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Proposed Rule2023-07122

Medicare Program; FY 2024 Inpatient Psychiatric Facilities Prospective Payment System-Rate Update

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Published

April 10, 2023

Issuing agencies

Health and Human Services DepartmentCenters for Medicare & Medicaid Services

Abstract

This proposed rule would update 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 acute care hospital or critical access hospital. These proposed changes would be effective for IPF discharges occurring during the Fiscal Year (FY) beginning October 1, 2023 through September 30, 2024 (FY 2024). In addition, this proposed rule discusses proposals on quality measures and reporting requirements under the Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program with proposed changes beginning with the FY 2024 payment determination through changes beginning with the FY 2028 payment determination.

Full Text

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[Federal Register Volume 88, Number 68 (Monday, April 10, 2023)]
[Proposed Rules]
[Pages 21238-21314]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-07122]

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Vol. 88

Monday,

No. 68

April 10, 2023

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Part 412

Medicare Program; FY 2024 Inpatient Psychiatric Facilities Prospective
Payment System--Rate Update; Proposed Rule

Federal Register / Vol. 88 , No. 68 / Monday, April 10, 2023 /
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1783-P]
RIN 0938-AV06

Medicare Program; FY 2024 Inpatient Psychiatric Facilities
Prospective Payment System--Rate Update

AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of
Health and Human Services (HHS).

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update 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 acute care hospital or critical access hospital. These proposed
changes would be effective for IPF discharges occurring during the
Fiscal Year (FY) beginning October 1, 2023 through September 30, 2024
(FY 2024). In addition, this proposed rule discusses proposals on
quality measures and reporting requirements under the Inpatient
Psychiatric Facilities Quality Reporting (IPFQR) Program with proposed
changes beginning with the FY 2024 payment determination through
changes beginning with the FY 2028 payment determination.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, by June 5, 2023.

ADDRESSES: In commenting, please refer to file code CMS-1783-P.
Comments, including mass comment submissions, must be submitted in
one of the following three ways (please choose only one of the ways
listed):
1. Electronically. You may submit electronic comments on this
regulation to <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-1783-P, P.O. Box 8010,
Baltimore, MD 21244-8010.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-1783-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Mollie Knight (410) 786-7948 or
Bridget Dickensheets (410) 786-8670, for information regarding the
market basket update or the labor-related share.
Nick Brock (410) 786-5148 or Theresa Bean (410) 786-2287, for
information regarding the regulatory impact analysis.
Lauren Lowenstein-Turner, (410) 786-4507, for information regarding
the inpatient psychiatric facilities quality reporting program.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following
website as soon as possible after they have been received: <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the search instructions on that website to
view public comments. CMS will not post on <a href="http://Regulations.gov">Regulations.gov</a> public
comments that make threats to individuals or institutions or suggest
that the individual will take actions to harm the individual. CMS
continues to encourage individuals not to submit duplicative comments.
We will post acceptable comments from multiple unique commenters even
if the content is identical or nearly identical to other comments.

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

Addendum A to this proposed rule summarizes the FY 2024 IPF PPS
payment rates, outlier threshold, cost of living adjustment factors
(COLA) for Alaska and Hawaii, national and upper limit cost-to-charge
ratios, and adjustment factors. In addition, the B Addenda to this
proposed rule shows the complete listing of ICD-10 Clinical
Modification (CM) and Procedure Coding System (PCS) codes, the FY 2024
IPF PPS comorbidity adjustment, and electroconvulsive therapy (ECT)
procedure codes. The A and B Addenda are available online at: <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html</a>.
Tables setting forth the FY 2024 Wage Index for Urban Areas Based
on Core Based Statistical Area (CBSA) Labor Market Areas and the FY
2024 Wage Index Based on CBSA Labor Market Areas for Rural Areas are
available exclusively through the internet, on the CMS website at
<a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/IPFPPS/WageIndex.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/IPFPPS/WageIndex.html</a>.

I. Executive Summary

A. Purpose

This proposed rule would rebase and revise the market basket for
the Inpatient Psychiatric Facility Prospective Payment System (IPF PPS)
to reflect a 2021 base year, and update 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 Fiscal Year (FY) 2024, (beginning
October 1, 2023 through September 30, 2024). This rule also includes a
proposal to modify our regulations to make it easier for hospitals to
open new excluded psychiatric units paid under the IPF PPS. In
addition, this proposed rule includes a request for information to
inform revisions to the IPF PPS adjustments for FY 2025, as required by
the Consolidated Appropriations Act, 2023 (hereafter referred to as
CAA, 2023) (Pub. L. 116-260). Lastly, this proposed rule discusses
proposals on quality measures and reporting requirements under the
Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program.

B. Summary of the Major Provisions

1. Inpatient Psychiatric Facilities Prospective Payment System (IPF
PPS)
For the IPF PPS, we propose to:
<bullet> Modify the regulations to allow the status of a hospital
psychiatric unit to be changed from not excluded to excluded, and
therefore paid under the IPF PPS at any time during a cost reporting
period if certain requirements are met.
<bullet> Solicit comments to inform revisions to IPF PPS payments
for FY 2025, as required by the CAA, 2023.
<bullet> Revise and rebase the IPF market basket to reflect a 2021
base year.
<bullet> Make technical rate setting updates: The IPF PPS payment
rates would be adjusted annually for inflation, as well as statutory
and other policy factors.
This rule proposes to update:
++ The IPF PPS Federal per diem base rate from $865.63 to $892.58.

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++ The IPF PPS Federal per diem base rate for providers who failed
to report quality data to $875.25.
++ The electroconvulsive therapy (ECT) payment per treatment from
$372.67 to $384.27.
++ The ECT payment per treatment for providers who failed to report
quality data to $376.81.
++ The labor-related share from 77.4 percent to 78.5 percent.
++ The wage index budget-neutrality factor to 1.0011.
++ The fixed dollar loss threshold amount from $24,630 to $34,750
to maintain estimated outlier payments at 2 percent of total estimated
aggregate IPF PPS payments.
2. Inpatient Psychiatric Facilities Quality Reporting (IPFQR) Program
For the IPFQR Program, we propose to:
<bullet> Adopt the Facility Commitment to Health Equity measure
beginning with the FY 2026 payment determination;
<bullet> Adopt the Screening for Social Drivers of Health measure
beginning with voluntary reporting of CY 2024 data and beginning with
required reporting of CY 2025 data for the FY 2027 payment
determination;
<bullet> Adopt the Screen Positive Rate for Social Drivers of
Health measure beginning with voluntary reporting of CY 2024 data and
beginning with required reporting of CY 2025 data for the FY 2027
payment determination;
<bullet> Adopt the Psychiatric Inpatient Experience (PIX) survey to
measure patient experience of care in the IPF setting beginning with
voluntary reporting of CY 2025 data and beginning with required
reporting of CY 2026 data for the FY 2028 payment determination;
<bullet> Modify the Coronavirus disease 2019 (COVID-19) Vaccination
Coverage Among Health Care Personnel (HCP) measure to apply the Centers
for Disease Control and Prevention's (CDC's) definition of ``up-to-
date'' for COVID-19 vaccination, incorporating booster doses, beginning
with fourth quarter CY 2023 data for FY 2025 payment determination and,
following this first single-quarter reporting period, reporting for
full calendar year beginning with CY 2024 data for FY 2026 payment
determination;
<bullet> Remove the following two measures beginning with the FY
2025 payment determination and subsequent years:
++ Patients Discharged on Multiple Antipsychotic Medications with
Appropriate Justification (HBIPS-5); and
++ Tobacco Use Brief Intervention Provided or Offered and Tobacco
Use Brief Intervention Provided (TOB-2/2a) measure;
<bullet> Adopt a data validation pilot program starting with data
submitted in CY 2025 and continuing until a full data validation
program is proposed and adopted in future rulemaking; and
<bullet> Codify the IPFQR Program's procedural requirements related
to statutory authority, participation and withdrawal, data submission,
quality measure retention and removal, extraordinary circumstances
exceptions, and public reporting at 42 CFR 412.433 Procedural
requirements under the IPFQR Program.

C. Summary of Impacts

------------------------------------------------------------------------
Provision description Total transfers & cost reductions
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FY 2024 IPF PPS payment The overall economic impact of this
update. proposed rule is an estimated $55
million in increased payments to IPFs
during FY 2024.
FY 2024 IPFQR Program update. The overall economic impact of the IPFQR
Program proposals in this proposed rule
is an estimated decrease of 505,247
hours in information collection burden
resulting in a savings of $12,431,700.
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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 payment perspective 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 of an acute care hospital or of a Critical
Access Hospital (CAH), which is excluded from payment under the
Inpatient Prospective Payment System (IPPS) or CAH payment system,
respectively. 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.
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
Social Security Act (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; that was the final year
the statute required the application of this adjustment. Because FY
2021 was a RY beginning in 2020, FY 2021 was the first-year section
1886(s)(2)(A)(ii) of the Act did not apply since its enactment.
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 consider such reduction in

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computing the payment amount for a subsequent RY. In addition, section
4125 of the CAA, 2023 requires that a patients' perspective of care
quality measure be added to the IPFQR Program not later than for FY
2031. Additional information about the specifics of the current IPFQR
Program is available in the FY 2022 IPF PPS and Quality Reporting
Updates for FY Beginning October 1, 2021 final rule (86 FR 42624
through 42661).
Section 4125 of the CAA, 2023 also requires revisions to the
Medicare prospective payment system (PPS) for psychiatric hospitals and
psychiatric units. Specifically, section 4125(a) of the CAA, 2023
amends section 1886(s) of the Act by adding a new paragraph (5) that
requires the Secretary to collect data and information beginning no
later than October 1, 2023, as the Secretary determines appropriate, to
inform revisions to IPF PPS payments. In addition, the Secretary is
required to implement revisions to the methodology for determining the
payment rates under the IPF PPS for FY 2025 as the Secretary determines
appropriate.
To implement and periodically update the IPF PPS, we have published
various proposed and final rules and notices in the Federal Register.
For more information regarding these documents, see the CMS website at
<a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/index.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/index.html</a>?redirect=/InpatientPsychFacilPPS/.

B. Overview of the IPF PPS

On November 15, 2004, we published the IPF PPS final rule in the
Federal Register (69 FR 66922). The November 2004 IPF PPS final rule
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, as well as 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 has additional payment policies for outlier cases,
interrupted stays, and a per treatment payment for patients who undergo
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. In the November 2004
IPF PPS final rule (69 FR 66922), we implemented the IPF PPS using the
following update strategy:
<bullet> 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.
<bullet> Use a July 1 through June 30 annual update cycle.
<bullet> Allow the IPF PPS first update to be effective for
discharges on or after July 1, 2006 through June 30, 2007.
In developing the IPF PPS, and to ensure that the IPF PPS can
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 PPS proposed rule (68 FR 66923;
66928 through 66933) and our November 15, 2004 IPF PPS final rule (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 2004 IPF PPS 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 1st. When
proposing changes in IPF payment policy, a proposed rule would be
issued in the spring and the final rule in the summer to be effective
on October 1st. 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 July 29, 2022 in the Federal Register titled, ``Medicare Program; FY
2023 Inpatient Psychiatric Facilities Prospective Payment System--Rate
Update and Quality Reporting--Request for Information'' (87 FR 46846),
which updated the IPF PPS payment rates for FY 2023. That final rule
updated the IPF PPS Federal per diem base rates that were published in
the FY 2022 IPF PPS Rate Update final rule (86 FR 42608) in accordance
with our established policies.

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III. Provisions of the FY 2024 IPF PPS Payment Update

A. Proposed Rebasing and Revising of the Market Basket for the IPF PPS

1. Background
Originally, the input price index 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 market basket
applicable to the IPF PPS in the FY 2020 IPF PPS final rule (84 FR
38426 through 38447), where we adopted a 2016-based IPF market basket.
The 2016-based IPF market basket used Medicare cost report data for
both Medicare-participating freestanding psychiatric hospitals and
hospital-based psychiatric units. 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). For the FY 2024 IPF PPS proposed rule, we
propose to rebase and revise the IPF market basket to reflect a 2021
base year.
2. Overview of the Proposed 2021-Based IPF Market Basket
The proposed 2021-based IPF market basket is a fixed-weight,
Laspeyres-type price index. A Laspeyres price index measures the change
in price, over time, of the same mix of goods and services purchased in
the base period. Any changes in the quantity or mix of goods and
services (that is, intensity) purchased over time relative to a base
period are not measured.
The index itself is constructed in three steps. First, a base
period is selected (in this proposed rule, we propose to use 2021 as
the base period) and total base period costs are estimated for a set of
mutually exclusive and exhaustive cost categories. Each category is
calculated as a proportion of total costs. These proportions are called
cost weights. Second, each cost category is matched to an appropriate
price or wage variable, referred to as a price proxy. In nearly every
instance, these price proxies are derived from publicly available
statistical series that are published on a consistent schedule
(preferably at least on a quarterly basis). Finally, the cost weight
for each cost category is multiplied by the level of its respective
price proxy. The sum of these products (that is, the cost weights
multiplied by their price index levels) for all cost categories yields
the composite index level of the market basket in a given period.
Repeating this step for other periods produces a series of market
basket levels over time. Dividing an index level for a given period by
an index level for an earlier period produces a rate of growth in the
input price index over that timeframe.
As noted, the market basket is described as a fixed-weight index
because it represents the change in price over time of a constant mix
(quantity and intensity) of goods and services needed to provide IPF
services. The effects on total costs resulting from changes in the mix
of goods and services purchased subsequent to the base period are not
measured. For example, an IPF hiring more nurses after the base period
to accommodate the needs of patients would increase the volume of goods
and services purchased by the IPF, but would not be factored into the
price change measured by a fixed-weight IPF market basket. Only when
the index is rebased would changes in the quantity and intensity be
captured, with those changes being reflected in the cost weights.
Therefore, we rebase the market basket periodically so that the cost
weights reflect recent changes in the mix of goods and services that
IPFs purchase to furnish inpatient care between base periods.
3. Proposed Rebasing and Revising of the IPF PPS Market Basket
As discussed in the FY 2020 IPF PPS final rule (84 FR 38426 through
38447), the 2016-based IPF market basket reflects the Medicare cost
reports for both freestanding and hospital-based IPFs. Beginning with
FY 2024, we propose to rebase and revise the IPF market basket to a
2021 base year reflecting the 2021 Medicare cost report data submitted
by both freestanding and hospital-based IPFs. We provide a detailed
description of our proposed methodology used to develop the 2021-based
IPF market basket below. This proposed methodology is generally similar
to the methodology used to develop the 2016-based IPF market basket. We
solicit public comment on our proposed methodology for developing the
2021-based IPF market basket.
a. Development of Cost Categories and Weights for the Proposed 2021-
Based IPF Market Basket
(1) Use of Medicare Cost Report Data
We propose a 2021-based IPF market basket that consists of seven
major cost categories and a residual derived from the 2021 Medicare
cost reports (CMS Form 2552-10, OMB No. 0938-0050) for freestanding and
hospital-based IPFs. The seven major cost categories are Wages and
Salaries, Employee Benefits, Contract Labor, Pharmaceuticals,
Professional Liability Insurance (PLI), Home Office/Related
Organization Contract Labor, and Capital. The cost reports include
providers whose cost reporting period began on or after October 1, 2020
and before October 1, 2021. As noted previously, the current IPF market
basket is based on 2016 Medicare cost reports and therefore, reflects
the 2016 cost structure for IPFs. As described in the FY 2023 IPF PPS
final rule (87 FR 46849), we received comments on the FY 2023 IPF PPS
proposed rule (87 FR 19418 through 19419) where stakeholders expressed
concern that the proposed market basket update inadequately reflected
the input price inflation experienced by IPFs, particularly as a result
of the COVID-19 PHE. These commenters stated that the PHE, along with
inflation, has significantly driven up operating costs. Specifically,
some commenters noted changes to labor markets that led to the use of
more contract labor, a trend that we verified in analyzing the Medicare
cost reports through 2021. Therefore, we believe it is appropriate to
incorporate more recent data to reflect updated cost structures for
IPFs, and so we propose to use 2021 as the base year because we believe
that the Medicare cost reports for this year represent the most recent
complete set of Medicare cost report data available for developing the
proposed IPF market basket at the time of this rulemaking. Given the
potential impact of the PHE on the Medicare cost report data, we will
continue to monitor these data going forward and any changes to the IPF
market basket would be proposed in future rulemaking.
Similar to the Medicare cost report data used to develop the 2016-
based IPF market basket, the Medicare cost report data for 2021 show
large differences between some providers' Medicare length of stay (LOS)
and total facility LOS. Our goal has always been to measure cost
weights that are reflective

