CMS uses the start of a provider's cost reporting period to determine which compliance threshold to apply to determine if a hospital should be classified as an IRF. For example, in accordance with Section 5005 of the Deficit Reduction Act of 2005 (DRA), the 60 percent threshold applies for cost reporting periods beginning during the 12-month period beginning on July 1, 2006. The compliance threshold increases to 65 percent for cost reporting periods beginning during the 12-month period beginning on July 1, 2007. For cost reporting periods beginning on and after July 1, 2008, of the compliance percentage is 75 percent.

Under the 75 percent rule, CMS regulations allow comorbidities that meet the regulatory criteria to be used to determine the compliance percentage for cost reporting periods that begin before July 1, 2008. This provision, adopted for IRFs with cost reports beginning on or after July 1, 2004 as part of a four year transition for the new provisions of the 75 percent rule, is scheduled to expire for cost reporting periods that will begin on or after July 1, 2008. Given the transitional nature of the provision, the proposed rule does not extend its application, but CMS is soliciting comments and research to support current policy or options to extend this provision for a specified time or to make it a permanent part of the IRF PPS policy.


The proposed rule would increase the high-cost outlier threshold to $7,522 from $5,534 in FY 2007, based on an analysis of 2005 data which indicates that this threshold would maintain estimated outlier payments at 3 percent of total payments under the IRF PPS. Although the higher threshold would mean that fewer cases would qualify for outlier payments, a lower outlier threshold would require an across-the-board reduction in the base payment for an IRF stay in order to maintain budget neutrality. The high-cost outlier threshold may be updated for the final rule based on analysis of 2006 data. The proposed rule would also clarify that short-stay transfer cases that meet the criteria to qualify for outlier payments are eligible to receive the additional payments.

Finally, the proposed rule would modify the wage index methodology as it applies to IRFs in certain rural areas where no hospitals exist to generate wage index data. The proposed rule would provide for CMS to use an average wage index from all contiguous Core Based Statistical Areas as a reasonable proxy for the wage index in the rural area.

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