Medicare Program; Prospective Payment System for Long-Term Care Hospitals RY 2007: Proposed Annual Payment Rate Updates, Policy Changes, and Clarification, 4648-4779 [06-665]

Agencies

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

[Federal Register Volume 71, Number 18 (Friday, January 27, 2006)]
[Proposed Rules]
[Pages 4648-4779]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-665]



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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 RY 2007: Proposed Annual Payment Rate Updates, Policy 
Changes, and Clarification; Proposed Rule

Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / 
Proposed Rules

[[Page 4648]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 412

[CMS-1485-P]
RIN 0938-AO06


Medicare Program; Prospective Payment System for Long-Term Care 
Hospitals RY 2007: Proposed Annual Payment Rate Updates, Policy 
Changes, and Clarification

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update the annual payment rates for 
the Medicare prospective payment system (PPS) for inpatient hospital 
services provided by long-term care hospitals (LTCHs). The proposed 
payment amounts and factors used to determine the updated Federal rates 
that are described in this proposed rule were determined based on the 
LTCH PPS rate year July 1, 2006 through June 30, 2007. 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 would continue to be effective each October 1. The 
proposed outlier threshold for July 1, 2006, through June 30, 2007, 
would also be derived from the LTCH PPS rate year calculations. We are 
also proposing to make policy changes and clarifications.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on March 20, 2006.

ADDRESSES: In commenting, please refer to file code CMS-1485-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to https://www.cms.hhs.gov/eRulemaking/. 
(Attachments should be in Microsoft Word, WordPerfect, or Excel; 
however, we prefer Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1485-P, P.O. Box 8012, Baltimore, MD 
21244-8012.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address ONLY:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-1485-P, Mail Stop C4-26-05, 7500 
Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to one of the following addresses. If you 
intend to deliver your comments to the Baltimore address, please call 
telephone number (410) 786-7197 in advance to schedule your arrival 
with one of our staff members.
    Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, 
SW., Washington, DC 20201; or 7500 Security Boulevard, Baltimore, MD 
21244-1850.
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by mailing your 
comments to the addresses provided at the end of the ``Collection of 
Information Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: 
Tzvi Hefter, (410) 786-4487 (General information).
Judy Richter, (410) 786-2590 (General information, 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, LTC-
DRGs, relative weights and case-mix index, market basket, wage index, 
budget neutrality, and other payment adjustments).
Ann Fagan, (410) 786-5662 (Patient classification system).
Miechal Lefkowitz, (410) 786-5316 (High-cost outliers and cost-to-
charge ratios).
Linda McKenna, (410) 786-4537 (Payment adjustments, interrupted stay, 
and transition period).
Nancy Kenly, (410) 786-7792 (Federal rate update and case-mix index).

SUPPLEMENTARY INFORMATION:
    Submission of Public Comments: We welcome comments from the public 
on all issues set forth in this rule to assist us in fully considering 
issues and developing policies. You can assist us by referencing the 
file code [CMS-1485-P] and the specific ``issue identifier'' that 
precedes the section on which you choose to comment.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. CMS posts all comments 
received before the close of the comment period on its public website 
as soon as possible after they are received. Comments received timely 
will be available for public inspection as they are received, generally 
beginning approximately 3 weeks after publication of a document, at the 
headquarters of the Centers for Medicare & Medicaid Services, 7500 
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of 
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view 
public comments, phone 1-800-743-3951.

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. Limitation on Charges to Beneficiaries
    E. Administrative Simplification Compliance Act (ASCA) and 
Health Insurance Portability and Accountability Act (HIPAA) 
Compliance
II. Summary of Major Contents of This Proposed Rule
III. 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

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    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
IV. Proposed Changes to the LTCH PPS Payment Rates for the 2007 LTCH 
PPS Rate Year
    A. Overview of the Development of the Payment Rates
    B. Proposed LTCH PPS Market Basket
    1. Overview of the RPL Market Basket
    2. Proposed Methodology for Determining the Operating Portion of 
the RPL LTCH PPS Market Basket
    3. Proposed Methodology for Determining the Capital Portion of 
the RPL Market Basket
    4. Proposed Market Basket Estimate for the 2007 LTCH PPS Rate 
Year
    C. Proposed Standard Federal Rate for the 2007 LTCH PPS Rate 
Year
    1. Background
    2. Description of a Preliminary Model of an Update Framework 
Under the LTCH PPS
    3. Proposed Update to the Standard Federal Rate for the 2007 
LTCH PPS Rate Year
    4. Proposed Standard Federal Rate for the 2007 LTCH PPS Rate 
Year
    D. Calculation of Proposed LTCH Prospective Payments for the 
2007 LTCH PPS Rate Year
    1. Proposed Adjustment for Area Wage Levels
    a. Background
    b. Geographic Classifications/Labor Market Area Definitions
    c. Proposed Labor-Related Share
    d. Proposed Wage Index Data
    2. Proposed Adjustment for Cost-of-Living in Alaska and Hawaii
    3. Proposed Adjustment for High-Cost Outliers
    a. Background
    b. Cost-to-charge ratios (CCRs)
    c. Establishment of the Proposed Fixed-Loss Amount
    d. Reconciliation of Outlier Payments Upon Cost Report 
Settlement
    e. Application of Outlier Policy to Short-Stay Outlier Cases
    4. Other Payment Adjustments
    5. Proposed Budget Neutrality Offset To Account for the 
Transition Methodology
    6. One-time Prospective Adjustment to the Standard Federal Rate.
V. Other Proposed Policy Changes for the 2007 LTCH PPS Rate Year
    A. Proposed Adjustments for Special Cases
    1. Adjustment of Short-Stay Outlier Cases
    a. Proposed Changes to the Method for Determining the Payment 
Amount for Short-Stay Outlier Cases
    b. Proposed Changes to the Determination for Cost-to-Charge 
Ratios (CCRs) and Reconciliation of Short-Stay Outlier Cases
    2. The 3-Day or Less Interruption of Stay
    B. Special payment provisions for LTCH Hospitals Within 
Hospitals (HwHs) and LTCH Satellites
VI. Computing the Proposed Adjusted Federal Prospective Payments for 
the 2007 LTCH PPS Rate Year
VII. Transition Period
VIII. Payments to New LTCHs
IX. Method of Payment
X. Monitoring
XI. RTI Report on MedPAC June 2004 LTCH Recommendations
    A. Overview of the Issues
    B. Describing the LTCH Universe Since FY 2003
    C. Patient, Facility, and Alternative Treatment Site Analysis
    D. Specific Findings From Claims Analysis
XII. Collection of Information Requirements
XIII. Regulatory Impact Analysis
Addendum--Tables
Appendix A--Description of a Preliminary Model of an Update 
Framework Under the LTCH PPS

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:

3M 3M Health Information Systems
AHA American Hospital Association
AHIMA American Health Information Management Association
ALOS Average length of stay
APR All patient refined
ASCA Administrative Simplification Compliance Act of 2002 (Pub. L. 107-
105)
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)
BLS Bureau of Labor Statistics
CBSA Core-based statistical area
CC Complications and comorbidities
CCR Cost-to-charge ratio
C&M Coordination and maintenance
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated metropolitan statistical area
COLA Cost of living adjustment
COPS Medicare conditions of participation
CPI Consumer Price Indexes
DSH Disproportionate share of low-income patients
DRGs Diagnosis-related groups
ECI Employment Cost Indexes
FI Fiscal intermediary
FY Federal fiscal year
HCRIS Hospital cost report information system
HHA Home health agency
HHS (Department of) Health and Human Services
HIPAA Health Insurance Portability and Accountability Act (Pub. L. 104-
191)
HIPC Health Information Policy Council
HwHs Hospitals Within Hospitals
ICD-9-CM International Classification of Diseases, Ninth Revision, 
Clinical Modification (codes)
IME Indirect medical education
I-O Input-Output
IPF Inpatient psychiatric facility
IPPS Acute Care Hospital Inpatient Prospective Payment System
IRF Inpatient rehabilitation facility
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MCE Medicare code editor
MDC Major diagnostic categories
MedPAC Medicare Payment Advisory Commission
MedPAR Medicare provider analysis and review file
MMA Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 (Pub. L. 108-173)
MSA Metropolitan statistical area
NCHS National Center for Health Statistics
NECMA New England County metropolitan area
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting (System)
PIP Periodic interim payment
PLI Professional liability insurance
PMSA Primary metropolitan statistical area
PPI Producer Price Indexes
PPS Prospective payment system
QIO Quality Improvement Organization (formerly Peer Review organization 
(PRO))
RPL Rehabilitation psychiatric long-term care (hospital)
RTI Research Triangle Institute, International
RY Rate year (July 1 through June 30)
SNF Skilled nursing facility
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982 (Pub. L. 97-248)
UHDDS Uniform hospital discharge data set

