HHS Issues Payment Rates for Medicare Inpatient Psychiatric Facilities

Targeted News Service

WASHINGTON, Aug. 5 -- The Department of Health & Human Services published the following rule in the Federal Register from the Centers for Medicare & Medicaid Services:

Medicare Program; Inpatient Psychiatric Facilities Prospective Payment System-Update for Fiscal Year Beginning October 1, 2015 (FY 2016)

A Rule by the Centers for Medicare & Medicaid Services on 08/05/2015

Publication Date: Wednesday, August 05, 2015

Agencies: Department of Health and Human Services

Centers for Medicare & Medicaid Services

Dates: These regulations are effective October 1, 2015.

Effective Date: 10/01/2015

Entry Type: Rule

Action: Final rule.

Document Citation: 80 FR 46651

Page: 46651 -46728 (78 pages)

CFR: 42 CFR 412

Agency/Docket Number: CMS-1627-F

RIN: 0938-AS47

Document Number: 2015-18903

Shorter URL: https://federalregister.gov/a/2015-18903

Action

Final Rule.

Summary

This final rule updates the prospective payment rates for Medicare inpatient hospital services provided by inpatient psychiatric facilities (IPFs) (which are freestanding IPFs and psychiatric units of an acute care hospital or critical access hospital). These changes are applicable to IPF discharges occurring during fiscal year (FY) 2016 (October 1, 2015 through September 30, 2016). This final rule also implements: a new 2012-based IPF market basket; an updated IPF labor-related share; a transition to new Core Based Statistical Area (CBSA) designations in the FY 2016 IPF Prospective Payment System (PPS) wage index; a phase-out of the rural adjustment for IPF providers whose status changes from rural to urban as a result of the wage index CBSA changes; and new quality measures and reporting requirements under the IPF quality reporting program. This final rule also reminds IPFs of the October 1, 2015 implementation of the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM), and updates providers on the status of IPF PPS refinements.

DATES:

These regulations are effective October 1, 2015.

FOR FURTHER INFORMATION CONTACT:

Katherine Lucas or Jana Lindquist, (410) 786-7723, for general information. Hudson Osgood, (410) 786-7897 or Bridget Dickensheets, (410) 786-8670, for information regarding the market basket and labor-related share.

Theresa Bean, (410) 786-2287, for information regarding the regulatory impact analysis. Rebecca Kliman, (410) 786-9723, or Jeffrey Buck, (410) 786-0407, for information regarding the inpatient psychiatric facility quality reporting program.

SUPPLEMENTARY INFORMATION:

Availability of Certain Tables Exclusively Through the Internet on the CMS Web site

In the past, tables setting forth the Wage Index for Urban Areas Based on CBSA Labor Market Areas and the Wage Index Based on CBSA Labor Market Areas for Rural Areas were published in the Federal Register as an Addendum to the annual PPS rulemaking (that is, the PPS proposed and final rules or, when applicable, the current update notice). However, beginning in FY 2015, these wage index tables are no longer published in the Federal Register. Instead, these tables are available exclusively through the Internet. The wage index tables for this final rule are available exclusively through the Internet on the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/WageIndex.html.

To assist readers in referencing sections contained in this document, we are providing the following table of contents.

I. Executive Summary

A. Purpose

This final rule updates the prospective payment rates for Medicare inpatient hospital services provided by inpatient psychiatric facilities (IPFs) for discharges occurring during the FY 2016 (October 1, 2015 through September 30, 2016). For the Inpatient Psychiatric Facility Quality Reporting (IPFQR) Program, it also changes certain measures collected under the program and modifies reporting requirements for certain program measures.

B. Summary of the Major Provisions

In this final rule, we updated the IPF Prospective Payment System (PPS), as specified in 42 CFR 412.428. The updates include the following:

Effective for the FY 2016 IPF PPS update, we adopted a 2012-based IPF market basket. However, we revised the proposed 2012-based IPF market basket based on public comments. Specifically, we revised the methodology for calculating the Wages and Salaries and the Employee Benefits cost weights. The final 2012-based IPF market basket resulted in a labor-related share of 75.2 percent for FY 2016.

We adjusted the 2012-based IPF market basket update (currently estimated to be 2.4 percent) by a reduction for economy-wide productivity (currently estimated to be 0.5 percent) as required by section 1886(s)(2)(A)(i) of the Social Security Act (the Act), and further reduced by 0.2 percentage point as required by section 1886(s)(2)(A)(ii) of the Act, resulting in an estimated market basket update of 1.7 percent.

We updated the IPF PPS per diem rate from $728.31 to $743.73. Providers that failed to report quality data for FY 2016 payment will receive a final FY 2016 per diem rate of $729.10.

We updated the electroconvulsive therapy (ECT) payment per treatment from $313.55 to $320.19. Providers that failed to report quality data for FY 2016 payment will receive a FY 2016 ECT payment per treatment of $313.89.

We adopted new Office of Management and Budget (OMB) Core-Based Statistical Area (CBSA) delineations for the FY 2016 IPF PPS wage index and future IPF PPS wage indices. We implemented these CBSA changes using a 1-year transition with a blended wage index for all providers, consisting of a blend of fifty percent of the FY 2016 IPF wage index using the current OMB delineations and fifty percent of the FY 2016 IPF wage index using the revised OMB delineations.

We phased out the rural adjustment for the 37 rural IPFs that will be re-designated as urban IPFs due to the OMB CBSA changes. Specifically, we phased out the 17 percent rural adjustment for these 37 providers over 3 years (two-thirds of the adjustment given in FY 2016, one-third of the adjustment given in FY 2017, and no rural adjustment thereafter).

We used the updated labor-related share of 75.2 percent (based on the final 2012-based IPF market basket) and CBSA rural and urban wage indices for FY 2016, and established a wage index budget-neutrality adjustment of 1.0041.

We updated the fixed dollar loss threshold amount from $8,755 to $9,580 in order to maintain estimated outlier payments at 2 percent of total estimated aggregate IPF PPS payments.