[[Page 21242]]

of case mix and practice patterns associated with providing services to
Medicare beneficiaries. Therefore, we propose to limit our selection of
Medicare cost reports used in the proposed 2021-based IPF market basket
to those facilities that had a Medicare LOS within a comparable range
of their total facility average LOS. The Medicare average LOS for
freestanding IPFs is calculated from data reported on line 14 of
Worksheet S-3, part I. The Medicare average LOS for hospital-based IPFs
is calculated from data reported on line 16 of Worksheet S-3, part I.
To derive the proposed 2021-based IPF market basket, for those IPFs
with an average facility LOS of greater than or equal to 15 days, we
propose to include IPFs where the Medicare LOS is within 50 percent
(higher or lower) of the average facility LOS. For those IPFs whose
average facility LOS is less than 15 days, we propose to include IPFs
where the Medicare LOS is within 95 percent (higher or lower) of the
facility LOS. We propose to apply this LOS edit to the data for IPFs to
exclude providers that serve a population whose LOS would indicate that
the patients served are not consistent with a LOS of a typical Medicare
patient. This is the same LOS edit applied to the 2016-based IPF market
basket.
Applying these trims to the approximate 1,370 total cost reports
(freestanding and hospital-based) resulted in roughly 1,250 IPF
Medicare cost reports with an average Medicare LOS of 13 days, average
facility LOS of 10 days, and Medicare utilization (as measured by
Medicare inpatient IPF days as a percentage of total facility days) of
16 percent. Providers excluded from the proposed 2021-based IPF market
basket (about 120 Medicare cost reports) had an average Medicare LOS of
21 days, average facility LOS of 41 days, and a Medicare utilization of
3 percent. Of those excluded, about 62 percent of these were
freestanding providers; on the other hand, freestanding providers
represent about 38 percent of all IPFs. We note that 70 percent of
those excluded from the 2016-based IPF market basket using this LOS
edit were freestanding providers.
We then propose to use the cost reports for IPFs that met this
requirement to calculate the costs for the seven major cost categories
(Wages and Salaries, Employee Benefits, Contract Labor, Professional
Liability Insurance, Pharmaceuticals, Home Office/Related Organization
Contract Labor, and Capital) for the market basket. These are the same
categories used for the 2016-based IPF market basket. Also, as
described in section III.A.3.a.(4) of this proposed rule, and as done
for the 2016-based IPF market basket, we propose to use the Medicare
cost report data to calculate the detailed capital cost weights for the
Depreciation, Interest, Lease, and Other Capital-related cost
categories. We also propose to rename the Home Office Contract Labor
cost category to the Home Office/Related Organization Contract Labor
cost category to be more consistent with the Medicare cost report
instructions.
Similar to the 2016-based IPF market basket major cost weights, for
the majority of the proposed 2021-based IPF market basket cost weights,
we propose to divide the costs for each cost category by total Medicare
allowable costs (routine, ancillary and capital)--costs that are
eligible for payment through the IPF PPS (we note that we use total
facility medical care costs as the denominator to derive both the PLI
and Home Office/Related Organization Contract Labor cost weights). We
next describe our proposed methodology for deriving the cost levels
used to derive the proposed 2021-based IPF market basket.
(a) Total Medicare Allowable Costs
For freestanding IPFs, we propose that total Medicare allowable
costs would be equal to the sum of total costs for the Medicare
allowable cost centers as reported on Worksheet B, part I, column 26,
lines 30 through 35, 50 through 76 (excluding 52 and 75), 90 through
91, and 93.
For hospital-based IPFs, we propose that total Medicare allowable
costs would be equal to the total costs for the IPF inpatient unit
after the allocation of overhead costs (Worksheet B, part I, column 26,
line 40) and a proportion of total ancillary costs reported on
Worksheet B, part I, column 26, lines 50 through 76 (excluding 52 and
75), 90 through 91, and 93.
We propose to calculate total ancillary costs attributable to the
hospital-based IPF by first deriving an ``IPF ancillary ratio'' for
each ancillary cost center. The IPF ancillary ratio is defined as the
ratio of IPF Medicare ancillary costs for the cost center (as reported
on Worksheet D-3, column 3 for hospital-based IPFs) to total Medicare
ancillary costs for the cost center (equal to the sum of Worksheet D-3,
column 3 for all relevant PPSs [that is, IPPS, IRF, IPF and skilled
nursing facility (SNF)]). For example, if hospital-based IPF Medicare
laboratory costs represent about 2 percent of the total Medicare
laboratory costs for the entire facility, then the IPF ancillary ratio
for laboratory costs would be 2 percent. We believe it is appropriate
to use only a portion of the ancillary costs in the market basket cost
weight calculations since the hospital-based IPF only utilizes a
portion of the facility's ancillary services. We believe the ratio of
reported IPF Medicare costs to reported total Medicare costs provides a
reasonable estimate of the ancillary services utilized, and costs
incurred, by the hospital-based IPF. We propose that this IPF ancillary
ratio for each cost center is also used to calculate Wages and
Salaries, and Capital costs as described below.
Then, for each ancillary cost center, we propose to multiply the
IPF ancillary ratio for the given cost center by the total facility
ancillary costs for that specific cost center (as reported on Worksheet
B, part I, column 26) to derive IPF ancillary costs. For example, the 2
percent IPF ancillary ratio for laboratory cost center would be
multiplied by the total ancillary costs for laboratory (Worksheet B,
part I, column 26, line 60). The IPF ancillary costs for each cost
center are then added to total costs for the IPF inpatient unit after
the allocation of overhead costs (Worksheet B, part I, column 26, line
40) to derive total Medicare allowable costs.
We propose to use these methods to derive levels of total Medicare
allowable costs for IPF providers. This is the same methodology used
for the 2016-based IPF market basket. We propose that these total
Medicare allowable costs for the IPF will be the denominator for the
cost weight calculations for the Wages and Salaries, Employee Benefits,
Contract Labor, Pharmaceuticals, and Capital cost weights. With this
work complete, we then set about deriving cost levels for the seven
major cost categories and then derive a residual cost weight reflecting
all other costs not classified.
(b) Wages and Salaries Costs
For freestanding IPFs, we propose to derive Wages and Salaries
costs as the sum of routine inpatient salaries (Worksheet A, column 1,
lines 30 through 35), ancillary salaries (Worksheet A, column 1, lines
50 through 76 (excluding 52 and 75), 90 through 91, and 93), and a
proportion of overhead (or general service cost centers in the Medicare
cost reports) salaries. Since overhead salary costs are attributable to
the entire IPF, we only include the proportion attributable to the
Medicare allowable cost centers. We propose to estimate the proportion
of overhead salaries that are attributed to Medicare allowable costs
centers by multiplying the ratio of Medicare allowable area salaries
(Worksheet A, column 1, lines 30 through 35, 50

[[Page 21243]]

through 76 (excluding 52 and 75), 90 through 91, and 93) to total non-
overhead salaries (Worksheet A, column 1, line 200 less Worksheet A,
column 1, lines 4 through 18) times total overhead salaries (Worksheet
A, column 1, lines 4 through 18). This is a similar methodology as used
in the 2016-based IPF market basket.
For hospital-based IPFs, we propose to derive Wages and Salaries
costs as the sum of the following salaries attributable to the
hospital-based IPF: Inpatient routine salary costs (Worksheet A, column
1, line 40); overhead salary costs; ancillary salary costs; and a
portion of overhead salary costs attributable to the ancillary
departments.
(i) Overhead Salary Costs
We propose to calculate the portion of overhead salary cost
attributable to hospital-based IPFs by first calculating an IPF
overhead salary ratio, which is equal to the ratio of total facility
overhead salaries (as reported on Worksheet A, column 1, lines 4-18) to
total facility noncapital overhead costs (as reported on Worksheet A,
column 1 and 2, lines 4-18). We then propose to multiply this IPF
overhead salary ratio by total noncapital overhead costs (sum of
Worksheet B, part I, columns 4 through 18, line 40, less Worksheet B,
part II, columns 4 through 18, line 40). This methodology assumes the
proportion of total costs related to salaries for the overhead cost
center is similar for all inpatient units (that is, acute inpatient or
inpatient psychiatric).
(ii) Ancillary Salary Costs
We propose to calculate hospital-based IPF ancillary salary costs
for a specific cost center (Worksheet A, column 1, lines 50 through 76
(excluding 52 and 75), 90 through 91, and 93) as salary costs from
Worksheet A, column 1, multiplied by the IPF ancillary ratio for each
cost center as described in section III.A.3.a.(1)(a) of this proposed
rule. The sum of these costs represents hospital-based IPF ancillary
salary costs.
(iii) Overhead Salary Costs for Ancillary Cost Centers
We propose to calculate the portion of overhead salaries
attributable to each ancillary department (lines 50 through 76
(excluding 52 and 75), 90 through 91, and 93) by first calculating
total noncapital overhead cost attributable to each specific ancillary
department (sum of Worksheet B, part I, columns 4-18, less Worksheet B,
part II, column 26). We then identify the portion of these total
noncapital overhead cost for each ancillary department that is
attributable to the hospital-based IPF by multiplying these costs by
the IPF ancillary ratio as described in section III.A.3.a.(1)(a) of
this proposed rule. We then sum these estimated IPF Medicare allowable
noncapital overhead costs for all ancillary departments (cost centers
50 through 76, 90 through 91, and 93). Finally, we then identify the
portion of these IPF Medicare allowable noncapital overhead cost that
are attributable to Wages and Salaries by multiplying these costs by
the IPF overhead salary ratio as described in section
III.A.3.a.(1)(b)(i) of this proposed rule. This is the same methodology
used to derive the 2016-based IPF market basket.
(c) Employee Benefits Costs
Effective with the implementation of CMS Form 2552-10, we began
collecting Employee Benefits and Contract Labor data on Worksheet S-3,
part V.
For the 2021 Medicare cost report data, the majority of IPF
providers did not report data on Worksheet S-3, part V. Two percent of
freestanding IPFs and roughly 48 percent of hospital-based IPFs
reported Employee Benefits data on Worksheet S-3, part V. Two percent
of freestanding IPFs and roughly 13 percent of hospital-based IPFs
reported Contract Labor data on Worksheet S-3, part V. We continue to
encourage all providers to report these data on the Medicare cost
report.
For freestanding IPFs, we propose that Employee Benefits cost would
be equal to the data reported on Worksheet S-3, part V, column 2, line
2. We note that while not required to do so, freestanding IPFs also may
report Employee Benefits data on Worksheet S-3, part II, which is
applicable to only IPPS providers. Similar to the method for the 2016-
based IPF market basket, for those freestanding IPFs that report
Worksheet S-3, part II, data, but not Worksheet S-3, part V, we propose
to use the sum of Worksheet S-3, part II, lines 17, 18, 20, and 22, to
derive Employee Benefits costs.
For hospital-based IPFs, we propose to calculate total benefit cost
as the sum of inpatient unit benefit cost, a portion of ancillary
departments benefit costs, and a portion of overhead benefits
attributable to both the routine inpatient unit and the ancillary
departments. For those hospital-based IPFs that report Worksheet S-3,
part V data, we propose inpatient unit benefit costs be equal to
Worksheet S-3, part V, column 2, line 3. Given the limited reporting on
Worksheet S-3, part V, we propose that for those hospital-based IPFs
that do not report these data, we calculate inpatient unit benefits
cost using a portion of benefits cost reported for Excluded areas on
Worksheet S-3, part II. We propose to calculate the ratio of inpatient
unit salaries (Worksheet A, column 1, line 40) to total excluded area
salaries (sum of Worksheet A, column 1, lines 20, 23, 40 through 42,
44, 45, 46, 94, 95, 98 through 101, 105 through 112, 114, 115 through
117, 190 through 194). We then propose to apply this ratio to Excluded
area benefits (Worksheet S-3, part II, column 4, line 19) to derive
inpatient unit benefits cost for those providers that do not report
benefit costs on Worksheet S-3, part V.
We propose the ancillary departments benefits and overhead benefits
(attributable to both the inpatient unit and ancillary departments)
costs are derived by first calculating the sum of hospital-based IPF
overhead salaries as described in section III.A.3.a.(1)(b)(i) of this
proposed rule, hospital-based IPF ancillary salaries as described in
section III.A.3.a.(1)(b)(ii) of this proposed rule and hospital-based
IPF overhead salaries for ancillary cost centers as described in
section III.A.3.a.(1)(b)(iii) of this proposed rule. This sum is then
multiplied by the ratio of total facility benefits to total facility
salaries, where total facility benefits is equal to the sum of
Worksheet S-3, part II, column 4, lines 17-25, and total facility
salaries is equal to Worksheet S-3, part II, column 4, line 1.
(d) Contract Labor Costs
Contract Labor costs are primarily associated with direct patient
care services. Contract labor costs for other services such as
accounting, billing, and legal are calculated separately using other
government data sources as described in section III.A.3.a.(3) of this
proposed rule. To derive contract labor costs using Worksheet S-3, part
V, data for freestanding IPFs, we propose Contract Labor costs be equal
to Worksheet S-3, part V, column 1, line 2. As we noted for Employee
Benefits, freestanding IPFs also may report Contract Labor data on
Worksheet S-3, part II, which is applicable to only IPPS providers. For
those freestanding IPFs that report Worksheet S-3, part II data, but
not Worksheet S-3, part V, we propose to use the sum of Worksheet S-3,
part II, column 4, lines 11 and 13, to derive Contract Labor costs.
For hospital-based IPFs, we propose that Contract Labor costs be
equal to Worksheet S-3, part V, column 1, line 3. Reporting of this
data continues to be somewhat limited; therefore, we continue to
encourage all providers to report these data on the Medicare cost
report. Given the limited reporting on

[[Page 21244]]

Worksheet S-3, part V, we propose that for those hospital-based IPFs
that do not report these data, we calculate Contract Labor costs using
a portion of contract labor costs reported on Worksheet S-3, part II.
We propose to calculate the ratio of contract labor costs (Worksheet S-
3, part II, column 4, lines 11 and 13) to PPS salaries (Worksheet S-3,
part II, column 4, line 1 less the sum of Worksheet S-3, part II,
column 4, lines 3, 401, 5, 6, 7, 701, 8, 9, 10 less Worksheet A, column
1, line 20 and 23). We then propose to apply this ratio to total
inpatient routine salary costs (Worksheet A, column 1, line 40) to
derive contract labor costs for those providers that do not report
contract labor costs on Worksheet S-3, part V.
(e) Pharmaceuticals Costs
For freestanding IPFs, we propose to calculate pharmaceuticals
costs using non-salary costs reported on Worksheet A, column 7, less
Worksheet A, column 1, for the pharmacy cost center (line 15) and drugs
charged to patients cost center (line 73).
For hospital-based IPFs, we propose to calculate pharmaceuticals
costs as the sum of a portion of the non-salary pharmacy costs and a
portion of the non-salary drugs charged to patient costs reported for
the total facility. We propose that non-salary pharmacy costs
attributable to the hospital-based IPF would be calculated by
multiplying total pharmacy costs attributable to the hospital-based IPF
(as reported on Worksheet B, part I, column 15, line 40) by the ratio
of total non-salary pharmacy costs (Worksheet A, column 2, line 15) to
total pharmacy costs (sum of Worksheet A, columns 1 and 2 for line 15)
for the total facility. We propose that non-salary drugs charged to
patient costs attributable to the hospital-based IPF would be
calculated by multiplying total non-salary drugs charged to patient
costs (Worksheet B, part I, column 0, line 73 plus Worksheet B, part I,
column 15, line 73 less Worksheet A, column 1, line 73) for the total
facility by the ratio of Medicare drugs charged to patient ancillary
costs for the IPF unit (as reported on Worksheet D-3 for hospital-based
IPFs, column 3, line 73) to total Medicare drugs charged to patient
ancillary costs for the total facility (equal to the sum of Worksheet
D-3, column 3, line 73 for all relevant PPS [that is, IPPS, IRF, IPF
and SNF]).
(f) Professional Liability Insurance Costs
For freestanding and hospital-based IPFs, we propose that
Professional Liability Insurance (PLI) costs (often referred to as
malpractice costs) would be equal to premiums, paid losses and self-
insurance costs reported on Worksheet S-2, columns 1 through 3, line
118--the same data used for the 2016-based IPF market basket. For
hospital-based IPFs, we propose to assume that the PLI weight for the
total facility is similar to the hospital-based IPF unit since the only
data reported on this worksheet is for the entire facility, as we
currently have no means to identify the proportion of total PLI costs
that are only attributable to the hospital-based IPF. However, when we
derive the cost weight for PLI for both hospital-based and freestanding
IPFs, we use the total facility medical care costs as the denominator
as opposed to total Medicare allowable costs. For freestanding IPFs and
hospital-based IPFs, we propose to derive total facility medical care
costs as the sum of total costs (Worksheet B, part I, column 26, line
202) less non-reimbursable costs (Worksheet B, part I, column 26, lines
190 through 201). Our assumption is that the same proportion of
expenses are used among each unit of the hospital.
(g) Home Office/Related Organization Contract Labor Costs
For hospital-based IPFs, we propose to calculate the Home Office/
Related Organization Contract Labor costs using data reported on
Worksheet S-3, part II, column 4, lines 1401, 1402, 2550, and 2551.
Similar to the PLI costs, these costs are for the entire facility.
Therefore, when we derive the cost weight for home office/related
organization contract labor costs, we use the total facility medical
care costs as the denominator (reflecting the total facility costs
(Worksheet B, part I, column 26, line 202) less the nonreimbursable
costs reported on lines 190 through 201).
(h) Capital Costs
For freestanding IPFs, we propose that capital costs would be equal
to Medicare allowable capital costs as reported on Worksheet B, part
II, column 26, lines 30 through 35, 50 through 76 (excluding 52 and
75), 90 through 91, and 93.
For hospital-based IPFs, we propose that capital costs would be
equal to IPF inpatient capital costs (as reported on Worksheet B, part
II, column 26, line 40) and a portion of IPF ancillary capital costs.
We calculate the portion of ancillary capital costs attributable to the
hospital-based IPF for a given cost center by multiplying total
facility ancillary capital costs for the specific ancillary cost center
(as reported on Worksheet B, part II, column 26) by the IPF ancillary
ratio as described in section III.A.3.a.(1)(a) of this proposed rule.
(2) Final Major Cost Category Computation
After we derive costs for each of the major cost categories and
total Medicare allowable costs for each provider using the Medicare
cost report data as previously described, we propose to address data
outliers using the following steps. First, for the Wages and Salaries,
Employee Benefits, Contract Labor, Pharmaceuticals, and Capital cost
weights, we first divide the costs for each of these five categories by
total Medicare allowable costs calculated for the provider to obtain
cost weights for the universe of IPF providers. We then propose to trim
the data to remove outliers (a standard statistical process) by: (1)
requiring that major expenses (such as Wages and Salaries costs) and
total Medicare allowable operating costs be greater than zero; and (2)
excluding the top and bottom 5 percent of the major cost weight (for
example, Wages and Salaries costs as a percent of total Medicare
allowable operating costs). We note that missing values are assumed to
be zero consistent with the methodology for how missing values were
treated in the 2016-based IPF market basket. After these outliers have
been excluded, we sum the costs for each category across all remaining
providers. We then divide this by the sum of total Medicare allowable
costs across all remaining providers to obtain a cost weight for the
proposed 2021-based IPF market basket for the given category.
The proposed trimming methodology for the Home Office/Related
Organization Contract Labor and PLI cost weights are slightly different
than the proposed trimming methodology for the other five cost
categories as described above. For these cost weights, since we are
using total facility medical care costs rather than Medicare allowable
costs associated with IPF services, we propose to trim the freestanding
and hospital-based IPF cost weights separately.
For the PLI cost weight, for each of the providers, we first divide
the PLI costs by total facility medical care costs to obtain a PLI cost
weight for the universe of IPF providers. We then propose to trim the
data to remove outliers by: (1) requiring that PLI costs are greater
than zero and are less than total facility medical care costs; and (2)
excluding the top and bottom 5 percent of the major cost weight
trimming freestanding and hospital-based providers separately. After
removing these outliers, we are left with a trimmed data set for both
freestanding

[[Page 21245]]

and hospital-based providers. We propose to separately sum the costs
for each category (freestanding and hospital-based) across all
remaining providers. We next divide this by the sum of total facility
medical care costs across all remaining providers to obtain both a
freestanding cost weight and hospital-based cost weight. Lastly, we
propose to weight these two cost weights together using the Medicare
allowable costs from the sample of freestanding and hospital-based IPFs
that passed the PLI trim (63 percent for hospital-based and 37 percent
for freestanding IPFs) to derive a PLI cost weight for the proposed
2021-based IPF market basket.
For the Home Office/Related Organization Contract Labor cost
weight, for each of the providers, we first divide the home office/
related organization contract labor costs by total facility medical
care costs to obtain a Home Office/Related Organization Contract Labor
cost weight for the universe of IPF providers. Similar to the other
market basket costs weights, we propose to trim the Home Office/Related
Organization Contract Labor cost weight to remove outliers. Since not
all hospital-based IPFs will have home office/related organization
contract labor costs (approximately 80 percent of hospital-based IPFs
report having a home office), we propose to trim the top one percent of
the Home Office/Related Organization Contract Labor cost weight. Using
this proposed methodology, we calculate a Home Office/Related
Organization Contract Labor cost weight for hospital-based IPFs of 5.1
percent.
Freestanding IPFs are not required to complete Worksheet S-3, part
II. Therefore, to estimate the Home Office/Related Organization
Contract Labor cost weight for freestanding IPFs, we propose the
following methodology:
Step 1: Using hospital-based IPFs with a home office and also
passing the 1 percent trim as described, we calculate the ratio of the
Home Office/Related Organization Contract Labor cost weight to the
Medicare allowable non-salary, non-capital cost weight (Medicare
allowable non-salary, non-capital costs as a percent of total Medicare
allowable costs).
Step 2: We identify freestanding IPFs that report a home office on
Worksheet S-2, line 140--roughly 87 percent of freestanding IPFs. We
propose to calculate a Home Office/Related Organization Contract Labor
cost weight for these freestanding IPFs by multiplying the ratio
calculated in Step 1 by the Medicare allowable non-salary, noncapital
cost weight for those freestanding IPFs with a home office.
Step 3: We then calculate the freestanding IPF cost weight by
multiplying the Home Office/Related Organization Contract Labor cost
weight in Step 2 by the total Medicare allowable costs for freestanding
IPFs with a home office as a percent of total Medicare allowable costs
for all freestanding IPFs (87 percent), which derives a freestanding
Home Office/Related Organization Contract Labor cost weight of 4.2
percent.
To calculate the overall Home Office/Related Organization Contract
Labor cost weight for the proposed 2021-based IPF market basket, we
propose to weight together the freestanding Home Office/Related
Organization Contract Labor cost weight (4.2 percent) and the hospital-
based Home Office Contract Labor/Related Organization cost weight (5.1
percent) using total Medicare allowable costs from the sample of
hospital-based IPFs that passed the one percent trim and the universe
of freestanding IPFs. The resulting overall cost weight for Home
Office/Related Organization Contract Labor is 4.7 percent (4.2 percent
x 44 percent + 5.1 percent x 56 percent). This is the same methodology
used to calculate the Home Office/Related Organization Contract Labor
cost weight in the 2016-based IPF market basket.
Finally, we propose to calculate the residual ``All Other'' cost
weight that reflects all remaining costs that are not captured in the
seven cost categories listed. See Table 1 for the resulting cost
weights for these major cost categories that we obtain from the
Medicare cost reports.

Table 1--Major Cost Categories as Derived From Medicare Cost Reports
------------------------------------------------------------------------
Proposed 2021-
Based IPF 2016-Based IPF
Major cost categories market basket market basket
(percent) (percent)
------------------------------------------------------------------------
Wages and Salaries...................... 50.4 51.2
Employee Benefits....................... 13.7 13.5
Contract Labor.......................... 2.8 1.3
Professional Liability Insurance 1.0 0.9
(Malpractice)..........................
Pharmaceuticals......................... 3.6 4.7
Home Office/Related Organization 4.7 3.5
Contract Labor.........................
Capital................................. 7.2 7.1
All Other............................... 16.7 17.9
------------------------------------------------------------------------

As we did for the 2016-based IPF market basket, we propose to
allocate the Contract Labor cost weight to the Wages and Salaries and
Employee Benefits cost weights based on their relative proportions
under the assumption that contract labor costs are comprised of both
wages and salaries, and employee benefits. The Contract Labor
allocation proportion for Wages and Salaries is equal to the Wages and
Salaries cost weight as a percent of the sum of the Wages and Salaries
cost weight and the Employee Benefits cost weight. For this proposed
rule, this rounded percentage is 79 percent; therefore, we propose to
allocate 79 percent of the Contract Labor cost weight to the Wages and
Salaries cost weight and 21 percent to the Employee Benefits cost
weight. This allocation was 81/19 in the 2016-based IPF market basket
(84 FR 38430). Table 2 shows the Wages and Salaries and Employee
Benefit cost weights after Contract Labor cost weight allocation for
both the proposed 2021-based IPF market basket and 2016-based IPF
market basket.

[[Page 21246]]

Table 2--Wages and Salaries and Employee Benefits Cost Weights After
Contract Labor Allocation
------------------------------------------------------------------------
Proposed 2021-
Major cost categories Based IPF 2016-Based IPF
market basket market basket
------------------------------------------------------------------------
Wages and Salaries...................... 52.6 52.2
Employee Benefits....................... 14.3 13.8
------------------------------------------------------------------------

(3) Derivation of the Detailed Operating Cost Weights
To further divide the ``All Other'' residual cost weight estimated
from the 2021 Medicare cost report data into more detailed cost
categories, we propose to use the 2012 Benchmark Input-Output (I-O)
``Use Tables/Before Redefinitions/Purchaser Value'' for North American
Industry Classification System (NAICS) 622000, Hospitals, published by
the Bureau of Economic Analysis (BEA). This data is publicly available
at <a href="http://www.bea.gov/industry/io_annual.htmhttp://www.bea.gov/industry/io_annual.htm">http://www.bea.gov/industry/io_annual.htmhttp://www.bea.gov/industry/io_annual.htm</a>. For the 2016-based IPF market basket, we also
used the 2012 Benchmark I-O data, the most recent data available at the
time (84 FR 38431).
The BEA Benchmark I-O data are scheduled for publication every 5
years with the most recent data available for 2012. The 2012 Benchmark
I-O data are derived from the 2012 Economic Census and are the building
blocks for BEA's economic accounts. Thus, they represent the most
comprehensive and complete set of data on the economic processes or
mechanisms by which output is produced and distributed.\1\ BEA also
produces Annual I-O estimates; however, while based on a similar
methodology, these estimates reflect less comprehensive and less
detailed data sources and are subject to revision when benchmark data
becomes available. Instead of using the less detailed Annual I-O data,
we propose to inflate the 2012 Benchmark I-O data forward to 2021 by
applying the annual price changes from the respective price proxies to
the appropriate market basket cost categories that are obtained from
the 2012 Benchmark I-O data. We repeat this practice for each year. We
then propose to calculate the cost shares that each cost category
represents of the inflated 2012 data. These resulting 2021 cost shares
are applied to the All Other residual cost weight to obtain the
detailed cost weights for the proposed 2021-based IPF market basket.
For example, the cost for Food: Direct Purchases represents 5.0 percent
of the sum of the ``All Other'' 2012 Benchmark I-O Hospital
Expenditures inflated to 2021; therefore, the Food: Direct Purchases
cost weight represents 5.0 percent of the proposed 2021-based IPF
market basket's ``All Other'' cost category (16.7 percent), yielding a
``final'' Food: Direct Purchases cost weight of 0.8 percent in the
proposed 2021-based IPF market basket (0.05 * 16.7 percent = 0.8
percent).
---------------------------------------------------------------------------