I. Background

[If you choose to comment on issues in this section, please include the 
caption ``BACKGROUND'' at the beginning of your comments.]

A. Legislative and Regulatory Authority

    Section 123 of the Medicare, Medicaid, and SCHIP (State Children's

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Health Insurance Program] Balanced Budget Refinement Act of 1999 (BBRA) 
(Pub. L. 106-113) as amended by section 307(b) of 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 (LOS) (as determined by the Secretary of 
Health and Human Services (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 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, we 
implemented the LTCH PPS authorized under BBRA and BIPA (67 FR 55954). 
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 PPS 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 the payment 
policy under the TEFRA system (67 FR 55954).
    In the August 30, 2002 final rule, we also 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 rule for a 
comprehensive discussion of the research and data that supported the 
establishment of the LTCH PPS (67 FR 55954).
    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 
DRGs and are effective each October 1.
    On May 6, 2005, we published the Prospective Payment System for 
Long-Term Care Hospitals: Annual Payment Rate Updates, Policy Changes, 
and Clarifications final rule (70 FR 24168) (hereinafter referred to as 
the RY 2006 LTCH PPS final rule). In this rule, we set forth the 2006 
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 notification policy for colocated LTCHs 
and satellite facilities. The RY 2006 LTCH PPS final rule also included 
a provision to extend the surgical DRG exception in the 3-day or less 
interruption of stay policy at Sec.  412.531 as well as a provision 
that clarified and modified existing notification requirements for the 
purpose of implementing Sec.  412.532.

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 LOS of 
greater than 25 days. Alternatively, Sec.  412.23(e)(2)(ii) states that 
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 LOS for all patients, including both 
Medicare and non-Medicare inpatients, of greater than 20 days.
    Section 412.23(e)(3) provides that, subject to the provisions of 
paragraphs (e)(3)(ii) through (e)(3)(iv) of this section, the average 
Medicare inpatient LOS, specified under Sec.  412.23(e)(2)(i) is 
calculated by dividing the total number of covered 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

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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 LOS 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 RY 2005 LTCH PPS final rule (69 FR 25674), we specified the 
procedure for calculating a hospital's inpatient average length of stay 
(ALOS) 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 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 ALOS, if the days of an inpatient stay involve 
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.
    Fiscal intermediaries (FIs) verify that LTCHs meet the ALOS 
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. As 
described in Sec.  409.61, 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 (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 ALOS 
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 ALOS 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 Inpatient Prospective Payment System (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 ALOS. 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, for the ALOS 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 (67 FR 55970 through 
55974). In addition, the ALOS 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 discussed in the August 1, 2003 
IPPS final rule, we are unable to capture the necessary data from our 
present cost reporting forms. Therefore, we have notified FIs and LTCHs 
that until the cost reporting forms are revised, for purposes of 
calculating the ALOS, we will be relying upon census data extracted 
from Medicare Provider Analysis and Review (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).
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.
     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 the Social 
Security Amendments of 1967 (Pub. L. 90-248) (42 U.S.C. 1395b-1) or 
section 222(a) of the Social Security Amendments of 1972 (Pub. L. 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 a full 
Federal prospective payment based on 100 percent of the Federal rate 
for LTCHs (67 FR 56038). However, existing LTCHs and LTCHs that are not 
defined as new in Sec.  412.533(d) 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 shown 
in Table 1.

