Medicare Program; Prospective Payment System for Long-Term Care Hospitals: Annual Payment Rate Updates, Policy Changes, and Clarification, 24168-24261 [05-8878]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 70, Number 87 (Friday, May 6, 2005)]
[Rules and Regulations]
[Pages 24168-24261]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-8878]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 412



Medicare Program; Prospective Payment System for Long-Term Care 
Hospitals: Annual Payment Rate Updates, Policy Changes, and 
Clarification; Final Rule

Federal Register / Vol. 70 , No. 87 / Friday, May 6, 2005 / Rules and 
Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1483-F]
RIN 0938-AN28


Medicare Program; Prospective Payment System for Long-Term Care 
Hospitals: Annual Payment Rate Updates, Policy Changes, and 
Clarification

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule updates the annual payment rates for the 
Medicare prospective payment system (PPS) for inpatient hospital 
services provided by long-term care hospitals (LTCHs). The payment 
amounts and factors used to determine the updated Federal rates that 
are described in this final rule have been determined based on the LTCH 
PPS rate year July 1, 2005 through June 30, 2006. The annual update of 
the long-term care diagnosis-related group (LTC-DRG) classifications 
and relative weights remains linked to the annual adjustments of the 
acute care hospital inpatient diagnosis-related group system, and will 
continue to be effective each October 1. The outlier threshold for July 
1, 2005 through June 30, 2006 is also derived from the LTCH PPS rate 
year calculations. We are adopting new labor market area definitions 
for the purpose of geographic classification and the wage index. We are 
also making policy changes and clarifications.

DATES: This final rule is effective July 1, 2005.

FOR FURTHER INFORMATION CONTACT: Tzvi Hefter, (410) 786-4487 (General 
information). Judy Richter, (410) 786-2590 (General information, 
transition payments, payment adjustments for special cases, and onsite 
discharges and readmissions, interrupted stays, co-located providers, 
and short-stay outliers). Michele Hudson, (410) 786-5490 (Calculation 
of the payment rates, relative weights and case-mix index, market 
basket update, and payment adjustments). Mark Zezza, (410) 786-7937 
(Calculation of the payment rates wage index, wage index, and payment 
adjustments). Ann Fagan, (410) 786-5662 (Patient classification 
system). Miechal Lefkowitz, (410) 786-5316 (High-cost outliers and 
budget neutrality). Linda McKenna, (410) 786-4537 (Payment adjustments, 
interrupted stay, and transition period).

Table of Contents

I. Background
    A. Legislative and Regulatory Authority
    B. Criteria for Classification as a LTCH
    1. Classification as a LTCH
    2. Hospitals Excluded from the LTCH PPS
    C. Transition Period for Implementation of the LTCH PPS
    D. Administrative Simplification Compliance Act and Health 
Insurance Portability and Accountability Act Compliance
II. Publication of Proposed Rulemaking
III. Summary of Major Contents of This Final Rule
    A. Update Changes
    B. Policy Changes
    C. MedPAC Report
    D. Impact
IV. Long-Term Care Diagnosis-Related Group (LTC-DRG) Classifications 
and Relative Weights
    A. Background
    B. Patient Classifications into DRGs
    C. Organization of DRGs
    D. Update of LTC-DRGs
    E. ICD-9-CM Coding System
    1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
    2. Maintenance of the ICD-9-CM Coding System
    3. Coding Rules and Use of ICD-9-CM Codes in LTCHs
    F. Method for Updating the LTC-DRG Relative Weights
V. Changes to the LTCH PPS Rates and Changes in Policy for the 2006 
LTCH PPS Rate Year
    A. Overview of the Development of the Payment Rates
    B. Update to the Standard Federal Rate for the 2006 LTCH PPS 
Rate Year
    1. Standard Federal Rate Update
    a. Description of the Market Basket for the 2006 LTCH PPS Rate 
Year
    b. LTCH Market Basket Increase for the 2006 LTCH PPS Rate Year
    2. Standard Federal Rate for the 2006 LTCH PPS Rate year
    C. Calculation of LTCH Prospective Payments for the 2006 LTCH 
PPS Rate Year
    1. Adjustment for Area Wage Levels
    a. Background
    b. Labor-Related Share
    c. Revision of the LTCH PPS Geographic Classifications
    1. Current LTCH PPS Labor Market Areas Based on MSAs
    2. Core-Based Statistical Areas
    3. Revision of the Labor Market Areas
    a. New England MSAs
    b. Metropolitan Divisions
    c. Micropolitan Areas
    4. Implementation of the Revised Labor Market Areas Under the 
LTCH PPS
    d. Wage Index Data
    2. Adjustment for Cost-of-Living in Alaska and Hawaii
    3. Adjustment for High-Cost Outliers
    a. Background
    b. Cost-to-charge ratios (CCRs)
    c. Establishment of the Fixed-Loss Amount
    d. Reconciliation of Outlier Payments Upon Cost Report 
Settlement
    e. Application of Outlier Policy to Short-Stay Outlier Cases
    4. Adjustments for Special Cases
    a. General
    b. Adjustment for Short-Stay Outlier Cases
    5. Hospital-within-Hospitals and Satellites of LTCHs 
Notification Requirements
    6. Other Payment Adjustments
    7. Budget Neutrality Offset to Account for the Transition 
Methodology
    8. Extension of the Interrupted Stay Policy
    9. Onsite Discharges and Readmittances
VI. Computing the Adjusted Federal Prospective Payments for the 2005 
LTCH PPS Rate Year
VII. Transition Period
VIII. Payments to New LTCHs
IX. Method of Payment
X. MedPAC Recommendations/Monitoring
XI. Collection of Information Requirements
XII. Regulatory Impact Analysis

Acronyms

    Because of the many terms to which we refer by acronym in this 
proposed rule, we are listing the acronyms used and their corresponding 
terms in alphabetical order below:

BBA Balanced Budget Act of 1997, (Pub. L. 105-33).
BBRA Medicare, Medicaid, and SCHIP [State Children's Health Insurance 
Program] Balanced Budget Refinement Act of 1999, (Pub. L. 106-113).
BIPA Medicare, Medicaid, and SCHIP [State Children's Health Insurance 
Program] Benefits Improvement and Protection Act of 2000, (Pub. L. 106-
554).
CBSA Core-Based Statistical Area.
CMS Centers for Medicare & Medicaid Services.
COPS Medicare conditions of participation.
DRGs Diagnosis-related groups.
FY Federal fiscal year.
HCRIS Hospital Cost Report Information System.
HHA Home health agency.
HIPAA Health Insurance Portability and Accountability Act, Pub. L. 104-
191.
IPF Inpatient Psychiatric Facility.
IPPS Acute Care Hospital Inpatient Prospective Payment System.
IRF Inpatient rehabilitation facility.
LTC-DRG Long-term care diagnosis-related group.
LTCH Long-term care hospital.
MedPAC Medicare Payment Advisory Commission.
MedPAR Medicare provider analysis and review file.
OSCAR Online Survey Certification and Reporting (System).
PPS Prospective Payment System.
QIO Quality Improvement Organization (formerly Peer Review Organization 
(PRO)).

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RY Rate Year (July 1 through June 30).
SNF Skilled nursing facility.
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, (Pub. L. 97-
248).