We finalized that the national urban and rural cost-to-charge ratio (CCR) ceilings for FY 2016 will be 1.7339 and 1.9041, respectively, and the national median CCR will be 0.4650 for urban IPFs and 0.6220 for rural IPFs. The national median CCR is applied to new IPFs that have not yet submitted their first Medicare cost report, to IPFs for which the CCR calculation data are inaccurate or incomplete, and to IPFs whose overall CCR exceeds 3 standard deviations above the national geometric mean.

We note that IPF PPS patient-level and facility-level adjustments, other than those mentioned above, remain the same as in FY 2015.

In addition:

We remind providers that International Classification of Diseases, 10th Revision, Clinical Modification/Procedure Coding System (ICD-10-CM/PCS) will be implemented on October 1, 2015.

As we continue our analysis for future IPF PPS refinements, we find, from preliminary analysis of 2012 to 2013 data, that over 20 percent of IPF stays reported no ancillary costs, such as laboratory and drug costs, in their cost reports, or laboratory or drug charges on their claims. Because we expect that most patients requiring hospitalization for active psychiatric treatment will need drugs and laboratory services, we remind providers that the IPF PPS per diem payment rate includes the cost of all ancillary services, including drugs and laboratory services. We pay only the IPF for services furnished to a Medicare beneficiary who is an inpatient of that IPF, except for certain professional services, and payments are considered to be payments in full for all inpatient hospital services provided directly or under arrangement (see 42 CFR 412.404(d)), as specified in 42 CFR 409.10.

For the IPFQR Program, we are adopting several new measures and data submission requirements for the IPFQR Program. First, we adopted five new measures beginning with the FY 2018 payment determination:

TOB-3--Tobacco Use Treatment Provided or Offered at Discharge and the subset measure TOB-3a Tobacco Use Treatment at Discharge (National Quality Forum (NQF) #1656);

SUB-2--Alcohol Use Brief Intervention Provided or Offered and the subset measure SUB-2a Alcohol Use Brief Intervention (NQF #1663);

Transition Record with Specified Elements Received by Discharged Patients (Discharges from an Inpatient Facility to Home/Self Care or Any Other Site of Care) (NQF) #0647);

Timely Transmission of Transition Record (Discharges from an Inpatient Facility to Home/Self Care or Any Other Site of Care) (NQF #0648); and

Screening for Metabolic Disorders.

We removed HBIPS-4 Patients Discharged on Multiple Antipsychotic Medications, beginning with the FY 2017 payment determination. We also removed the Hospital Based Inpatient Psychiatric Services (HBIPS)-6 Post-Discharge Continuing Care Plan (NQF #0557) and HBIPS-7 Post-Discharge Continuing Care Plan Transmitted to the Next Level of Care Provider Upon Discharge (NQF #0558) measures, beginning with the FY 2018 payment determination.

Second, we made several changes regarding how facilities report data for IPFQR Program measures:

Beginning with the FY 2017 payment determination, we are requiring that measures be reported as a single yearly count rather than by quarter and age.

Beginning with the FY 2017 payment determination, we are requiring that aggregate population counts be reported as a single yearly number rather than by quarter.

Beginning with the FY 2018 payment determination, we will allow uniform sampling for certain measures.

C. Summary of Impacts

Provision description ..... Total transfers

FY 2016 IPF PPS payment rate update ..... The overall economic impact of this final rule is an estimated $75 million in increased payments to IPFs during FY 2016.

Provision description ..... Costs

New quality reporting program requirements ..... The total costs beginning in FY 2016 for IPFs as a result of the final new quality reporting requirements are estimated to be $6.31 million.

II. Background

A. Overview of the Legislative Requirements for the IPF PPS

Section 124 of the Medicare, Medicaid, and SCHIP (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 Health and Human Services (the Secretary) develop a per diem PPS for inpatient hospital services furnished in psychiatric hospitals and psychiatric units including an adequate patient classification system that reflects the differences in patient resource use and costs among psychiatric hospitals and psychiatric units.

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 distinct part psychiatric units of critical access hospitals (CAHs).

Section 3401(f) 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 as "the Affordable Care Act") added subsection (s) to section 1886 of the Act.

Section 1886(s)(1) of the Act titled "Reference to Establishment and Implementation of System" refers to section 124 of the BBRA, which relates to the establishment of the IPF PPS.

Section 1886(s)(2)(A)(i) of the Act requires the application of the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act to the IPF PPS for the Rate Year (RY) beginning in 2012 (that is, a RY that coincides with a FY) and each subsequent RY. For the RY beginning in 2015 (that is, FY 2016), the current estimate of the productivity adjustment is equal to 0.5 percent, which we are implementing in this FY 2016 final rule.

Section 1886(s)(2)(A)(ii) of the Act requires the application of an "other adjustment" that reduces any update to an IPF PPS base rate by percentages specified in section 1886(s)(3) of the Act for the RY beginning in 2010 through the RY beginning in 2019. For the RY beginning in 2015 (that is, FY 2016), section 1886(s)(3)(D) of the Act requires the reduction to be 0.2 percentage point. We are implementing that reduction in this FY 2016 IPF PPS final rule.

Section 1886(s)(4) of the Act requires the establishment of a quality data reporting program for the IPF PPS beginning in RY 2014.

To implement and periodically update these provisions, we have published various proposed and final rules in the Federal Register. For more information regarding these rules, see the CMS Web site at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/InpatientPsychFacilPPS/index.html?redirect=/InpatientPsychFacilPPS/.

B. Overview of the IPF PPS

The November 2004 IPF PPS final rule (69 FR 66922) established the IPF PPS, as required by section 124 of the BBRA and codified at subpart N of part 412 of the Medicare regulations. The November 2004 IPF PPS final rule set forth the per diem federal rates 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 above and certain patient- and facility-level payment adjustments that were found in the regression analysis to be associated with statistically significant per diem cost differences.

The patient-level adjustments include age, Diagnosis-Related Group (DRG) assignment, comorbidities, and variable per diem adjustments to reflect higher per diem costs in the early days of an IPF 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 the presence of a qualifying emergency department (ED).