                                 Table 1
------------------------------------------------------------------------
                                                        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
------------------------------------------------------------------------


[[Page 4652]]

D. Limitation on Charges to Beneficiaries

    In the August 30, 2002 final rule, we presented an in-depth 
discussion of beneficiary liability under the LTCH PPS (67 FR 55974 
through 55975). In the RY 2005 LTCH PPS final rule (69 FR 25676), we 
clarified that the discussion of beneficiary liability in the August 
30, 2002 final rule was not meant to establish rates or payments for, 
or define Medicare-eligible expenses. Under Sec.  412.507, as 
consistent with other established hospital prospective payment systems, 
a LTCH may not bill a Medicare beneficiary for more than the deductible 
and coinsurance amounts as specified under Sec.  409.82, Sec.  409.83, 
and Sec.  409.87 and for items and services as specified under Sec.  
489.30(a), if the Medicare payment to the LTCH is the full LTC-DRG 
payment amount. However, under the LTCH PPS, Medicare will only pay for 
days for which the beneficiary has coverage until the short-stay 
outlier (SSO) threshold is exceeded. (See section V.A.1.a. of this 
preamble.) Therefore, if the Medicare payment was for a SSO case (Sec.  
412.529) that was less than the full LTC-DRG payment amount because the 
beneficiary had insufficient remaining Medicare days, the LTCH could 
also charge the beneficiary for services delivered on those uncovered 
days (Sec.  412.507).

E. 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) (Pub. 
L. 104-191). Section 3 of ASCA requires the Medicare Program, 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.'' Section 1862(h) of the Act (as added by 
section 3(a) of ASCA) 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, implementing section 3 of ASCA.) 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. Summary of the Major Contents of This Proposed Rule

    In this proposed rule, we are setting forth the proposed annual 
update to the payment rates for the Medicare LTCH PPS, as well as, 
proposing other policy changes. The following is a summary of the major 
areas that we are addressing in this proposed rule:
    In section III of this preamble, we discuss the LTCH PPS patient 
classification and the relative weights which remain linked to the 
annual adjustments of the acute care hospital inpatient DRG system, and 
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 section IV.B. of this preamble, we propose to adopt the 
``Rehabilitation, Psychiatric, Long Term Care (RPL)'' market basket 
under the LTCH PPS in place of the excluded hospital with capital 
market basket.
    As discussed in section IV.C. of this preamble, we are proposing a 
zero percent update to the LTCH PPS Federal rate for the 2007 LTCH PPS 
rate year instead of the most recent estimate of the LTCH PPS market 
basket.
    Also in section IV.C. of this preamble, we discuss the proposed 
prospective payment rate for RY 2007, and in section IV.D. we discuss 
the applicable adjustments to the proposed payment rates, including the 
proposed revisions to the wage index, the proposed cost-of-living 
adjustment factors, the proposed outlier threshold, and the proposed 
transition period budget neutrality factor for the 2007 LTCH PPS rate 
year. We are also proposing revisions to the cost-to-charge ratio and 
reconciliation provisions as they apply to LTCH outlier payment 
policies.
    In section IV.D.1.c. of this preamble, we also discuss our proposal 
to revise the LTCH PPS labor-related share based on RPL market basket. 
Also in section IV.D. of this preamble, we are proposing to postpone 
the deadline for making the one-time prospective adjustment for the 
Federal rate at Sec.  412.523(d)(3).
    In section V.A. of this preamble, we are proposing to revise the 
existing payment adjustment for SSO cases by reducing the part of the 
current payment formula that is based on costs and adding a fourth 
component to the current payment formula. Also in section V.A. of this 
preamble, we are proposing to sunset the surgical DRG exception to the 
payment policy established under the 3-day or less interruption of stay 
regulations at Sec.  412.531(a)(1).
    In section V.B. of this preamble, for LTCH hospitals within 
hospitals (HwHs) and LTCH satellites, we are proposing to clarify at 
Sec.  412.534(c) that under the policy for adjusting the LTCH PPS 
payment based on the amount that would be determined under the IPPS 
payment methodology, we calculate the LTCH PPS payment amount that is 
equivalent to what would otherwise be paid under the IPPS. We are also 
proposing to codify in regulations the general formula we currently use 
to give affect to the regulations as they pertain to calculating an 
amount under subpart O that is equivalent to an amount that would be 
determined under Sec.  412.1(a).
    In section X. of this preamble, we will discuss our on-going 
monitoring protocols under the LTCH PPS.
    In section XI of this preamble, we will discuss the recommendations 
made by the Research Triangle Institute, International's (RTI) 
evaluation of the feasibility of adopting recommendations made in the 
June 2004 MedPAC Report.
    In section XIII of this preamble, we analyze the impact of the 
proposed changes presented in this proposed rule on Medicare 
expenditures, Medicare-participating LTCHs, and Medicare beneficiaries.
    In Appendix A of this proposed rule, we present a description of a 
preliminary model of an update framework under the LTCH PPS that we may 
propose to use in the future for purposes of the annual updating of the 
LTCH PPS Federal rate in future years.

