Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2008 Rates, 24680-25135 [07-1920]
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24680
Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Proposed Rules
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Parts 411, 412, 413, and 489
[CMS–1533–P]
RIN 0938–AO70
Medicare Program; Proposed Changes
to the Hospital Inpatient Prospective
Payment Systems and Fiscal Year 2008
Rates
Centers for Medicare and
Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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AGENCY:
SUMMARY: We are proposing to revise the
Medicare hospital inpatient prospective
payment systems (IPPS) for operating
and capital-related costs to implement
changes arising from our continuing
experience with these systems, and to
implement certain provisions made by
the Deficit Reduction Act of 2005 (Pub.
L. 109–171), the Medicare
Improvements and Extension Act under
Division B, Title I of the Tax Relief and
Health Care Act of 2006 (Pub. L. 109–
432), and the Pandemic and All-Hazards
Preparedness Act (Pub. L. 109–417). In
addition, in the Addendum to this
proposed rule, we describe the proposed
changes to the amounts and factors used
to determine the rates for Medicare
hospital inpatient services for operating
costs and capital-related costs. We also
are setting forth proposed rate-ofincrease limits for certain hospitals and
hospital units excluded from the IPPS
that are paid in full or in part on a
reasonable cost basis subject to these
limits or that have a portion of a
prospective payment system payment
based on reasonable cost principles.
These proposed changes would be
applicable to discharges occurring on or
after October 1, 2007.
In this proposed rule, we discuss our
proposals to further refine the diagnosisrelated group (DRG) system under the
IPPS to better recognize severity of
illness among patients—for FY 2008, we
are proposing to adopt a Medicare
Severity DRG (MS–DRG) classification
system for the IPPS. We are also
proposing to use the structure of the
proposed MS–DRG system for the LTCH
prospective payment system (referred to
as MS–LTC–DRGs) for FY 2008.
Among the other policy changes that
we are proposing to make are changes
related to: Limited revisions of the
reclassification of cases to proposed
MS–DRGs, the proposed relative
weights for the proposed MS–LTC–
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DRGs; the wage data, including the
occupational mix data, used to compute
the wage index; applications for new
technologies and medical services addon payments; payments to hospitals for
the indirect costs of graduate medical
education; submission of hospital
quality data; provisions governing
application of sanctions relating to the
Emergency Medical Treatment and
Labor Act of 1986 (EMTALA);
provisions governing disclosure of
physician ownership in hospitals and
patient safety measures; and provisions
relating to services furnished to
beneficiaries in custody of penal
authorities.
DATES: To be assured consideration,
comments must be received at one of
the addresses provided below, no later
than 5 p.m. on June 12, 2007.
ADDRESSES: In commenting, please refer
to file code CMS–1533–P. Because of
staff and resource limitations, we cannot
accept comments by facsimile (FAX)
transmission.
You may submit comments in one of
three ways (no duplicates, please):
1. Electronically. You may submit
electronic comments on specific issues
in this regulation to https://
www.cms.hhs.gov/eRulemaking. Click
on the link ‘‘Submit electronic
comments on CMS regulations with an
open comment period’’. (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–1533–
P, P.O. Box 8011, Baltimore, MD 21244–
1850.
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–1533–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–
7195 in advance to schedule your
arrival with one of our staff members.
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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
Hubert H. Humphrey 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 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:
Marc Hartstein, (410) 786–4548,
Operating Prospective Payment,
Diagnosis-Related Groups (DRGs),
Wage Index, New Medical Services
and Technology Add-On Payments,
and Hospital Geographic
Reclassifications Issues
Tzvi Hefter, (410) 786–4487, Capital
Prospective Payment, Excluded
Hospitals, Graduate Medical
Education, Critical Access Hospitals,
and Long-Term Care (LTC)–DRG
Issues
Siddhartha Mazumdar, (410) 786–6673,
Rural Community Hospital
Demonstration Issues
Sheila Blackstock, (410) 786–3502,
Quality Data for Annual Payment
Update Issues
Thomas Valuck, (410) 786–7479,
Hospital Value-Based Purchasing
Issues
Jacqueline Proctor, (410) 786–8852,
Disclosure of Physician Ownership in
Hospitals and Patient Safety Measures
Issues
Fred Grabau, (410) 786–0206, Services
to Beneficiaries in Custody of Penal
Authorities Issues
SUPPLEMENTARY INFORMATION:
Submitting 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–1533–P
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Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Proposed Rules
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. We post all comments
received before the close of the
comment period on the following Web
site as soon as possible after they have
been received: https://www.cms.hhs.gov/
eRulemaking. Click on the link
‘‘Electronic Comments on CMS
Regulations’’ on that Web site to view
public comments.
Comments received timely will also
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.
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Acronyms
AHA American Hospital Association
AHIMA American Health Information
Management Association
AHRQ Agency for Health Care Research and
Quality
AMI Acute myocardial infarction
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis
Related Group System
ASC Ambulatory surgical center
ASP Average sales price
AWP Average wholesale price
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
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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
CAH Critical access hospital
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC Clinical Data Abstraction Center
CIPI Capital input price index
CPI Consumer price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid
Services
CMSA Consolidated Metropolitan Statistical
Area
COBRA Consolidated Omnibus
Reconciliation Act of 1985, Pub. L. 99–
272
CPI Consumer price index
CY Calendar year
DRA Deficit Reduction Act of 2005, Pub. L.
109–171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EMR Electronic medical record
EMTALA Emergency Medical Treatment and
Labor Act of 1986, Pub. L. 99–272
FDA Food and Drug Administration
FFY Federal fiscal year
FIPS Federal information processing
standards
FQHC Federally qualified health center
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting
Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HCAHPS Hospital Consumer Assessment of
Healthcare Providers and Systems
HCFA Health Care Financing Administration
HCRIS Hospital Cost Report Information
System
HHA Home health agency
HHS Department of Health and Human
Services
HIC Health insurance card
HIPAA Health Insurance Portability and
Accountability Act of 1996, Pub. L. 104–
191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HSA Health savings account
HSCRC Maryland Health Services Cost
Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value cost
center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
ICD–9–CM International Classification of
Diseases, Ninth Revision, Clinical
Modification
ICD–10–PCS International Classification of
Diseases, Tenth Edition, Procedure
Coding System
IHS Indian Health Service
IME Indirect medical education
IOM Institute of Medicine
IPF Inpatient psychiatric facility
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IPPS Acute care hospital inpatient
prospective payment system
IRF Inpatient rehabilitation facility
JCAHO Joint Commission on Accreditation of
Healthcare Organizations
LAMCs Large area metropolitan counties
LTC–DRG Long-term care diagnosis-related
group
LTCH Long-term care hospital
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural
hospital
MedPAC Medicare Payment Advisory
Commission
MedPAR Medicare Provider Analysis and
Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification
Review Board
MIEA–TRHCA Medicare Improvements and
Extension Act, Division B of the Tax
Relief and Health Care Act of 2006, Pub.
L. 109–432
MMA Medicare Prescription Drug,
Improvement, and Modernization Act of
2003, Pub. L. 108–173
MPN Medicare provider number
MRHFP Medicare Rural Hospital Flexibility
Program
MSA Metropolitan Statistical Area
NAICS North American Industrial
Classification System
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality
Assurance
NCVHS National Committee on Vital and
Health Statistics
NECMA New England County Metropolitan
Areas
NQF National Quality Forum
NTIS National Technical Information Service
NVHRI National Voluntary Hospital
Reporting Initiative
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and
Budget
O.R. Operating room
OSCAR Online Survey Certification and
Reporting (System)
PRM Provider Reimbursement Manual
PPI Producer price index
PMSAs Primary metropolitan statistical areas
PPS Prospective payment system
PRA Per resident amount
ProPAC Prospective Payment Assessment
Commission
PRRB Provider Reimbursement Review Board
PS&R Provider Statistical and
Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RHC Rural health clinic
RHQDAPU Reporting hospital quality data
for annual payment update
RNHCI Religious nonmedical health care
institution
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RRC Rural referral center
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSA Social Security Administration
SSI Supplemental Security Income
TEFRA Tax Equity and Fiscal Responsibility
Act of 1982, Pub. L. 97–248
UHDDS Uniform hospital discharge data set
VBP Value-based purchasing
Table of Contents
I. Background
A. Summary
1. Acute Care Hospital Inpatient
Prospective Payment System (IPPS)
2. Hospitals and Hospital Units Excluded
From the IPPS
a. Inpatient Rehabilitation Facilities (IRFs)
b. Long-Term Care Hospitals (LTCHs)
c. Inpatient Psychiatric Facilities (IPFs)
3. Critical Access Hospitals (CAHs)
4. Payments for Graduate Medical
Education (GME)
B. Provisions of the Deficit Reduction Act
of 2005 (DRA)
C. Provisions of the Medicare
Improvements and Extension Act Under
Division B of the Tax Relief and Health
Care Act of 2006
D. Provisions of the Pandemic and AllHazards Preparedness Act
E. Major Contents of this Proposed Rule
1. Proposed DRG Reclassifications and
Recalibrations of Relative Weights
2. Proposed Changes to the Hospital Wage
Index
3. Other Decisions and Proposed Changes
to the IPPS for Operating Costs and GME
Costs
4. Proposed Changes to the IPPS for
Capital-Related Costs
5. Proposed Changes to the Payment Rate
for Excluded Hospitals and Hospital
Units: Rate-of-Increase Percentages
6. Services Furnished to Beneficiaries in
Custody of Penal Authorities
7. Determining Proposed Prospective
Payment Operating and Capital Rates
and Rate-of-Increase Limits
8. Impact Analysis
9. Recommendation of Update Factors for
Operating Cost Rates of Payment for
Inpatient Hospital Services
10. Discussion of Medicare Payment
Advisory Commission Recommendations
II. Proposed Changes to DRG Classifications
and Relative Weights
A. Background
B. DRG Reclassifications
1. General
2. Yearly Review for Making DRG Changes
C. MedPAC Recommendations for
Revisions to the IPPS DRG System
D. Refinement of DRGs Based on Severity
of Illness
1. Evaluation of Alternative SeverityAdjusted DRG Systems
a. Overview of Alternative DRG
Classification Systems
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b. Comparative Performance in Explaining
Variation in Resource Use
c. Payment Accuracy and Case-Mix Impact
d. Issues for Future Consideration
2. Development of Proposed Medicare
Severity DRGs (MS–DRGs)
a. Comprehensive Review of the CC List
b. Chronic Diagnosis Codes
c. Acute Diagnosis Codes
d. Prior Research on Subdivisions of CCs
Into Multiple Categories
e. Proposed Medicare Severity DRGs (MS–
DRGs)
3. Dividing Proposed MS–DRGs on the
Basis of the CCs and MCCs
4. Conclusion
5. Impact of the Proposed MS–DRGs
6. Changes to Case-Mix Index (CMI) from
the Proposed MS–DRGs
7. Effect of the Proposed MS–DRGs on the
Outlier Threshold
8. Effect of the Proposed MS–DRGs on the
Postacute Care Transfer Policy
E. Refinement of the Relative Weight
Calculation
1. Summary of RTI’s Report on Charge
Compression
2. RTI Recommendations
a. Short-Term Recommendations
b. Medium-Term Recommendations
c. Long-Term Recommendations
F. Hospital-Acquired Conditions, Including
Infections
1. General
2. Legislative Requirements
3. Public Input
4. Collaborative Effort
5. Criteria for Selection of the HospitalAcquired Conditions
6. Proposed Selection of Hospital-Acquired
Conditions
7. Other Issues
G. Proposed Changes to the Specific DRG
Classifications
1. Pre-MDC: Intestinal Transplantations
2. MDC 1 (Diseases and Disorders of the
Nervous System)
a. Implantable Neurostimulators
b. Intracranial Stents
3. MDC 3 (Diseases and Disorders of the
Ear, Nose, Mouth, and Throat)—Cochler
Implants
4. MDC 8 (Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue)
a. Hip and Knee Replacements
b. Spinal Fusions
c. Spinal Disc Devices
d. Other Spinal DRGs
5. MDC 17 (Myeloproliferative Diseases
and Disorders, Poorly Differentiated
Neoplasm): Endoscopic Procedures
6. Medicare Code Editor (MCE) Changes
a. Non-Covered Procedure Edit: Code 00.62
(Percutaneous Angioplasty or
Atherectomy of Intracranial Vessel(s))
b. Non-Specific Principal Diagnosis Edit 7
and Non-Specific O.R. Procedures Edit
10
c. Limited Coverage Edit 17
7. Surgical Hierarchies
8. CC Exclusion List Proposed for FY 2008
a. Background
b. Proposed CC Exclusions List for FY 2008
9. Review of Procedure Codes in CMS
DRGs 468, 476, and 477
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a. Moving Procedure Codes From CMS
DRG 468 (Proposed MS–DRGs 981
Through 983) or CMS DRG 477
(Proposed MS–DRGs 987 Through 989)
to MDCs
b. Reassignment of Procedures Among
CMS DRGs 468, 476, and 477 (Proposed
MS–DRG 981 Through 983, 984 Through
986, and 987 Through 989)
c. Adding Diagnosis or Procedure Codes to
MDCs
10. Changes to the ICD–9–CM Coding
System
11. Other Issues
a. Seizures and Headaches
b. Devices That Are Replaced Without Cost
or Where Credit for a Replaced Device Is
Furnished to the Hospital
H. Recalibration of DRG Weights
I. Proposed MS–LTC–DRG
Reclassifications and Relative Weights
for LTCHs for FY 2008
1. Background
2. Proposed Changes in the LTC–DRG
Classifications
a. Background
b. Patient Classifications Into DRGs
3. Development of the Proposed FY 2008
MS–LTC–DRG Relative Weights
a. General Overview of Development of the
Proposed MS–LTC–DRG Relative
Weights
b. Data
c. Hospital-Specific Relative Value
Methodology
d. Proposed Treatment of Severity Levels
in Developing Relative Weights
e. Proposed Low-Volume MS–LTC–DRGs
4. Steps for Determining the Proposed FY
2008 MS–LTC–DRG Relative Weights
J. Proposed Add-On Payments for New
Services and Technologies
1. Background
2. Public Input Before Publication of a
Notice of Proposed Rulemaking on AddOn Payments
3. FY 2008 Status of Technologies
Approved for FY 2007 Add-On Payments
a. Endovascular Graft Repair of the
Thoracic Aorta
b. Restore[reg] Rechargeable Implantable
Neurostimulators
c. X STOP Interspinous Process
Decompression System
4. FY 2008 Application for New
Technology Add-On Payments
5. Technical Correction
III. Proposed Changes to the Hospital Wage
Index
A. Background
B. Core-Based Statistical Areas for the
Hospital Wage Index
C. Proposed Occupational Mix Adjustment
to the Proposed FY 2008 Wage Index
1. Development of Data for the Proposed
FY 2008 Occupational Mix Adjustment
2. Timeline for the Collection, Review, and
Correction of the Occupational Mix Data
3. Calculation of the Proposed
Occupational Mix Adjustment for FY
2008
4. Proposed 2007–2008 Occupational Mix
Survey for the FY 2010 Wage Index
D. Worksheet S–3 Wage Data for the
Proposed FY 2008 Wage Index
1. Included Categories of Costs
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2. Contract Labor for Indirect Patient Care
Services
3. Excluded Categories of Costs
4. Use of Wage Index Data by Providers
Other Than Acute Care Hospitals Under
the IPPS
E. Verification of Worksheet S–3 Wage
Data
F. Wage Index for Multicampus Hospitals
G. Computation of the Proposed FY 2008
Unadjusted Wage Index
1. Method for Computing the Proposed FY
2008 Unadjusted Wage Index
2. Expiration of the Imputed Floor
3. CAHs Reverting Back to IPPS Hospitals
and Raising the Rural Floor
4. Application of Rural Floor Budget
Neutrality
H. Analysis and Implementation of the
Proposed Occupational Mix Adjustment
and the Proposed FY 2008 Occupational
Mix Adjusted Wage Index
I. Revisions to the Proposed Wage Index
Based on Hospital Redesignations
1. General
2. Effects of Reclassification/Redesignation
3. FY 2008 MGCRB Reclassifications
4. Hospitals That Applied for
Reclassification Effective in FY 2008 and
Reinstating Reclassifications in FY 2008
5. Clarification of Policy on Reinstating
Reclassifications
6. ‘‘Fallback’’ Reclassifications
7. Geographic Reclassification Issues for
Multicampus Hospitals
8. Redesignations of Hospitals under
Section 1886(d)(8)(B) of the Act
9. Reclassifications Under Section
1886(d)(8)(B) of the Act
10. New England Deemed Counties
11. Reclassifications under Section 508 of
Pub. L. 108–173
12. Other Issues
J. Proposed FY 2008 Wage Index
Adjustment Based on Commuting
Patterns of Hospital Employees
K. Process for Requests for Wage Index
Data Corrections
L. Labor-Related Share for the Proposed
Wage Index for FY 2008
M. Wage Index Study Required Under Pub.
L. 109–432
N. Proxy for the Hospital Market Basket
IV. Other Decisions and Proposed Changes to
the IPPS for Operating Costs and GME
Costs
A. Reporting of Hospital Quality Data for
Annual Hospital Payment Update
1. Background
2. FY 2008 Quality Measures
3. New Quality Measures and Data
Submission Requirements for FY 2009
and Subsequent Years
a. Proposed New Quality Measures for FY
2009 and Subsequent Years
b. Data Submission
4. Retiring or Modifying RHQDAPU
Program Quality Measures
5. Procedures for the RHQDAPU Program
for FY 2008 and FY 2009
a. Procedures for Participating in the
RHQDAPU Program
b. Chart Validation Requirements
c. Data Validation and Attestation
d. Public Display
e. Reconsideration and Appeal Procedures
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f. RHQDAPU Program Withdrawal
Requirements
6. Electronic Medical Records
7. New Hospitals
B. Development of the Medicare Hospital
Value-Based Purchasing Plan
C. Rural Referral Centers (RRCs)
1. Proposed Annual Update of RRC Status
Criteria
a. Case-Mix Index
b. Discharges
2. Acquired Rural Status of RRCs
D. Indirect Medical Education (IME)
Adjustment
1. Background
2. IME Adjustment Factor for FY 2008
3. Time Spent by Residents on Vacation or
Sick Leave and in Orientation
a. Background
b. Vacation and Sick Leave Time
c. Orientation Activities
d. Proposed Regulation Changes
E. Hospital Emergency Services Under
EMTALA
1. Background
2. Recent Legislation Affecting EMTALA
Implementation
a. Secretary’s Authority to Waive
Requirements During National
Emergencies
b. Provisions of the Pandemic and AllHazards Preparedness Act
c. Proposed Revisions to the EMTALA
Regulations
F. Disclosure of Physician Ownership in
Hospitals and Patient Safety Measures
1. Disclosure of Physician Ownership in
Hospitals
2. Patient Safety Measures
G. Rural Community Hospital
Demonstration Program
V. Proposed Changes to the IPPS for CapitalRelated Costs
A. Background
B. Proposed Policy Change
VI. Proposed Changes for Hospitals and
Hospital Units Excluded From the IPPS
A. Payments to Existing and New Excluded
Hospitals and Hospital Units
B. Separate PPS for IRFs
C. Separate PPS for LTCHs
D. Separate PPS for IPFs
E. Determining Proposed LTCH Cost-toCharge Ratios (CCRs) Under the LTCH
PPS
VII. Services Furnished to Beneficiaries in
Custody of Penal Authorities
VIII. MedPAC Recommendations
IX. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
C. Response to Public Comments
Regulation Text
Addendum—Proposed Schedule of
Standardized Amounts, Update Factors, and
Rate-of-Increase Percentages Effective With
Cost Reporting Periods Beginning On or
After October 1, 2007
I. Summary and Background
II. Proposed Changes to the Prospective
Payment Rates for Hospital Inpatient
Operating Costs for FY 2008
A. Calculation of the Proposed Adjusted
Standardized Amount
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1. Standardization of Base-Year Costs or
Target Amounts
2. Computing the Proposed Average
Standardized Amount
3. Updating the Proposed Average
Standardized Amount
4. Other Adjustments to the Average
Standardized Amount
a. Proposed Recalibration of DRG Weights
and Updated Wage Index—Budget
Neutrality Adjustment
b. Reclassified Hospitals—Budget
Neutrality Adjustment
c. Case-Mix Budget Neutrality Adjustment
d. Outliers
e. Proposed Rural Community Hospital
Demonstration Program Adjustment
(Section 410A of Pub. L. 108–173)
5. Proposed FY 2008 Standardized Amount
B. Proposed Adjustments for Area Wage
Levels and Cost-of-Living
1. Proposed Adjustment for Area Wage
Levels
2. Proposed Adjustment for Cost-of-Living
in Alaska and Hawaii
C. Proposed DRG Relative Weights
D. Calculation of the Proposed Prospective
Payment Rates for FY 2008
1. Federal Rate
2. Hospital-Specific Rate (Applicable Only
to SCHs and MDHs)
a. Calculation of Hospital-Specific Rate
b. Updating the FY 1982, FY 1987, FY
1996, and FY 2002 Hospital-Specific
Rates for FY 2008
3. General Formula for Calculation of
Proposed Prospective Payment Rates for
Hospitals Located in Puerto Rico
Beginning On or After October 1, 2007
and Before October 1, 2008
a. Puerto Rico Rate
b. National Rate
III. Proposed Changes to Payment Rates for
Acute Care Hospital Inpatient CapitalRelated Costs for FY 2008
A. Determination of Proposed Federal
Hospital Inpatient Capital-Related
Prospective Payment Rate Update
1. Projected Capital Standard Federal Rate
Update
a. Description of the Update Framework
b. Comparison of CMS and MedPAC
Update Recommendation
2. Proposed Outlier Payment Adjustment
Factor
3. Proposed Budget Neutrality Adjustment
Factor for Changes in DRG
Classifications and Weights and the GAF
4. Proposed Exceptions Payment
Adjustment Factor
5. Proposed Capital Standard Federal Rate
for FY 2008
6. Proposed Special Capital Rate for Puerto
Rico Hospitals
B. Calculation of the Proposed Inpatient
Capital-Related Prospective Payments for
FY 2008
C. Capital Input Price Index
1. Background
2. Forecast of the CIPI for FY 2008
IV. Proposed Changes to Payment Rates for
Excluded Hospitals and Hospital Units:
Rate-of-Increase Percentages
A. Payments to Existing Excluded
Hospitals and Units
B. New Excluded Hospitals and Units
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V. Tables
Table 1A—National Adjusted Operating
Standardized Amounts, Labor/Nonlabor
(69.7 Percent Labor Share/30.3 Percent
Nonlabor Share If Wage Index Is Greater
Than 1)
Table 1B—National Adjusted Operating
Standardized Amounts, Labor/Nonlabor
(62 Percent Labor Share/38 Percent
Nonlabor Share If Wage Index Is Less
Than or Equal to 1)
Table 1C—Adjusted Operating
Standardized Amounts for Puerto Rico,
Labor/Nonlabor
Table 1D—Capital Standard Federal
Payment Rate
Table 2—Hospital Case-Mix Indexes for
Discharges Occurring in Federal Fiscal
Year 2006; Hospital Wage Indexes for
Federal Fiscal Year 2008; Hospital
Average Hourly Wages for Federal Fiscal
Years 2006 (2002 Wage Data), 2007 (2003
Wage Data), and 2008 (2004 Wage Data);
and 3-Year Average of Hospital Average
Hourly Wages
Table 3A—FY 2008 and 3-Year Average
Hourly Wage for Urban Areas by CBSA
Table 3B—FY 2008 and 3-Year Average
Hourly Wage for Rural Areas by CBSA
Table 4A—Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Urban Areas by CBSA—FY 2008
Table 4B—Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Rural Areas by CBSA—FY 2008
Table 4C—Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Hospitals That Are Reclassified by
CBSA—FY 2008
Table 4F—Puerto Rico Wage Index and
Capital Geographic Adjustment Factor
(GAF) by CBSA—FY 2008
Table 4J—Out-Migration Wage
Adjustment—FY 2008
Table 5—List of Proposed Medicare
Severity Diagnosis-Related Groups (MS–
DRGs), Relative Weighting Factors, and
Geometric and Arithmetic Mean Length
of Stay
Table 6A—New Diagnosis Codes
Table 6B—New Procedure Codes
Table 6C—Invalid Diagnosis Codes
Table 6D—Invalid Procedure Codes
Table 6E—Revised Diagnosis Code Titles
Table 6F—Revised Procedure Code Titles
Table 6G—Additions to the CC Exclusion
List (Available only through the Internet
on the CMS Web site at: https://
www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6H—Deletions from the CC
Exclusion List (Available only through
the Internet on the CMS Web site at:
https://www.cms.hhs.gov/
AcuteInpatientPPS/)
Table 6I—Complete List of Complication
and Comorbidity (CC) Exclusions
(Available only through the Internet on
the CMS Web site at: https://
www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6J—Major Complication and
Comorbidity (MCC) List
Table 6K—Complications and Comorbidity
(CC) List
Table 7A—Medicare Prospective Payment
System Selected Percentile Lengths of
Stay: FY 2006 MedPAR Update—
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DRGs
Table 7B—Medicare Prospective Payment
System Selected Percentile Lengths of
Stay: FY 2006 MedPAR Update—
December 2006 GROUPER V25.0 CMS
DRGs
Table 8A—Proposed Statewide Average
Operating Cost-to-Charge Ratios—March
2007
Table 8B—Proposed Statewide Average
Capital Cost-to-Charge Ratios—March
2007
Table 8C—Proposed Statewide Average
Total Cost-to-Charge Ratios for LTCHs—
March 2007
Table 9A—Hospital Reclassifications and
Redesignations—FY 2008
Table 9C—Hospitals Redesignated as Rural
under Section 1886(d)(8)(E) of the Act—
FY 2008
Table 10—Geometric Mean Plus the Lesser
of .75 of the National Adjusted Operating
Standardized Payment Amount
(Increased to Reflect the Difference
Between Costs and Charges) or .75 of
One Standard Deviation of Mean Charges
by Proposed Medicare Severity
Diagnosis-Related Groups (MS–DRGs)—
March 2007
Table 11—Proposed FY 2008 MS–LTC–
DRGs, Relative Weights, Geometric
Average Length of Stay, and 5/6ths of the
Geometric Average Length of Stay
Appendix A—Regulatory Impact Analysis
I. Overall Impact
II. Objectives
III. Limitations on Our Analysis
IV. Hospitals Included In and Excluded From
the IPPS
V. Effects on Excluded Hospitals and
Hospital Units
VI. Quantitative Effects of the Proposed
Policy Changes Under the IPPS for
Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects of the Proposed Changes to the
DRG Reclassifications and Relative CostBased Weights (Column 2)
D. Effects of Proposed Wage Index Changes
(Column 3)
E. Combined Effects of Proposed DRG and
Wage Index Changes (Column 4)
F. Effects of the Expiration of the 3-Year
Provision Allowing Urban Hospitals
That Were Converted to Rural as a Result
of the FY 2005 Labor Market Area
Changes to Maintain the Wage Index of
the Urban Labor Market Area in Which
They Were Formerly Located (Column 5)
G. Effects of MGCRB Reclassifications
(Column 6)
H. Effects of the Adjustment to the
Application of the Rural Floor (Column
7)
I. Effects of Expiration of the Imputed
Rural Floor (Column 8)
J. Effects of the Expiration of Section 508
of Pub. L. 108–173 (Column 9)
K. Effects of the Proposed Wage Index
Adjustment for Out-Migration (Column
10)
L. Effects of All Proposed Changes With
CMI Adjustment Prior to Assumed
Growth (Column 11)
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M. Effects of All Proposed Changes With
CMI Adjustment and Assumed Growth
(Column 12)
N. Effects of Proposed Policy on Payment
Adjustment for Low-Volume Hospitals
O. Impact Analysis of Table II
VII. Effects of Other Proposed Policy Changes
A. Effects of Proposed Policy on HospitalAcquired Conditions, Including
Infections
B. Effects of Proposed MS–LTC–DRG
Reclassifications and Relative Weights
for LTCHs
C. Effects of Proposed New Technology
Add-On Payments
D. Effects of Requirements for Hospital
Reporting of Quality Data for Annual
Hospital Payment Update
E. Effects of Proposed Policy on
Cancellation of Classification of
Acquired Rural Status and Rural Referral
Centers
F. Effects of Proposed Policy Change on
Payment for Indirect Graduate Medical
Education
G. Effects of Proposed Policy Changes
Relating to Emergency Services Under
EMTALA
H. Effects of Proposed Policy on Disclosure
of Physician Ownership in Hospitals and
Patient Safety Measures
I. Effects of Implementation of Rural
Community Hospital Demonstration
Program
J. Effects of Proposed Policy Changes on
Services Furnished to Beneficiaries in
Custody of Penal Authorities
VIII. Effects of Proposed Changes in the
Capital IPPS
A. General Considerations
B. Results
IX. Alternatives Considered
X. Overall Conclusion
XI. Accounting Statement
XII. Executive Order 12866
Appendix B—Recommendation of Update
Factors for Operating Cost Rates of Payment
for Inpatient Hospital Services
I. Background
II. Inpatient Hospital Update for FY 2008
III. Secretary’s Recommendation
IV. MedPAC Recommendation for Assessing
Payment Adequacy and Updating
Payments in Traditional Medicare
I. Background
A. Summary
1. Acute Care Hospital Inpatient
Prospective Payment System (IPPS)
Section 1886(d) of the Social Security
Act (the Act) sets forth a system of
payment for the operating costs of acute
care hospital inpatient stays under
Medicare Part A (Hospital Insurance)
based on prospectively set rates. Section
1886(g) of the Act requires the Secretary
to pay for the capital-related costs of
hospital inpatient stays under a
prospective payment system (PPS).
Under these PPSs, Medicare payment
for hospital inpatient operating and
capital-related costs is made at
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predetermined, specific rates for each
hospital discharge. Discharges are
classified according to a list of
diagnosis-related groups (DRGs).
The base payment rate is comprised of
a standardized amount that is divided
into a labor-related share and a
nonlabor-related share. The laborrelated share is adjusted by the wage
index applicable to the area where the
hospital is located; and if the hospital is
located in Alaska or Hawaii, the
nonlabor-related share is adjusted by a
cost-of-living adjustment factor. This
base payment rate is multiplied by the
DRG relative weight.
If the hospital treats a high percentage
of low-income patients, it receives a
percentage add-on payment applied to
the DRG-adjusted base payment rate.
This add-on payment, known as the
disproportionate share hospital (DSH)
adjustment, provides for a percentage
increase in Medicare payments to
hospitals that qualify under either of
two statutory formulas designed to
identify hospitals that serve a
disproportionate share of low-income
patients. For qualifying hospitals, the
amount of this adjustment may vary
based on the outcome of the statutory
calculations.
If the hospital is an approved teaching
hospital, it receives a percentage add-on
payment for each case paid under the
IPPS, known as the indirect medical
education (IME) adjustment. This
percentage varies, depending on the
ratio of residents to beds.
Additional payments may be made for
cases that involve new technologies or
medical services that have been
approved for special add-on payments.
To qualify, a new technology or medical
service must demonstrate that it is a
substantial clinical improvement over
technologies or services otherwise
available, and that, absent an add-on
payment, it would be inadequately paid
under the regular DRG payment.
The costs incurred by the hospital for
a case are evaluated to determine
whether the hospital is eligible for an
additional payment as an outlier case.
This additional payment is designed to
protect the hospital from large financial
losses due to unusually expensive cases.
Any outlier payment due is added to the
DRG-adjusted base payment rate, plus
any DSH, IME, and new technology or
medical service add-on adjustments.
Although payments to most hospitals
under the IPPS are made on the basis of
the standardized amounts, some
categories of hospitals are paid the
higher of a hospital-specific rate based
on their costs in a base year (the higher
of FY 1982, FY 1987, FY 1996, or FY
2002) or the IPPS rate based on the
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standardized amount. For example, sole
community hospitals (SCHs) are the sole
source of care in their areas, and
Medicare-dependent, small rural
hospitals (MDHs) are a major source of
care for Medicare beneficiaries in their
areas. Both of these categories of
hospitals are afforded this special
payment protection in order to maintain
access to services for beneficiaries.
(Until FY 2007, an MDH has received
the IPPS rate plus 50 percent of the
difference between the IPPS rate and its
hospital-specific rate if the hospitalspecific rate is higher than the IPPS rate.
In addition, an MDH does not have the
option of using FY 1996 as the base year
for its hospital-specific rate. As
discussed below, for discharges
occurring on or after October 1, 2007,
but before October 1, 2011, an MDH will
receive the IPPS rate plus 75 percent of
the difference between the IPPS rate and
its hospital-specific rate, if the hospitalspecific rate is higher than the IPPS
rate.)
Section 1886(g) of the Act requires the
Secretary to pay for the capital-related
costs of inpatient hospital services ‘‘in
accordance with a prospective payment
system established by the Secretary.’’
The basic methodology for determining
capital prospective payments is set forth
in our regulations at 42 CFR 412.308
and 412.312. Under the capital IPPS,
payments are adjusted by the same DRG
for the case as they are under the
operating IPPS. Capital IPPS payments
are also adjusted for IME and DSH,
similar to the adjustments made under
the operating IPPS. In addition,
hospitals may receive outlier payments
for those cases that have unusually high
costs.
The existing regulations governing
payments to hospitals under the IPPS
are located in 42 CFR part 412, subparts
A through M.
2. Hospitals and Hospital Units
Excluded From the IPPS
Under section 1886(d)(1)(B) of the
Act, as amended, certain specialty
hospitals and hospital units are
excluded from the IPPS. These hospitals
and units are: rehabilitation hospitals
and units; long-term care hospitals
(LTCHs); psychiatric hospitals and
units; children’s hospitals; and cancer
hospitals. Religious nonmedical health
care institutions (RNHCIs) are also
excluded from the IPPS. Various
sections of the Balanced Budget Act of
1997 (Pub. L. 105–33), the Medicare,
Medicaid and SCHIP [State Children’s
Health Insurance Program] Balanced
Budget Refinement Act of 1999 (Pub. L.
106–113), and the Medicare, Medicaid,
and SCHIP Benefits Improvement and
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Protection Act of 2000 (Pub. L. 106–554)
provide for the implementation of PPSs
for rehabilitation hospitals and units
(referred to as inpatient rehabilitation
facilities (IRFs)), LTCHs, and psychiatric
hospitals and units (referred to as
inpatient psychiatric facilities (IPFs)), as
discussed below. Children’s hospitals,
cancer hospitals, and RNHCIs continue
to be paid solely under a reasonable
cost-based system.
The existing regulations governing
payments to excluded hospitals and
hospital units are located in 42 CFR
parts 412 and 413.
a. Inpatient Rehabilitation Facilities
(IRFs)
Under section 1886(j) of the Act, as
amended, rehabilitation hospitals and
units (IRFs) have been transitioned from
payment based on a blend of reasonable
cost reimbursement subject to a
hospital-specific annual limit under
section 1886(b) of the Act and the
adjusted facility Federal prospective
payment rate for cost reporting periods
beginning on or after January 1, 2002
through September 30, 2002, to payment
at 100 percent of the Federal rate
effective for cost reporting periods
beginning on or after October 1, 2002.
IRFs subject to the blend were also
permitted to elect payment based on 100
percent of the Federal rate. The existing
regulations governing payments under
the IRF PPS are located in 42 CFR part
412, subpart P.
b. Long-Term Care Hospitals (LTCHs)
Under the authority of sections 123(a)
and (c) of Pub. L. 106–113 and section
307(b)(1) of Pub. L. 106–554, the LTCH
PPS was effective for a LTCH’s first cost
reporting period beginning on or after
October 1, 2002. LTCHs that do not
meet the definition of ‘‘new’’ under §
412.23(e)(4) are paid, during a 5-year
transition period, a LTCH prospective
payment that is comprised of an
increasing proportion of the LTCH
Federal rate and a decreasing proportion
based on reasonable cost principles.
Those LTCHs that did not meet the
definition of ‘‘new’’ could elect to be
paid based on 100 percent of the Federal
prospective payment rate instead of a
blended payment in any year during the
5-year transition. For cost reporting
periods beginning on or after October 1,
2006, all LTCHs are paid 100 percent of
the Federal rate. The existing
regulations governing payment under
the LTCH PPS are located in 42 CFR
part 412, subpart O.
c. Inpatient Psychiatric Facilities (IPFs)
Under the authority of sections 124(a)
and (c) of Pub. L. 106–113, inpatient
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psychiatric facilities (IPFs) (formerly
psychiatric hospitals and psychiatric
units of acute care hospitals) are paid
under the IPF PPS. Under the IPF PPS,
some IPFs are transitioning from being
paid for inpatient hospital services
based on a blend of reasonable costbased payment and a Federal per diem
payment rate, effective for cost reporting
periods beginning on or after January 1,
2005. For cost reporting periods
beginning on or after January 1, 2008, all
IPFs will be paid 100 percent of the
Federal per diem payment amount. The
existing regulations governing payment
under the IPF PPS are located in 42 CFR
412, subpart N.
3. Critical Access Hospitals (CAHs)
Under sections 1814, 1820, and
1834(g) of the Act, payments are made
to critical access hospitals (CAHs) (that
is, rural hospitals or facilities that meet
certain statutory requirements) for
inpatient and outpatient services based
on 101 percent of reasonable cost.
Reasonable cost is determined under the
provisions of section 1861(v)(1)(A) of
the Act and existing regulations under
42 CFR parts 413 and 415.
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4. Payments for Graduate Medical
Education (GME)
Under section 1886(a)(4) of the Act,
costs of approved educational activities
are excluded from the operating costs of
inpatient hospital services. Hospitals
with approved graduate medical
education (GME) programs are paid for
the direct costs of GME in accordance
with section 1886(h) of the Act; the
amount of payment for direct GME costs
for a cost reporting period is based on
the hospital’s number of residents in
that period and the hospital’s costs per
resident in a base year. The existing
regulations governing payments to the
various types of hospitals are located in
42 CFR part 413.
B. Provisions of the Deficit Reduction
Act of 2005 (DRA)
The Deficit Reduction Act of 2005
(DRA), Pub. L. 109–171, made a number
of changes to the Act relating to
prospective payments to hospitals and
other providers for inpatient services.
This proposed rule would implement
amendments made by (1) section
5001(a), which, effective for FY 2007
and subsequent years, expands the
requirements for hospital quality data
reporting; and (2) section 5001(c), which
requires the Secretary to select, by
October 1, 2007, at least two hospitalacquired conditions that meet certain
specified criteria that will be subject to
a quality adjustment in DRG payments
during FY 2008.
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In this proposed rule, we also discuss
our development of a plan to
implement, beginning with FY 2009, a
value-based purchasing plan for section
1886(d) hospitals, in accordance with
the requirements of section 5001(b) of
Pub. L. 109–171.
C. Provisions of the Medicare
Improvements and Extension Act Under
Division B of the Tax Relief and Health
Care Act of 2006
In this proposed rule, we discuss the
provisions of section 106(b)(1) of the
Medicare Improvements and Extensions
Act under Division B, Title I of the Tax
Relief and Health Care Act of 2006
(MIEA–TRHCA), Pub. L. 109–432,
which requires MedPAC to submit to
Congress, not later than June 30, 2007,
a report on the Medicare wage index
classification system applied under the
Medicare Prospective Payment System.
Section 106(b) of the MIEA–TRHCA
requires the report to include any
alternatives that MedPAC recommends
to the method to compute the wage
index under section 1886(d)(3)(E) of the
Act.
In addition, we discuss the provisions
of section 106(b)(2) of the MIEA–
TRHCA, which instructs the Secretary
of Health and Human Services, taking
into account MedPAC’s
recommendations on the Medicare wage
index classification system, to include
in the FY 2009 IPPS proposed rule one
or more proposals to revise the wage
index adjustment applied under section
1886(d)(3)(E) of the Act for purposes of
the IPPS.
We note that we published a notice in
the Federal Register on March 23, 2007
(72 FR 13799) that addressed the
provisions of section 106(a) of the
MIEA–TRHCA relating to the extension
of geographic reclassifications of
hospitals under section 508 of Pub. L.
108–173 (that expired on March 31,
2007) through September 30, 2007.
D. Provisions of the Pandemic and AllHazards Preparedness Act
On December 19, 2006, Congress
enacted the Pandemic and All-Hazards
Preparedness Act, Pub. L. 109–417.
Section 302(b) of Pub. L. 109–417 makes
two specific changes that affect
EMTALA implementation in emergency
areas during an emergency period.
Specifically section 302(b)(1)(A) of Pub.
L. 109–417 amended section
1135(b)(3)(B) of the Act to state that
sanctions may be waived for the
direction or relocation of an individual
for screening where, in the case of a
public health emergency that involves a
pandemic infections disease, that
direction or relocation occurs pursuant
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to a State pandemic preparedness plan.
In addition, sections 302(b)(1)(B) and
(b)(1)(C) of Pub. L. 109–417 amended
section 1135(b)(3)(B) of the Act to state
that, if a public health emergency
involves a pandemic infectious disease
(such as pandemic influenza), the
duration of a waiver or modification
under section 1135(b)(3) of the Act
(relating to EMTALA) shall be
determined in accordance with section
1135(e) of the Act as that subsection
applies to public health emergencies.
In this proposed rule, we are
proposing to make changes to the
EMTALA regulations to conform them
to the sanction waiver provisions of
section 302(b) of Pub. L. 109–417.
E. Major Contents of This Proposed Rule
In this proposed rule, we are setting
forth proposed changes to the Medicare
IPPS for operating costs and for capitalrelated costs in FY 2008. We also are
setting forth proposed changes relating
to payments for IME costs and payments
to certain hospitals and units that
continue to be excluded from the IPPS
and paid on a reasonable cost basis. The
changes being proposed would be
effective for discharges occurring on or
after October 1, 2007, unless otherwise
noted.
The following is a summary of the
major changes that we are proposing to
make:
1. Proposed DRG Reclassifications and
Recalibrations of Relative Weights
We are proposing to adopt a Medicare
Severity DRG (MS–DRG) classification
system for the IPPS to better recognize
severity of illness. We present the
methodology we used to establish the
proposed MS–DRGs and discuss our
efforts to further analyze alternative
severity-adjusted DRG systems and to
refine the relative weight calculations
for DRGs.
We present a proposed listing and
discussion of hospital-acquired
conditions, including infections, which
we have evaluated and are considering
for selection to be subject to the
statutorily required quality adjustment
in DRG payments for FY 2008.
We are proposing limited annual
revisions to the DRG classification
system in the following areas: intestinal
transplants, neurostimulators,
intracranial stents, cochlear implants,
knee and hip replacements, spinal
fusions and spinal disc devices, and
endoscopic procedures.
We are presenting our reevaluation of
certain FY 2007 applicants for add-on
payments for high-cost new medical
services and technologies, and our
analysis of the FY 2008 applicant
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(including public input, as directed by
Pub. L. 108–173, obtained in a town hall
meeting).
We are proposing the annual update
of the long-term care diagnosis-related
group (LTC–DRG) classifications and
relative weights for use under the LTCH
PPS for FY 2008. We are proposing that
the LTC–DRGs would be revised to
mirror the proposed MS–DRGs for the
IPPS.
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2. Proposed Changes to the Hospital
Wage Index
In section III. of the preamble to this
proposed rule, we are proposing
revisions to the wage index and the
annual update of the wage data. Specific
issues addressed include the following:
<bullet≤ The FY 2008 wage index
update, using wage data from cost
reporting periods that began during FY
2004.
<bullet≤ Analysis and
implementation of the proposed FY
2008 occupational mix adjustment to
the wage index.
<bullet≤ Proposed changes relating to
expiration of the imputed floor for the
wage index and application of budget
neutrality for the rural floor.
<bullet≤ Proposed changes in
determining the wage index for
multicampus hospitals.
<bullet≤ The proposed revisions to
the wage index based on hospital
redesignations and reclassifications,
including reclassifications for
multicampus hospitals.
<bullet≤ The proposed adjustment to
the wage index for FY 2008 based on
commuting patterns of hospital
employees who reside in a county and
work in a different area with a higher
wage index.
<bullet≤ The timetable for reviewing
and verifying the wage data that will be
in effect for the proposed FY 2008 wage
index.
<bullet≤ The labor-related share for
the FY 2008 wage index, including the
labor-related share for Puerto Rico.
3. Other Decisions and Proposed
Changes to the IPPS for Operating Costs
and GME Costs
In section IV. of the preamble to this
proposed rule, we discuss a number of
provisions of the regulations in 42 CFR
Parts 412, 413, and 489, including the
following:
<bullet≤ The reporting of hospital
quality data as a condition for receiving
the full annual payment update
increase.
<bullet≤ Development of the Medicare
value-based purchasing plan and
scheduled ‘‘listening sessions.’’
<bullet≤ The proposed updated
national and regional case-mix values
and discharges for purposes of
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determining RRC status and a proposed
policy change relating to the acquired
rural status of RRCs.
<bullet≤ The statutorily-required IME
adjustment factor for FY 2008 and a
proposed policy change relating to
determining counts of residents on
vacation or sick leave and in orientation
for IME and direct GME purposes.
<bullet≤ Proposed changes relating to
waiver of sanctions for requirements for
emergency services for hospitals under
EMTALA during national emergency.
<bullet≤ Proposed policy changes
relating to disclosure to patients of
physician ownership of hospitals and
patient safety measures.
<bullet≤ Discussion of the fourth year
of implementation of the Rural
Community Hospital Demonstration
Program.
4. Proposed Changes to the IPPS for
Capital-Related Costs
In section V. of the preamble to this
proposed rule, we discuss the payment
policy requirements for capital-related
costs and capital payments to hospitals
and propose changes relating to
adjustments to the Federal capital rate
to address continuous large positive
margins.
5. Proposed Changes to the Payment
Rates for Excluded Hospitals and
Hospital Units: Rate-of-Increase
Percentages
In section VI. of the preamble to this
proposed rule, we discuss payments to
excluded hospitals and hospital units,
and proposed changes for determining
LTCH CCRs under the LTCH PPS.
6. Services Furnished to Beneficiaries in
Custody of Penal Authorities
In section VII. of the preamble to this
proposed rule, we clarify when
individuals are considered to be in
‘‘custody’’ for purposes of Medicare
payment for services furnished to
beneficiaries who are under penal
authorities.
7. Determining Proposed Prospective
Payment Operating and Capital Rates
and Rate-of-Increase Limits
In the Addendum to this proposed
rule, we set forth proposed changes to
the amounts and factors for determining
the FY 2008 prospective payment rates
for operating costs and capital-related
costs. We also establish the proposed
threshold amounts for outlier cases. In
addition, we address the proposed
update factors for determining the rateof-increase limits for cost reporting
periods beginning in FY 2008 for
hospitals and hospital units excluded
from the PPS.
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8. Impact Analysis
In Appendix A of this proposed rule,
we set forth an analysis of the impact
that the proposed changes would have
on affected hospitals.
9. Recommendation of Update Factors
for Operating Cost Rates of Payment for
Inpatient Hospital Services
In Appendix B of this proposed rule,
as required by sections 1886(e)(4) and
(e)(5) of the Act, we provided our
recommendations of the appropriate
percentage changes for FY 2008 for the
following:
<bullet≤ A single average
standardized amount for all areas for
hospital inpatient services paid under
the IPPS for operating costs (and
hospital-specific rates applicable to
SCHs and MDHs).
<bullet≤ Target rate-of-increase limits
to the allowable operating costs of
hospital inpatient services furnished by
hospitals and hospital units excluded
from the IPPS.
10. Discussion of Medicare Payment
Advisory Commission
Recommendations
Under section 1805(b) of the Act,
MedPAC is required to submit a report
to Congress, no later than March 1 of
each year, in which MedPAC reviews
and makes recommendations on
Medicare payment policies. MedPAC’s
March 2007 recommendation
concerning hospital inpatient payment
policies addressed the update factor for
inpatient hospital operating costs and
capital-related costs under the IPPS and
for hospitals and distinct part hospital
units excluded from the IPPS. This
recommendation is addressed in
Appendix B of this proposed rule. For
further information relating specifically
to the MedPAC March 2007 reports or
to obtain a copy of the reports, contact
MedPAC at (202) 220–3700 or visit
MedPAC’s Web site at: https://
www.medpac.gov.
II. Proposed Changes to DRG
Classifications and Relative Weights
(If you choose to comment on issues
in this section, please include the
caption ‘‘DRG Reclassifications’’ at the
beginning of your comment.)
A. Background
Section 1886(d) of the Act specifies
that the Secretary shall establish a
classification system (referred to as
DRGs) for inpatient discharges and
adjust payments under the IPPS based
on appropriate weighting factors
assigned to each DRG. Therefore, under
the IPPS, we pay for inpatient hospital
services on a rate per discharge basis
that varies according to the DRG to
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which a beneficiary’s stay is assigned.
The formula used to calculate payment
for a specific case multiplies an
individual hospital’s payment rate per
case by the weight of the DRG to which
the case is assigned. Each DRG weight
represents the average resources
required to care for cases in that
particular DRG, relative to the average
resources used to treat cases in all
DRGs.
Congress recognized that it would be
necessary to recalculate the DRG
relative weights periodically to account
for changes in resource consumption.
Accordingly, section 1886(d)(4)(C) of
the Act requires that the Secretary
adjust the DRG classifications and
relative weights at least annually. These
adjustments are made to reflect changes
in treatment patterns, technology, and
any other factors that may change the
relative use of hospital resources.
B. DRG Reclassifications
1. General
As discussed in the preamble to the
FY 2007 IPPS final rule (71 FR 47881
through 47971), we are focusing our
efforts in FY 2008 on making significant
reforms to the IPPS consistent with the
recommendations made by MedPAC in
its ‘‘Report to the Congress, PhysicianOwned Specialty Hospitals’’ in March
2005. MedPAC recommended that the
Secretary refine the entire DRG system
by taking into account severity of illness
and applying hospital-specific relative
value (HSRV) weights to DRGs.1 We
began this reform process by adopting
cost-based weights over a 3-year
transition period beginning in FY 2007
and making interim changes to the DRG
system for FY 2007 by creating 20 new
CMS DRGs and modifying 32 others
across 13 different clinical areas
involving nearly 1.7 million cases. As
described below in more detail, these
refinements are intermediate steps
towards comprehensive reform of both
the relative weights and the DRG system
that is occurring as we undertake further
study.
Currently, cases are classified into
CMS DRGs for payment under the IPPS
based on the principal diagnosis, up to
eight additional diagnoses, and up to six
procedures performed during the stay.
In a small number of DRGs,
classification is also based on the age,
sex, and discharge status of the patient.
The diagnosis and procedure
information is reported by the hospital
using codes from the International
Classification of Diseases, Ninth
Revision, Clinical Modification (ICD–9–
CM).
The process of forming the DRGs was
begun by dividing all possible principal
diagnoses into mutually exclusive
principal diagnosis areas, referred to as
Major Diagnostic Categories (MDCs).
The MDCs were formed by physician
panels as the first step toward ensuring
that the DRGs would be clinically
coherent. The diagnoses in each MDC
correspond to a single organ system or
etiology and, in general, are associated
with a particular medical specialty.
Thus, in order to maintain the
requirement of clinical coherence, no
final DRG could contain patients in
different MDCs. Most MDCs are based
on a particular organ system of the
body. For example, MDC 6 is Diseases
and Disorders of the Digestive System.
This approach is used because clinical
care is generally organized in
accordance with the organ system
affected. However, some MDCs are not
constructed on this basis because they
involve multiple organ systems (for
example, MDC 22 (Burns)). For FY 2007,
cases are assigned to one of 538 DRGs
in 25 MDCs. The table below lists the 25
MDCs.
MAJOR DIAGNOSTIC CATEGORIES (MDCS)
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1 ......
2 ......
3 ......
4 ......
5 ......
6 ......
7 ......
8 ......
9 ......
10 ....
11 ....
12 ....
13 ....
14 ....
15 ....
16 ....
17 ....
18 ....
19 ....
20 ....
21 ....
22 ....
23 ....
24 ....
25 ....
Diseases and Disorders of the Nervous System.
Diseases and Disorders of the Eye.
Diseases and Disorders of the Ear, Nose, Mouth, and Throat.
Diseases and Disorders of the Respiratory System.
Diseases and Disorders of the Circulatory System.
Diseases and Disorders of the Digestive System.
Diseases and Disorders of the Hepatobiliary System and Pancreas.
Diseases and Disorders of the Musculoskeletal System and Connective Tissue.
Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast.
Endocrine, Nutritional and Metabolic Diseases and Disorders.
Diseases and Disorders of the Kidney and Urinary Tract.
Diseases and Disorders of the Male Reproductive System.
Diseases and Disorders of the Female Reproductive System.
Pregnancy, Childbirth, and the Puerperium.
Newborns and Other Neonates with Conditions Originating in the Perinatal Period.
Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders.
Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms.
Infectious and Parasitic Diseases (Systemic or Unspecified Sites).
Mental Diseases and Disorders.
Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders.
Injuries, Poisonings, and Toxic Effects of Drugs.
Burns.
Factors Influencing Health Status and Other Contacts with Health Services.
Multiple Significant Trauma.
Human Immunodeficiency Virus Infections.
In general, cases are assigned to an
MDC based on the patient’s principal
diagnosis before assignment to a DRG.
However, for FY 2007, there are 9 DRGs
to which cases are directly assigned on
the basis of ICD–9–CM procedure codes.
These DRGs are for heart transplant or
implant of heart assist systems, liver
and/or intestinal transplants, bone
marrow transplants, lung transplants,
simultaneous pancreas/kidney
transplants, pancreas transplants, and
1 Medicare Payment Advisory Commission:
Report to the Congress, Physician-Owned Specialty
Hospitals, March 2005, page viii.
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for tracheostomies. Cases are assigned to
these DRGs before they are classified to
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an MDC. The table below lists the nine
current pre-MDCs.
PRE-MAJOR DIAGNOSTIC CATEGORIES (PRE-MDCS)
DRG
DRG
DRG
DRG
DRG
DRG
DRG
DRG
103
480
481
482
495
512
513
541
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DRG 542
Heart Transplant or Implant of Heart Assist System.
Liver Transplant and/or Intestinal Transplant.
Bone Marrow Transplant.
Tracheostomy for Face, Mouth, and Neck Diagnoses.
Lung Transplant.
Simultaneous Pancreas/Kidney Transplant.
Pancreas Transplant.
ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis
with Major O.R.
Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and Neck Diagnosis without
Major O.R.
Once the MDCs were defined, each
MDC was evaluated to identify those
additional patient characteristics that
would have a consistent effect on the
consumption of hospital resources.
Because the presence of a surgical
procedure that required the use of the
operating room would have a significant
effect on the type of hospital resources
used by a patient, most MDCs were
initially divided into surgical DRGs and
medical DRGs. Surgical DRGs are based
on a hierarchy that orders operating
room (O.R.) procedures or groups of
O.R. procedures by resource intensity.
Medical DRGs generally are
differentiated on the basis of diagnosis
and age (0 to 17 years of age or greater
than 17 years of age). Some surgical and
medical DRGs are further differentiated
based on the presence or absence of a
complication or comorbidity (CC).
Generally, nonsurgical procedures
and minor surgical procedures that are
not usually performed in an operating
room are not treated as O.R. procedures.
However, there are a few non-O.R.
procedures that do affect DRG
assignment for certain principal
diagnoses. An example is extracorporeal
shock wave lithotripsy for patients with
a principal diagnosis of urinary stones.
Once the medical and surgical classes
for an MDC were formed, each diagnosis
class was evaluated to determine if
complications, comorbidities, or the
patient’s age would consistently affect
the consumption of hospital resources.
Physician panels classified each
diagnosis code based on whether the
diagnosis, when present as a secondary
condition, would be considered a
substantial CC. A substantial CC was
defined as a condition which, because
of its presence with a specific principal
diagnosis, would cause an increase in
the length of stay by at least one day in
at least 75 percent of the patients. Each
medical and surgical class within an
MDC was tested to determine if the
presence of any substantial CC would
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consistently affect the consumption of
hospital resources.
A patient’s diagnosis, procedure,
discharge status, and demographic
information is entered into the Medicare
claims processing systems and subjected
to a series of automated screens called
the Medicare Code Editor (MCE). The
MCE screens are designed to identify
cases that require further review before
classification into a DRG.
After patient information is screened
through the MCE and any further
development of the claim is conducted,
the cases are classified into the
appropriate DRG by the Medicare
GROUPER software program. The
GROUPER program was developed as a
means of classifying each case into a
DRG on the basis of the diagnosis and
procedure codes and, for a limited
number of DRGs, demographic
information (that is, sex, age, and
discharge status).
After cases are screened through the
MCE and assigned to a DRG by the
GROUPER, the PRICER software
calculates a base DRG payment. The
PRICER calculates the payment for each
case covered by the IPPS based on the
DRG relative weight and additional
factors associated with each hospital,
such as IME and DSH adjustments.
These additional factors increase the
payment amount to hospitals above the
base DRG payment.
The records for all Medicare hospital
inpatient discharges are maintained in
the Medicare Provider Analysis and
Review (MedPAR) file. The data in this
file are used to evaluate possible DRG
classification changes and to recalibrate
the DRG weights. However, in the FY
2000 IPPS final rule (64 FR 41500), we
discussed a process for considering nonMedPAR data in the recalibration
process. In order for us to consider
using particular non-MedPAR data, we
must have sufficient time to evaluate
and test the data. The time necessary to
do so depends upon the nature and
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quality of the non-MedPAR data
submitted. Generally, however, a
significant sample of the non-MedPAR
data should be submitted by midOctober for consideration in
conjunction with the next year’s
proposed rule. This date allows us time
to test the data and make a preliminary
assessment as to the feasibility of using
the data. Subsequently, a complete
database should be submitted by early
December for consideration in
conjunction with the next year’s
proposed rule.
In this IPPS proposed rule for FY
2008, we are proposing to adopt
significant changes to the current DRGs.
As described in detail below, we are
proposing significant improvement in
the DRG system to recognize severity of
illness and resource usage by proposing
to adopt Medicare Severity DRGs (MS–
DRGs). The changes we are proposing in
this proposed rule would be reflected in
the FY 2008 GROUPER, Version 25.0,
and would be effective for discharges
occurring on or after October 1, 2007.
Unless otherwise noted in this proposed
rule, our DRG analysis is based on data
from the December 2006 update of the
FY 2006 MedPAR file, which contains
hospital bills received through
December 31, 2006, for discharges
occurring in FY 2006.
2. Yearly Review for Making DRG
Changes
Many of the changes to the DRG
classifications we make annually are the
result of specific issues brought to our
attention by interested parties. We
encourage individuals with concerns
about DRG classifications to bring those
concerns to our attention in a timely
manner so they can be carefully
considered for possible inclusion in the
annual proposed rule and, if included,
may be subjected to public review and
comment. Therefore, similar to the
timetable for interested parties to submit
non-MedPAR data for consideration in
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the DRG recalibration process, concerns
about DRG classification issues should
be brought to our attention no later than
early December in order to be
considered and possibly included in the
next annual proposed rule updating the
IPPS.
The actual process of forming the
DRGs was, and will likely continue to
be, highly iterative, involving a
combination of statistical results from
test data combined with clinical
judgment. We describe in detail below
the process we used to develop the
proposed MS–DRGs. In addition, in
deciding whether to make further
modification to the proposed MS–DRGs
for particular circumstances brought to
our attention, we would consider
whether the resource consumption and
clinical characteristics of the patients
with a given set of conditions are
significantly different than the
remaining patients in the proposed MS–
DRG. We would evaluate patient care
costs using average charges and lengths
of stay as proxies for costs and rely on
the judgment of our medical officers to
decide whether patients are clinically
distinct or similar to other patients in
the MS–DRG. In evaluating resource
costs, we would consider both the
absolute and percentage differences in
average charges between the cases we
would select for review and the
remainder of cases in the MS–DRG. We
also would consider variation in charges
within these groups; that is, whether
observed average differences were
consistent across patients or attributable
to cases that were extreme in terms of
charges or length of stay, or both.
Further, we also would consider the
number of patients who will have a
given set of characteristics and generally
would prefer not to create a new DRG
unless it would include a substantial
number of cases.
C. MedPAC Recommendations for
Revisions to the IPPS DRG System
In the FY 2006 and FY 2007 IPPS
final rules, we discussed a number of
recommendations made by MedPAC
regarding revisions to the DRG system
used under the IPPS (70 FR 47473
through 47482 and 71 FR 47881 through
47939).
In Recommendations 1–3 in the 2005
Report to Congress on Physician-Owned
Specialty Hospitals, MedPAC
recommended that CMS:
<bullet≤ Refine the current DRGs to
more fully capture differences in
severity of illness among patients.
<bullet≤ Base the DRG relative
weights on the estimated cost of
providing care.
<bullet≤ Base the weights on the
national average of the hospital-specific
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relative values (HSRVs) for each DRG
(using hospital-specific costs to derive
the HSRVs).
<bullet≤ Adjust the DRG relative
weights to account for differences in the
prevalence of high-cost outlier cases.
<bullet≤ Implement the case-mix
measurement and outlier policies over a
transitional period.
As we noted in the FY 2006 IPPS final
rule, we had insufficient time to
complete a thorough evaluation of these
recommendations for full
implementation in FY 2006. However,
we did adopt severity-weighted cardiac
DRGs in FY 2006 to address public
comments on this issue and the specific
concerns of MedPAC regarding cardiac
surgery DRGs. We also indicated that we
planned to further consider all of
MedPAC’s recommendations and
thoroughly analyze options and their
impacts on the various types of
hospitals in the FY 2007 IPPS proposed
rule.
For FY 2007, we began this process.
In the FY 2007 IPPS proposed rule, we
proposed to adopt Consolidated
Severity DRGs (CS DRGs) for FY 2008 (if
not earlier). However, based on public
comments received on the FY 2007 IPPS
proposed rule, we decided not to adopt
the CS DRGs. Rather, we decided to
make interim changes to the existing
DRGs for FY 2007 by creating 20 new
DRGs involving 13 different clinical
areas that would significantly improve
the CMS DRG system’s recognition of
severity of illness. We also modified 32
DRGs to better capture differences in
severity. The new and revised DRGs
were selected from 40 existing CMS
DRGs that contain 1,666,476 cases and
represent a number of body systems. In
creating these 20 new DRGs, we deleted
8 and modified 32 existing DRGs. We
indicated that these interim steps for FY
2007 were being taken as a prelude to
more comprehensive changes to better
account for severity in the DRG system
by FY 2008. In the FY 2007 IPPS final
rule, we indicated our intent to pursue
further DRG reform through two
initiatives. First, we announced that we
were in the process of engaging a
contractor to assist us with evaluating
alternative DRG systems that were
raised as potential alternatives to the CS
DRGs in the public comments. Second,
we indicated our intent to review over
13,000 ICD–9–CM diagnosis codes as
part of making further refinements to
the current CMS DRGs to better
recognize severity of illness based on
the work that CMS (then HCFA) did in
the mid-1990’s to adopt severity DRGs.
We describe in detail below the progress
we have made on these two initiatives,
our proposed actions for FY 2008, and
our plans for continued analysis of
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reform of the DRG system for FY 2009.
We note that revising the DRGs to better
recognize severity of illness has
implications for the outlier threshold,
the application of the postacute care
transfer policy, the measurement of real
case-mix versus apparent case-mix, and
the IME and the DSH adjustments. We
discuss these implications in more
detail in the following sections.
In the FY 2007 IPPS proposed rule,
we discussed MedPAC’s
recommendations to move to a costbased HSRV weighting methodology
beginning with the FY 2007 IPPS
proposed rule. Although we proposed to
adopt HSRV weights for FY 2007, we
decided not to adopt the proposed
methodology in the final rule after
considering the public comments.
Instead, in the FY 2007 IPPS final rule,
we adopted a cost-based weighting
methodology without the hospitalspecific portion of the methodology.
The cost weights are being adopted over
a 3-year transition period in 1/3
increments between FY 2007 and FY
2009. In addition, in the FY 2007 IPPS
final rule, we indicated our intent to
further study the hospital-specific
methodology as well as other issues
brought to our attention with respect to
the cost weights. There was significant
concern in the public comments that we
account for charge compression or the
practice of applying a higher charge
markup over costs to lower cost than
higher cost items and services, if we are
to develop relative weights based on
cost. Further, public commenters
expressed concern about potential
inconsistencies between how costs and
charges are reported on the Medicare
cost reports and charges on the
Medicare claims. In the FY 2007 IPPS
final rule, we used costs and charges
from the cost report to determine
departmental level cost-to-charge ratios
(CCRs) to apply to charges on the
Medicare claims to determine the cost
weights. The commenters were
concerned about potential distortions to
the cost weights that would result from
inconsistent reporting between the cost
reports and the Medicare claims. After
publication of the FY 2007 IPPS final
rule, we entered into a contract with RTI
International to study both charge
compression and to what extent our
methodology for calculating DRG
relative weights is affected by
inconsistencies between how hospitals
report costs and charges on the cost
report and how hospitals report charges
on individual claims. Further, as part of
its study of alternative DRG systems, the
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RAND Corporation is analyzing the
HSRV cost-weighting methodology.
As we present below, we believe that
revisions to the DRG system to better
recognize severity of illness and changes
to the relative weights based on costs
rather than charges are improving the
accuracy of the payment rates in the
IPPS. We agree with MedPAC that these
refinements should be pursued.
Although we continue to caution that
any system that groups cases will
always present some opportunities for
providers to specialize in cases they
believe to have higher margins, we
believe that the changes we have
adopted and the continuing reforms we
are proposing to adopt for FY 2008 will
improve payment accuracy and reduce
financial incentives to create specialty
hospitals.
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D. Refinement of DRGs Based on
Severity of Illness
(If you choose to comment on issues
in this section, please include the
caption ‘‘DRG Reform and Proposed
MS–DRGs’’ at the beginning of your
comment.)
For purposes of the following
discussions, the term ‘‘CMS DRGs’’
means the DRG system we currently use
under the IPPS; the term ‘‘MedicareSeverity DRGs (MS–DRGs)’’ means the
revisions that we are proposing to make
to the current CMS DRGs to better
recognize severity of illness and
resource use based on case complexity.
Although we have found the terms
‘‘CMS DRGs’’ and ‘‘MS–DRGs’’ useful to
distinguish the current DRG system
from the DRGs that we are proposing to
adopt for FY 2008, we are interested in
public comments on how to best refer to
both the current DRGs and the proposed
DRGs to avoid confusion and improve
clarity.
1. Evaluation of Alternative SeverityAdjusted DRG Systems
In the FY 2007 IPPS final rule, we
stated our intent to engage a contractor
to assist us with an evaluation of
alternative DRG systems that may better
recognize severity than the current CMS
DRGs. We noted it was possible that
some of the alternative systems would
better recognize severity of illness and
are based on the current CMS DRGs. We
further stated that if we were to develop
a clinical severity concept using the
current CMS DRGs as the starting point,
it was possible that several of the issues
raised by commenters (in response to
the CS DRGs, which, in the FY 2007
IPPS proposed rule, we proposed to
adopt for FY 2008 or earlier) would no
longer be a concern. We noted that if we
were to propose adoption of severity
DRGs for FY 2008, we would consider
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the issues raised by commenters on last
year’s proposed rule as we continued to
make further refinements to account for
complexity as well as severity to better
reflect relative resource use. We stated
that we believed it was likely that at
least one of several alternative severityadjusted DRG systems suggested for
review (or potentially a system we
would develop ourselves) would be
suitable to achieve our goal of
improving payment accuracy beginning
in FY 2008.
On September 1, 2006, we awarded a
contract to the RAND Corporation to
perform an evaluation of alternative
severity-adjusted DRG classification
systems. RAND is evaluating several
alternative DRG systems based on how
well they are suited to classifying and
making payments for inpatient hospital
services provided to Medicare patients.
Each system is being assessed on its
ability to differentiate among severity of
illness. A final report is due on or before
September 1, 2007.
RAND’s draft interim report focused
on the following criteria:
<bullet≤ Severity-adjusted DRG
classification systems: —How well does
each classification system explain
variation in resource use? —How would
the classification system affect a
hospital’s patient mix? —Are the
groupings manageable, administratively
feasible and understandable?
<bullet≤ Payment accuracy—What are
the payment implications of selected
models?
In response to our request, several
vendors of DRG systems submitted their
products for evaluation. The following
products are currently being evaluated
by RAND:
3M/Health Information Systems (HIS)
<bullet≤ CMS DRGs modified for AP–
DRG Logic (CMS + AP–DRGs)
<bullet≤ Consolidated SeverityAdjusted DRGs (CS DRGs)
Health Systems Consultants (HSC)
<bullet≤ Refined DRGs (HSC–DRGs)
HSS/Ingenix
<bullet≤ All-Payer Severity DRGs
with Medicare modifications (MM–
APS–DRGs)
Solucient
<bullet≤ Solucient Refined DRGs
(Sol–DRGs)
Vendors submitted their commercial
(off-the-shelf) software to RAND in late
September 2006. The five systems were
compared to the CMS DRGs that were in
effect as of October 1, 2006 (FY 2007).
RAND assigned FY 2004 and FY 2005
Medicare discharges from acute care
hospitals to the FY 2007 CMS DRGs and
to each of the alternative severityadjusted DRG systems. RAND’s initial
analysis provided an overview of each
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24691
alternative DRG classification system,
their comparative performance in
explaining variation in resource use,
differences in DRG grouping logic, and
case-mix change.
A Technical Expert Panel comprised
of individuals representing academic
institutions, hospital associations, and
MedPAC was formed in October 2006.
The members received the preliminary
draft report of RAND’s alternative
severity-adjusted DRG systems
evaluation in early January 2007. The
panel met with RAND and CMS on
January 18, 2007, to discuss the
preliminary draft report and to provide
additional comments. RAND
incorporated items raised by the panel
into its preliminary draft report and
submitted a revised interim report to
CMS in mid-March 2007. CMS posted
RAND’s interim report on the CMS Web
site in late March 2007. Interested
individuals can view RAND’s interim
report on the CMS Web site at: https://
www.cms.hhs.gov/Reports/downloads/
Wynn0307.pdf.
At this time, RAND has not completed
its final evaluation. RAND’s interim
report reflects its preliminary evaluation
of the alternative DRG systems using the
criteria described above. In the project’s
second phase, RAND will continue to
evaluate alternative DRG systems as
well as to compare performance using
HSRVs. As RAND has not completed its
evaluation of alternative DRG systems,
we are not ready at this time to propose
use of one of the alternative DRG
systems being evaluated for Medicare in
FY 2008. Further, even if RAND had
completed its evaluation, we would
need to explore whether any transition
issues would need to be resolved before
we are ready to propose adopting an
alternative DRG system. