total estimated outlier payments equal to 2.0 
percent of total payments in FY 2021. The estimated change in total IPF 
payments for FY 2021, therefore, includes an approximate 0.1 percent 
increase in payments because the outlier portion of total payments is 
expected to increase from approximately 1.9 percent to 2.0 percent.
    The overall impact of this outlier adjustment update (as shown in 
column 3 of Table 7), across all hospital groups, is to increase total 
estimated payments to IPFs by 0.1 percent. The largest increase in 
payments due to this change is estimated to be 0.2 percent for teaching 
IPFs with more than 30 percent interns and residents to beds.
    In column 4, we present the effects of the budget-neutral update to 
the IPF wage index and the Labor-Related Share (LRS). This represents 
the effect of using the concurrent hospital wage data without taking 
into account the updated OMB delineations, or the 5-percent cap on 
decreases to providers' wage index values for providers whose wage 
index decreases from FY 2020 as discussed in section III.D.1.b.iii of 
this final rule. That is, the impact represented in this column 
reflects the update from the FY 2020 IPF wage index to the final FY 
2021 IPF wage index, which includes basing the FY 2021 IPF wage index 
on the FY 2021 pre-floor, pre-reclassified IPPS hospital wage index 
data and updating the LRS from 76.9 percent in FY 2020 to 77.3 percent 
in FY 2021. We note that there is no projected change in aggregate 
payments to IPFs, as indicated in the first row of column 4, however, 
there will be distributional effects among different categories of 
IPFs. For example, we estimate the largest increase in payments to be 
0.7 percent for Mid-Atlantic IPFs, and the largest decrease in payments 
to be 0.9 percent for New England IPFs.
    Next, column 5 shows the effect of the final update to the 
delineations used to identify providers as urban or rural providers and 
the CBSAs into which urban providers are classified. Additionally, 
column 5 shows the effect of the final five percent cap on wage index 
decreases in FY 2021 as discussed in section III.D.1.b.iii of this 
final rule. The new delineations will be based on the September 14, 
2018 OMB Bulletin No. 18-04. In the aggregate, we do not estimate that 
these updates will affect overall estimated payments of IPFs since 
these changes will be implemented in a budget neutral manner. We 
observe that urban providers will experience no change in

[[Page 47068]]