The IPF PPS provides additional payment policies for: Outlier cases; interrupted stays; and a per treatment adjustment for patients who undergo electroconvulsive therapy (ECT). During the IPF PPS mandatory 3-year transition period, stop-loss payments were also provided; however, since the transition ended in 2008, these payments are no longer available.

A complete discussion of the regression analysis that established the IPF PPS adjustment factors appears in the November 2004 IPF PPS final rule (69 FR 66933 through 66936).

Section 124 of the BBRA did not specify an annual rate update strategy for the IPF PPS and was broadly written to give the Secretary discretion in establishing an update methodology. Therefore, in the November 2004 IPF PPS final rule, we implemented the IPF PPS using the following update strategy:

Calculate the final federal per diem base rate to be budget-neutral for the 18-month period of January 1, 2005 through June 30, 2006.

Use a July 1 through June 30 annual update cycle.

Allow the IPF PPS first update to be effective for discharges on or after July 1, 2006 through June 30, 2007.

In RY 2012, we proposed and finalized switching the IPF PPS payment rate update from a rate year that begins on July 1 and ends on June 30 to one that coincides with the federal fiscal year that begins October 1 and ends on September 30. In order to transition from one timeframe to another, the RY 2012 IPF PPS covered a 15-month period from July 1, 2011 through September 30, 2012. Therefore, the update cycle for FY 2016 will be October 1, 2015 through September 30, 2016. For further discussion of the 15-month market basket update for RY 2012 and changing the payment rate update period to coincide with a FY period, we refer readers to the RY 2012 IPF PPS proposed rule (76 FR 4998) and the RY 2012 IPF PPS final rule (76 FR 26432).

C. Annual Requirements for Updating the IPF PPS

In November 2004, we implemented the IPF PPS in a final rule that appeared in the November 15, 2004 Federal Register (69 FR 66922). In developing the IPF PPS, to ensure that the IPF PPS is able to account adequately for each IPF's case-mix, we performed an extensive regression analysis of the relationship between the per diem costs and certain patient and facility characteristics to determine those characteristics associated with statistically significant cost differences on a per diem basis. 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 that final rule, we explained that we believe it is important to delay updating the adjustment factors derived from the regression analysis until we have IPF PPS data that include as much information as possible regarding the patient-level characteristics of the population that each IPF serves. Therefore, we indicated that we did not intend to update the regression analysis and the patient- 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 (71 FR 27041). We have begun the necessary analysis to make refinements to the IPF PPS using more current data to set the adjustment factors; however, we did not make any refinements in this final rule. Rather, as explained in section V.B. of this final rule, we expect that in future rulemaking we will be ready to propose potential refinements.

In the May 6, 2011 IPF PPS final rule (76 FR 26432), we changed the payment rate update period to a RY that coincides with a FY update. Therefore, update notices are now published in the Federal Register in the summer to be effective on October 1. When proposing changes in IPF payment policy, a proposed rule would be issued in the spring and the final rule in the summer in order to be effective on October 1. For further discussion on changing the IPF PPS payment rate update period to a RY that coincides with a FY, see the IPF PPS final rule published in the Federal Register on May 6, 2011 (76 FR 26434 through 26435). For a detailed list of updates to the IPF PPS, see 42 CFR 412.428.

Our most recent IPF PPS annual update occurred in an August 6, 2014, Federal Register final rule (79 FR 45938) (hereinafter referred to as the August 2014 IPF PPS final rule) updated the IPF PPS payment rates for FY 2015. That rule updated the IPF PPS per diem payment rates that were published in the August 2013 IPF PPS notice (78 FR 46734) in accordance with our established policies.

III. Provisions of the Final Rule and Responses to Comments

On May 1, 2015 we published a proposed rule in the Federal Register (80 FR 25012) entitled Medicare Program; Inpatient Psychiatric Facilities Prospective Payment System--Update for Fiscal Year Beginning October 1, 2015 (FY 2016). The May 1, 2015 proposed rule (herein referred to as the FY 2016 IPF PPS proposed rule) proposed updates to the prospective payment rates for Medicare inpatient hospital services provided by inpatient psychiatric facilities. In addition to the updates, we proposed to: Adopt a 2012-based IPF market basket and update the labor-related share; adopt new OMB CBSA delineations for the FY 2016 IPF Wage Index; and phase out the rural adjustment for 37 rural providers that would become urban providers as a result of the new CBSA delineations. Additionally, the proposed rule reminded providers of the October 1, 2015 implementation of the International Classification of Diseases, 10th Revision, Clinical Modification (ICD-10-CM/PCS) for the IPF PPS, updated providers on the status of IPF PPS refinements, and proposed new quality reporting requirements for the IPFQR Program.

We received a total of 76 comments on these proposals from 51 providers, 12 industry groups or associations, 6 industry consultants, 4 advocacy groups, 1 independent congressional agency, and 2 anonymous sources. Of the 76 comments, 12 focused on payment policies, and 73 focused on the quality reporting proposals. A summary of the proposals, the comments, and our responses follows.

A. Market Basket for the IPF PPS

1. Background

The input price index that was used to develop the IPF PPS was the Excluded Hospital with Capital market basket. This market basket was based on 1997 Medicare cost reports for Medicare participating inpatient rehabilitation facilities (IRFs), IPFs, long-term care hospitals (LTCHs), cancer hospitals, and children's hospitals. Although "market basket" technically describes the mix of goods and services used in providing health care at a given point in time, this term is also commonly used to denote the input price index (that is, cost category weights and price proxies) derived from that market basket. Accordingly, the term "market basket," as used in this document, refers to an input price index.