\1\ <a href="http://www.bea.gov/papers/pdf/IOmanual_092906.pdf">http://www.bea.gov/papers/pdf/IOmanual_092906.pdf</a>.
---------------------------------------------------------------------------

Using this methodology, we propose to derive seventeen detailed IPF
market basket cost category weights from the proposed 2021-based IPF
market basket residual cost weight (16.7 percent). These categories
are: (1) Electricity and Other Non-Fuel Utilities; (2) Fuel: Oil and
Gas; (3) Food: Direct Purchases; (4) Food: Contract Services; (5)
Chemicals; (6) Medical Instruments; (7) Rubber and Plastics; (8) Paper
and Printing Products; (9) Miscellaneous Products; (10) Professional
Fees: Labor-related; (11) Administrative and Facilities Support
Services; (12) Installation, Maintenance, and Repair Services; (13) All
Other Labor-related Services; (14) Professional Fees: Nonlabor-related;
(15) Financial Services; (16) Telephone Services; and (17) All Other
Nonlabor-related Services.
(4) Derivation of the Detailed Capital Cost Weights
As described in section III.A.3.a.(2) of this proposed rule, we
propose a Capital-Related cost weight of 7.2 percent as obtained from
the 2021 Medicare cost reports for freestanding and hospital-based IPF
providers. We propose to then separate this total Capital-Related cost
weight into more detailed cost categories.
Using 2021 Medicare cost reports, we are able to group Capital-
Related costs into the following categories: Depreciation, Interest,
Lease, and Other Capital-Related costs. For each of these categories,
we propose to determine separately for hospital-based IPFs and
freestanding IPFs what proportion of total capital-related costs the
category represents.
For freestanding IPFs, using Medicare Cost Report data on Worksheet
A-7 part III, we propose to derive the proportions for Depreciation
(column 9), Interest (column 11), Lease (column 10), and Other Capital-
related costs (column 12 through 14), which is similar to the
methodology used for the 2016-based IPF market basket.
For hospital-based IPFs, data for these four categories are not
reported separately for the hospital-based IPF; therefore, we propose
to derive these proportions using data reported on Worksheet A-7 for
the total facility. We are assuming the cost shares for the overall
hospital are representative for the hospital-based IPF unit. For
example, if depreciation costs make up 60 percent of total capital
costs for the entire facility, we believe it is reasonable to assume
that the hospital-based IPF would also have a 60 percent proportion
because it is a unit contained within the total facility. This is the
same methodology used for the 2016-based IPF market basket (84 FR
38431).
To combine each detailed capital cost weight for freestanding and
hospital-based IPFs into a single capital cost weight for the proposed
2021-based IPF market basket, we propose to weight together the shares
for each of the categories (Depreciation, Interest, Lease, and Other
Capital-related costs) based on the share of total capital costs each
provider type represents of the total capital costs for all IPFs for
2021. Applying this methodology results in proportions of total
capital-related costs for Depreciation, Interest, Lease and Other
Capital-related costs that are representative of the universe of IPF
providers. This is the same methodology used for the 2016-based IPF
market basket (84 FR 38432).
Lease costs are unique in that they are not broken out as a
separate cost category in the proposed 2021-based IPF market basket.
Rather, we propose to proportionally distribute these costs among the
cost categories of Depreciation, Interest, and Other Capital-Related
costs, reflecting the assumption that the underlying cost structure of
leases is similar to that of capital-related costs in general. As was
done under the 2016-based IPF market basket, we propose to assume that
10 percent of the lease costs as a proportion of total capital-related
costs represents overhead and assign those costs to the

[[Page 21247]]

Other Capital-Related cost category accordingly. We propose to
distribute the remaining lease costs proportionally across the three
cost categories (Depreciation, Interest, and Other Capital-Related)
based on the proportion that these categories comprise of the sum of
the Depreciation, Interest, and Other Capital-related cost categories
(excluding lease expenses). This would result in three primary capital-
related cost categories in the proposed 2021-based IPF market basket:
Depreciation, Interest, and Other Capital-Related costs. This is the
same methodology used for the 2016-based IPF market basket (84 FR
38432). The allocation of these lease expenses is shown in Table 3.
Finally, we propose to further divide the Depreciation and Interest
cost categories. We propose to separate Depreciation into the following
two categories: (1) Building and Fixed Equipment; and (2) Movable
Equipment. We propose to separate Interest into the following two
categories: (1) Government/Nonprofit; and (2) For-profit.
To disaggregate the Depreciation cost weight, we need to determine
the percent of total Depreciation costs for IPFs that is attributable
to Building and Fixed Equipment, which we hereafter refer to as the
``fixed percentage.'' For the proposed 2021-based IPF market basket, we
propose to use slightly different methods to obtain the fixed
percentages for hospital-based IPFs compared to freestanding IPFs.
For freestanding IPFs, we propose to use depreciation data from
Worksheet A-7 of the 2021 Medicare cost reports. However, for hospital-
based IPFs, we determined that the fixed percentage for the entire
facility may not be representative of the hospital-based IPF unit due
to the entire facility likely employing more sophisticated movable
assets that are not utilized by the hospital-based IPF. Therefore, for
hospital-based IPFs, we propose to calculate a fixed percentage using:
(1) building and fixture capital costs allocated to the hospital-based
IPF unit as reported on Worksheet B, part I, column 1, line 40; and (2)
building and fixture capital costs for the top five ancillary cost
centers utilized by hospital-based IPFs accounting for 82 percent of
hospital-based IPF ancillary total costs: Clinic (Worksheet B, part I,
column 1, line 90), Drugs Charged to Patients (Worksheet B, part I,
column 1, line 73), Emergency (Worksheet B, part I, column 1, line 91),
Laboratory (Worksheet B, part I, column 1, line 60) and Radiology--
Diagnostic (Worksheet B, part I, column 1, line 54). We propose to
weight these two fixed percentages (inpatient and ancillary) using the
proportion that each capital cost type represents of total capital
costs in the proposed 2021-based IPF market basket. We propose to then
weight the fixed percentages for hospital-based and freestanding IPFs
together using the proportion of total capital costs each provider type
represents. For both freestanding and hospital-based IPFs, this is the
same methodology used for the 2016-based IPF market basket (84 FR
38432).
To disaggregate the Interest cost weight, we determined the percent
of total interest costs for IPFs that are attributable to government
and nonprofit facilities, which is hereafter referred to as the
``nonprofit percentage,'' as price pressures associated with these
types of interest costs tend to differ from those for for-profit
facilities. For the 2021-based IPF market basket, we propose to use
interest costs data from Worksheet A-7 of the 2021 Medicare cost
reports for both freestanding and hospital-based IPFs. We propose to
determine the percent of total interest costs that are attributed to
government and nonprofit IPFs separately for hospital-based and
freestanding IPFs. We then propose to weight the nonprofit percentages
for hospital-based and freestanding IPFs together using the proportion
of total capital costs that each provider type represents.
Table 3 provides the proposed detailed capital cost share
composition estimated from the 2021 IPF Medicare cost reports. These
detailed capital cost share composition percentages are applied to the
total Capital-Related cost weight of 7.2 percent explained in detail in
sections III.A.3.a.(1)(h) and III.A.3.a.(2) of this proposed rule.

Table 3--Capital Cost Share Composition for the Proposed 2021-Based IPF
Market Basket
------------------------------------------------------------------------
Capital cost Capital cost
share share
composition composition
before lease after lease
expense expense
allocation allocation
(percent) (percent)
------------------------------------------------------------------------
Depreciation............................ 55 68
Building and Fixed Equipment........ 40 48
Movable Equipment................... 16 19
Interest................................ 17 21
Government/Nonprofit................ 11 13
For Profit.......................... 6 7
Lease................................... 20 ..............
Other Capital-related costs............. 8 12
------------------------------------------------------------------------
* Detail may not add to total due to rounding.

(5) Proposed 2021-Based IPF Market Basket Cost Categories and Weights
Table 4 compares the cost categories and weights for the proposed
2021-based IPF market basket compared to the 2016-based IPF market
basket.

[[Page 21248]]

Table 4--Proposed 2021-Based IPF Market Basket Cost Weights Compared to
2016-Based IPF Market Basket Cost Weights
------------------------------------------------------------------------
Proposed 2021-
based IPF 2016-based IPF
Cost category market basket market basket
cost weight cost weight
------------------------------------------------------------------------
Total................................... 100.0 100.0
Compensation.......................... 66.9 66.0
Wages and Salaries.............. 52.6 52.2
Employee Benefits............... 14.3 13.8
Utilities............................. 1.2 1.1
Electricity and Other Non-Fuel 0.7 0.8
Utilities......................
Fuel: Oil and Gas............... 0.4 0.3
Professional Liability Insurance...... 1.0 0.9
All Other Products and Services....... 23.8 24.9
All Other Products.................. 9.1 10.7
Pharmaceuticals................. 3.6 4.7
Food: Direct Purchases.......... 0.8 0.9
Food: Contract Services......... 1.0 1.0
Chemicals....................... 0.3 0.3
Medical Instruments............. 2.0 2.3
Rubber and Plastics............. 0.3 0.3
Paper and Printing Products..... 0.5 0.5
Miscellaneous Products.......... 0.6 0.7
All Other Services.................. 14.7 14.2
Labor-Related Services............ 7.9 7.7
Professional Fees: Labor-related 4.7 4.4
Administrative and Facilities 0.6 0.6
Support Services...............
Installation, Maintenance, and 1.2 1.3
Repair Services................
All Other: Labor-related 1.4 1.4
Services.......................
Nonlabor-Related Services......... 6.8 6.5
Professional Fees: Nonlabor- 4.9 4.5
related........................
Financial Services.............. 0.7 0.8
Telephone Services.............. 0.2 0.3
All Other: Nonlabor-related 0.9 1.0
Services.......................
Capital-Related Costs................. 7.2 7.1
Depreciation........................ 4.9 5.3
Building and Fixed Equipment.... 3.5 3.7
Movable Equipment............... 1.4 1.5
Interest Costs...................... 1.5 1.2
Government/Nonprofit............ 1.0 0.9
For Profit...................... 0.5 0.3
Other Capital-Related Costs......... 0.8 0.7
------------------------------------------------------------------------
* Detail may not add to total due to rounding.

b. Selection of Price Proxies
After developing the cost weights for the proposed 2021-based IPF
market basket, we select the most appropriate wage and price proxies
currently available to represent the rate of price change for each
expenditure category. For the majority of the cost weights, we base the
price proxies on Bureau of Labor Statistics (BLS) data and grouped them
into one of the following BLS categories:
<bullet> Employment Cost Indexes (ECIs): measure the rate of change
in employment wage rates and employer costs for employee benefits per
hour worked. These indexes are fixed-weight indexes and strictly
measure the change in wage rates and employee benefits per hour. ECIs
are superior to Average Hourly Earnings (AHE) as price proxies for
input price indexes because they are not affected by shifts in
occupation or industry mix, and because they measure pure price change
and are available by both occupational group and by industry. The
industry ECIs are based on the NAICS and the occupational ECIs are
based on the Standard Occupational Classification System (SOC).
<bullet> Producer Price Indexes (PPI): measure the average change
over time in the selling prices received by domestic producers for
their output. The prices included in the PPI are from the first
commercial transaction for many products and some services (<a href="https://www.bls.gov/ppi/">https://www.bls.gov/ppi/</a>).
<bullet> Consumer Price Indexes (CPIs): measure the average change
over time in the prices paid by urban consumers for a market basket of
consumer goods and services (<a href="https://www.bls.gov/cpi/">https://www.bls.gov/cpi/</a>). CPIs are only
used when the purchases are similar to those of retail consumers rather
than purchases at the wholesale level, or if no appropriate PPIs are
available.
We evaluated the price proxies using the criteria of reliability,
timeliness, availability, and relevance:
<bullet> Reliability: indicates that the index is based on valid
statistical methods and has low sampling variability. Widely accepted
statistical methods ensure that the data were collected and aggregated
in a way that can be replicated. Low sampling variability is desirable
because it indicates that the sample reflects the typical members of
the population. (Sampling variability is variation that occurs by
chance because only a sample was surveyed rather than the entire
population.)
<bullet> Timeliness: implies that the proxy is published regularly,
preferably at least once a quarter. The market baskets are updated
quarterly and, therefore, it is important for the underlying price
proxies to be up-to-date, reflecting the

[[Page 21249]]

most recent data available. We believe that using proxies that are
published regularly (at least quarterly, whenever possible) helps to
ensure that we are using the most recent data available to update the
market basket. We strive to use publications that are disseminated
frequently, because we believe that this is an optimal way to stay
abreast of the most current data available.
<bullet> Availability: means that the proxy is publicly available.
We prefer that our proxies are publicly available because this will
help ensure that our market basket updates are as transparent to the
public as possible. In addition, this enables the public to be able to
obtain the price proxy data on a regular basis.
<bullet> Relevance: means that the proxy is applicable and
representative of the cost category weight to which it is applied. The
CPIs, PPIs, and ECIs that we selected to propose in this regulation
meet these criteria. Therefore, we believe that they continue to be the
best measure of price changes for the cost categories to which they
would be applied.
Table 13 lists all price proxies that we propose to use for the
2021-based IPF market basket. A detailed explanation of the price
proxies we propose for each cost category weight is provided below.
(1) Price Proxies for the Operating Portion of the Proposed 2021-Based
IPF Market Basket
(a) Wages and Salaries
There is not a published wage proxy that we believe represents the
occupational distribution of workers in IPFs. To measure wage price
growth in the proposed 2021-based IPF market basket, we propose to
apply a proxy blend based on six occupational subcategories within the
Wages and Salaries category, which would reflect the IPF occupational
mix, as was done for the 2016-based IPF market basket.
We propose to use the National Industry-Specific Occupational
Employment and Wage estimates for NAICS 622200, Psychiatric & Substance
Abuse Hospitals, published by the BLS Occupational Employment and Wage
Statistics (OEWS) program, as the data source for the wage cost shares
in the wage proxy blend. We note that in the spring of 2021, the
Occupational Employment Statistics (OES) program began using the name
Occupational Employment and Wage Statistics (OEWS) to better reflect
the range of data available from the program. Data released on or after
March 31, 2021 reflect the new program name. We propose to use May 2021
OEWS data. Detailed information on the methodology for the national
industry-specific occupational employment and wage estimates survey can
be found at <a href="http://www.bls.gov/oes/current/oes_tec.htm">http://www.bls.gov/oes/current/oes_tec.htm</a>. For the 2016-
based IPF market basket, we used May 2016 OES data.
Based on the OEWS data, there are six wage subcategories:
Management; NonHealth Professional and Technical; Health Professional
and Technical; Health Service; NonHealth Service; and Clerical. Table 5
lists the 2021 occupational assignments for the six wage subcategories;
these are the same occupational groups used in the 2016-based IPF
market basket.

Table 5--2021 Occupational Assignments for IPF Wage Blend
[2021 Occupational Groupings]
------------------------------------------------------------------------
Group 1 Management
------------------------------------------------------------------------
11-0000.................. Management Occupations.
------------------------------------------------------------------------
Group 2 NonHealth Professional & Technical
------------------------------------------------------------------------
13-0000.................. Business and Financial Operations
Occupations.
15-0000.................. Computer and Mathematical Occupations.
19-0000.................. Life, Physical, and Social Science
Occupations.
23-0000.................. Legal Occupations.
25-0000.................. Educational Instruction and Library
Occupations.
27-0000.................. Arts, Design, Entertainment, Sports, and
Media Occupations.
------------------------------------------------------------------------
Group 3 Health Professional & Technical
------------------------------------------------------------------------
29-1021.................. Dentists, General.
29-1031.................. Dietitians and Nutritionists.
29-1051.................. Pharmacists.
29-1071.................. Physician Assistants.
29-1122.................. Occupational Therapists.
29-1123.................. Physical Therapists.
29-1125.................. Recreational Therapists.
29-1126.................. Respiratory Therapists.
29-1127.................. Speech-Language Pathologists.
29-1129.................. Therapists, All Other.
29-1141.................. Registered Nurses.
29-1171.................. Nurse Practitioners.
29-1215.................. Family Medicine Physicians.
29-1216.................. General Internal Medicine Physicians.
29-1223.................. Psychiatrists.
29-1229.................. Physicians, All Other.
29-1292.................. Dental Hygienists.
29-1299.................. Healthcare Diagnosing or Treating
Practitioners, All Other.
------------------------------------------------------------------------
Group 4 Health Service
------------------------------------------------------------------------
21-0000.................. Community and Social Service Occupations.
29-2010.................. Clinical Laboratory Technologists and
Technicians.
29-2034.................. Radiologic Technologists and Technicians.
29-2042.................. Emergency Medical Technicians.
29-2051.................. Dietetic Technicians.

[[Page 21250]]

29-2052.................. Pharmacy Technicians.
29-2053.................. Psychiatric Technicians.
29-2061.................. Licensed Practical and Licensed Vocational
Nurses.
29-2072.................. Medical Records Specialists.
29-2099.................. Health Technologists and Technicians, All
Other.
29-9021.................. Health Information Technologists and Medical
Registrars.
29-9099.................. Healthcare Practitioners and Technical
Workers, All Other.
31-0000.................. Healthcare Support Occupations.
------------------------------------------------------------------------
Group 5 NonHealth Service
------------------------------------------------------------------------
33-0000.................. Protective Service Occupations.
35-0000.................. Food Preparation and Serving Related
Occupations.
37-0000.................. Building and Grounds Cleaning and Maintenance
Occupations.
39-0000.................. Personal Care and Service Occupations.
41-0000.................. Sales and Related Occupations.
47-0000.................. Construction and Extraction Occupations.
49-0000.................. Installation, Maintenance, and Repair
Occupations.
51-0000.................. Production Occupations.
53-0000.................. Transportation and Material Moving
Occupations.
------------------------------------------------------------------------
Group 6 Clerical
------------------------------------------------------------------------
43-0000.................. Office and Administrative Support
Occupations.
------------------------------------------------------------------------

Total expenditures by occupation (that is, occupational assignment)
were calculated by taking the OEWS number of employees multiplied by
the OEWS annual average salary. These expenditures were aggregated
based on the six groups in Table 5. We next calculated the proportion
of each group's expenditures relative to the total expenditures of all
six groups. These proportions, listed in Table 6, represent the weights
used in the wage proxy blend. We then propose to use the published wage
proxies in Table 6 for each of the six groups (that is, wage
subcategories) as we believe these six price proxies are the most
technically appropriate indices available to measure the price growth
of the Wages and Salaries cost category. These are the same price
proxies used in the 2016-based IPF market basket (84 FR 38437).

Table 6--Proposed 2021-Based IPF Market Basket Wage Proxy Blend
--------------------------------------------------------------------------------------------------------------------------------------------------------
Proposed 2021- 2016-based
based wage wage blend
Wage subcategory blend weights weights Price proxy BLS Series ID
(percent) (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Healthcare Professional and Technical.... 36.9 34.9 ECI for Wages and Salaries for CIU1026220000000I.
All Civilian workers in
Hospitals.
Healthcare Service....................... 34.4 36.3 ECI for Wages and Salaries for CIU1026200000000I.
All Civilian workers in
Healthcare and Social Assistance.
NonHealthcare Service.................... 7.5 8.9 ECI for Wages and Salaries for CIU2020000300000I.
Private Industry workers in
Service Occupations.
NonHealthcare Professional and Technical. 7.3 7.0 ECI for Wages and Salaries for CIU2025400000000I.
Private Industry workers in
Professional, Scientific, and
Technical Services.
Management............................... 7.8 6.8 ECI for Wages and Salaries for CIU2020000110000I.
Private industry workers in
Management, Business, and
Financial.
Administrative Support and Clerical...... 6.1 6.1 ECI for Wages and Salaries for CIU2020000220000I.
Private Industry workers in
Office and Administrative
Support.
--------------------------------
Total................................ 100.0 100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

A comparison of the yearly changes from FY 2021 to FY 2024 for the
proposed 2021-based IPF wage blend and the 2016-based IPF wage blend is
shown in Table 7. The average annual growth rate is the same for both
price proxies over 2021-2024.

[[Page 21251]]

Table 7--Fiscal Year Growth in the Proposed 2021-Based IPF Wage Proxy Blend and 2016-Based IPF Wage Proxy Blend
----------------------------------------------------------------------------------------------------------------
Average
2021 2022 2023 2024 2021-2024
----------------------------------------------------------------------------------------------------------------
Proposed 2021-based IPF Wage Proxy Blend................. 3.0 5.6 5.1 3.7 4.4
2016-based IPF Wage Proxy Blend.......................... 3.1 5.6 5.2 3.7 4.4
----------------------------------------------------------------------------------------------------------------
** Source: IHS Global Inc., 4th Quarter 2022 forecast with historical data through 3rd Quarter 2022.

(b) Employee Benefits
To measure benefits price growth in the proposed 2021-based IPF
market basket, we propose to apply a benefits proxy blend based on the
same six subcategories and the same six blend weights for the wage
proxy blend. These subcategories and blend weights are listed in Table
8.
The benefit ECIs, listed in Table 8, are not publicly available.
Therefore, an ``ECIs for Total Benefits'' is calculated using publicly
available ``ECIs for Total Compensation'' for each subcategory and the
relative importance of wages within that subcategory's total
compensation. This is the same benefits ECI methodology that we
implemented in our 2016-based IPF market basket as well as used in the
IPPS, SNF, Home Health Agency (HHA), IRF, LTCH, and End-Stage Renal
Disease (ESRD) market baskets. We believe that the six price proxies
listed in Table 8 are the most technically appropriate indices to
measure the price growth of the Employee Benefits cost category in the
proposed 2021-based HHA IPF market basket.

Table 8--Proposed 2021-Based IPF Market Basket Benefits Proxy Blend and 2016-Based IPF Benefit Proxy Blend
----------------------------------------------------------------------------------------------------------------
Proposed 2021- 2016-based
based benefit benefit blend
Wage subcategory blend weight weight Price proxy
(percent) (percent)
----------------------------------------------------------------------------------------------------------------
Healthcare Professional and Technical...... 36.9 34.9 ECI for Total Benefits for All
Civilian workers in Hospitals.
Healthcare Service......................... 34.4 36.3 ECI for Total Benefits for All
Civilian workers in Healthcare and
Social Assistance.
NonHealthcare Service...................... 7.5 8.9 ECI for Total Benefits for Private
Industry workers in Service
Occupations.
NonHealthcare Professional and Technical... 7.3 7.0 ECI for Total Benefits for Private
Industry workers in Professional,
Scientific, and Technical
Services.
Management................................. 7.8 6.8 ECI for Total Benefits for Private
industry workers in Management,
Business, and Financial.
Administrative Support and Clerical........ 6.1 6.1 ECI for Total Benefits for Private
Industry workers in Office and
Administrative Support.
--------------------------------
Total.................................. 100.0 100.0 ...................................
----------------------------------------------------------------------------------------------------------------

A comparison of the yearly changes from FY 2021 to FY 2024 for the
proposed 2021-based IPF benefit proxy blend and the 2016-based IPF
benefit proxy is shown in Table 9. The average annual growth rate is
the same for both price proxies over 2021 through 2024.

Table 9--Fiscal Year Growth in the Proposed 2021-Based IPF Benefit Proxy Blend and 2016-Based IPF Benefit Proxy
Blend
----------------------------------------------------------------------------------------------------------------
Average
2021 2022 2023 2024 2021-2024
----------------------------------------------------------------------------------------------------------------
Proposed 2021-based IPF Benefit Proxy Blend.............. 2.4 4.4 4.4 3.6 3.7
2016-based IPF Benefit Proxy Blend....................... 2.4 4.4 4.4 3.6 3.7
----------------------------------------------------------------------------------------------------------------
Source: IHS Global Inc., 4th Quarter 2022 forecast with historical data through 3rd Quarter 2022.

(c) Electricity and Other Non-Fuel Utilities
We propose to use the PPI Commodity Index for Commercial Electric
Power (BLS series code WPU0542) to measure the price growth of this
cost category (which we propose to rename from Electricity to
Electricity and Other Non-Fuel Utilities). This is the same price proxy
used in the 2016-based IPF market basket (84 FR 38438).
(d) Fuel: Oil and Gas
Similar to the 2016-based IPF market basket, for the 2021-based IPF
market basket, we propose to use a blend of the PPI for Petroleum
Refineries and the PPI Commodity for Natural Gas. Our analysis of the
Bureau of Economic Analysis' 2012 Benchmark Input-Output data (use
table before redefinitions, purchaser's value for NAICS 622000

[[Page 21252]]

[Hospitals]), shows that Petroleum Refineries expenses account for
approximately 90 percent and Natural Gas expenses account for
approximately 10 percent of Hospitals' (NAICS 622000) total Fuel: Oil
and Gas expenses. Therefore, we propose to use a blend of 90 percent of
the PPI for Petroleum Refineries (BLS series code PCU324110324110) and
10 percent of the PPI Commodity Index for Natural Gas (BLS series code
WPU0531) as the price proxy for this cost category. This is the same
blend that was used for the 2016-based IPF market basket (84 FR 38438).
(e) Professional Liability Insurance
We propose to use the CMS Hospital Professional Liability Index to
measure changes in PLI premiums. To generate this index, we collect
commercial insurance premiums for a fixed level of coverage while
holding non-price factors constant (such as a change in the level of
coverage). This is the same proxy used in the 2016-based IPF market
basket (84 FR 38438).
(f) Pharmaceuticals
We propose to use the PPI for Pharmaceuticals for Human Use,
Prescription (BLS series code WPUSI07003) to measure the price growth
of this cost category. This is the same proxy used in the 2016-based
IPF market basket (84 FR 38438).
(g) Food: Direct Purchases
We propose to use the PPI for Processed Foods and Feeds (BLS series
code WPU02) to measure the price growth of this cost category. This is
the same proxy used in the 2016-based IPF market basket (84 FR 38438).
(h) Food: Contract Purchases
We propose to use the CPI for Food Away From Home (BLS series code
CUUR0000SEFV) to measure the price growth of this cost category. This
is the same proxy used in the 2016-based IPF market basket (84 FR
38438).
(i) Chemicals
Similar to the 2016-based IPF market basket, we propose to use a
four-part blended PPI as the proxy for the chemical cost category in
the proposed 2021-based IPF market basket. The proposed blend is
composed of the PPI for Industrial Gas Manufacturing, Primary Products
(BLS series code PCU325120325120P), the PPI for Other Basic Inorganic
Chemical Manufacturing (BLS series code PCU32518-32518-), the PPI for
Other Basic Organic Chemical Manufacturing (BLS series code PCU32519-
32519-), and the PPI for Other Miscellaneous Chemical Product
Manufacturing (BLS series code PCU325998325998). For the proposed 2021-
based IPF market basket, we propose to derive the weights for the PPIs
using the 2012 Benchmark I-O data.
Table 10 shows the weights for each of the four PPIs used to create
the proposed blended Chemical proxy for the proposed 2021-based IPF
market basket. This is the same blend that was used for the 2016-based
IPF market basket (84 FR 38439).

Table 10--Blended Chemical PPI Weights
------------------------------------------------------------------------
Proposed 2021-
based IPF
Name weights NAICS
(percent)
------------------------------------------------------------------------
PPI for Industrial Gas Manufacturing.... 19 325120
PPI for Other Basic Inorganic Chemical 13 325180
Manufacturing..........................
PPI for Other Basic Organic Chemical 60 325190
Manufacturing..........................
PPI for Other Miscellaneous Chemical 8 325998
Product Manufacturing..................
------------------------------------------------------------------------

(j) Medical Instruments
We propose to use a blended price proxy for the Medical Instruments
category, as shown in Table 11. The 2012 Benchmark I-O data shows the
majority of medical instruments and supply costs are for NAICS 339112--
Surgical and medical instrument manufacturing costs (approximately 56
percent) and NAICS 339113--Surgical appliance and supplies
manufacturing costs (approximately 43 percent). Therefore, we propose
to use a blend of these two price proxies. To proxy the price changes
associated with NAICS 339112, we propose to use the PPI for Surgical
and medical instruments (BLS series code WPU1562). This is the same
price proxy we used in the 2016-based IPF market basket. To proxy the
price changes associated with NAICS 339113, we propose to use a 50/50
blend of the PPI for Medical and surgical appliances and supplies (BLS
series code WPU1563) and the PPI for Miscellaneous products, Personal
safety equipment and clothing (BLS series code WPU1571). We propose to
include the latter price proxy as it would reflect personal protective
equipment including but not limited to face shields and protective
clothing. The 2012 Benchmark I-O data does not provide specific
expenses for these products; however, we recognize that this category
reflects costs faced by IPFs.

Table 11--Blended Medical Instruments PPI Weights
------------------------------------------------------------------------
Proposed 2021-
based IPF
Name weights NAICS
(percent)
------------------------------------------------------------------------
PPI--Commodity--Surgical and medical 56 339112
instruments............................
PPI--Commodity--Medical and surgical 22 ..............
appliances and supplies................
PPI--Commodity--Miscellaneous products- 22 339113
Personal safety equipment and clothing.
------------------------------------------------------------------------

(k) Rubber and Plastics
We propose to use the PPI for Rubber and Plastic Products (BLS
series code WPU07) to measure price growth of this cost category. This
is the same proxy used in the 2016-based IPF market basket (84 FR
38439).