payments and rural providers will see a 0.1 percent decrease in 
payments.
    Finally, column 6 compares the total changes reflected in this 
final rule for FY 2021 to the estimates for FY 2020 (without these 
changes). The average estimated increase for all IPFs is approximately 
2.3 percent. This estimated net increase includes the effects of the 
2016-based IPF market basket update of 2.2 percent reduced by the 
productivity adjustment of 0 percentage point, as required by section 
1886(s)(2)(A)(i) of the Act. It also includes the overall estimated 0.1 
percent increase in estimated IPF outlier payments as a percent of 
total payments from the update to the outlier fixed dollar loss 
threshold amount. Column 6 also includes the distributional effects of 
the updates to the IPF wage index and the labor-related share whose 
impacts are displayed in columns 4 and 5.
    IPF payments are estimated to increase by 2.3 percent in urban 
areas and 2.0 percent in rural areas. Overall, IPFs are estimated to 
experience a net increase in payments as a result of the updates in 
this final rule. The largest payment increase is estimated at 3.5 
percent for IPFs in the Mid-Atlantic region.
4. Effect on Beneficiaries
    Under the IPF PPS, IPFs will receive payment based on the average 
resources consumed by patients for each day. We do not expect changes 
in the quality of care or access to services for Medicare beneficiaries 
under the FY 2021 IPF PPS, but we continue to expect that paying 
prospectively for IPF services will enhance the efficiency of the 
Medicare program.
5. Regulatory Review Costs
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this final rule, we 
should estimate the cost associated with regulatory review. Due to the 
uncertainty involved with accurately quantifying the number of entities 
that will be directly impacted and will review this final rule, we 
assume that the total number of unique commenters on the most recent 
IPF proposed rule from FY 2021 (85 FR 20625) will be the number of 
reviewers of this final rule. We acknowledge that this assumption may 
understate or overstate the costs of reviewing this final rule. It is 
possible that not all commenters reviewed the FY 2021 IPF proposed rule 
in detail, and it is also possible that some reviewers chose not to 
comment on that proposed rule. For these reasons, we thought that the 
number of commenters would be a fair estimate of the number of 
reviewers who are directly impacted by this final rule. We did not 
receive any comments on this assumption.
    We also recognize that different types of entities are in many 
cases affected by mutually exclusive sections of this final rule; 
therefore, for the purposes of our estimate, we assume that each 
reviewer reads approximately 50 percent of this final rule.
    Using the May, 2019 mean (average) wage information from the Bureau 
of Labor Statistics (BLS) for medical and health service managers (Code 
11-9111), we estimate that the cost of reviewing this final rule is 
$110.74 per hour, including overhead and fringe benefits (https://www.bls.gov/oes/current/oes119111.htm). Assuming an average reading 
speed of 250 words per minute, we estimate that it would take 
approximately 49 minutes (0.82 hours) for the staff to review half of 
this final rule, given that there is a total of 24,480 words. For each 
IPF that reviews the final rule, the estimated cost is (0.82 hours x 
$110.74) or $90.36. Therefore, we estimate that the total cost of 
reviewing this final rule is $41,748.09 ($90.36 x 462 reviewers).
6. Special Requirements for Psychiatric Hospitals
    In section V. of this final rule, we note that the existing 
requirements (prior to publication of the April 6, 2020 IFC) for 
psychiatric hospitals specified that progress notes must be recorded by 
the physicians(s), psychologists, or other ``licensed independent 
practitioner(s)'' responsible for the care of the patient. We believe 
that this provision required clarification and revision since the 
regulatory language was inconsistent with other recent changes 
finalized throughout the hospital CoPs as this provision applies to 
APPs, including PAs, NPs, clinical psychologists, and CNSs.
    Continued use of this outdated term (``licensed independent 
practitioner(s)'') may inadvertently exacerbate workforce shortage 
concerns, and also might unnecessarily impose regulatory burden on 
hospitals, especially psychiatric hospitals, by restricting a 
hospital's ability to allow APPs to operate within the scope of 
practice allowed by state law. We believe that the previous regulation 
failed to recognize the benefits to patient care that might be derived 
from fully utilizing APPs and their clinical skills to the highest 
levels of their training, education, and experience as allowed by 
hospital policy in accordance with state law.
    Therefore, we have removed the term ``licensed independent 
practitioner(s)'' (along with an inappropriate reference to Sec.  
482.12(c)) from the regulations. We believe that this revision is non-
controversial, and that the public interest will be served by 
permitting a greater scope of practice for professionals in the 
psychiatric hospital context and further believe that these trained and 
qualified practitioners, when acting in accordance with state law, 
their scope of practice, and hospital policy, should have the authority 
to record progress notes of psychiatric patients for whose care they 
are responsible.
    At Sec.  482.61(d), we now allow non-physician practitioners, or 
APPs, to document progress notes in accordance with state laws and 
scope-of-practice requirements. We believe that clarification of the 
intent of the regulation is necessary and will result in non-physician 
practitioners (specifically PAs, NPs, and CNSs) documenting in the 
progress notes for patients receiving services in psychiatric 
hospitals.
    We estimate that MDs/DOs currently spend approximately 30 minutes 
documenting progress notes in psychiatric hospitals, and that 33 
percent of this time would be covered by non-physician practitioners. 
Of the 4,823 Medicare participating hospitals, approximately 620 (or 13 
percent) are psychiatric hospitals. According to the American Hospital 
Association (AHA), there were 36,510,207 inpatient hospital stays in 
2017, and therefore, an estimated 13 percent of these stays were at 
psychiatric hospitals.
    Using May 2019 BLS data, we have obtained estimates of the national 
average hourly wage for Nurse Practitioners (29-1171), Physician 
Assistants (29-1071), Family Medicine Physicians (29-1215), General 
Internal Medicine Physicians (29-1216), and Psychiatrists (29-1223) in 
Psychiatric and Substance Abuse Hospitals (NAICS 622200). Using BLS 
employment numbers, we calculated a weighted average hourly wage for 
physicians/psychiatrists and for non-physician practitioners (NPs and 
PAs). We have adjusted these rates by adding 100 percent to the hourly 
wage to account for overhead costs and fringe benefit costs.
    We estimate that this change in behavior will result in an annual 
savings of $176.8 million (4,746,327 psychiatric hospital stays x 2 
progress notes per stay x 0.5 hours of physician/psychiatrist time x 
$112.88 per hourly wage difference between physicians/psychiatrists 
($218.22) and non-physician practitioners ($105.34) x 33

[[Page 47069]]

percent of physician time spent writing progress notes covered by non-
physician practitioners, or APPs), as shown in the Accounting 
Statement, Table 8, below. We note that there is some ambiguity in 
attributing these savings across the several rulemakings--Regulatory 
Provisions to Promote Program Efficiency, Transparency, and Burden 
Reduction (CoPs), (83 FR 47686); the April 6, 2020 IFC; and this final 
rule--that all address the progress note recording requirement.

