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Federal Register / Vol. 86, No. 88 / Monday, May 10, 2021 / Rules and Regulations
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implementation of the provisions of sections 1886d8B, 1886d8C, and 1886d10 of the Act, regarding geographic reclassification of hospitals, are equal to the aggregate prospective payments that would have been made absent these provisions.
B. Hospital Reclassifications Under Sections 1886d8E and 1886d10
of the Act Hospitals may seek to have their geographic designation reclassified.
Under section 1886d8E of the Act, a qualifying prospective payment hospital located in an urban area may apply for rural status. Specifically, section 1886d8E of the Act states that for purposes of this subsection, not later than 60 days after the receipt of an application in a form and manner determined by the Secretary from a subsection d hospital described in clause ii, the Secretary shall treat the hospital as being located in the rural area as defined in paragraph 2D of the state in which the hospital is located. The regulations governing these geographic redesignations are codified in 412.103, and such hospitals are commonly referred to as 412.103 hospitals.
In a separate process, hospitals may also reclassify for purposes of the wage index under the IPPS under section 1886d10 of the Act by applying to the Medicare Geographic Classification Review Board MGCRB. Hospitals must apply to the MGCRB to reclassify not later than 13 months prior to the start of the fiscal year for which reclassification is sought, generally by September 1. However, we note that this deadline has been extended for applications for FY 2022
reclassifications to 15 days after the public display date of the FY 2021 IPPS/
LTCH final rule at the Office of the Federal Register, using our authority under section 1135b5 the Act due to the COVID19 Public Health Emergency. Generally, hospitals must be proximate to the labor market area to which they are seeking reclassification and must demonstrate characteristics similar to hospitals located in that area.
The MGCRB issues its decisions by the end of February for reclassifications that become effective for the following fiscal year beginning October 1. The regulations applicable to reclassifications by the MGCRB are located in 412.230 through 412.280.
Prior to a court decision in Geisinger Community Medical v. Secretary, United States Department of Health and Human Services, 794 F.3d 383 3d Cir.
2015 Geisinger, hospitals were only able to hold one reclassification at a
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time: either under 412.103 or through the MGCRB under section 1886d10 of the Act. The Court of Appeals in Geisinger ruled that CMSs prohibition of dual 412.103 and MGCRB
reclassifications was unlawful, since section 1886d8Ei of the Act requires that the Secretary shall treat the hospital as being located in the rural area, inclusive of MGCRB
reclassification purposes. Therefore, on April 21, 2016, we published an interim final rule with comment period the April 21, 2016 IFC in the Federal Register 81 FR 23428 through 23438
that included provisions amending our regulations to allow hospitals nationwide to have simultaneous 412.103 and MGCRB reclassifications.
II. Provisions of the Interim Final Rule With Comment Period Pursuant to our April 21, 2016 IFC, for reclassifications effective beginning FY 2018, a hospital may acquire rural status under 412.103 and subsequently apply for a reclassification under the MGCRB using the distance and average hourly wage criteria designated for rural hospitals. Hospitals with a 412.103
redesignation seeking additional reclassification under the MGCRB use the rural distance and average hourly wage criteria under 412.230b1, d1iiiC, and d1ivE. For example, under our current policy, a 412.103 hospital geographically located in the urban CBSA of BuffaloCheektowaga, NY seeking to reclassify under the MGCRB would demonstrate that their wages are at least 106 percent and not 108 percent, as urban hospitals must demonstrate of the average hourly wage of Buffalo-Cheektowaga, NY, to meet the criteria at 412.230d1iiiC.
However, our current policy compares the average hourly wage of a 412.103
hospital to its geographic urban location, rather than the rural reclassified area, for purposes of satisfying certain wage comparison criteria. In response to a comment on our April 21, 2016 IFC 81 FR 56925, we stated: The commenter is correct that the rural distance and average hourly wage criteria will be used for hospitals with a 412.103
redesignation. However, the commenters statement that the average hourly wage of a hospital with a 412.103 redesignation is compared to the average hourly wage of hospitals in the States rural area under 412.230d1iiiC is incorrect.
Instead, the hospitals average hourly wage would be compared to the average hourly wage of all other hospitals in its urban geographic location using the
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rural distance and average hourly wage criteria.
On May 14, 2020, the United States District Court for the District of Columbia issued a decision in Bates County Memorial Hospital v. Azar, 464
F. Supp. 3d 43 D.D.C. 2020 Bates.
Bates County Memorial Hospital and five other geographically urban hospitals were reclassified to rural under 412.103. They also applied for reclassification under the MGCRB, but were denied because their wages were not at least 106 percent of the geographic urban area in which the hospitals were located. Each of the hospitals average hourly wages were at least 106 percent of the 3-year average hourly wage of all other hospitals in the rural area of the state in which the hospitals are located.
The Court agreed with the Plaintiffs that the statute at section 1886d8Ei of Act requires that CMS
treat qualifying hospitals as being located in the rural area for purposes of section 1886d of the Act, including MGCRB reclassification. The Bates decision requires that CMS consider the rural area to be the area in which the hospital is located for the wage comparisons required for MGCRB
reclassifications. For example, pursuant to Bates, a 412.103 hospital geographically located in the urban CBSA of Buffalo-Cheektowaga, NY
seeking to reclassify under the MGCRB
would demonstrate that their wages are at least 106 percent of the average hourly wage of rural NY, rather than that of Buffalo-Cheektowaga.
As a result of the Bates courts decision, we are revising our policy so that the redesignated rural area, and not the hospitals geographic urban area, will be considered the area a 412.103
hospital is located in for purposes of meeting MGCRB reclassification criteria.
Similarly, we are revising the regulations to consider the redesignated rural area, and not the geographic urban area, as the area a 412.103 hospital is located in for the prohibition at 412.230a5i on reclassifying to an area with a pre-reclassified average hourly wage lower than the prereclassified average hourly wage for the area in which the hospital is located.
Specifically, to align our policy with the courts decision in Bates, we are amending the regulations at 412.230a1 by adding a1iii to state that an urban hospital that has been granted redesignation as rural under 412.103 is considered to be located in the rural area of the state for the purposes of this section. We are also making conforming changes to the regulation at 412.230a5i because
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