[[Page 21253]]

(l) Paper and Printing Products
We propose to use the PPI for Converted Paper and Paperboard
Products (BLS series code WPU0915) to measure the price growth of this
cost category. This is the same proxy used in the 2016-based IPF market
basket (84 FR 38439).
(m) Miscellaneous Products
We propose to use the PPI for Finished Goods Less Food and Energy
(BLS series code WPUFD4131) to measure the price growth of this cost
category. This is the same proxy used in the 2016-based IPF market
basket (84 FR 38439).
(n) Professional Fees: Labor-Related
We propose to use the ECI for Total Compensation for Private
Industry workers in Professional and Related (BLS series code
CIU2010000120000I) to measure the price growth of this category. This
is the same proxy used in the 2016-based IPF market basket (84 FR
38439).
(o) Administrative and Facilities Support Services
We propose to use the ECI for Total Compensation for Private
Industry workers in Office and Administrative Support (BLS series code
CIU2010000220000I) to measure the price growth of this category. This
is the same proxy used in the 2016-based IPF market basket (84 FR
38439).
(p) Installation, Maintenance, and Repair Services
We propose to use the ECI for Total Compensation for Civilian
workers in Installation, Maintenance, and Repair (BLS series code
CIU1010000430000I) to measure the price growth of this cost category.
This is the same proxy used in the 2016-based IPF market basket (84 FR
38439).
(q) All Other: Labor-Related Services
We propose to use the ECI for Total Compensation for Private
Industry workers in Service Occupations (BLS series code
CIU2010000300000I) to measure the price growth of this cost category.
This is the same proxy used in the 2016-based IPF market basket (84 FR
38439).
(r) Professional Fees: Nonlabor-Related
We propose to use the ECI for Total Compensation for Private
Industry workers in Professional and Related (BLS series code
CIU2010000120000I) to measure the price growth of this category. This
is the same proxy used in the 2016-based IPF market basket (84 FR
38439).
(s) Financial Services
We propose to use the ECI for Total Compensation for Private
Industry workers in Financial Activities (BLS series code
CIU201520A000000I) to measure the price growth of this cost category.
This is the same proxy used in the 2016-based IPF market basket (84 FR
38439).
(t) Telephone Services
We propose to use the CPI for Telephone Services (BLS series code
CUUR0000SEED) to measure the price growth of this cost category. This
is the same proxy used in the 2016-based IPF market basket (84 FR
38439).
(u) All Other: Nonlabor-Related Services
We propose to use the CPI for All Items Less Food and Energy (BLS
series code CUUR0000SA0L1E) to measure the price growth of this cost
category. This is the same proxy used in the 2016-based IPF market
basket (84 FR 38439).
(2) Price Proxies for the Capital Portion of the Proposed 2021-Based
IPF Market Basket
(a) Capital Price Proxies Prior to Vintage Weighting
We propose to use the same price proxies for the capital-related
cost categories in the proposed 2021-based IPF market basket as were
used in the 2016-based IPF market basket, which are provided in Table
13 and described below. Specifically, we propose to proxy:
<bullet> Depreciation: Building and Fixed Equipment cost category
by BEA's Chained Price Index for Nonresidential Construction for
Hospitals and Special Care Facilities (BEA Table 5.4.4. Price Indexes
for Private Fixed Investment in Structures by Type).
<bullet> Depreciation: Movable Equipment cost category by the PPI
for Machinery and Equipment (BLS series code WPU11).
<bullet> Nonprofit Interest cost category by the average yield on
domestic municipal bonds (Bond Buyer 20-bond index).
<bullet> For-profit Interest cost category by the iBoxx AAA
Corporate Bond Yield index
<bullet> Other Capital-Related cost category by the CPI-U for Rent
of Primary Residence (BLS series code CUUS0000SEHA).
We believe these are the most appropriate proxies for IPF capital-
related costs that meet our selection criteria of relevance,
timeliness, availability, and reliability. We also propose to vintage
weight the capital price proxies for Depreciation and Interest to
capture the long-term consumption of capital. This vintage weighting
method is similar to the method used for the 2016-based IPF market
basket (84 FR 38440) and is described below.
(b) Vintage Weights for Price Proxies
Because capital is acquired and paid for over time, capital-related
expenses in any given year are determined by both past and present
purchases of physical and financial capital. The vintage-weighted
capital-related portion of the proposed 2021-based IPF market basket is
intended to capture the long-term consumption of capital, using vintage
weights for depreciation (physical capital) and interest (financial
capital). These vintage weights reflect the proportion of capital-
related purchases attributable to each year of the expected life of
building and fixed equipment, movable equipment, and interest. We
propose to use vintage weights to compute vintage-weighted price
changes associated with depreciation and interest expenses.
Capital-related costs are inherently complicated and are determined
by complex capital-related purchasing decisions, over time, based on
such factors as interest rates and debt financing. In addition, capital
is depreciated over time instead of being consumed in the same period
it is purchased. By accounting for the vintage nature of capital, we
are able to provide an accurate and stable annual measure of price
changes. Annual non-vintage price changes for capital are unstable due
to the volatility of interest rate changes, and therefore, do not
reflect the actual annual price changes for IPF capital-related costs.
The capital-related component of the proposed 2021-based IPF market
basket reflects the underlying stability of the capital-related
acquisition process.
The methodology used to calculate the vintage weights for the
proposed 2021-based IPF market basket is the same as that used for the
2016-based IPF market basket (84 FR 38439 through 38441) with the only
difference being the inclusion of more recent data. To calculate the
vintage weights for depreciation and interest expenses, we first need a
time series of capital-related purchases for building and fixed
equipment and movable equipment. We found no single source that
provides an appropriate time series of capital-related purchases by
hospitals for all of the above components of capital purchases. The
early Medicare cost reports did not have sufficient capital-related
data to meet this need. Data we obtained from the American Hospital
Association (AHA) do not include annual capital-

[[Page 21254]]

related purchases. However, we are able to obtain data on total
expenses back to 1963 from the AHA. Consequently, we propose to use
data from the AHA Panel Survey and the AHA Annual Survey to obtain a
time series of total expenses for hospitals. We then propose to use
data from the AHA Panel Survey supplemented with the ratio of
depreciation to total hospital expenses obtained from the Medicare cost
reports to derive a trend of annual depreciation expenses for 1963
through 2020, which is the latest year of AHA data available. We
propose to separate these depreciation expenses into annual amounts of
building and fixed equipment depreciation and movable equipment
depreciation as determined earlier. From these annual depreciation
amounts, we derive annual end-of-year book values for building and
fixed equipment and movable equipment using the expected life for each
type of asset category. While data is not available that is specific to
IPFs, we believe this information for all hospitals serves as a
reasonable alternative for the pattern of depreciation for IPFs.
To continue to calculate the vintage weights for depreciation and
interest expenses, we also need to account for the expected lives for
Building and Fixed Equipment, Movable Equipment, and Interest for the
proposed 2021-based IPF market basket. We propose to calculate the
expected lives using Medicare cost report data from freestanding and
hospital-based IPFs. The expected life of any asset can be determined
by dividing the value of the asset (excluding fully depreciated assets)
by its current year depreciation amount. This calculation yields the
estimated expected life of an asset if the rates of depreciation were
to continue at current year levels, assuming straight-line
depreciation. We propose to determine the expected life of building and
fixed equipment separately for hospital-based IPFs and freestanding
IPFs, and then weight these expected lives using the percent of total
capital costs each provider type represents. We propose to apply a
similar method for movable equipment. Using these proposed methods, we
determined the average expected life of building and fixed equipment to
be equal to 25 years, and the average expected life of movable
equipment to be equal to 12 years. For the expected life of interest,
we believe vintage weights for interest should represent the average
expected life of building and fixed equipment because, based on
previous research described in the FY 1997 IPPS final rule (61 FR
46198), the expected life of hospital debt instruments and the expected
life of buildings and fixed equipment are similar. We note that for the
2016-based IPF market basket, the expected life of building and fixed
equipment is 22 years, and the expected life of movable equipment is 11
years (84 FR 38441).
Multiplying these expected lives by the annual depreciation amounts
results in annual year-end asset costs for building and fixed equipment
and movable equipment. We then calculate a time series, beginning in
1964, of annual capital purchases by subtracting the previous year's
asset costs from the current year's asset costs.
For the building and fixed equipment and movable equipment vintage
weights, we propose to use the real annual capital-related purchase
amounts for each asset type to capture the actual amount of the
physical acquisition, net of the effect of price inflation. These real
annual capital-related purchase amounts are produced by deflating the
nominal annual purchase amount by the associated price proxy as
provided earlier in this proposed rule. For the interest vintage
weights, we propose to use the total nominal annual capital-related
purchase amounts to capture the value of the debt instrument
(including, but not limited to, mortgages and bonds). Using these
capital-related purchase time series specific to each asset type, we
propose to calculate the vintage weights for building and fixed
equipment, for movable equipment, and for interest.
The vintage weights for each asset type are deemed to represent the
average purchase pattern of the asset over its expected life (in the
case of building and fixed equipment and interest, 25 years, and in the
case of movable equipment, 12 years). For each asset type, we used the
time series of annual capital-related purchase amounts available from
2020 back to 1964. These data allow us to derive thirty-three 25-year
periods of capital-related purchases for building and fixed equipment
and interest, and forty-six 12-year periods of capital-related
purchases for movable equipment. For each 25-year period for building
and fixed equipment and interest, or 12-year period for movable
equipment, we calculate annual vintage weights by dividing the capital-
related purchase amount in any given year by the total amount of
purchases over the entire 25-year or 12-year period. This calculation
is done for each year in the 25-year or 12-year period and for each of
the periods for which we have data. We then calculate the average
vintage weight for a given year of the expected life by taking the
average of these vintage weights across the multiple periods of data.
The vintage weights for the capital-related portion of the proposed
2021-based IPF market basket and the 2016-based IPF market basket are
presented in Table 12.

Table 12--Proposed 2021-Based IPF Market Basket and 2016-Based IPF Market Basket Vintage Weights for Capital-Related Price Proxies
--------------------------------------------------------------------------------------------------------------------------------------------------------
Building and fixed equipment Movable equipment Interest
-----------------------------------------------------------------------------------------------
Year * 2021-based 25 2016-based 22 2021-based 12 2016-based 11 2021-based 25 2016-based 22
years years years years years years
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................................... 0.031 0.035 0.066 0.071 0.018 0.021
2....................................................... 0.032 0.036 0.068 0.075 0.019 0.023
3....................................................... 0.033 0.038 0.071 0.080 0.021 0.025
4....................................................... 0.034 0.038 0.076 0.085 0.023 0.026
5....................................................... 0.035 0.040 0.080 0.087 0.024 0.029
6....................................................... 0.036 0.042 0.082 0.091 0.026 0.031
7....................................................... 0.035 0.042 0.084 0.095 0.026 0.033
8....................................................... 0.036 0.041 0.088 0.099 0.028 0.033
9....................................................... 0.036 0.042 0.091 0.102 0.029 0.036
10...................................................... 0.039 0.043 0.094 0.105 0.033 0.038
11...................................................... 0.040 0.046 0.098 0.110 0.035 0.042
12...................................................... 0.040 0.047 0.101 .............. 0.037 0.045
13...................................................... 0.042 0.048 .............. .............. 0.040 0.048
14...................................................... 0.042 0.049 .............. .............. 0.042 0.052

[[Page 21255]]

15...................................................... 0.042 0.050 .............. .............. 0.044 0.055
16...................................................... 0.043 0.050 .............. .............. 0.046 0.057
17...................................................... 0.044 0.051 .............. .............. 0.049 0.060
18...................................................... 0.045 0.053 .............. .............. 0.052 0.065
19...................................................... 0.045 0.053 .............. .............. 0.054 0.068
20...................................................... 0.045 0.053 .............. .............. 0.055 0.069
21...................................................... 0.045 0.052 .............. .............. 0.057 0.070
22...................................................... 0.045 0.052 .............. .............. 0.058 0.072
23...................................................... 0.045 .............. .............. .............. 0.060 ..............
24...................................................... 0.045 .............. .............. .............. 0.061 ..............
25...................................................... 0.044 .............. .............. .............. 0.062 ..............
-----------------------------------------------------------------------------------------------
Total............................................... 1.000 1.000 1.000 1.000 1.000 1.000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Numbers may not add to total due to rounding.
* Year 25 is applied to the most recent data point when creating the vintage-weighted price proxies.

The process of creating vintage-weighted price proxies requires
applying the vintage weights to the price proxy index where the last
applied vintage weight in Table 12 is applied to the most recent data
point. We have provided on the CMS website an example of how the
vintage weighting price proxies are calculated, using example vintage
weights and example price indices. The example can be found at <a href="http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html">http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html</a> in the zip
file titled ``Weight Calculations as described in the IPPS FY 2010
Proposed Rule.''
(3) Summary of Price Proxies of the Proposed 2021-Based IPF Market
Basket
Table 13 shows both the operating and capital price proxies for the
proposed 2021-based IPF market basket.

Table 13--Price Proxies for the Proposed 2021-based IPF Market Basket
----------------------------------------------------------------------------------------------------------------
Cost description Price proxies Weight
----------------------------------------------------------------------------------------------------------------
Total.................................... ..................................................... 100.0
Compensation............................. ..................................................... 66.9
Wages and Salaries................... Blended Wages and Salaries Price Proxy............... 52.6
Employee Benefits.................... Blended Employee Benefits Price Proxy................ 14.3
Utilities................................ ..................................................... 1.2
Electricity and Other Non-Fuel PPI for Commercial Electric Power.................... 0.7
Utilities.
Fuel: Oil and Gas.................... Blend of PPIs *...................................... 0.4
Professional Liability Insurance......... ..................................................... 1.0
Malpractice.......................... CMS Hospital Professional Liability Insurance Premium 1.0
Index.
All Other Products and Services.......... ..................................................... 23.8
All Other Products....................... ..................................................... 9.1
Pharmaceuticals...................... PPI for Pharmaceuticals for Human Use, Prescription.. 3.6
Food: Direct Purchases............... PPI for Processed Foods and Feeds.................... 0.8
Food: Contract Services.............. CPI-U for Food Away From Home........................ 1.0
Chemicals............................ Blend of PPIs*....................................... 0.3
Medical Instruments.................. Blend of PPIs*....................................... 2.0
Rubber and Plastics.................. PPI for Rubber and Plastic Products.................. 0.3
Paper and Printing Products.......... PPI for Converted Paper and Paperboard Products...... 0.5
Miscellaneous Products............... PPI for Finished Goods Less Food and Energy.......... 0.6
All Other Services....................... ..................................................... 14.7
Labor-Related Services................... ..................................................... 7.9
Professional Fees: Labor-related..... ECI for Total compensation for Private industry 4.7
workers in Professional and related.
Administrative and Facilities Support ECI for Total compensation for Private industry 0.6
Services. workers in Office and administrative support.
Installation, Maintenance & Repair ECI for Total compensation for Civilian workers in 1.2
Services. Installation, maintenance, and repair.
All Other: Labor-related Services.... ECI for Total compensation for Private industry 1.4
workers in Service occupations.
Nonlabor-Related Services................ ..................................................... 6.8
Professional Fees: Nonlabor-related.. ECI for Total compensation for Private industry 4.9
workers in Professional and related.
Financial Services................... ECI for Total compensation for Private industry 0.7
workers in Financial activities.
Telephone Services................... CPI-U for Telephone Services......................... 0.2
All Other: Nonlabor-related Services. CPI-U for All Items Less Food and Energy............. 0.9
Capital-Related Costs.................... ..................................................... 7.2
Depreciation............................. ..................................................... 4.9

[[Page 21256]]

Building and Fixed Equipment......... BEA chained price index for nonresidential 3.5
construction for hospitals and special care
facilities--vintage weighted (25 years).
Movable Equipment.................... PPI for machinery and equipment--vintage weighted (12 1.4
years).
Interest Costs........................... ..................................................... 1.5
Government/Nonprofit................. Average yield on domestic municipal bonds (Bond Buyer 1.0
20 bonds)--vintage weighted (25 years).
For Profit........................... Average Yield on iBoxx AAA Corporate Bonds--vintage 0.5
weighted (25 years).
Other Capital-Related Costs.............. CPI-U for Rent of primary residence.................. 0.8
----------------------------------------------------------------------------------------------------------------
Note: Totals may not sum to 100.0 percent due to rounding.
* Details on the series and weight for each price proxy used in the PPI blends is provided in section III.A.3.b.