I. Background

A. Legislative and Regulatory Authority

    The Medicare, Medicaid, and SCHIP [State Children's Health 
Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA) (Pub. 
L. 106-113) and the Medicare, Medicaid, and SCHIP Benefits Improvement 
and Protection Act of 2000 (BIPA) (Pub. L. 106-554) provide for payment 
for both the operating and capital-related costs of hospital inpatient 
stays in long-term care hospitals (LTCHs) under Medicare Part A based 
on prospectively set rates. The Medicare prospective payment system 
(PPS) for LTCHs applies to hospitals described in section 
1886(d)(1)(B)(iv) of the Social Security Act (the Act), effective for 
cost reporting periods beginning on or after October 1, 2002.
    Section 1886(d)(1)(B)(iv)(I) of the Act defines a LTCH as ``a 
hospital which has an average inpatient length of stay (as determined 
by the Secretary) of greater than 25 days.'' Section 
1886(d)(1)(B)(iv)(II) of the Act also provides an alternative 
definition of LTCHs: specifically, a hospital that first received 
payment under section 1886(d) of the Act in 1986 and has an average 
inpatient length of stay (as determined by the Secretary) of greater 
than 20 days and has 80 percent or more of its annual Medicare 
inpatient discharges with a principal diagnosis that reflects a finding 
of neoplastic disease in the 12-month cost reporting period ending in 
FY 1997.
    Section 123 of the BBRA requires the PPS for LTCHs to be a per 
discharge system with a diagnosis-related group (DRG) based patient 
classification system that reflects the differences in patient 
resources and costs in LTCHs while maintaining budget neutrality.
    Section 307(b)(1) of the BIPA, among other things, mandates that 
the Secretary shall examine, and may provide for, adjustments to 
payments under the LTCH PPS, including adjustments to DRG weights, area 
wage adjustments, geographic reclassification, outliers, updates, and a 
disproportionate share adjustment.
    In a Federal Register document issued on August 30, 2002 (67 FR 
55954), we implemented the LTCH PPS authorized under BBRA and BIPA. 
This system uses information from LTCH patient records to classify 
patients into distinct long-term care diagnosis-related groups (LTC-
DRGs) based on clinical characteristics and expected resource needs. 
Payments are calculated for each LTC-DRG and provisions are made for 
appropriate payment adjustments. Payment rates under the LTCH PPS are 
updated annually and published in the Federal Register.
    The LTCH PPS replaced the reasonable cost-based payment system 
under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) 
(Pub. L. 97-248) for payments for inpatient services provided by a LTCH 
with a cost reporting period beginning on or after October 1, 2002. 
(The regulations implementing the TEFRA reasonable cost-based payment 
provisions are located at 42 CFR part 413.) With the implementation of 
the prospective payment system for acute care hospitals authorized by 
the Social Security Amendments of 1983 (Pub. L. 98-21), which added 
section 1886(d) to the Act, certain hospitals, including LTCHs, were 
excluded from the PPS for acute care hospitals and were paid their 
reasonable costs for inpatient services subject to a per discharge 
limitation or target amount under the TEFRA system. For each cost 
reporting period, a hospital-specific ceiling on payments was 
determined by multiplying the hospital's updated target amount by the 
number of total current year Medicare discharges. The August 30, 2002 
final rule further details payment policy under the TEFRA system (67 FR 
55954).
    In the August 30, 2002 final rule, we presented an in-depth 
discussion of the LTCH PPS, including the patient classification 
system, relative weights, payment rates, additional payments, and the 
budget neutrality requirements mandated by section 123 of the BBRA. The 
same final rule that established regulations for the LTCH PPS under 42 
CFR part 412, subpart O, also contained LTCH provisions related to 
covered inpatient services, limitation on charges to beneficiaries, 
medical review requirements, furnishing of inpatient hospital services 
directly or under arrangement, and reporting and recordkeeping 
requirements.
    We refer readers to the August 30, 2002 final (67 FR 55954) rule 
for a comprehensive discussion of the research and data that supported 
the establishment of the LTCH PPS.
    On June 6, 2003, we published a final rule in the Federal Register 
(68 FR 34122) that set forth the 2004 annual update of the payment 
rates for the Medicare PPS for inpatient hospital services furnished by 
LTCHs. It also changed the annual period for which the payment rates 
are effective. The annual updated rates are now effective from July 1 
through June 30 instead of from October 1 through September 30. We 
refer to the July through June time period as a ``long-term care 
hospital rate year'' (LTCH PPS rate year). In addition, we changed the 
publication schedule for the annual update to allow for an effective 
date of July 1. The payment amounts and factors used to determine the 
annual update of the LTCH PPS Federal rate is based on a LTCH PPS rate 
year. While the LTCH payment rate update is effective July 1, the 
annual update of the LTC-DRG classifications and relative weights are 
linked to the annual adjustments of the acute care hospital inpatient 
diagnosis-related groups and are effective each October 1.
    On May 7, 2004 we published a final rule in the Federal Register 
(69 FR 25674) that set forth the 2005 LTCH PPS rate year annual update 
of the payment rates for the Medicare PPS for inpatient hospital 
services provided by LTCHs. We also discussed clarification of the 
procedures under which a satellite facility or remote location of a 
LTCH may be designated as a separately certified LTCH. In addition, the 
final rule included a provision to expand the existing interrupted stay 
policy at Sec.  412.531, and a revision to the procedure for computing 
the day count in the average length of stay calculation for Medicare 
patients for hospitals qualifying as LTCHs at Sec.  412.23(e)(3)(ii).

B. Criteria for Classification as a LTCH

1. Classification as a LTCH
    Under the existing regulations at Sec.  412.23(e)(1) and (e)(2)(i), 
which implement section 1886(d)(1)(B)(iv)(I) of the Act, to qualify to 
be paid under the LTCH PPS, a hospital must have a provider agreement 
with Medicare and must have an average Medicare inpatient length of 
stay of greater than 25 days. Alternatively, for cost reporting periods 
beginning on or after August 5, 1997, a hospital that was first 
excluded from the PPS in 1986, and can demonstrate that at least 80 
percent of its annual Medicare inpatient discharges in the 12-month 
cost reporting period ending in FY 1997 have a principal diagnosis that 
reflects a finding of neoplastic disease must have an average inpatient 
length of stay for all patients, including both Medicare and non-
Medicare inpatients, of greater than 20 days (Sec.  412.23(e)(2)(ii)).
    Regulations at Sec.  412.23(e)(3) provide that, subject to the 
provisions of paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, 
the average Medicare inpatient length of stay, specified under Sec.  
412.23(e)(2)(i) is calculated by dividing the total number of covered