Beginning with the May 2006 IPF PPS final rule (71 FR 27046 through 27054), IPF PPS payments were updated using a 2002-based rehabilitation, psychiatric, and long-term care (RPL) market basket reflecting the operating and capital cost structures for freestanding IRFs, freestanding IPFs, and LTCHs. Cancer and children's hospitals were excluded from the RPL market basket because their payments are based entirely on reasonable costs subject to rate-of-increase limits established under the authority of section 1886(b) of the Act and not through a PPS. Also, the 2002 cost structures for cancer and children's hospitals are noticeably different than the cost structures of freestanding IRFs, freestanding IPFs, and LTCHs. See the May 2006 IPF PPS final rule (71 FR 27046 through 27054) for a complete discussion of the 2002-based RPL market basket.

In the May 1, 2009 IPF PPS notice (74 FR 20376), we expressed our interest in exploring the possibility of creating a stand-alone IPF market basket that reflects the cost structures of only IPF providers. One available option was to combine the Medicare cost report data from freestanding IPF providers with Medicare cost report data from hospital-based IPF providers. We indicated that an examination of the Medicare cost report data comparing freestanding IPFs and hospital-based IPFs showed differences between cost levels and cost structures. At that time, we were unable to fully understand these differences even after reviewing explanatory variables such as geographic variation, case mix (including DRG, comorbidity, and age), urban or rural status, teaching status, and presence of a qualifying emergency department. As a result, we continued to research ways to reconcile the differences and solicited public comment for additional information that might help us to better understand the reasons for the variations in costs and cost structures, as indicated by the Medicare cost report data (74 FR 20376). We summarized the public comments we received and our responses in the April 2010 IPF PPS notice (75 FR 23111 through 23113). Despite receiving comments from the public on this issue, we were still unable to sufficiently reconcile the observed differences in costs and cost structures between hospital-based and freestanding IPFs, and, therefore, we did not believe it to be appropriate at that time to incorporate data from hospital-based IPFs with those of freestanding IPFs to create a stand-alone IPF market basket.

Beginning with the RY 2012 IPF PPS final rule (76 FR 26432), IPF PPS payments were updated using a 2008-based RPL market basket reflecting the operating and capital cost structures for freestanding IRFs, freestanding IPFs, and LTCHs. The major changes for RY 2012 included: Updating the base year from FY 2002 to FY 2008; using a more specific composite chemical price proxy; breaking the professional fees cost category into two separate categories (Labor-related and Nonlabor-related); and adding two additional cost categories (Administrative and Facilities Support Services and Financial Services), which were previously included in the residual All Other Services cost categories. The RY 2012 IPF PPS proposed rule (76 FR 4998) and RY 2012 final rule (76 FR 26432) contain a complete discussion of the development of the 2008-based RPL market basket.

In the FY 2016 IPF PPS proposed rule, we proposed to create a 2012-based IPF market basket, using Medicare cost report data for both freestanding and hospital-based IPFs.

We received several general comments on the creation of an IPF market basket.

Comment: One commenter supported CMS' use of an IPF-specific market basket, but recommended that CMS develop separate update percentages for freestanding units and hospital-based units. They stated patients treated in hospital-based units have more complex medical conditions and require more resources compared to freestanding facilities. They believe combining these two facilities for the purpose of establishing one market basket rate update could result in underpayments for Medicare patients treated in hospital-based facilities.

Response: We appreciate the commenter's support of an IPF-specific market basket. However, we respectfully disagree with their recommendation to develop two specific market basket update percentages for hospital-based and freestanding units. The regression analysis from which the IPF PPS base rate payment (and related adjustments) was derived reflects data from both freestanding and hospital-based providers. As a result, we believe it is appropriate to update those rates with a market basket based on data from both types of providers. Moreover, we do not believe we have a large enough sample size to create a freestanding-specific IPF market basket. Finally, the IPF PPS already provides patient-level adjustments, including certain principal diagnoses and comorbidities that reflect the higher costs and resources associated with more medically complex patients.

Comment: One commenter stated their appreciation of the discussion in the proposed rule regarding the progress that CMS has made in the development of an IPF-specific market basket. They support CMS' efforts to ensure that the IPF payment system is updated to reflect current costs and resource use.

Response: We appreciate the commenter's support for the proposed 2012-based IPF market basket.

Comment: One commenter did not support the adoption of the stand-alone IPF market basket. They stated they still have major reservations about its accuracy. They urged CMS to publicly release the detailed data files that support the proposed IPF-specific market basket and to distinguish cost factors in order to "evaluate the materiality of the consolidation effect on the market basket" and to allow time for the industry to gain a clearer understanding of the proposal, and the consolidation of the IPF provider types in order to enable commenters' informed response to the proposal.

Response: We appreciate the commenter's concern for the adoption of the 2012-based IPF market basket. However, we disagree with delaying the IPF-specific market basket. We believe we provided a clear description of the proposal and a sufficiently detailed data file to enable informed comment.

All of the data used to develop the proposed IPF-market basket are publically available. The Medicare cost reports used to develop the major cost weights are publically available on the CMS Web site (http://www.cms.gov/Research-Statistics-Data-and-Systems/Downloadable-Public-Use-Files/Cost-Reports/Cost-Reports-by-Fiscal-Year.html under facility type "Hospital-2010"). The Bureau of Labor Statistics (BLS) Occupational Employment Statistics (http://www.bls.gov/oes/#data) and BLS price indices (http://www.bls.gov/cpi/#data, http://www.bls.gov/ppi/#data, and http://www.bls.gov/ncs/ect/#data) are publically available. The last data source used was the Bureau of Economic Analysis 2007 Benchmark Input-Output (I-O) data which is also publically available (http://www.bea.gov/industry/io_annual.htm under " `Use Tables/Before Redefinitions/Purchaser Value' for North American Industry Classification System (NAICS) 622000 Hospitals").

In addition, we also provided in the proposed rule a detailed description of the methodologies (including items such as Medicare Cost Report line items or BLS series codes) used to produce the proposed 2012-based IPF market basket using the aforementioned data. We believe these methodology descriptions allowed for informed public comments and evaluation of the materiality of the "consolidation effect" (which we interpret to be the inclusion of freestanding and hospital-based IPF Medicare cost report data). We did receive several comments on our detailed methodology, which we used to further evaluate our methodology. In fact, in this final rule, we are adopting changes to the Wages and Salaries and Employee Benefits costs methodologies based on these detailed public comments. A more thorough description of the methodological changes is provided below.