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

[If you choose to comment on issues in this section, please include the 
caption ``LTC-DRG CLASSIFICATIONS AND RELATIVE WEIGHTS'' at the 
beginning of your comments.]

A. Background

    Section 123 of the 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 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

[[Page 4653]]

resource use of LTCH patients as well as the use of the most recently 
available hospital discharge data.''
    In accordance with section 123 of the BBRA as amended by section 
307(b)(1) of BIPA and Sec.  412.515, we use information derived from 
LTCH PPS patient records to classify these cases into distinct LTC-DRGs 
based on clinical characteristics and estimated 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 assign an 
appropriate weight to the LTC-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 manage 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 2006 LTC-DRG 
relative weights appears in the FY 2006 IPPS final rule (70 FR 47329 
through 47332).) We also account for adjustments to payments for cases 
in which the stay at the LTCH is less than or equal to five-sixths of 
the geometric ALOS and classify these cases as SSO 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 
(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 ICD-
9-CM. HIPAA 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 Claim: 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 FIs 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 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 262, 
Other severe protein-calorie malnutrition, contains all appropriate 
digits, but if it is reported with either fewer or more than 3 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 software. As 
indicated in August 30, 2002 LTCH PPS final rule, the Medicare GROUPER 
software, 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 FI determines the prospective payment 
by using the Medicare PRICER program, which accounts for hospital-
specific adjustments. Under the LTCH PPS, we provide an opportunity for 
the LTCH to review the LTC-DRG assignments made by the FI and to submit 
additional information within a specified timeframe as specified in 
Sec.  412.513(c).
    The GROUPER software 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 in 
sections III.D. and E. of this preamble, with the implementation of 
section 503(a) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173), there is the 
possibility that one feature of the GROUPER software program may be 
updated twice during a Federal fiscal year (FY) (October 1 and April 1) 
as required by the statute for the IPPS (69 FR 48954 through 48957). 
Specifically, as we discussed in the FY 2006 IPPS final rule, ICD-9 
diagnosis and procedure codes for new medical technology may be created 
and added to existing DRGs in the middle of the Federal FY on April 1 
(70 FR 47323). However, this policy change will have no effect 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. The use of the ICD-9-CM code set is also compliant 
with the current requirements of the Transactions and Code Sets 
Standards regulations at 45 CFR parts 160 and 162, published in 
accordance with HIPAA.

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

[[Page 4654]]