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and noncovered days of stay of Medicare inpatients (less leave or pass 
days) by the number of total Medicare discharges for the hospital's 
most recent complete cost reporting period. Section 412.23 also 
provides that subject to the provisions of paragraphs (e)(3)(ii) 
through (e)(3)(iv) of this section, the average inpatient length of 
stay specified under Sec.  412.23(e)(2)(ii) is calculated by dividing 
the total number of days for all patients, including both Medicare and 
non-Medicare inpatients (less leave or pass days) by the number of 
total discharges for the hospital's most recent complete cost reporting 
period.
    In the LTCH PPS final rule published on May 7, 2004, we specified 
the procedure for calculating a hospital's inpatient average length of 
stay for purposes of classification as a LTCH. That is, if a patient's 
stay includes days of care furnished during two or more separate 
consecutive cost reporting periods, the total days of a patient's stay 
would be reported in the cost reporting period during which the patient 
is discharged. (69 FR 25705). Therefore, we have revised the 
regulations at Sec.  412.23(e)(3)(ii) to specify that, effective for 
cost reporting periods beginning on or after July 1, 2004, in 
calculating a hospital's average length of stay, if the days of a stay 
of an inpatient involves days of care furnished during two or more 
separate consecutive cost reporting periods, the total number of days 
of the stay are considered to have occurred in the cost reporting 
period during which the inpatient was discharged.
    Effective for cost reporting periods beginning on or after July 1, 
2004, but before July 1, 2005, a one-year exception is provided in the 
event some providers failed to meet the 25-day ALOS criteria due to 
this change in policy. In these cases, the fiscal intermediary (FI) 
will do an additional calculation to determine if these providers meet 
the average length of stay methodology found in Sec.  412.23(e)(3)(i).
    FIs verify that LTCHs meet the average length of stay requirements. 
We note that the inpatient days of a patient who is admitted to a LTCH 
without any remaining Medicare days of coverage, regardless of the fact 
that the patient is a Medicare beneficiary, will not be included in the 
above calculation. Because Medicare would not be paying for any of the 
patient's treatment, data on the patient's stay would not be included 
in the Medicare claims processing systems. In order for both covered 
and noncovered days of a LTCH hospitalization to be included, a patient 
admitted to the LTCH must have at least one remaining benefit day as 
described in Sec.  409.61 (68 FR 34123).
    The FI's determination of whether or not a hospital qualified as an 
LTCH is based on the hospital's discharge data from the hospital's most 
recent complete cost reporting period (Sec.  412.23(e)(3)) and is 
effective at the start of the hospital's next cost reporting period 
(Sec.  412.22(d)). However, if the hospital does not meet the average 
length of stay requirement as specified in Sec.  412.23(e)(2)(i) and 
(ii), the hospital may provide the intermediary with data indicating a 
change in the average length of stay by the same method for the period 
of at least 5 months of the immediately preceding 6-month period (69 FR 
25676). Our interpretation of the current regulations at Sec.  
412.23(e)(3) was to allow hospitals to submit data using a period of at 
least 5 months of the most recent data from the immediately preceding 
6-month period.
    As we stated in the IPPS final rule, published August 1, 2003, 
prior to the implementation of the LTCH PPS, we did rely on data from 
the most recently submitted cost report for purposes of calculating the 
average length of stay. The calculation to determine whether an acute 
care hospital qualifies for LTCH status was based on total days and 
discharges for LTCH inpatients. However, with the implementation of the 
LTCH PPS, with respect to the average length of stay specified under 
Sec.  412.23(e)(2)(i), we revised Sec.  412.23(e)(3)(i) to only count 
total days and discharges for Medicare inpatients (68 FR 45464). In 
addition, the average length of stay specified under Sec.  
412.23(e)(2)(ii) is calculated by dividing the total number of days for 
all patients, including both Medicare and non-Medicare inpatients (less 
leave or pass days) by the number of total discharges for the 
hospital's most recent complete cost reporting period. As we pointed 
out in the IPPS final rule, we are unable to capture the necessary data 
from our present cost reporting forms. We have, therefore, notified 
fiscal intermediaries and LTCHs that until the cost reporting forms are 
revised, for purposes of calculating the average length of stay, we 
will be relying upon census data extracted from MedPAR files that 
reflect each LTCH's cost reporting period (68 FR 45464). Requirements 
for hospitals seeking classification as LTCHs that have undergone a 
change in ownership, as described in Sec.  489.18, are set forth in 
Sec.  412.23(e)(3)(iv).
    In the May 7, 2004 final rule (69 FR 25709), we revised the 
regulations at Sec.  412.23(e) to clarify our longstanding policy by 
stating that a satellite facility or remote location that voluntarily 
separates from its parent LTCH in order to become an independent LTCH 
must first be considered a State-licensed and Medicare-certified 
hospital before seeking classification as a LTCH. In this regard, a 
satellite facility or remote location that voluntarily wishes to become 
an independent LTCH is required to demonstrate that it meets the 
average length of stay requirements, as specified under Sec.  
412.23(e)(2)(i) and (ii), based on discharges that occur on or after 
the effective date of its participation under Medicare as a separate 
hospital. Once the satellite facility or remote location is Medicare 
certified, then the hospital may consider using the length of stay data 
accumulated as a hospital to satisfy the classification requirements 
for becoming a ``specialty'' hospital (in this case, a LTCH). That is, 
the hospital must demonstrate that it has a Medicare inpatient length 
of stay of greater than 25 days. The data used to calculate the 
Medicare average length of stay is based on discharges that occur after 
the satellite facility or remote location has established itself as a 
separate participating hospital. However, there is an exception to this 
policy for satellite facilities and remote locations of LTCHs that are 
affected by Sec.  413.65(e)(3) and that were in existence prior to the 
effective date of the provider-based location requirements; that is, 
cost reporting periods beginning on or after July 1, 2003. We will 
assign new Medicare provider numbers to former satellite facilities or 
remote locations that have become certified as Medicare participating 
hospitals. However, if these newly certified hospitals should fail the 
provider-based locations requirements under Sec.  413.65(e)(3), they 
may be classified as LTCHs if they meet specific conditions. Under this 
exception, calculation of the ALOS for purposes of qualifying as a LTCH 
are based on discharge data during the 5 months of the immediate 6 
months preceding the facility's separation from the main hospital. This 
provision only applies to those facilities or locations that became 
subject to the revised provider-based location rules on July 1, 2003, 
and that seek classification as LTCHs for Medicare payment purposes.
2. Hospitals Excluded From the LTCH PPS
    The following hospitals are paid under special payment provisions, 
as described in Sec.  412.22(c) and, therefore, are not subject to the 
LTCH PPS rules:
     Veterans Administration hospitals.

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     Hospitals that are reimbursed under State cost control 
systems approved under 42 CFR part 403.
     Hospitals that are reimbursed in accordance with 
demonstration projects authorized under section 402(a) of Public Law 
90-248 (42 U.S.C. 1395b-1) or section 222(a) of Public Law 92-603 (42 
U.S.C. 1395b-1 (note)) (statewide all-payer systems, subject to the 
rate-of-increase test at section 1814(b) of the Act).
     Nonparticipating hospitals furnishing emergency services 
to Medicare beneficiaries.