After consideration of the public comments, we are finalizing the creation and adoption of a 2012-based IPF market basket with a modification to the Wages and Salaries and Employee Benefits cost methodologies based on public comments. We believe that the use of the 2012-based IPF market basket to update IPF PPS payments is a technical improvement as it is based on Medicare Cost Report data from both freestanding and hospital-based IPFs. Furthermore, the 2012-based IPF market basket does not include costs from either IRF or LTCH providers, which are included in the current 2008-based RPL market basket.

In the following discussion, we provide an overview of the market basket and describe the methodologies used to determine the operating and capital portions of the 2012-based IPF market basket. For each proposed methodology, we indicate whether we received any public comments. We include responses for each comment. We then provide the methodology we are finalizing for the 2012-based IPF market basket.

2. Overview of the 2012-Based IPF Market Basket

The 2012-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 3 steps. First, a base period is selected (in this final rule, the base period is FY 2012) and total base period expenditures are estimated for a set of mutually exclusive and exhaustive spending categories with the proportion of total costs that each category represents being calculated. These proportions are called cost or expenditure weights. Second, each expenditure 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 expenditure weight for each cost category is multiplied by the level of its respective price proxy. The sum of these products (that is, the expenditure weights multiplied by their price 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 above, 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 furnish IPF services. The effects on total expenditures 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 to accommodate the needs of patients will 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 will 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 (facility inputs) to furnish inpatient care between base periods.

3. Creating an IPF-Specific Market Basket

As discussed in section III.A.1. of this final rule, over the last several years we have been exploring the possibility of creating a stand-alone, or IPF-specific, market basket that reflects the cost structures of only IPF providers. The major cost weights for the 2008-based RPL market basket were calculated using Medicare cost report data for freestanding facilities only. We used freestanding facilities due to concerns regarding our ability to incorporate Medicare cost report data for hospital-based providers. In the FY 2015 IPF PPS final rule (79 FR 45941), we presented several of these concerns (as stated below) but explained that we would continue to research the possibility of creating an IPF-specific market basket to update IPF PPS payments.

Since the FY 2015 IPF PPS final rule, we have performed additional research on the Medicare cost report data available for hospital-based IPFs and evaluated these concerns. We subsequently concluded from this research that Medicare cost report data for both hospital-based IPFs and freestanding IPFs can be used to calculate the major market basket cost weights for a stand-alone IPF market basket. We developed a detailed methodology to derive market basket cost weights that are representative of the universe of IPF providers. We believe the use of this final IPF market basket is a technical improvement over the RPL market basket that is currently used to update IPF PPS payments. As a result, in this FY 2016 IPF PPS final rule, we are finalizing a 2012-based IPF market basket that reflects data for both freestanding and hospital-based IPFs. Below we discuss our prior concerns and provide reasons for why we now feel it is appropriate to create a stand-alone IPF market basket using Medicare cost report data for both hospital-based and freestanding IPFs.

One concern we discussed in the FY 2015 IPF PPS final rule (79 FR 45941) about using the hospital-based IPF Medicare cost report data was the cost level differences for hospital-based IPFs relative to freestanding IPFs were not readily explained by the specific characteristics of the individual providers and the patients that they serve (for example, characteristics related to case mix, urban/rural status, teaching status, or presence of a qualified emergency department). To address this concern, we used regression analysis to evaluate the effect of including hospital-based IPF Medicare cost report data in the calculation of cost distributions. A more detailed description of these regression models can be found in the FY 2015 IPF final rule (79 FR 45941). Based on this analysis, we concluded that the inclusion of those IPF providers with unexplained variability in costs did not significantly impact the cost weights and, therefore, should not be a major cause of concern.

Another concern regarding the incorporation of hospital-based IPF data into the calculation of the market basket cost weights was the complexity of the Medicare cost report data for these providers. The freestanding IPFs independently submit a Medicare cost report for their facilities, making it relatively straightforward to obtain the cost categories necessary to determine the major market basket cost weights. However, Medicare cost report data submitted for a hospital-based IPF are embedded in the Medicare cost report submitted for the entire hospital facility in which the IPF is located. In order to use Medicare cost report data from these providers, we needed to determine the appropriate adjustments to apply to the data to ensure that the cost weights we obtained would represent only the hospital-based IPF (not the hospital as a whole). Over the past year, we worked to develop detailed methodologies to calculate the major cost weights for both freestanding and hospital-based IPFs. We also evaluated the differences in cost weights for hospital-based and freestanding IPFs and found the most significant differences occurred for wages and salaries and pharmaceutical costs. Specifically, the hospital-based IPF wages and salaries cost weights tend to be lower than those of freestanding IPFs while hospital-based IPF pharmaceutical cost weights tend to be higher than those of freestanding IPFs. Our methodology for deriving costs for each of these categories can be found in section III.A.3.a.i. of this final rule. We will continue to monitor these cost shares during our on-going research to ensure that the differences are explainable.

In summary, our research over the past year allowed us to evaluate the appropriateness of including hospital-based IPF data in the calculation of the major cost weights for an IPF market basket. In the proposed rule, we proposed methodologies to create a stand-alone IPF market basket that reflects the cost structure of the universe of IPF providers. We described our methodologies and the resulting cost weights in section III.A.3.a.i. of the FY 2016 IPF proposed rule (80 FR 25017) and solicited public comments on these proposals. In the sections below, we summarize and respond to comments we received on these proposed methodologies.

a. Development of Cost Categories and Weights

i. Medicare Cost Reports

We proposed a 2012-based IPF market basket that consisted of seven major cost categories derived from the FY 2012 Medicare cost reports (CMS Form 2552-10) for freestanding and hospital-based IPFs. These categories were Wages and Salaries, Employee Benefits, Contract Labor, Pharmaceuticals, Professional Liability Insurance (PLI), Capital, and a residual. The residual reflects all remaining costs that are not captured in the other six cost categories. The FY 2012 cost reports include providers whose cost report begin date is on or between October 1, 2011, and September 30, 2012. We choose to use FY 2012 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 IPFs at the time of rulemaking.