by resource intensity. The GROUPER software program 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 software 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). In response to that 
recommendation, we determined at that time that it was not practical 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 CCs 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.
    In its March 2005 Report to Congress, ``Physician-Owned Specialty 
Hospitals,'' MedPAC recommended that the Secretary improve payment 
accuracy in the hospital IPPS by, among other things, ``refining the 
current DRGs to more fully capture differences in severity of illness 
among patients.'' (Recommendation 1, p. 93.) In the FY 2006 IPPS final 
rule (70 FR 47474 through 47479), we stated that we expected to make 
changes to the DRGs to better reflect severity of illness and we 
indicated that we plan to conduct a comprehensive review of the CCs 
list for FY 2007. We also indicated that we are considering the 
possibility of proposing to use the All Patient Refined (APR) DRGs 
under the IPPS for FY 2007. We explained that we did not propose to 
adopt the APR-DRGS under the IPPS for FY 2006 because it would 
represent a significant undertaking that could have a substantial 
effect on all hospitals and there was insufficient time to fully 
analyze a change of that magnitude. However, as an interim step to 
better recognize severity in the DRG system for FY 2006, until we can 
complete a more comprehensive analysis of the APR-DRG system and CC 
list as part of a complete analysis of the MedPAC recommendations that 
we plan to perform over the next year, we established cardiovascular 
DRGs 547 through 558 as described in the FY 2006 IPPS final rule (70 FR 
47474 through 47478).

D. Update of LTC-DRGs

    For FY 2006, the LTC-DRG patient classification system was based on 
LTCH data from the FY 2004 MedPAR file, which contained hospital bills 
data from the March 2005 update. The patient classification system 
consists of 526 DRGs that formed the basis of the FY 2006 LTCH PPS 
GROUPER program. The 526 LTC-DRGs included two ``error DRGs.'' As in 
the IPPS, we included 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 2006 IPPS final rule (70 FR 47323 through 
47341)). The other 524 LTC-DRGs are the same DRGs used in the IPPS 
GROUPER program for FY 2006 (Version 23.0).
    In the past, the annual update to the CMS DRGs was based on the 
annual revisions to the ICD-9-CM codes and was effective each October 
1. Recently, the ICD-9-CM coding update process was revised as 
discussed in greater detail in the FY 2005 IPPS final rule (69 FR 48954 
through 48957). 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. (For 
additional information on this provision, including its implementation 
and its impact on the LTCH PPS, refer to the FY 2005 IPPS final rule 
(69 FR 48952 through 48957) and the RY 2006 LTCH PPS final rule (70 FR 
24172 through 24177).)
    As discussed in the RY 2006 LTCH PPS final rule, 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 FY (October 1 and April 1) as required by the statute 
for the IPPS (70 FR 24173 through 24175). Specifically, ICD-9-CM 
diagnosis and procedure codes for new medical technology may be created 
and added to existing DRGs in the middle of the Federal FY on April 1. 
No new LTC-DRGs will be created or deleted. Consistent with our current 
practice, any changes to the DRGs or relative weights will be made at 
the beginning of the next Federal FY (October 1). Therefore, there will 
not be any impact on Medicare payments under the LTCH PPS. The use of 
the ICD-9-CM code set is also compliant with the current requirements 
of the Transactions and Code Sets Standards regulations at 45 CFR parts 
160 and 162, issued under HIPAA.
    As we explained in the FY 2006 IPPS final rule, in the health care 
industry, historically annual changes to the ICD-9-CM codes were 
effective for discharges occurring on or after October 1 each year (70 
FR 47323). 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. The patient classification system used under the LTCH PPS 
(LTC-DRGs) is based on the DRG patient classification system used under 
the IPPS, which historically had been updated annually and effective 
for discharges occurring on or after October 1 through September 30 
each year. As we also mentioned, the ICD-9-CM coding update process was 
revised as a result of the implementation of section 503(a) of the MMA, 
which includes a requirement for updating ICD-9-CM codes as often as 
twice a year instead of the current process of annual updates on 
October 1 of each year. As discussed

[[Page 4655]]