C. Transition Period for Implementation of the LTCH PPS

    In the August 30, 2002 final rule, we provided for a 5-year 
transition period from reasonable cost-based reimbursement to fully 
Federal prospective payment for LTCHs (67 FR 56038). However, LTCHs 
have the option to elect to be paid based on 100 percent of the Federal 
prospective payment. During the 5-year period, two payment percentages 
are to be used to determine a LTCH's total payment under the PPS. The 
blend percentages are as follows:

------------------------------------------------------------------------
                                                        Reasonable cost-
 Cost reporting periods beginning      Prospective           based
            on or after              payment  Federal    reimbursement
                                     rate  percentage   rate  percentage
------------------------------------------------------------------------
October 1, 2002...................                 20                 80
October 1, 2003...................                 40                 60
October 1, 2004...................                 60                 40
October 1, 2005...................                 80                 20
October 1, 2006...................                100                  0
------------------------------------------------------------------------

D. Administrative Simplification Compliance Act and Health Insurance 
Portability and Accountability Act Compliance

    Claims submitted to Medicare must comply with both the 
Administrative Simplification Compliance Act (ASCA), Pub. L. 107-105, 
and Health Insurance Portability and Accountability Act (HIPAA). 
Section 3 of ASCA requires the Medicare Program, subject to subsection 
(h), to deny payment under Part A or Part B for any expenses for items 
or services ``for which a claim is submitted other than in an 
electronic form specified by the Secretary.'' Subsection (h) provides 
that the Secretary shall waive such denial in two types of cases and 
may also waive such denial ``in such unusual cases as the Secretary 
finds appropriate.'' (Also, see 68 FR 48805 (August 15, 2003).) Section 
3 of ASCA operates in the context of the Administrative Simplification 
provisions of HIPAA, which include, among other provisions, the 
transactions and code sets standards requirements codified as 45 CFR 
parts 160 and 162, subparts A and I through R (generally known as the 
Transactions Rule). The Transactions Rule requires covered entities, 
including covered providers, to conduct covered electronic transactions 
according to the applicable transactions and code sets standards.

II. Publication of Proposed Rulemaking

    On February 3, 2005, we published a proposed rule in the Federal 
Register (70 FR 5724-5805) that set forth the proposed annual update to 
the payment rates for the Medicare prospective payment system (PPS) for 
inpatient hospital services provided by long-term care hospitals 
(LTCHs) for the 2006 LTCH PPS rate year. (The annual update of the LTC-
DRG classifications and relative weights for FY 2006 remains linked to 
the annual adjustments of the acute care hospital inpatient DRG system, 
which will be published by August 1, and will be effective October 1, 
2004.)
    In the February 3, 2005 LTCH PPS proposed rule, we discussed the 
annual update of LTC-DRG classifications and relative weights and 
specified that they remain linked to the annual adjustments of the 
acute care hospital inpatient DRG system, which are based on the annual 
revisions to the International Classification of Diseases, Ninth 
Revision, Clinical Modification (ICD-9-CM) codes, effective each 
October 1. (See section V. of this preamble.)
    In that same proposed rule, we proposed to adopt new labor market 
area definitions for LTCHs which are based on the new Core-Based 
Statistical Areas (CBSAs), announced by the OMB late in 2000, which are 
effective for acute care inpatient hospitals October 1, 2004 in the FY 
2005 IPPS final rule. The CBSAs were adopted for acute care hospitals 
under the IPPS (See section V.C.1. of this preamble.)
    We also proposed revisions to the wage index, the proposed excluded 
hospital with capital market basket that would be applied to the 
current standard Federal rate to determine the prospective payment 
rates, the applicable adjustments to payment rates, the proposed 
outlier threshold, the transition period, and the proposed budget 
neutrality factor. (See sections VII. through X. of this preamble.)
    We proposed to clarify our notification policy in Sec.  
412.22(e)(3) and (h) to require that when a LTCH or satellite of a LTCH 
informs its FI of its co-located status, it also is required to include 
the name, address and provider numbers of the other co-located 
hospitals (that is, acute care hospitals, IRFs, and IPFs). 
Additionally, we proposed to clarify and modify the notification 
requirement under Sec.  412.532. (Special payment provisions for 
patients who are transferred to onsite providers and readmitted to a 
long-term care hospital.)
    We also proposed to extend the surgical DRG exception to the 
``under arrangements'' requirement of the 3-day or less interruption of 
stay policy at Sec.  412.531(b)(1)(ii)(A)(1) through the 2006 rate 
year, from July 1, 2005 through June 30, 2006. We also propose to 
extend the surgical DRG exception to the ``under arrangements'' 
requirement for the 3-day or less interruption of stay policy at Sec.  
412.531(b)(1)(i)(C) from July 1, 2005 through June 30, 2006.
    We discussed the recommendations made in the June 2004 Medicare 
Payment Advisory Commission (MedPAC) Report concerning the definition 
of LTCHs and our continuing monitoring efforts to evaluate the LTCH 
PPS, including a review of the QIO's role. (See section X. of this 
preamble.)
    Lastly, we analyzed the impact of the proposed changes in the 
proposed rule on Medicare expenditures and on Medicare-participating 
LTCHs and Medicare beneficiaries. (See section XII. of this preamble.)
    We received a total of 13 timely items of correspondence containing 
multiple comments on the proposed rule. The major issues addressed by 
the commenters included: the reduction of the fixed loss amount 
pertaining to high-cost outliers, notification in writing to fiscal 
intermediaries regarding co-located status, adoption of

[[Page 24172]]

the CBSA designations, extension of the surgical DRGs and MedPAC/
monitoring issues.
    Summaries of the public comments received and our responses to 
those comments are described below under the appropriate heading.

III. Summary of the Major Contents of This Final Rule

    In this final rule, we set forth the annual update to the payment 
rates for the Medicare 2006 LTCH PPS rate year and make other policy 
changes. The following is a summary of the major areas that we are 
addressing in this final rule:

A. Update Changes

     In section IV. of this preamble, we discuss the annual 
update of the LTC-DRG classifications and relative weights and specify 
that they remain linked to the annual adjustments of the acute care 
hospital inpatient DRG system, which are based on the annual revisions 
to the International Classification of Diseases, Ninth Revision, 
Clinical Modification (ICD-9-CM) codes effective each October 1.
     In sections V. through X. of this preamble, we specify the 
factors and adjustments used to determine the LTCH PPS rates that are 
applicable to the 2006 LTCH PPS rate year, including revisions to the 
wage index, the excluded hospital with capital market basket that will 
be applied to the current standard Federal rate to determine the 
prospective payment rates, the applicable adjustments to payments, the 
outlier threshold, the short-stay outlier policy for certain LTCHs, the 
budget neutrality factor, Core-Based Statistical Areas (CBSAs), and 
MedPAC recommendations/monitoring.

B. Policy Changes

    In section IV.8. of this preamble, we are extending the surgical 
DRG exception in the 3-day or less interruption of stay policy at Sec.  
412.531(b)(1)(ii)(A)(1) and Sec.  412.531(b)((1)(i)(C) through the 2006 
rate year.
    In section V.C.5. of this preamble, we clarify our notification 
policy for co-located LTCHs and satellites of LTCHs in Sec.  
412.22(e)(3) and (h)(5). We require LTCH HwHs and LTCH satellites to 
inform their FI of their co-located status and also provide relevant 
identifying information concerning other co-located hospitals.
    In section V.C.9. of this preamble, we clarify and modify existing 
notification requirements for the purpose of implementing Sec.  
412.532.

C. MedPAC Report

    In section X. of this preamble, we discuss the recommendations made 
in the June 2004 MedPAC Report concerning the definition of LTCHs and 
our continuing monitoring efforts to evaluate the LTCH PPS, including a 
review of the QIO's role.

D. Impact

    In section XII. of this preamble, we analyze the impact of the 
changes in this final rule on Medicare expenditures and on Medicare-
participating LTCHs and Medicare beneficiaries.