Prior Medicare cost report data used to develop the RPL market basket showed large differences between some providers' Medicare length of stay (LOS) and total facility LOS. Since our goal is to measure cost weights that are reflective of case mix and practice patterns associated with providing services to Medicare beneficiaries, we proposed to limit our selection of Medicare cost reports used in the 2012-based IPF market basket to those facilities that had a Medicare LOS that was within a comparable range of their total facility average LOS. For freestanding IPFs, we proposed to use the Medicare days and discharges from line 14, columns 6 and 13, Worksheet S-3, Part I to determine the Medicare LOS and the total facility days and discharges from line 14, columns 8 and 15, to determine the facility LOS (consistent with the RPL market basket method). For hospital-based IPFs, we proposed to use the Medicare days and discharges from line 16, columns 6 and 13, of Worksheet S-3, Part I to determine the Medicare LOS and the total facility days and discharges from line 16, columns 8 and 15, to determine the facility LOS. To derive the 2012-based IPF market basket, for those IPFs with an average facility LOS of greater than or equal to 15 days, we proposed 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 proposed to include IPFs where the Medicare LOS is within 95 percent (higher or lower) of the facility LOS.

Applying these trims resulted in IPF Medicare cost reports with an average Medicare LOS of 12 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 30 percent. Those providers that were excluded from the 2012-based IPF market basket have an average Medicare LOS of 22 days, average facility LOS of 49 days, and a Medicare utilization of 5 percent. Of those Medicare cost reports excluded from the proposed 2012-based IPF market basket, about 70 percent were freestanding providers whereas freestanding providers represent about 30 percent of all IPFs.

We did not receive any specific comments on our proposed LOS edit methodology.

Final Decision: We are finalizing the LOS edit methodology as proposed.

We applied this LOS trim to first obtain a set of cost reports for facilities that have a Medicare LOS within a comparable range of their total facility LOS. Using the resulting set of FY 2012 Medicare cost reports for freestanding IPFs and hospital-based IPFs, we calculated costs for the six major cost categories (Wages and Salaries, Employee Benefits, Contract Labor, Professional Liability Insurance, Pharmaceuticals, and Capital).

Similar to the 2008-based RPL market basket major cost weights, the 2012-based IPF market basket cost weights reflect Medicare allowable costs (routine, ancillary and capital costs) that are eligible for inclusion under the IPF PPS payments. We proposed to define Medicare allowable costs for freestanding facilities as cost centers (CMS Form 2552-10): 30 through 35, 50 through 76 (excluding 52 and 75), 90 through 91, and 93. We proposed to define Medicare allowable costs for hospital-based facilities as cost centers (CMS Form 2552-10): 40, 50 through 76 (excluding 52 and 75), 90 through 91, and 93. For freestanding IPFs, we proposed that total Medicare allowable costs would be equal to the total costs as reported on Worksheet B, part I, column 26. For hospital-based IPFs, we proposed that total Medicare allowable costs would be equal to total costs for the IPF inpatient unit after the allocation of overhead costs (Worksheet B, part I, column 26, line 40) and a portion of total ancillary costs. We also proposed to calculate the portion of ancillary costs attributable to the hospital-based IPF for a given ancillary cost center by multiplying total facility ancillary costs for the specific cost center (as reported on Worksheet B, Part I, column 26) by the ratio of IPF Medicare ancillary costs for the cost center (as reported on Worksheet D-3, column 3 for IPF subproviders) to total Medicare ancillary costs for the cost center (equal to the sum of Worksheet D-3, column 3 for all relevant PPS (that is, Inpatient Prospective Payment System (IPPS), IRF, IPF and Skilled Nursing Facility (SNF))).

We did not receive any specific comments on our methodology for calculating total costs.

Final Decision: We are finalizing our methodology for calculating total costs as proposed.

Below we provide a description of the methodologies used to derive costs for the six major cost categories.

Wages and Salaries Costs

For freestanding IPFs, we proposed to derive Wages and Salaries costs as the sum of routine inpatient salaries, ancillary salaries, and a proportion of overhead (or general service cost center) salaries as reported on Worksheet A, column 1. Since overhead salary costs are attributable to the entire IPF, we proposed to only include the proportion attributable to the Medicare allowable cost centers. We estimated the proportion of overhead salaries that are attributed to Medicare allowable costs centers by multiplying the ratio of Medicare allowable salaries to total salaries (Worksheet A, column 1, line 200) times total overhead salaries. A similar methodology was used to derive Wages and Salaries costs in the 2008-based RPL market basket.

For hospital-based IPFs, we proposed to derive Wages and Salaries costs as the sum of routine inpatient wages and salaries (Worksheet A, column 1, line 40) and a portion of salary costs attributable to total facility ancillary and overhead cost centers as these cost centers are shared with the entire facility. We proposed to calculate the portion of ancillary salaries attributable to the hospital-based IPF for a given ancillary cost center by multiplying total facility ancillary salary costs for the specific cost center (as reported on Worksheet A, column 1) by the ratio of IPF Medicare ancillary costs for the cost center (as reported on Worksheet D-3, column 3 for IPF subproviders) to total Medicare ancillary costs for the cost center (equal to the sum of Worksheet D-3, column 3 for all relevant PPS units (that is, IPPS, IRF, IPF and SNF)). For example, if hospital-based IPF Medicare laboratory costs represent 10 percent of the total Medicare laboratory costs for the entire facility, then 10 percent of total facility laboratory salaries (as reported in Worksheet A, column 1, line 60) would be attributable to the hospital-based IPF. 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 proposed to calculate the portion of overhead salary costs attributable to hospital-based IPFs by multiplying the total overhead costs attributable to the hospital-based IPF (sum of columns 4 through18 on Worksheet B, part I, line 40) by the ratio of total facility overhead salaries (as reported on Worksheet A, column 1, lines 4 through 18) to total facility overhead costs (as reported on Worksheet A, column 7, lines 4 through 18). 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). Since the 2008-based RPL market basket did not include hospital-based providers, this proposed methodology cannot be compared to the derivation of Wages and Salaries costs in the 2008-based RPL market basket.