We invite public comment on our proposal to rebase and revise the
IPF market basket to reflect a 2021 base year.
4. Proposed FY 2024 Market Basket Update and Productivity Adjustment
a. Proposed FY 2024 Market Basket Update
For FY 2024 (that is, beginning October 1, 2023 and ending
September 30, 2024), we propose to use an estimate of the proposed
2021-based IPF market basket increase factor to update the IPF PPS base
payment rate. Consistent with historical practice, we estimate the
market basket update for the IPF PPS based on IHS Global Inc.'s (IGI)
forecast. IGI is a nationally recognized economic and financial
forecasting firm with which CMS contracts to forecast the components of
the market baskets.
Using IGI's fourth quarter 2022 forecast with historical data
through the third quarter of 2022, the projected proposed 2021-based
IPF market basket increase factor for FY 2024 is 3.2 percent. We
propose that if more recent data are subsequently available (for
example, a more recent estimate of the market basket increase factor)
we would use such data, to determine the FY 2024 update in the final
rule. For comparison, the current 2016-based IPF market basket is also
projected to increase by 3.2 percent in FY 2024 based on IGI's fourth
quarter 2022 forecast. Table 14 compares the proposed 2021-based IPF
market basket and the 2016-based IPF market basket percent changes.

Table 14--Proposed 2021-Based IPF Market Basket and 2016-Based IPF Market Basket Percent Changes, FY 2019
Through FY 2026
----------------------------------------------------------------------------------------------------------------
Proposed 2021-based IPF 2016-based IPF market
Fiscal year (FY) market basket index basket index percent
percent change change
----------------------------------------------------------------------------------------------------------------
Historical data:
FY 2019................................................... 2.4 2.5
FY 2020................................................... 2.1 2.2
FY 2021................................................... 2.8 2.9
FY 2022................................................... 5.3 5.3
-------------------------------------------------
Average 2019-2022................................... 3.2 3.2
-------------------------------------------------
Forecast:
----------------------------------------------------------------------------------------------------------------
FY 2023................................................... 4.6 4.6
FY 2024................................................... 3.2 3.2
FY 2025................................................... 2.8 2.8
FY 2026................................................... 2.7 2.8
-------------------------------------------------
Average 2023-2026................................... 3.3 3.4
----------------------------------------------------------------------------------------------------------------
Note: These market basket percent changes do not include any further adjustments as may be statutorily required.
Source: IHS Global Inc. 4th quarter 2022 forecast.

b. Proposed Productivity Adjustment
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 (that is, a RY that
coincides with a FY) and each subsequent RY. The statute defines the
productivity adjustment to be equal to the 10-year moving average of
changes in annual economy-wide, private nonfarm business multifactor
productivity (as projected by the Secretary for the 10-year period
ending with the applicable FY, year, cost reporting period, or other
annual period) (the ``productivity adjustment''). The United States
Department of Labor's Bureau of Labor Statistics (BLS) publishes the
official measures of productivity for the United States economy. We
note that previously the productivity measure referenced in section
1886(b)(3)(B)(xi)(II) of the Act, was published by BLS as private
nonfarm business multifactor productivity. Beginning with the November
18, 2021 release of productivity data, BLS replaced the term
multifactor productivity (MFP) with total factor productivity (TFP).
BLS noted that this is a change in terminology only and will not affect
the data or methodology. As a result of the BLS name change, the
productivity measure referenced in section 1886(b)(3)(B)(xi)(II) of the
Act is now published by BLS as private nonfarm business total factor
productivity. However, as mentioned above, the data and methods are

[[Page 21257]]

unchanged. We refer readers to <a href="http://www.bls.gov">www.bls.gov</a> for the BLS historical
published TFP data. A complete description of IGI's TFP projection
methodology is available on the CMS website at <a href="https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/marketbasketresearch">https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/medicareprogramratesstats/marketbasketresearch</a>. In addition, in the FY
2022 IPF final rule (86 FR 42611), we noted that effective with FY 2022
and forward, CMS changed the name of this adjustment to refer to it as
the productivity adjustment rather than the MFP adjustment.
Using IGI's fourth quarter 2022 forecast, the 10-year moving
average growth of TFP for FY 2024 is projected to be 0.2 percent. Thus,
in accordance with section 1886(s)(2)(A)(i) of the Act, we propose to
calculate the FY 2024 market basket update, which is used to determine
the applicable percentage increase for the IPF payments, using IGI's
fourth quarter 2022 forecast of the proposed 2021-based IPF market
basket. We proposed to then reduce this percentage increase by the
estimated productivity adjustment for FY 2024 of 0.2 percentage point
(the 10-year moving average growth of TFP for the period ending FY 2024
based on IGI's fourth quarter 2022 forecast). Therefore, the proposed
FY 2024 IPF update is equal to 3.0 percent (3.2 percent market basket
update reduced by the 0.2 percentage point productivity adjustment).
Furthermore, we propose that if more recent data become available after
the publication of the proposed rule and before the publication of the
final rule (for example, a more recent estimate of the market basket
increase factor and/or productivity adjustment), we would use such
data, if appropriate, to determine the FY 2024 market basket update and
productivity adjustment in the final rule.
We invite public comment on our proposals for the FY 2024 market
basket update and productivity adjustment.
5. Proposed Labor-Related Share for FY 2024
Due to variations in geographic wage levels and other labor-related
costs, we believe that payment rates under the IPF PPS should continue
to be adjusted by a geographic wage index, which would 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 propose to continue to classify a cost category as labor-
related if the costs are labor intensive and vary with the local labor
market.
We propose to include in the labor-related share the sum of the
relative importance of the following cost categories: Wages and
Salaries, Employee Benefits, Professional Fees: Labor-related,
Administrative and Facilities Support Services, Installation,
Maintenance, and Repair Services, All Other: Labor-related Services,
and a portion of the Capital-Related cost weight from the proposed
2021-based IPF market basket. These are the same categories as the
2016-based IPF market basket.
Similar to the 2016-based IPF market basket, the proposed 2021-
based IPF market basket includes two cost categories for nonmedical
Professional fees (including but not limited to, expenses for legal,
accounting, and engineering services). These are Professional Fees:
Labor-related and Professional Fees: Nonlabor-related. For the proposed
2021-based IPF market basket, we propose to estimate the labor-related
percentage of non-medical professional fees (and assign these expenses
to the Professional Fees: Labor-related services cost category) based
on the same method that was used to determine the labor-related
percentage of professional fees in the 2016-based IPF market basket.
As was done in the 2016-based IPF market basket, we propose to
determine the proportion of legal, accounting and auditing,
engineering, and management consulting services that meet our
definition of labor-related services based on a survey of hospitals
conducted by CMS in 2008. We notified the public of our intent to
conduct this survey on December 9, 2005 (70 FR 73250) and did not
receive any public comments in response to the notice (71 FR 8588). A
discussion of the composition of the survey and post-stratification can
be found in the FY 2010 IPPS/LTCH PPS final rule (74 FR 43850 through
43856). Based on the weighted results of the survey, we determined that
hospitals purchase, on average, the following portions of contracted
professional services outside of their local labor market:
<bullet> 34 percent of accounting and auditing services.
<bullet> 30 percent of engineering services.
<bullet> 33 percent of legal services.
<bullet> 42 percent of management consulting services.
We propose to apply each of these percentages to the respective
2012 Benchmark I-O cost category underlying the professional fees cost
category to determine the Professional Fees: Nonlabor-related costs.
The Professional Fees: Labor-related costs were determined to be the
difference between the total costs for each Benchmark I-O category and
the Professional Fees: Nonlabor-related costs. This is the same
methodology that we used to separate the 2016-based IPF market basket
professional fees category into Professional Fees: Labor-related and
Professional Fees: Nonlabor-related cost categories (84 FR 38445).
Effective for transmittal 18, (<a href="https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Transmittals/r18p240i">https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Transmittals/r18p240i</a>) the hospital
Medicare cost report (CMS Form 2552-10, OMB No. 0938-0050) is
collecting information on whether a hospital purchased professional
services (for example, legal, accounting, tax preparation, bookkeeping,
payroll, advertising, and/or management/consulting services) from an
unrelated organization and if the majority of these expenses were
purchased from unrelated organizations located outside of the main
hospital's local area labor market. We encourage all providers to
provide this information so we can potentially use these data in future
rulemaking to determine the labor-related share.
In the proposed 2021-based IPF market basket, nonmedical
professional fees that were subject to allocation based on these survey
results represent 3.3 percent of total costs (and are limited to those
fees related to Accounting & Auditing, Legal, Engineering, and
Management Consulting services). Based on our survey results, we
proposed to apportion 2.1 percentage points of the 3.3 percentage point
figure into the Professional Fees: Labor-related share cost category
and designate the remaining 1.2 percentage point into the Professional
Fees: Nonlabor-related cost category.
In addition to the professional services listed, for the proposed
2021-based IPF market basket, we propose to allocate a proportion of
the Home Office/Related Organization Contract Labor cost weight,
calculated using the Medicare cost reports, into the Professional Fees:
Labor-related and Professional Fees: Nonlabor-related cost categories.
We propose to classify these expenses as labor-related and nonlabor-
related as many facilities are not located in the same geographic area
as their home office and, therefore, do not meet our definition for the
labor-related share that requires the services to be purchased in the
local labor market.
Similar to the 2016-based IPF market basket, we propose for the
2021-based

[[Page 21258]]

IPF market basket to use the Medicare cost reports for both
freestanding IPF providers and hospital-based IPF providers to
determine the home office labor-related percentages. The Medicare cost
report requires a hospital to report information regarding their home
office provider. Using information on the Medicare cost report, we then
compare the location of the IPF with the location of the IPF's home
office. We propose to classify an IPF with a home office located in
their respective labor market if the IPF and its home office are
located in the same metropolitan statistical area (MSA). We then
determine the proportion of the Home Office/Related Organization
Contract Labor cost weight that should be allocated to the labor-
related share based on the percent of total Medicare allowable costs
for those IPFs that had home offices located in their respective local
labor markets of total Medicare allowable costs for IPFs with a home
office. We determined an IPF's and its home office's MSA using their
zip code information from the Medicare cost report. Using this
methodology, we determined that 46 percent of IPFs' Medicare allowable
costs were for home offices located in their respective local labor
markets. Therefore, we are allocating 46 percent of the Home Office/
Related Organization Contract Labor cost weight (2.1 percentage points
= 4.7 percent times 46 percent) to the Professional Fees: Labor-related
cost weight and 54 percent of the Home Office/Related Organization
Contract Labor cost weight to the Professional Fees: Nonlabor-related
cost weight (2.5 percentage points = 4.7 percent times 54 percent). The
same methodology was used for the 2016-based IPF market basket (84 FR
38445).
In summary, we apportioned 2.1 percentage points of the non-medical
professional fees and 2.1 percentage points of the Home Office/Related
Organization Contract Labor cost weight into the Professional Fees:
Labor-Related cost category. This amount was added to the portion of
professional fees that we already identified as labor-related using the
I-O data such as contracted advertising and marketing costs
(approximately 0.5 percentage point of total costs) resulting in a
Professional Fees: Labor-Related cost weight of 4.7 percent.
As stated, we propose 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 Services, All Other:
Labor-related Services, and a portion of the Capital-Related cost
weight from the proposed 2021-based IPF market basket. The relative
importance reflects the different rates of price change for these cost
categories between the base year (2021) and FY 2024. Based on IHS
Global Inc. 4th quarter 2022 forecast of the proposed 2021-based IPF
market basket, the sum of the FY 2024 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
75.4 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 2016-based IPF market basket. Since the
relative importance for Capital is 6.8 percent of the proposed 2021-
based IPF market basket in FY 2024, we took 46 percent of 6.8 percent
to determine the proposed labor-related share of Capital for FY 2024 of
3.1 percent. Therefore, we propose a total labor-related share for FY
2024 of 78.5 percent (the sum of 75.4 percent for the operating cost
and 3.1 percent for the labor-related share of Capital). Table 15 shows
the FY 2024 labor-related share using the proposed 2021-based IPF
market basket relative importance and the FY 2023 labor-related share
using the 2016-based IPF market basket.

Table 15--Proposed FY 2024 IPF Labor-related share and FY 2023 IPF Labor-Related Share
----------------------------------------------------------------------------------------------------------------
FY 2024 Labor-related FY 2023 Final labor-
share based on proposed related share based on
2021-based IPF market 2016-based IPF market
basket \1\ basket \2\
----------------------------------------------------------------------------------------------------------------
Wages and Salaries............................................ 53.3 53.2
Employee Benefits............................................. 14.2 13.5
Professional Fees: Labor-related \3\.......................... 4.7 4.3
Administrative and Facilities Support Services................ 0.6 0.6
Installation, Maintenance and Repair Services................. 1.2 1.3
All Other: Labor-related Services............................. 1.4 1.5
-------------------------------------------------
Subtotal.................................................. 75.4 74.4
----------------------------------------------------------------------------------------------------------------
Labor-related portion of capital (46%).................... 3.1 3.0
-------------------------------------------------
Total LRS................................................. 78.5 77.4
----------------------------------------------------------------------------------------------------------------
\1\ IHS Global Inc. 4th quarter 2022 forecast.
\2\ Based on IHS Global Inc. 2nd quarter 2022 forecast as published in the Federal Register (87 FR 46851).
\3\ Includes all contract advertising and marketing costs and a portion of accounting, architectural,
engineering, legal, management consulting, and home office/related organization contract labor costs.

[[Page 21259]]

The FY 2024 labor-related share using the proposed 2021-based IPF
market basket is about 1.0 percentage point higher than the FY 2023
labor-related share using the 2016-based IPF market basket. This higher
labor-related share is primarily due to the incorporation of the 2021
Medicare cost report data, which increased the Compensation cost weight
by 0.9 percentage point compared to the 2016-based IPF market basket as
shown in Table 1 and Table 2 in section III.A.3.a.(2) of this proposed
rule. We invite public comment on the proposed labor-related share for
FY 2024.

B. Proposed Updates to the IPF PPS Rates for FY Beginning October 1,
2023

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 Tax Equity and Fiscal Responsibility Act
(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. The 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 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 <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/index.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/index.html</a>.
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 <a href="https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf">https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c03.pdf</a>.) There were no changes to the ECT
procedure codes used on IPF claims as a result of the final update to
the ICD-10-PCS code set for FY 2024. Addendum B to this proposed rule
shows the ECT procedure codes for FY 2024 and is available on our
website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html</a>.
2. Proposed Update of the Federal per Diem Base Rate and
Electroconvulsive Therapy Payment per Treatment
The current (FY 2023) Federal per diem base rate is $865.63 and the
ECT payment per treatment is $372.67. For the proposed FY 2024 Federal
per diem base rate, we applied the payment rate update of 3.0 percent--
that is, the 2021-based IPF market basket increase for FY 2024 of 3.2
percent less the productivity adjustment of 0.2 percentage point--and
the wage index budget-neutrality factor of 1.0011 (as discussed in
section IV.D.1 of this proposed rule) to the FY 2023 Federal per diem
base rate of $865.63, yielding a proposed Federal per diem base rate of
$892.58 for FY 2024. Similarly, we applied the proposed 3.0 percent
payment rate update and the 1.0011 wage index budget-neutrality factor
to the FY 2023 ECT payment per treatment of $372.67, yielding a
proposed ECT payment per treatment of $384.27 for FY 2024.
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 propose to apply a 2.0
percentage points reduction to the Federal per diem base rate and the
ECT payment per treatment as follows:
<bullet> For IPFs that fail requirements under the IPFQR Program,
we would apply a proposed 1.0 percent payment rate update--that is, the
proposed IPF market basket increase for FY 2024 of 3.2 percent less the
proposed productivity adjustment of 0.2 percentage point for a proposed
update of 3.0 percent, and further reduced by 2.0 percentage points in
accordance with section 1886(s)(4)(A)(i) of the Act--and the proposed
wage index budget-neutrality factor of 1.0011 to the FY 2024 Federal
per diem base rate of $892.58, yielding a proposed Federal per diem
base rate of $875.25 for FY 2024.
<bullet> For IPFs that fail to meet requirements under the IPFQR
Program, we would apply the proposed 1.0 percent annual payment rate
update and the proposed 1.0011 wage index budget-neutrality factor to
the FY 2024 ECT payment per treatment of $384.27 yielding a proposed
ECT payment per treatment of $376.81 for FY 2024. Lastly, we propose
that if more recent data become available, we would use such data, if
appropriate, to determine the FY 2024 Federal per diem base rate

[[Page 21260]]

and ECT payment per treatment for the final rule.

C. Proposed 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 propose to use the existing regression-derived adjustment factors
established in 2005 for FY 2024. 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. Proposed 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 2024, we are not proposing any changes to the IPF MS-DRG
adjustment factors and are retaining the existing 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. As discussed in the FY 2015 IPF PPS proposed rule (79
FR 26047) in more detail, every year, changes to the ICD-10-CM and the
ICD-10-PCS coding system are addressed in the IPPS proposed and final
rules. The changes to the codes are effective October 1 of each year
and must be used by acute care hospitals as well as other providers to
report diagnostic and procedure information. In accordance with Sec.
412.428(e), the IPF PPS has always incorporated ICD-10-CM and ICD-10-
PCS coding changes made in the annual IPPS update and will continue to
do so. We will continue to publish coding changes in a Transmittal/
Change Request, similar to how coding changes are announced by the IPPS
and LTCH PPS. The coding changes relevant to the IPF PPS are also
published in the IPF PPS proposed and final rules, or in IPF PPS update
notices. Further information on the ICD-10-CM/PCS MS-DRG conversion
project can be found on the CMS ICD-10-CM website at <a href="https://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html">https://www.cms.gov/Medicare/Coding/ICD10/ICD-10-MS-DRG-Conversion-Project.html</a>.
For FY 2024, we propose to continue making 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 <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html</a>. 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,
2023, using the final FY 2024 IPPS ICD-10-CM/PCS code sets. The FY 2024
IPPS/LTCH PPS final rule will include tables of the changes to the ICD-
10-CM/PCS code sets, which underlie the FY 2024 IPF MS-DRGs. Both the
FY 2024 IPPS final rule and the tables of final changes to the ICD-10-
CM/PCS code sets, which underlie the FY 2024 MS-DRGs, will be available
on the CMS IPPS website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html</a>.
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'' note, the provider will follow the instructions in
the ICD-10-CM Tabular List. 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 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 our readers
to the November 2004 IPF PPS final rule (69 FR 66945), and see sections
I.A.13 and I.B.7 of the FY 2020 ICD-10-CM Coding Guidelines, available
at <a href="https://www.cdc.gov/nchs/data/icd/10cmguidelines-FY2020_final.pdf">https://www.cdc.gov/nchs/data/icd/10cmguidelines-FY2020_final.pdf</a>.
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

[[Page 21261]]

were present in ICD-10-CM (79 FR 46009). In FY 2018, FY 2019 and FY
2020, there were no changes to the final ICD-10-CM codes in the IPF
Code First table. For FY 2021 and FY 2022, there were 18 ICD-10-CM
codes deleted from the final IPF Code First table. For FY 2023, there
were 2 ICD-10-CM codes deleted and 48 ICD-10-CM codes added to the IPF
Code First table. For FY 2024, there are no proposed changes to the
Code First Table. The proposed FY 2024 Code First table is shown in
Addendum B on the CMS website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html</a>.
b. Proposed 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,
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 will 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 2024, we
propose to use the same comorbidity adjustment factors in effect in FY
2023. The proposed FY 2024 comorbidity adjustment factors are found in
Addendum A, available on the CMS website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html</a>.
For FY 2024, we propose to add 2 ICD-10-CM/PCS codes and remove 1
ICD-10-CM/PCS code from the Chronic Renal Failure category. The
proposed FY 2024 comorbidity codes are shown in Addenda B, available on
the CMS website at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html</a>.
In accordance with the policy established in the FY 2015 IPF PPS
final rule (79 FR 45949 through 45952), we reviewed all new FY 2024
ICD-10-CM codes to remove codes that were site ``unspecified'' in terms
of laterality from the FY 2024 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. None
of the finalized additions to the FY 2024 ICD-10-CM/PCS codes were site
``unspecified'' by laterality, therefore, we are not removing any of
the new codes.
c. Proposed 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 group, the differences in per diem cost
increase for each successive age group, and the differences are
statistically significant. For FY 2024, we propose to use the patient
age adjustments currently in effect for FY 2023, as shown in Addendum A
of this proposed rule (see <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html</a>).
d. Proposed 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 proposed rule.
For FY 2024, we propose to use the variable per diem adjustment
factors currently in effect in FY 2023, as shown in Addendum A of this
proposed rule

[[Page 21262]]

(available at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html</a>). A complete discussion of
the variable per diem adjustments appears in the November 2004 IPF PPS
final rule (69 FR 66946).

D. Proposed 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), 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 42 CFR 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 considering 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 that we 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 RY 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 inpatient rehabilitation facilities. 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 was 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
will result in the most up-to-date wage data being the basis for the
IPF wage index. It will also 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 will 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 and inpatient
rehabilitation facilities. For FY 2024, we propose to continue using
the concurrent pre-floor, pre-reclassified IPPS hospital wage index as
the basis for the IPF wage index.
We propose to 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 would change from 77.4 percent in FY 2023 to 78.5 percent in
FY 2024. This percentage reflects the proposed labor-related share of
the proposed 2021-based IPF market basket for FY 2024 (see section
III.A of this proposed 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 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 Core Based Statistical Area (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
<a href="https://www.whitehouse.gov/omb/information-for-agencies/bulletins/">https://www.whitehouse.gov/omb/information-for-agencies/bulletins/</a>. In
accordance

[[Page 21263]]

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 and, when necessary and appropriate, has proposed and
finalized transition policies for these changes.
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 Micropolitan 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).
Subsequently, CMS adopted the changes that were published in past
OMB bulletins in the FY 2016 IPF PPS final rule (80 FR 46682 through
46689), the FY 2018 IPF PPS rate update (82 FR 36778 through 36779),
the FY 2020 IPF PPS final rule (84 FR 38453 through 38454), and the FY
2021 IPF PPS final rule (85 FR 47051 through 47059). We direct readers
to each of these rules for more information about the changes that were
adopted and any associated transition policies.
In part due to the scope of changes involved in adopting the CBSA
delineations for FY 2021, we finalized a 2-year transition policy
consistent with our past practice of using transition policies to help
mitigate negative impacts on hospitals of certain wage index policy
changes. We applied a 5-percent cap on wage index decreases to all IPF
providers that had 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 was part of an updated CBSA.
We refer readers to the FY 2021 IPF PPS final rule (85 FR 47058 through
47059) for a more detailed discussion about the wage index transition
policy for FY 2021.
On March 6, 2020 OMB issued OMB Bulletin 20-01 (available on the
web at <a href="https://www.whitehouse.gov/wp-content/uploads/2020/03/Bulletin-20-01.pdf">https://www.whitehouse.gov/wp-content/uploads/2020/03/Bulletin-20-01.pdf</a>). In considering whether to adopt this bulletin, we analyzed
whether the changes in this bulletin would have a material impact on
the IPF PPS wage index. This bulletin creates only one Micropolitan
statistical area. As discussed in further detail in section
III.D.1.b.ii of this proposed rule, since Micropolitan areas are
considered rural for the IPF PPS wage index, this bulletin has no
material impact on the IPF PPS wage index. That is, the constituent
county of the new Micropolitan area was considered rural effective as
of FY 2021 and would continue to be considered rural if we adopted OMB
Bulletin 20-01. Therefore, we did not propose to adopt OMB Bulletin 20-
01 in the FY 2022 IPF PPS proposed rule.
In the FY 2023 IPF PPS final rule (87 FR 46856 through 46859), we
finalized a permanent 5-percent cap on any decrease to a provider's
wage index from its wage index in the prior year, and we stated that we
would apply this cap in a budget-neutral manner. Additionally, we
finalized a policy that a new IPF would be paid the wage index for the
area in which it is geographically located for its first full or
partial FY with no cap applied because a new IPF would not have a wage
index in the prior FY. We amended the IPF PPS regulations at Sec.
412.424(d)(1)(i) to reflect this permanent cap on wage index decreases.
We refer readers to the FY 2023 IPF PPS final rule for a more detailed
discussion about this policy.
ii. Micropolitan Statistical Areas (MSA)
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.
c. Proposed 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 2024, we propose 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).
d. Proposed 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 2024, we
propose 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 2024 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
FY 2024 update to the wage indexes (based on the FY 2020 hospital cost
report data) and the labor-related share in a budget-neutral manner:
Step 1: Simulate estimated IPF PPS payments, using the FY 2023 IPF
wage index values (available on the CMS website) and labor-related
share (as published in the FY 2023 IPF PPS final rule (87 FR 46846).
Step 2: Simulate estimated IPF PPS payments using the proposed FY
2024 IPF wage index values (available on the CMS website) and proposed
FY 2024 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 proposed FY 2024
budget-neutral wage adjustment factor of 1.0011.
Step 4: Apply the FY 2024 budget-neutral wage adjustment factor
from step 3 to the FY 2023 IPF PPS Federal per diem base rate after the
application of the market basket update described in section III.A of
this proposed rule, to determine the FY 2024 IPF PPS Federal per diem
base rate.
2. Proposed Teaching Adjustment
a. Background
In the November 2004 IPF PPS final rule, we implemented regulations
at

[[Page 21264]]

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 fulltime equivalent (FTE) interns and residents training in
the IPF and the IPF's average daily census.
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's average daily census]). The
teaching variable is then raised to the 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
proposed 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 (69 FR 66955). 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 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 propose updates to the teaching adjustment
factors until we more fully analyze IPF PPS data. Therefore, in this FY
2024 proposed rule, we propose to retain the coefficient value of
0.5150 for the teaching adjustment to the Federal per diem base rate.
3. Proposed Cost of Living Adjustment (COLA) 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 will 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 <a href="https://www.chcoc.gov/content/nonforeign-area-retirement-equity-assurance-act">https://www.chcoc.gov/content/nonforeign-area-retirement-equity-assurance-act</a>.
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:
<bullet> City of Anchorage, and 80-kilometer (50-mile) radius by
road, as measured from the Federal courthouse.
<bullet> City of Fairbanks, and 80-kilometer (50-mile) radius by
road, as measured from the Federal courthouse.
<bullet> City of Juneau, and 80-kilometer (50-mile) radius by road,
as measured from the Federal courthouse.
<bullet> 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 Non-foreign Area Retirement Equity
Assurance Act, as contained in subtitle B of title XIX of the National
Defense Authorization Act (NDAA) (Pub. L. 111-84, October 28, 2009),
for FY 2010 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 believe 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

[[Page 21265]]

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 2022, the COLA factors were updated in FY 2022 IPPS/LTCH
rulemaking (86 FR 45547). As such, we also updated the IPF PPS COLA
factors for FY 2022 (86 FR 42621 through 42622) to reflect the updated
COLA factors finalized in the FY 2022 IPPS/LTCH rulemaking. Table 16
shows the proposed IPF PPS COLA factors effective for FY 2022 through
FY 2025.

Table 16--IPF PPS Cost-of-Living-Adjustment Factors: IPFs Located in
Alaska and Hawaii
------------------------------------------------------------------------
FY 2022 through FY
Area 2025
------------------------------------------------------------------------
Alaska:
City of Anchorage and 80-kilometer (50-mile) radius 1.22
by road............................................
City of Fairbanks and 80-kilometer (50-mile) radius 1.22
by road............................................
City of Juneau and 80-kilometer (50-mile) radius by 1.22
road...............................................
Rest of Alaska...................................... 1.24
Hawaii:
City and County of Honolulu......................... 1.25
County of Hawaii.................................... 1.22
County of Kauai..................................... 1.25
County of Maui and County of Kalawao................ 1.25
------------------------------------------------------------------------

The proposed IPF PPS COLA factors for FY 2024 are also shown in
Addendum A to this proposed rule, and is available at <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html">https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/tools.html</a>.
4. Proposed 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 this proposed 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 E

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