IV. Long-Term Care Diagnosis-Related Group (LTC-DRG) Classifications 
and Relative Weights

A. Background

    Section 123 of BBRA specifically requires that the PPS for LTCHs be 
a per discharge system with a DRG-based patient classification system 
reflecting the differences in patient resources and costs in LTCHs 
while maintaining budget neutrality. Section 307(b)(1) of the BIPA 
modified the requirements of section 123 of the BBRA by specifically 
requiring that the Secretary examine ``the feasibility and the impact 
of basing payment under such a system [the LTCH PPS] on the use of 
existing (or refined) hospital DRGs that have been modified to account 
for different resource use of LTCH patients as well as the use of the 
most recently available hospital discharge data.''
    In accordance with section 307(b)(1) of BIPA and Sec.  412.515 of 
our existing regulations, the LTCH PPS uses information from LTCH 
patient records to classify patient cases into distinct LTC-DRGs based 
on clinical characteristics and expected resource needs. The LTC-DRGs 
used as the patient classification component of the LTCH PPS correspond 
to the hospital inpatient DRGs in the IPPS. We apply weights to the 
existing hospital inpatient DRGs to account for the difference in 
resource use by patients exhibiting the case complexity and multiple 
medical problems characteristic of LTCHs.
    In a departure from the IPPS, we use low volume LTC-DRGs (less than 
25 LTCH cases) in determining the LTC-DRG weights, since LTCHs do not 
typically treat the full range of diagnoses as do acute care hospitals. 
In order to deal with the large number of low volume DRGs (all DRGs 
with fewer than 25 cases), we group low volume DRGs into 5 quintiles 
based on average charge per discharge. (A listing of the current 
composition of low volume quintiles used in determining the FY 2005 
LTC-DRG relative weights appears in the FY 2005 IPPS final rule (August 
11, 2004; 69 FR 48986-48989).) We also take into account adjustments to 
payments for cases in which the stay at the LTCH is five-sixths of the 
geometric average length of stay and classify these cases as short-stay 
outlier cases. (A detailed discussion of the application of the Lewin 
Group model that was used to develop the LTC-DRGs appears in the August 
30, 2002 LTCH PPS final rule at 67 FR 55978.)

B. Patient Classifications Into DRGs

    Generally, under the LTCH PPS, Medicare payment is made at a 
predetermined specific rate for each discharge; that payment varies by 
the LTC-DRG to which a beneficiary's stay is assigned. Cases are 
classified into LTC-DRGs for payment based on the following six data 
elements:
    (1) Principal diagnosis.
    (2) Up to eight additional diagnoses.
    (3) Up to six procedures performed.
    (4) Age.
    (5) Sex.
    (6) Discharge status of the patient.
    As indicated in the August 30, 2002 LTCH PPS final rule, upon the 
discharge of the patient from a LTCH, the LTCH must assign appropriate 
diagnosis and procedure codes from the most current version of the 
International Classification of Diseases, Ninth Edition, Clinical 
Modification (ICD-9-CM). HIPAA, Pub. L. 104-191, transactions and code 
sets standards regulations (45 CFR parts 160 and 162) require that no 
later than October 16, 2003, all covered entities must comply with the 
applicable requirements of subparts A and I through R of part 162. 
Among other requirements, those provisions direct covered entities that 
electronically transmit institutional health care claim or equivalent 
encounter information, for instance, to use the ASC X12N 837 Health 
Care Claims: Institutional, Volumes 1 and 2, version 4010, and the 
applicable standard medical data code sets. (See 45 CFR 162.1002 and 45 
CFR 162.1102.)
    Medicare fiscal intermediaries enter the clinical and demographic 
information into their claims processing systems and subject this 
information to a series of automated screening processes called the 
Medicare Code Editor (MCE). These screens are designed to identify 
cases that require further review before assignment into a DRG can be 
made. During this process, the following types of cases are selected 
for further development:
     Cases that are improperly coded. (For example, diagnoses 
are shown that are inappropriate, given the sex of the

[[Page 24173]]

patient. Code 68.6, Radical abdominal hysterectomy, would be an 
inappropriate code for a male.)
     Cases including surgical procedures not covered under 
Medicare. (For example, organ transplant in a non-approved transplant 
center.)
     Cases requiring more information. (For example, ICD-9-CM 
codes are required to be entered at their highest level of specificity. 
There are valid 3-digit, 4-digit, and 5-digit codes. That is, code 
136.3, Pneumocystosis, contains all appropriate digits, but if it is 
reported with either fewer or more than 4 digits, the claim will be 
rejected by the MCE as invalid.)
     Cases with principal diagnoses that do not usually justify 
admission to the hospital. (For example, code 437.9, unspecified 
cerebrovascular disease. While this code is valid according to the ICD-
9-CM coding scheme, a more precise code should be used for the 
principal diagnosis.)
    After screening through the MCE, each claim will be classified into 
the appropriate LTC-DRG by the Medicare LTCH GROUPER. As indicated in 
August 30, 2002 LTCH PPS final rule, the Medicare GROUPER, which is 
used under the LTCH PPS, is specialized computer software, and is the 
same GROUPER software program used under the IPPS. The GROUPER software 
was developed as a means of classifying each case into a DRG on the 
basis of diagnosis and procedure codes and other demographic 
information (age, sex, and discharge status). Following the LTC-DRG 
assignment, the Medicare fiscal intermediary determines the prospective 
payment by using the Medicare PRICER program, which accounts for 
hospital-specific adjustments. As provided for under the IPPS, we 
provide an opportunity for the LTCH to review the LTC-DRG assignments 
made by the fiscal intermediary and to submit additional information 
within a specified timeframe (Sec.  412.513(c)).
    The GROUPER is used both to classify past cases in order to measure 
relative hospital resource consumption to establish the DRG weights and 
to classify current cases for purposes of determining payment. The 
records for all Medicare hospital inpatient discharges are maintained 
in the MedPAR file. The data in this file are used to evaluate possible 
DRG classification changes and to recalibrate the DRG weights during 
our annual update under both the IPPS (Sec.  412.60(e)) and the LTCH 
PPS (Sec.  412.517). As discussed in greater detail below in sections 
III.D. and E. of this preamble, with the implementation of section 
503(a) of the MMA, there is the possibility that one feature of the 
GROUPER software program may be updated twice during a Federal fiscal 
year (October 1 and April 1) as required by the statute for the IPPS 
(69 FR 48954-48957), August 11, 2004). Specifically, ICD-9 diagnosis 
and procedure codes for new medical technology may be created and added 
to existing DRGs in the middle of the Federal fiscal year on April 1. 
This policy change will have no effect, however, on the LTC-DRG 
relative weights which will continue to be updated only once a year 
(October 1), nor will there be any impact on Medicare payments under 
the LTCH PPS.