in the FY 2005 IPPS final rule, this requirement is included as part of 
the amendments to the Act relating to recognition of new medical 
technology under the IPPS (69 FR 48954 through 48957). Section 503(a) 
of the MMA amended section 1886(d)(5)(K) of the Act by adding a new 
paragraph (vii) which states that ``the Secretary shall provide for the 
addition of new diagnosis and procedure codes in [sic] 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 FY that begins after such date.'' This requirement will 
improve the recognition of new technologies under the IPPS by 
accounting for those ICD-9-CM codes in the MedPAR claims data at an 
earlier date.
    Despite the fact that aspects of the GROUPER software may be 
updated to recognize any new technology ICD-9-CM codes, there will be 
no impact on either LTC-DRG assignments or payments under the LTCH PPS 
at that time. That is, changes to the LTC-DRGs (such as the creation or 
deletion of LTC-DRGs) and the relative weights will continue to be 
updated in the manner and timing (October 1) as they are now.
    Updates to the GROUPER software for both the IPPS and the LTCH PPS 
(for 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 also explained that since we do not publish a midyear IPPS rule, 
April 1 code updates will not be published in a midyear IPPS rule. 
Rather, we will assign any new diagnosis or procedure codes to the same 
DRG in which its predecessor code was assigned, so that there will be 
no impact on the DRG assignments. Any coding updates will be available 
through the Web sites provided in section III.E. 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 system. 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, because 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 to be revised to accommodate any new codes.
    In implementing section 503(a) of the MMA, there will only be an 
April 1 update if new technology codes are requested and approved. We 
note 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 of discussing updates to the ICD-9-CM has 
been an open process through the ICD-9-CM Coordination and Maintenance 
Committee since 1995. Requestors will be given the opportunity to 
present the merits for a new code and make 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.
    Discharges between October 1, 2005, and September 30, 2006, 
(Federal FY 2006) are using Version 23.0 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 FY (October 1). We will notify LTCHs of any 
revised LTC-DRG relative weights based on the final DRGs and the 
applicable version of the GROUPER software program that will be 
effective October 1, 2006, in the annual IPPS proposed and final rules. 
At the September 2005 ICD-9-CM Coordination and Maintenance Committee 
meeting, there were no requests for an April 1, 2006 implementation of 
ICD-9-CM codes, and therefore, the next update to the ICD-9-CM coding 
system will not occur until October 1, 2006 (FY 2007). Presently, as 
there were no coding changes suggested for an April 1, 2006 update, the 
ICD-9-CM coding set implemented on October 1, 2005, will continue 
through September 30, 2006 (FY 2006). The next update to the LTC-DRGs 
and relative weights for FY 2007 will be presented in the FY 2007 IPPS 
proposed and final rules. Furthermore, we would notify LTCHs of any 
revisions to the GROUPER software used under the IPPS and LTCH PPS that 
would be implemented April 1, 2007.

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 HHS.
    We note 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 was 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 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 LOS 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 FI 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

[[Page 4656]]

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 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 
we have the 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 this 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.hhs.gov/
ICD9ProviderDiagnosticCodes.
    As discussed previously in this section of the preamble, 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 through 28221). 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 through 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. If any coding changes 
were implemented on April 1, the Medicare GROUPER software program used 
under both the IPPS and the LTCH PPS would need to be revised to 
reflect the new ICD-9-CM codes because the LTC-DRGs are the same DRGs 
used under the IPPS. Furthermore, although the 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 are historically updated. As the LTCH PPS is 
based on the IPPS, we adopted 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/ICD9Provider 
DiagnosticCodes/04--addendum.asp. Summary tables showing new, revised, 
and deleted code titles are also posted on the following CMS Web page: 
https://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/07_
summarytables.asp. Information on ICD-9-CM diagnosis codes can be found 
at https://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes/. Information on 
new, revised, and deleted ICD-9-CM codes is also available in the 
American Hospital Association (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. When we implemented section 503(a) of the MMA in 
the FY 2005 IPPS final rule, we indicated 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.
    At the September 2005 C&M Committee meeting, no new codes were 
proposed for update on April 1, 2006. 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 were created to describe 
new technologies and medical services through an April 1, 2006 update, 
under our policy established in the RY 2006 final rule (70 FR 24176), 
LTCH systems would be expected to recognize and report those new codes 
through the channels as described in this section.
    The ICD-9-CM coding changes that have been adopted by the C&M 
Committee would become effective either at the beginning of each 
Federal FY (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 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 in section 
III.D. of this preamble and were discussed at length in the FY 2005 
IPPS final rule (69 FR 48956). Coders in LTCHs using the updated ICD-9-
CM coding system will be on the same schedule as the rest of the health 
care industry. In the past, the updated ICD-9-CM was not available for 
use until October 1 of each year.
    Therefore, because the LT