D. Alternatives Considered

    The statute does not specify an update strategy for the IPF PPS and 
is broadly written to give the Secretary discretion in establishing an 
update methodology. Therefore, we are updating the IPF PPS using the 
methodology published in the November 2004 IPF PPS final rule; applying 
the 2016-based IPF PPS market basket update for FY 2021 of 2.2 percent, 
reduced by the statutorily required multifactor productivity adjustment 
of 0 percentage point along with the wage index budget neutrality 
adjustment to update the payment rates; finalizing a FY 2021 IPF wage 
index which is fully based upon the OMB CBSA designations from Bulletin 
18-04 and which uses the FY 2021 pre-floor, pre-reclassified IPPS 
hospital wage index as its basis.

E. Accounting Statement

    As required by OMB Circular A-4 (available at www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf), in Table 8, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the updates to the IPF wage index and 
payment rates in this final rule. Table 8 provides our best estimates 
of the cost savings outlined in section VII.C.6 above, with high and 
low estimates generated at 25 percent above and below the primary 
estimate of $176.8 million as calculated in section VII.C.6. Table 8 
also includes our best estimate of the increase in Medicare payments 
under the IPF PPS as a result of the changes presented in this final 
rule and based on the data for 1,550 IPFs in our database.
[GRAPHIC] [TIFF OMITTED] TR04AU20.023

F. Regulatory Flexibility Act

    The RFA requires agencies to analyze options for regulatory relief 
of small entities 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 
governmental jurisdictions. Most IPFs and most other providers and 
suppliers are small entities, either by nonprofit status or by having 
revenues of $8 million to $41.5 million or less in any 1 year. 
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 IPFs or the proportion of 
IPFs' revenue derived from Medicare payments. Therefore, we assume that 
all IPFs are considered small entities.
    The Department of Health and Human Services generally uses a 
revenue impact of 3 to 5 percent as a significance threshold under the 
RFA. As shown in Table 7, we estimate that the overall revenue impact 
of this final rule on all IPFs is to increase estimated Medicare 
payments by approximately 2.3 percent. As a result, since the estimated 
impact of this final rule is a net increase in revenue across almost 
all categories of IPFs, the Secretary has determined that this final 
rule will have a positive revenue impact on a substantial number of 
small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. 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 discussed in section 
V.C.1 of this final rule, the rates and policies set forth in this 
final rule will not have an adverse impact on the rural hospitals based 
on the data of the 248 rural excluded psychiatric units and 61 rural 
psychiatric hospitals in our database of 1,550 IPFs for which data were 
available. Therefore, the Secretary has determined that this final rule 
will not have a significant impact on the operations of a substantial 
number of small rural hospitals.

G. Unfunded Mandate Reform Act (UMRA)

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2020, that 
threshold is approximately $156 million. This final rule does not 
mandate any requirements for state, local, or tribal governments, or 
for the private sector. This final rule would not impose a mandate that 
will result in the expenditure by state, local, and Tribal Governments, 
in the aggregate, or by the private sector, of more than $156 million 
in any one year.

H. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a

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proposed rule that imposes substantial direct requirement costs on 
state and local governments, preempts state law, or otherwise has 
Federalism implications. This final rule does not impose substantial 
direct costs on state or local governments or preempt state law.

I. Regulatory Reform Analysis Under Executive Order 13771

    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017 and requires that the 
costs associated with significant new regulations ``shall, to the 
extent permitted by law, be offset by the elimination of existing costs 
associated with at least two prior regulations.'' Though this final 
rule may contribute to the generation of $132.45 million in annualized 
cost savings (that is, $176.8 million as calculated in section VII.C.6 
above, discounted at 7 percent relative to year 2016), this cost 
savings was accounted for in Regulatory Provisions to Promote Program 
Efficiency, Transparency, and Burden Reduction (CoPs) (83 FR 47686) and 
was associated with the special requirements for psychiatric hospitals 
in the April 6, 2020 IFC. As a result, it has been determined that this 
final rule is an action that primarily results in transfers and does 
not impose more than de minimis costs as described above and thus is 
not a regulatory or deregulatory action for the purposes of Executive 
Order 13771.
    For the reasons set forth in the preamble, this rule is adopted as 
final and the amendment to Sec.  482.61 (amendatory instruction number 
48) in the interim final rule published on April 6, 2020 (85 FR 19292) 
is adopted as final without change.

    Dated: July 23, 2020.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: July 29, 2020.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2020-16990 Filed 7-31-20; 4:15 pm]
BILLING CODE 4120-01-P