Press Releases



The Centers for Medicare & Medicaid Services (CMS) today issued a notice announcing it will proceed with implementing the revised and expanded classification criteria for inpatient rehabilitation facilities (IRFs) it adopted in a May 7, 2004, final rule.   The rule also provided for a four-year transition period during which the required percentage of patients with a qualifying condition (the “compliance threshold”) increases gradually from 50 percent to 75 percent. 


In January 2005, CMS suspended enforcement of the classification criteria in response to a provision of the Consolidated Appropriations Act, 2005 (“CAA”) that directed CMS not to change the status of certain IRFs for their failure to comply with the classification criteria in the May 7, 2004 rule until it had reviewed recommendations from a then-pending study by the GAO of clinically appropriate IRF classification criteria.  The CAA further directed CMS to either make a determination that its May 7 criteria were “not inconsistent” with the GAO report or to issue an interim final rule revising its classification criteria. 


GAO issued its report and recommendations in April 2005.   GAO recommended that CMS further identify subgroups within the groups specified in the May 7, 2004 final rule.  The subgroups would better identify patients that appear to need an IRF level of care, based upon research and review of IRF cases.  Significantly, GAO did not recommend that CMS delay implementing the revised criteria specified in the May 7 final rule pending further refinement.


The CMS has reviewed the recommendations and determined it has already been taking the steps that the GAO recommended to improve how facilities are classified as an IRF.   In the notice announced today, CMS is issuing its determination that the expanded classification criteria for IRFs are not inconsistent with the recommendations in the GAO report.  CMS realizes that although the existing medical conditions are not designed to identify every patient who should be treated in an IRF, they provide a method upon which to base payments to the IRFs so that they can provide the care that their patients need – plus payments for many patients outside these medical conditions. 


Accordingly, the notice lifts the suspension of enforcement of the criteria in the final rule.  CMS will carefully monitor access to rehabilitation services in all settings as implementation proceeds.


“CMS is committed to ensuring that Medicare beneficiaries receive the care they need in the most appropriate setting, and we are supporting a full range of settings of care based on patient needs,” said CMS Administrator Mark B. McClellan, M.D., Ph.D.  “The criteria we adopted in 2004 for the first time takes into account not just the patient’s diagnosis, but in knee or hip joint replacement cases also considers other patient characteristics such as advanced age and obesity.”


Medicare beneficiaries can receive high quality rehabilitation care in a variety of settings, including the home, outpatient centers, skilled nursing facilities, and hospitals.  According to expert analyses, these alternative settings are generally most appropriate for the categories of patients with medical conditions not included in the current regulations.  However, in order to give IRFs flexibility regarding which patients they admit CMS allows for payments to an IRF for a significant number of patients that have medical conditions not listed in the regulations.   In order to ensure that patients who require the most extensive and intensive treatments have access to the high level of rehabilitation services provided by IRFs, Medicare defines the types of conditions for which these services are typically appropriate, but allows facilities to admit a certain percentage ‑ currently up to 50 percent ‑ of patients with other conditions.  In turn, in most cases, Medicare pays these facilities much higher rates for the services they provide than it pays for rehabilitation services in other settings. 


The May 2004 final rule expanded the number of qualifying medical conditions that are listed in the regulations to include stroke, spinal cord injury, congenital deformity, amputation, major multiple traumas, fracture of the femur, brain injury, three types of arthritis, neurological disorder, and burns.   The revised regulations also added certain joint replacement cases as a new qualifying medical condition, and allowed a facility in certain circumstances to count toward the percentage threshold patients who have a secondary medical condition that meets one of the qualifying diagnoses. 


CMS has been closely monitoring patient access to rehabilitation services in IRFs as well as in all other treatment settings, and will continue to do so after the suspension is lifted.   At this time, CMS is finding no significant access problems; in fact, the trend is toward increasing utilization of rehabilitation services in all settings.  Between calendar years 2003 and 2004, when the revised regulations were implemented, the number of IRF cases increased about 1.2 percent.


Medicare payments to IRFs are also projected to increase.   CMS recently issued a proposed rule to update the Medicare IRF prospective payment system for fiscal year (FY) 2006.  With the proposed market basket update, adjustments for coding changes, and an increase in the outlier threshold, estimated aggregate payments to IRFs in FY 2006 are projected to grow by $180 million over FY 2005 ‑ a 2.9 percent increase.  In addition, both payment rates to IRFs and utilization of IRF services are expected to increase.


CMS agrees that further research and information collected through its medical necessity reviews has the potential to offer improved methods for classifying these facilities.  Consistent with that view, CMS has been working to promote a research agenda with the National Institutes of Health and is expanding medical necessity reviews at the local level through its contractors.   CMS may use this information in the future to define subgroups of patients, but is concerned that this could result in more stringent criteria than those set out in the May 7 rule.  Consequently, the gradual implementation of the threshold now permits a gradual adjustment to the policies recommended by GAO and other independent experts. 


“CMS will support further research with the National Institutes of Health that would help refine the eligibility criteria for IRFs,” said Dr. McClellan.   “We will also closely monitor the access of our beneficiaries to medically appropriate IRF services, to help ensure that patients who need this level of care can get it, and to help ensure that beneficiaries who need other levels of care can get it as well.”


As part of its ongoing monitoring efforts, CMS will track utilization of IRF services as well as other types of rehabilitation services, for beneficiaries with different criteria.  Monitoring utilization along with further clinically-based research will help ensure that patients get appropriate rehabilitation services while avoiding unnecessary costs.


Under the transition, at least 50 percent of the total inpatient population of an IRF must have at least one of the medical conditions listed in the May 7, 2004, final rule for cost reporting periods beginning on or after July 1, 2004 and before July 1, 2005.  Other compliance percentages apply for the remainder of the transition period until the compliance percentage reaches 75 percent for cost reporting periods beginning on or after July 1, 2007.  In addition, during the transition period patients with a secondary condition that meets one of the qualifying conditions may also count towards the applicable percentage if certain conditions are met.


IRFs are paid under a prospective payment system (PPS) – the IRF PPS – that was first implemented in January 2002.  Under this system, payments are based on the resources used to furnish care to Medicare beneficiaries.  The goal is to encourage the efficient delivery of quality care.  For Fiscal Year 2003, there were 1215 IRFs paid under the IRF PPS.  Of these, 195 were rural.  In addition, 221 were freestanding, while 994 were distinct part units of acute care hospitals.


The Notice will be published in the June 24 Federal Register.


Note: For more information, see