We received several comments on our methodology for deriving Wages and Salaries costs. These comments led to changes to our proposed methodology. We discuss these changes below.

Comment: Several commenters questioned the methodology we used to calculate the Wages and Salaries cost weight stating there was a risk of overstating the labor-related share. They encouraged CMS to utilize a more accurate calculation for the ancillary cost centers in order to mitigate the risk of overstating labor-related share costs.

One commenter stated that our methodology for deriving hospital-based IPF ancillary salary costs for a specific cost center using salary costs from Worksheet A, column 1 multiplied by the ratio of IPF Medicare ancillary costs for the cost center (as reported on Worksheet D-3, column 3 for IPF subproviders) to total Medicare ancillary costs for the cost center (equal to the sum of Worksheet D-3, column 3 for all relevant PPS units (that is, IPPS, IRF, IPF and SNF)) results in an overstatement of ancillary salary costs. Specifically, the commenter stated that the most accurate calculation would be to divide costs on Worksheet D-3, column 3 for the IPF subprovider by total costs on Worksheet C, column 5 for the hospital, and to apply this percentage to salary costs from Worksheet A, column 1. The commenter requested that we clarify how this ancillary salary calculation is used in determining the 74.9 percent labor-related share of the payment, and correct it as needed.

Response: The proposed labor-related share of 74.9 percent is equal to the sum of the relative importance of moving averages of the Wages and Salaries, Employee Benefits, Contract Labor, Labor-Related Services cost categories, and a portion of the relative importance moving average of the Capital-Related cost category. For a detailed description of how these cost categories were derived, please see the IPF proposed rule (80 FR 25017).

Based on the commenter's request, we reviewed our proposed methodology for calculating Wages and Salaries costs for hospital-based IPFs (including the ancillary wages and salaries costs mentioned by the commenter). As stated in the proposed rule, the Wages and Salaries costs for hospital-based IPFs are derived by summing routine inpatient salary costs for the hospital-based IPF (from Worksheet A, column 1, line 40), ancillary salaries, and overhead salaries. The methodology for calculating ancillary salaries (as the commenter noted) is calculated as ancillary salary costs for a specific cost center using salary costs from Worksheet A, column 1 multiplied by the ratio of IPF Medicare ancillary costs for the cost center (as reported on Worksheet D-3, column 3 for IPF subproviders) to total Medicare ancillary costs for the cost center (equal to the sum of Worksheet D-3, column 3 for all relevant PPS units (that is, IPPS, IRF, IPF and SNF)).

We respectfully disagree with the commenter's suggestion to use total costs on Worksheet C, column 5 as the denominator in the ratio above. We note that Worksheet D-3 represents Medicare IPF costs for ancillary services while Worksheet C, column 5 represents total ancillary costs for all payers. Our methodology for deriving all cost weights (for both freestanding and hospital-based providers) is based on Medicare-allowable costs (that is total costs for all patients for those cost centers that are Medicare-allowable under the IPF PPS). For example, the Contract Labor cost weight is based on contract labor costs reported on Worksheet S3, part V, for all hospital-based IPF patients; it is not specific to Medicare patients as that data is not reported on the Medicare cost report. The commenter's suggestion to use Worksheet C, column 5, would be inappropriate as the numerator would be based on Medicare patients (Worksheet D-3) and the denominator would be for all patients (Worksheet C), which would understate the proportion of ancillary salary costs that are attributable to all hospital-based IPF patients. Since the ancillary salary cost weight, in aggregate, is lower than the hospital-based IPF routine inpatient salary cost weight, this would lead to a higher Wages and Salaries cost weight relative to the proposed rule, and it would be calculated inconsistently with the other market basket cost weights (such as the Contract Labor cost weight). We believe using Medicare costs (Worksheet D-3) to determine the proportion of ancillary wages and salaries (and also total ancillary costs) that are attributable to the hospital-based IPF is a reasonable approach.

Comment: Several commenters stated that they had not conducted their own analysis of the CMS proposed 2012-based IPF market basket, but they were aware of an analysis of the proposed IRF market basket. That analysis, prepared by Dobson DaVanzo,1 was submitted to CMS as part of the FY 2016 IRF PPS rulemaking record. These commenters encouraged CMS to review Dobson DaVanzo findings to determine if CMS needs to take corrective measures before finalizing the IPF-specific market basket, as the same methodologies in the IRF market basket methodology could exist in the IPF methodology.

Response: We appreciate the commenters' request to review the consultants' report on the methodology used to develop the IRF-specific market basket. As the commenter stated, the methodology used to develop the IPF major cost weights using the Medicare cost report data for the 2012-based IPF market basket is similar to the methodology used in the proposed 2012-based IRF market basket. The only difference is the use of IPF-specific Medicare cost report data to calculate the major cost weights.

Based on these comments, we reviewed the Dobson DaVanzo IRF report submitted by commenters on the IRF proposed rule. This report stated on page four that our proposed methodology for calculating hospital-based IRF wages and salaries was flawed as it disregards overhead wages and salaries associated with the ancillary departments. Our proposed methodology for the 2012-based IRF market basket was identical to our proposed methodology for the 2012-based IPF market basket. Our proposed methodology for the 2012-based IPF market basket included overhead wages and salaries attributable to the hospital-based IPF routine inpatient unit only. Therefore, we are revising our methodology for calculating the Wages and Salaries costs for hospital-based IPFs to account for the omission of the overhead wages and salaries attributable to the ancillary departments.