C. Organization of DRGs

    The DRGs are organized into 25 Major Diagnostic Categories (MDCs), 
most of which are based on a particular organ system of the body; the 
remainder involve multiple organ systems (such as MDC 22, Burns). 
Accordingly, the principal diagnosis determines MDC assignment. Within 
most MDCs, cases are then divided into surgical DRGs and medical DRGs. 
Surgical DRGs are assigned based on a surgical hierarchy that orders 
operating room (O.R.) procedures or groups of O.R. procedures by 
resource intensity. The GROUPER does not recognize all ICD-9-CM 
procedure codes as procedures that affect DRG assignment, that is, 
procedures which are not surgical (for example, EKG), or minor surgical 
procedures (for example, 86.11, Biopsy of skin and subcutaneous 
tissue).
    The medical DRGs are generally differentiated on the basis of 
diagnosis. Both medical and surgical DRGs may be further differentiated 
based on age, sex, discharge status, and presence or absence of 
complications or comorbidities (CC). We note that CCs are defined by 
certain secondary diagnoses not related to, or not inherently a part 
of, the disease process identified by the principal diagnosis. (For 
example, the GROUPER would not recognize a code from the 800.0x series, 
Skull fracture, as a CC when combined with principal diagnosis 850.4, 
Concussion with prolonged loss of consciousness, without return to 
preexisting conscious level.) In addition, we note that the presence of 
additional diagnoses does not automatically generate a CC, as not all 
DRGs recognize a comorbid or complicating condition in their 
definition. (For example, DRG 466, Aftercare without History of 
Malignancy as Secondary Diagnosis, is based solely on the principal 
diagnosis, without consideration of additional diagnoses for DRG 
determination.)
    In its June 2000 Report to Congress, MedPAC recommended that the 
Secretary ``* * * improve the hospital inpatient prospective payment 
system by adopting, as soon as practicable, diagnosis-related group 
refinements that more fully capture differences in severity of illness 
among patients,'' (Recommendation 3A, p. 63). We have determined it is 
not practical at this time to develop a refinement to inpatient 
hospital DRGs based on severity due to time and resource requirements. 
However, this does not preclude us from development of a severity-
adjusted DRG refinement in the future. That is, a refinement to the 
list of comorbidities and complications could be incorporated into the 
existing DRG structure. It is also possible that a more comprehensive 
severity adjusted structure may be created if a new code set is 
adopted. That is, if ICD-9-CM is replaced by ICD-10-CM (for diagnostic 
coding) and ICD-10-PCS (for procedure coding) or by other code sets, a 
severity concept may be built into the resulting DRG assignments. Of 
course any change to the code set would be adopted through the process 
established in the HIPAA Administrative Simplification Standards 
provisions.

D. Update of LTC-DRGs

    For FY 2005, the LTC-DRG patient classification system is based on 
LTCH data from the FY 2003 MedPAR file, which contained hospital bills 
data from the March 2004 update. The patient classification system 
consists of 520 DRGs that formed the basis of the FY 2005 LTCH PPS 
GROUPER. The 520 LTC-DRGs included two ``error DRGs.'' As in the IPPS, 
we include two error DRGs in which cases that cannot be assigned to 
valid DRGs will be grouped. These two error DRGs are DRG 469 (Principal 
Diagnosis Invalid as a Discharge Diagnosis) and DRG 470 (Ungroupable). 
(See the FY 2005 IPPS FY 2005 final rule (69 FR 48982-49000).) The 
other 518 LTC-DRGs are the same DRGs used in the IPPS GROUPER for FY 
2005 (Version 22.0).
    In the past, in the health care industry, annual changes to the 
ICD-9-CM codes were effective for discharges occurring on or after 
October 1 each year. Thus, the manual and electronic versions of the 
GROUPER software, which are based on the ICD-9-CM codes, were also 
revised annually and effective for discharges occurring on or after 
October 1 each year. As discussed earlier, the patient classification 
system for the LTCH PPS (LTC-DRGs) is based on the IPPS patient 
classification system

[[Page 24174]]

(CMS-DRGs), which had historically been updated annually and was 
effective for discharges occurring on or after October 1 through 
September 30 each year.
    Recently, the ICD-9-CM coding update process has been revised as 
discussed in greater detail in the FY 2005 IPPS final rule (69 FR 
48954). Specifically, section 503(a) of the MMA includes a requirement 
for updating ICD-9-CM codes twice a year instead of the current process 
of annual updates on October 1 of each year. This requirement is 
included as part of the amendments to the Act relating to recognition 
of new medical technology under the IPPS. Section 503(a) of the MMA 
amended section 1886(d)(5)(K) of the Act by adding a new clause (vii) 
which states that ``the Secretary shall provide for the addition of new 
diagnosis and procedure codes by April 1 of each year, but the addition 
of such codes shall not require the Secretary to adjust the payment (or 
diagnosis-related group classification) * * * until the fiscal year 
that begins after such date.'' This requirement will improve the 
recognition of new technologies under the IPPS by accounting for the 
GROUPER software at an earlier date. Despite the fact that aspects of 
the GROUPER software may be updated to recognize any new technology 
codes, there will be no impact on either LTC-DRG assignments or 
payments under the LTCH PPS. That is, no new LTC-DRGs will be created 
or deleted and the relative weights will remain the same.
    When we implemented the LTCH PPS, we established that the DRG-based 
patient classification system for the LTCH PPS would use the same 
GROUPER software as the IPPS (August 30, 2002, 67 FR 55954). IPPS 
updates occur each October 1, as set forth in Sec.  412.8(b). In the 
June 6, 2003 LTCH PPS final rule (68 FR 34125), when we revised the 
annual rate update for the LTCH PPS to a July 1 through June 30 
schedule, we specified that updates of the LTC-DRGs and re-weighting of 
LTC-DRG weights would remain linked to the IPPS GROUPER update which 
functions on an October 1 through September 30 schedule. Therefore, 
under this existing policy, during a LTCH PPS rate year, two versions 
of the GROUPER software are utilized for purposes of LTC-DRG creation 
or deletion and relative weight assignment during the LTCH PPS rate 
year that is established each July 1. The updated LTC-DRG 
classifications and relative weights in the GROUPER that were finalized 
on October 1, preceding the beginning of a LTCH rate year on July 1, 
are in effect with the new Federal rate from July 1 through September 
30. On October 1, the updated version of the GROUPER with respect to 
the LTC-DRG classifications and relative weights will be used from that 
October 1 through June 30.
    The updated DRGs and GROUPER software, used by both the IPPS and 
the LTCH PPS, are based on the ICD-9-CM codes updated. (The use of the 
ICD-9-CM codes in this manner is consistent with current usage and the 
HIPAA regulations.) As noted above, historically, these codes have been 
published annually in the IPPS proposed rule and final rule. Consistent 
with historical approaches taken in the IPPS and LTCH PPS, October 1 
will continue to be the effective date of revisions to the CMS DRGs and 
the LTC-DRGs. However, because of the statutory changes under Section 
503(a) of the MMA, new ICD-9-CM codes may become effective on both 
October 1 and April 1. In the past, the new or revised ICD-9-CM codes 
were not used by the industry for either the IPPS or the LTCH PPS until 
the beginning of the Federal fiscal year (effective for discharges 
occurring on or after October 1). Beginning with FY 2005, as we 
explained above, under the authority of Section 503(a) of the MMA which 
amends section 1886(d)(5)(K) of the Act, there is the potential for new 
ICD-9-CM codes to become effective both at the beginning of the Federal 
fiscal year, October 1, and also on April 1. As we have already noted, 
a full discussion along with a description of the implementation of 
this provision, was published in the Federal Register in the FY 2005 
IPPS final rule (69 FR 48954). We want to emphasize, however, that 
although it was established that the IPPS GROUPER, which is also used 
by the LTCH PPS, could be calibrated with respect to ICD-9-CM codes two 
times each year (October and April), as necessary, to allow the 
inclusion of new codes reflecting new medical technologies and 
procedures for patients in acute care hospitals. The inclusion of these 
new codes in April would not result in the creation or deletion of LTC-
DRGs or changes in the relative weights and, therefore, would not 
affect the DRG assigned by the GROUPER for LTC-DRGs, nor payments under 
the LTCH PPS.
    As noted above, updates to the GROUPER for both the IPPS and the 
LTCH PPS (with respect to relative weights and the creation or deletion 
of DRGs) are made in the annual IPPS proposed and final rules and are 
effective each October 1. We explained in the FY 2005 IPPS final rule 
(69 FR 48956), that since we do not publish a mid-year IPPS rule, April 
1 code updates discussed above will not be published in a mid-year IPPS 
rule. Rather, we will assign any new diagnostic or procedure codes to 
the same DRG in which its predecessor code was assigned, so that there 
will be no impact on the DRG assignment. Any proposed coding updates 
will be available through the websites indicated in the FY 2005 IPPS 
final rule (69 FR 48956) and provided below in section III.E.2. of this 
preamble and through the Coding Clinic for ICD-9-CM. Publishers and 
software vendors currently obtain code changes through these sources in 
order to update their code books and software systems. If new codes are 
implemented on April 1, revised code books and software systems, 
including the GROUPER software program, will be necessary because we 
must use current ICD-9-CM codes. Therefore, for purposes of the LTCH 
PPS, since each ICD-9-CM code must be included in the GROUPER algorithm 
to classify each case into a LTC-DRG, the GROUPER software program used 
under the LTCH PPS would need be revised to accommodate any new codes.
    As mentioned above, however, an April 1 update of the ICD-9-CM 
codes would only result in a change to the CMS DRG GROUPER software 
program effective April 1, so that it will recognize the new technology 
code and assign it to the appropriate DRG, but will not result in a 
change to the relative weights used under either the IPPS or the LTCH 
PPS, respectively. Consistent with our current practice, any changes to 
the DRGs or relative weights will be made at the beginning of the next 
Federal fiscal year (October 1).
    As specified in the May 7, 2004 LTCH PPS final rule (69 FR 25674) 
and the FY 2005 IPPS final rule (69 FR 48982), and discussed above, we 
annually update to the LTCH PPS payment rates effective from July 1 
through June 30 each year. As a result, the LTCH PPS currently uses two 
GROUPER software programs during a LTCH PPS rate year (July 1 through 
June 30): one GROUPER for 3 months (from July 1 through September 30); 
and an updated GROUPER for 9 months (from October 1 through June 30). 
The need to use two GROUPERs was based upon the October 1 effective 
date of the updated ICD-9-CM coding system. As previously discussed, 
new ICD-9-CM codes may result in changes to the structure of the DRGs 
caused by mapping the new codes to existing DRGs. In order for the 
industry to be on the same schedule (for both the IPPS and the LTCH 
PPS) for the use of the most current ICD-9-CM codes, it had been 
necessary for us to apply two

