On January 22, 2008, the Centers for Medicare & Medicaid Services (CMS) released its proposed Medicare LTCH rate update for rate year (RY) 2009, which begins July 1, 2008. CMS is proposing a standard federal rate of $39,076.28 for RY 2009, which reflects a 2.6 percent increase over RY 2008 (a 3.5 percent increase in the hospital market basket coupled with a 0.9 percent reduction to offset past coding changes that did not reflect real changes in patient severity). For RY 2009, CMS also would increase the fixed-loss amount for high cost outlier cases to $21,199 from $20,738. In addition, CMS is proposing to change the timetable for annual updates to a fiscal year (FY) schedule, starting on October 1 rather than July 1. To implement this change, CMS is proposing to make the rates for RY 2009 effective for a 15-month period, from July 1, 2008 through September 30, 2009. CMS also discusses options for a future one-time budget neutrality adjustment to LTCH rates, but the agency is barred from making such an adjustment for three years by the recently-enacted Medicare, Medicaid, and SCHIP Extension Act of 2007. Note that the new law includes other changes to LTCH policy, including a new statutory definition of an LTCH with facility criteria, relief from certain payment policies for three years, a three-year moratorium on the development of new LTCHs and LTCH beds, no payment update for the last quarter of rate year 2008, and new contractor medical necessity reviews (a Reed Smith client memo summarizing the new law will be available shortly at reedsmith.com). CMS intends to issue guidance on implementation of these new statutory provisions at a later time. The proposed rule is scheduled to be published January 29, 2008. The advance text of the rule is available at cms.hhs.gov, and comments are due March 24, 2008.