Pursuant to a legislative requirement, GAO reviewed the Health Care Financing Administration's (HCFA) new rule on hospital inpatient payment systems and rates. GAO noted that: (1) the final rule revises the Medicare hospital inpatient prospective payment systems for operating costs and capital-related costs to implement changes arising from HCFA's continuing experience with the systems; and (2) HCFA complied with applicable requirements in promulgating the rule.
Department of Health and Human Services, Health Care Financing Administration: Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2001 Rates, OGC-00-56, August 15, 2000
The Honorable Bill Archer
The Honorable Charles Rangel
Ranking Minority Member
Committee on Ways and Means
House of Representatives
Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a major rule promulgated by the Department of Health and Human Services, Health Care Financing Administration (HCFA), entitled "Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2001 Rates" (RIN: 0938-AK09). We received the rule on August 2, 2000. It was published in the Federal Register as a final rule on August 1, 2000. 65 Fed. Reg. 47054.
The final rule revises the Medicare hospital inpatient prospective payment systems for operating costs and capital-related costs to implement changes arising from HCFA's continuing experience with the systems. In addition, the final rule implements provisions of the Medicare, Medicaid, and State Children's Health Insurance Program Balanced Budget Refinement Act of 1999 (Pub. L. 106-113).
Enclosed is our assessment of the HCFA's compliance with the procedural steps required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule. Our review indicates that HCFA complied with the applicable requirements.
If you have any questions about this report, please contact James W. Vickers, Assistant General Counsel, at (202) 512-8210. The official responsible for GAO evaluation work relating to the subject matter of the rule is William Scanlon, Director, Health Financing and Public Health Issues. Mr. Scanlon can be reached at (202) 512-7114.
Robert P. Murphy
ANALYSIS UNDER 5 U.S.C. 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE
ISSUED BY THE
DEPARTMENT OF HEALTH AND HUMAN SERVICES,
HEALTH CARE FINANCING ADMINISTRATION
"MEDICARE PROGRAM; CHANGES TO THE HOSPITAL INPATIENT PROSPECTIVE PAYMENT SYSTEMS AND FISCAL YEAR 2001 RATES"
(i) Cost-benefit analysis and agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. 603-605, 607, and 609
Section 1102(b) of the Social Security Act, 42 U.S.C. 1302(b), requires the Secretary of Health and Human Services to prepare regulatory impact analyses for any rule that may have a significant impact on the operations of a substantial number of small, rural hospitals. An initial analysis, to be prepared for a proposed rule, is to describe the impact of the proposed rule on such hospitals and include the matters required under 5 U.S.C. 603. The final analysis, to be prepared for a final rule, must include, with respect to small, rural hospitals, the matters required under 5 U.S.C. 604. HCFA determined that the proposed rule would affect a substantial number of small, rural hospitals, and that the effects on some could be significant. HCFA also determined that the rule could have a significant impact on other classes of hospitals as well. HCFA considers most hospitals to be small entities for purposes of the Regulatory Flexibility Act. Therefore, HCFA has prepared a combined regulatory impact/regulatory flexibility analysis in connection with the rule, which was contained in Appendix A to the final rule.
HCFA estimates that the impact of the final rule will be to increase payments to hospitals by approximately $1.5 billion in fiscal year 2001. In addition, the changes relating to the Medicare inpatient disproportionate share hospitals adjustment calculation are estimated at $350 million for fiscal year 2001.
The final analysis explains the reasons and objectives, as well as the legal bases, for the final rule. It also describes and estimates the number of small entities to which the rule will apply. The prospective payment system will apply to 4,933 hospitals or about 80 percent of all Medicare-participating hospitals. The remaining 20 percent are specialty hospitals (psychiatric, rehabilitation, long-term care, children's, and cancer hospitals) that are excluded from the prospective payment system and continue to be paid on the basis of reasonable costs.
The final analysis provides both a quantifiable description of the effect of the rule and general descriptive statements if quantification is not practicable or reliable. These descriptions include the percent of the changes in payments per case due to changes in the prospective payment system for operating costs.
(ii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1532-1535
The final rule does not impose either an intergovernmental or private sector mandate of over $100 million per year, as defined in the Unfunded Mandates Reform Act of 1995.
(iii) Other relevant information or requirements under acts and executive orders
Administrative Procedure Act, 5 U.S.C. 551 et seq.
The final rule was issued using the notice and comment procedures contained in 5 U.S.C. 553 and section 1871(b) of the Social Security Act, 42 U.S.C. 1395hh(b). 
HCFA published a Notice of Proposed Rulemaking on May 5, 2000, in the Federal Register (65 Fed. Reg. 26282). It received 290 pieces of correspondence containing comments, which are summarized and responded to in the preamble to the final rule.
Paperwork Reduction Act, 44 U.S.C. 3501-3520
The final rule does not contain any information collections that are subject to review by the Office of Management and Budget under the Paperwork Reduction Act.
Statutory authorization for the rule
The final rule was issued under the Secretary's broad authority to promulgate regulations necessary for the efficient administration of the Medicare program, contained primarily in sections 1102 and 1871 of the Social Security Act, 42 U.S.C. 1302 and 1395hh. In addition, many of the rule provisions were mandated by the Medicare, Medicaid, and State Children's Health Insurance Program Balanced Budget Refinement Act of 1999 (Pub. L. 106-113, November 29, 1999).
Executive Order No. 12866
The final rule was determined to be an "economically significant" regulatory action under Executive Order No. 12866 and was reviewed and approved by the Office of Management and Budget.
1. With exceptions not pertinent here, section 1871(b) states that before issuing any final rule, the Secretary shall provide for notice of the proposed regulation in the Federal Register and a comment period of at least 60 days.