[[Page 24175]]

GROUPER programs under the LTCH PPS.
    With the potential addition of new codes effective on April 1, the 
LTCH PPS may now use three GROUPER programs during the LTCH PPS rate 
year (July 1 through June 30), if new diagnosis and procedure codes are 
added on April 1. Specifically, one GROUPER (GROUPER 1) would be used 
for the first 3 months (from July 1 through September 30); a second 
GROUPER (GROUPER 2) would be used for the next 6 months (from October 1 
through March 31); and the third GROUPER (GROUPER 3) would be used for 
the last 3 months (from April 1 through June 30). The need to use three 
GROUPER software programs during a single LTCH PPS rate year in the 
event of an April 1 ICD-9-CM code update is because it is necessary to 
use the updated ICD-9-CM codes (as explained above) in order to 
classify each case into a LTC-DRG for payment purposes. The change from 
GROUPER 1 to GROUPER 2 (on October 1) would coincide with the annual 
update to the LTC-DRGs and relative weights under Sec.  412.517, which 
would be effective for that entire Federal fiscal year, just as it has 
been since we implemented the LTCH PPS. The change from GROUPER 2 to 
GROUPER 3 (on April 1) would only update the CMS DRG structure by 
mapping the new code to an existing DRG, and would not result in the 
addition or deletion of any DRGs nor would it result in a change to the 
LTC-DRG relative weights. If no new diagnoses or procedure codes are 
added on April 1, however, there would be no need to update the GROUPER 
and we would continue to use 2 GROUPERS during the course of a LTCH PPS 
rate year as is currently done. But even with an April 1 update to the 
ICD-9-CM codes (and consequently the GROUPER software), only two sets 
of LTC-DRG relative weights will be used during a LTCH PPS rate year 
(July 1 through June 30), one set from July 1 though September 30 and a 
second set from October 1 through June 30, just as we have done since 
we moved the annual LTCH PPS update to July 1 (effective beginning July 
1, 2003).
    As we discussed in the FY 2005 IPPS final rule (69 FR 48956), in 
implementing section 503(a) of the MMA, there will only be an April 1 
update if new technology codes are requested and approved. In that same 
IPPS final rule, we specified that there are no new codes for April 1, 
2005 implementation. However, if new codes had been approved for April 
1, 2005 implementation, the subsequent changes to the DRG structure 
(that is, the mapping of the new codes to existing DRGs), but not to FY 
2005 LTC-DRG relative weights and, consequently, LTCH PPS payment 
rates, would have resulted in the use of a third GROUPER during the 
2005 LTCH PPS rate year. However, as noted above, since there are no 
new codes for April 1, 2005 implementation, and the next update to the 
ICD-9-CM coding system will not occur until October 1, 2005, only two 
GROUPER software programs will be used during the 2005 LTCH PPS rate 
year (July 1, 2004 through June 30, 2005): one GROUPER from July 1, 
2004 through September 30, 2004, and a second GROUPER from October 1, 
2004 through June 30, 2005.
    Discharges beginning on or after October 1, 2004 and before October 
1, 2005 (Federal FY 2005) are using Version 22.0 of the GROUPER 
software for both the IPPS and the LTCH PPS. Consistent with our 
current practice, any changes to the DRGs or relative weights will be 
made at the beginning of the Federal fiscal year (October 1). We will 
notify LTCHs of any revised LTC-DRG relative weights based on the final 
DRGs and the applicable GROUPER version for the IPPS that will be 
effective October 1, 2005. The proposed changes to the LTC-DRGs and 
relative weights based on the proposed Version 23.0 GROUPER, which 
would be effective beginning with discharges occurring on or after 
October 1, 2005, are discussed in the May 4, 2005 IPPS proposed rule. 
Furthermore, as discussed above, we would notify LTCHs of any revisions 
to the CMS GROUPER that would be implemented April 1, 2006.