For this final rule, we calculated the overhead salaries attributable to each ancillary department by first calculating total noncapital overhead costs attributable to the specific ancillary department (Worksheet B, part I, columns 4-18 less Worksheet B, part II, columns 4-18). We then identified the portion of the total noncapital overhead costs for each ancillary cost center that is attributable to the hospital-based IPF by multiplying by 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 PPS units (that is, IPPS, IRF, IPF and SNF)). Finally, we identified the portion of these noncapital overhead costs attributable to Wages and Salaries by multiplying these costs by an "overhead ratio", which is defined as the ratio of total facility overhead salaries (as reported on Worksheet A, column 1, lines 4-18) to total noncapital overhead costs (as reported on Worksheet A, column 1 & 2, lines 4-18) for all ancillary departments. This methodology is almost identical to the methodology suggested in the Dobson DaVanzo report with slight modifications, which are further discussed below.

Therefore, based on public comment, we are finalizing our methodology for calculating Wages and Salaries costs for hospital-based IPFs as the sum of routine inpatient salary costs for the hospital-based IPF (from Worksheet A, column 1, line 40), ancillary salaries, and overhead salaries attributable to the routine inpatient unit for the hospital-based IPF and ancillary departments.

During our review of the methodology to derive Wages and Salaries costs and the inclusion of overhead wages and salaries attributable to the ancillary department, we also found that the overhead ratios (used in the calculation of overhead wages and salaries attributable to the routine inpatient unit for the hospital-based IPF) (Worksheet A, column 1 divided by Worksheet A, column 7) by cost center showed that many providers reported data for these columns that resulted in a ratio that exceeded 100 percent. One possible explanation for the overhead ratio exceeding 100 percent is that Worksheet A, column 7 reflects reclassifications and adjustments while column 1 does not. However, when we calculated an alternative overhead ratio by defining overhead salaries using Worksheet S-3, part II column 4, which reflects reclassifications, and total facility noncapital overhead costs using Worksheet A, column 7, we also found that many providers still had overhead ratios that exceeded 100 percent. An overhead ratio exceeding 100 percent would suggest that wages and salaries costs are greater than total costs, which shows that the data we originally proposed to use results in an indisputable error to the allocation of overhead costs to wages and salaries. When we instead used an overhead ratio 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), the impacts of any potential misreporting is minimized.

Therefore, based on the comment, and in order to address the error, we are revising the overhead ratio used to determine the proportion of overhead salaries attributable to the hospital-based IPF routine inpatient department. The revised overhead ratio 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). This is now consistent with the overhead ratio we are using to determine overhead wages and salaries attributable to ancillary departments as described above.

In addition, our review of the methodology for Wages and Salaries costs also found that our proposed methodology for calculating overhead wages and salaries attributable to the hospital-based IPF routine inpatient department were calculated using total (operating and capital) overhead costs attributable to the hospital-based IPF (sum of columns 4-18 on Worksheet B, part I, line 40). The proposed methodology resulted in a portion of overhead capital costs to be allocated to wages and salaries costs which is incorrect and inconsistent with the Medicare cost report instructions.

The Medicare cost report instructions define capital-related costs as "depreciation, leases and rentals for the use of facilities and/or equipment, and interest incurred in acquiring land or depreciable assets used for patient care, insurance on depreciable assets used for patient care and taxes on land or depreciable assets used for patient care."2 The instructions also state that providers should exclude the following from capital-related costs: "costs incurred for the repair or maintenance of equipment or facilities, amounts included in rentals or lease payments for repair and/or maintenance agreements. * * *" Based on this definition of capital costs as reported on the Medicare cost report, we concluded that capital costs do not include direct wages and salaries costs and that it would be erroneous to allocate a portion of capital costs to overhead wages and salaries.

Therefore, we are revising the methodology to reflect operating costs (that is the sum of Worksheet B, part I, line 40, columns 4-18 less Worksheet B, part II, line 40, columns 4-18).

We are finalizing our methodology for calculating hospital-based IPF Wages and Salaries costs as described above. We discuss the effect of the changes to the proposed methodology on the market basket cost weight in section III.A.3.i. of this final rule.

We did not receive any comments on our proposed methodology for calculating the freestanding IPF Wages and Salaries costs and therefore, we are finalizing the methodology for calculating the freestanding IPF Wages and Salaries costs as proposed.

Employee Benefits Costs

Effective with our implementation of CMS Form 2552-10, we began collecting Employee Benefits and Contract Labor data on Worksheet S-3, Part V. Previously, with CMS Form 2540-96, Employee Benefits and Contract Labor data were reported on Worksheet S-3, part II, which was applicable to only IPPS providers and, therefore, these data were not available for the derivation of the RPL market basket. Due to the lack of such data, the Employee Benefits cost weight for the 2008-based RPL market basket was derived by multiplying the 2008-based RPL market basket Wages and Salaries cost weight by the ratio of the IPPS hospital market basket Employee Benefits cost weight to the IPPS hospital market basket Wages and Salaries cost weight. Similarly, the Contract Labor cost weight for the 2008-based RPL market basket was derived by multiplying the 2008-based RPL market basket Wages and Salaries cost weight by the ratio of the IPPS hospital market basket Contract Labor cost weight to the IPPS hospital market basket Wages and Salaries cost weight.

For FY 2012 Medicare cost report data, while there were providers that did report data on Worksheet S-3, part V, many providers did not complete this worksheet. However, we believe we had a large enough sample to enable us to produce reasonable Employee Benefits cost weights. We continue to encourage all providers to report these data on the Medicare cost report.

Dated: July 27, 2015.

Andrew M. Slavitt,

Acting Administrator, Centers for Medicare & Medicaid Services.

Dated: July 27, 2015.

Sylvia M. Burwell,

Secretary, Department of Health & Human Services.

Editor's note: For the full-text of this document, click this link or copy it into your browser: https://www.federalregister.gov/articles/2015/08/05/2015-18903/medicare-program-inpatient-psychiatric-facilities-prospective-payment-system-update-for-fiscal-year.

Myron Struck, editor, Targeted News Service, Springfield, Va., 703/304-1897; [email protected]; http://www.targetednews.com

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