E. ICD-9-CM Coding System

1. Uniform Hospital Discharge Data Set (UHDDS) Definitions
    Because the assignment of a case to a particular LTC-DRG will help 
determine the amount that will be paid for the case, it is important 
that the coding is accurate. Classifications and terminology used in 
the LTCH PPS are consistent with the ICD-9-CM and the UHDDS, as 
recommended to the Secretary by the National Committee on Vital and 
Health Statistics (``Uniform Hospital Discharge Data: Minimum Data Set, 
National Center for Health Statistics, April 1980'') and as revised in 
1984 by the Health Information Policy Council (HIPC) of the U.S. 
Department of Health and Human Services.
    We point out that the ICD-9-CM coding terminology and the 
definitions of principal and other diagnoses of the UHDDS are 
consistent with the requirements of the HIPAA Administrative 
Simplification Act of 1996 (45 CFR part 162). Furthermore, the UHDDS 
has been used as a standard for the development of policies and 
programs related to hospital discharge statistics by both governmental 
and nongovernmental sectors for over 30 years. In addition, the 
following definitions (as described in the 1984 Revision of the UHDDS, 
approved by the Secretary of Health and Human Services for use starting 
January 1986) are requirements of the ICD-9-CM coding system, and have 
been used as a standard for the development of the CMS-DRGs:
     Diagnoses are defined to include all diagnoses that affect 
the current hospital stay.
     Principal diagnosis is defined as the condition 
established after study to be chiefly responsible for occasioning the 
admission of the patient to the hospital for care.
     Other diagnoses (also called secondary diagnoses or 
additional diagnoses) are defined as all conditions that coexist at the 
time of admission, that develop subsequently, or that affect the 
treatment received or the length of stay or both. Diagnoses that relate 
to an earlier episode of care that have no bearing on the current 
hospital stay are excluded.
     All procedures performed will be reported. This includes 
those that are surgical in nature, carry a procedural risk, carry an 
anesthetic risk, or require specialized training.
    We provide LTCHs with a 60-day window after the date of the notice 
of the initial LTC-DRG assignment to request review of that assignment. 
Additional information may be provided by the LTCH to the fiscal 
intermediary as part of that review.
2. Maintenance of the ICD-9-CM Coding System
    The ICD-9-CM Coordination and Maintenance (C&M) Committee is a 
Federal interdepartmental committee, co-chaired by the National Center 
for Health Statistics (NCHS) and CMS, that is, charged with maintaining 
and updating the ICD-9-CM system. The C&M Committee is jointly 
responsible for approving coding changes, and developing errata, 
addenda, and other modifications to the ICD-9-CM to reflect newly 
developed procedures and technologies and newly identified diseases. 
The C&M Committee is also responsible for promoting the use of Federal 
and non-Federal educational programs and other communication techniques 
with a view toward standardizing coding applications and

[[Page 24176]]

upgrading the quality of the classification system.
    The NCHS has lead responsibility for the ICD-9-CM diagnosis codes 
included in the Tabular List and Alphabetic Index for Diseases, while 
CMS has lead responsibility for the ICD-9-CM procedure codes included 
in the Tabular List and Alphabetic Index for Procedures.
    The C&M Committee encourages participation by health-related 
organizations in the above process and holds public meetings for 
discussion of educational issues and proposed coding changes twice a 
year at the CMS Central Office located in Baltimore, Maryland. The 
agenda and dates of the meetings can be accessed on our Web site at: 
https://www.cms.gov/ paymentsystems/icd9.
    As discussed above, section 503(a) of the MMA includes a 
requirement for updating ICD-9-CM codes twice a year instead of the 
current process of annual updates on October 1 of each year. This 
requirement will improve the recognition of new technologies under the 
IPPS by accounting for them in the GROUPER software at an earlier date. 
Because this new statutory requirement could have a significant impact 
on health care providers, coding staff, publishers, system maintainers, 
and software systems, among others, we solicited comments on our 
proposed provisions to implement this requirement as part of the FY 
2005 IPPS proposed rule (69 FR 28220). We responded to comments and 
published our new policy regarding the updating of ICD-9-CM codes in 
the FY 2005 IPPS final rule (69 FR 48954-48957).
    While this new requirement states that the Secretary shall not 
adjust the payment of the DRG classification for any codes created for 
use on April 1, DRG software and other systems will have to be updated 
in order to recognize and accept the new codes. Because, as discussed 
above, the LTC-DRGs are the same DRGs used under the IPPS, this means 
that the Medicare GROUPER software program used under both the IPPS and 
the LTCH PPS would need to be revised to reflect ICD-9-CM codes, if any 
coding changes were implemented on April 1. Furthermore, although the 
CMS GROUPER software used under both the IPPS and the LTCH PPS would 
need to be revised to accommodate the new codes effective April 1, 
there would be no additions or deletions of DRGs nor would the relative 
weights used under the IPPS and the LTCH PPS, respectively, be changed 
until the annual update October 1 (to the extent that those changes are 
warranted), just as they have been historically updated. As the LTCH 
PPS is based on the IPPS, we will adopt the same approach used under 
the IPPS for potential April 1 ICD-9-CM coding changes. That is, we 
will assign any new diagnosis codes or procedure codes to the same DRG 
in which its predecessor code was assigned, so there will be no DRG 
impact in terms of potential DRG assignment until the following October 
1. We will maintain the current method of publicizing any new code 
changes, as noted below. Current addendum and code title information is 
published on the CMS Web page at: https://www.cms.hhs.gov/ paymentsystem/icd9. Summary tables showing new, revised, and deleted 
code titles are also posted on the following CMS Web page: https://
www.cms.hhs.gov/medlearn/icd9code.asp. Information on ICD-9-CM 
diagnosis codes can be found at https://www.cdc.gov/nchs/icd9.htm. 
Information on new, revised, and deleted ICD-9-CM codes is also 
available in the AHA publication Coding Clinic for ICD-9-CM. AHA also 
distributes information to publishers and software vendors. We also 
send copies of all ICD-9-CM coding changes to our contractors for use 
in updating their systems and providing education to providers.
    If the April 1 changes are made to ICD-9-CM diagnosis or procedure 
codes, LTCHs will be required to obtain the new codes, coding books, or 
encoder updates, and make other system changes in order to capture and 
report the new codes. We indicated in the IPPS final rule that we were 
aware of the additional burden this will have on health care providers.
    It should be noted that any new codes created for April 1 
implementation will be limited to those diagnosis and procedure code 
revisions primarily needed to describe new technologies and medical 
services. However, we reiterate that the process for discussing updates 
to the ICD-9-CM has been an open process through the ICD-9-CM C&M 
Committee since 1995. Any requestor who makes a clear and convincing 
case for the need to update ICD-9-CM codes for purposes of the IPPS new 
technology add-on payment process through an April 1 update will be 
given the opportunity to present the merits of their proposed new code.
    To reiterate, at the October 2004 C&M Committee meeting, no new 
codes were proposed for update on April 1, 2005. While no DRG additions 
or deletions or changes to relative weights will occur prior to the 
usual October 1 update, in the event any new codes had been created to 
describe new technologies and medical services through an April 1, 2005 
update, under our policy, LTCH systems would have been expected to 
recognize and report those new codes through the channels as described 
above in this section.
    As discussed above, the ICD-9-CM coding changes that have been 
adopted by the C&M Committee could become effective either at the 
beginning of each Federal fiscal year, October 1, or, in the case of 
codes created to capture new technology, April 1 of each year. Coders 
will be expected to use the most current updated ICD-9-CM codes, as 
updated. Because we do not publish a mid-year IPPS rule, the currently 
accepted avenues of information dissemination will be used to inform 
all ICD-9-CM code users of any changes to the coding system. These 
avenues were described above in section IV.D. of this preamble and have 
been discuss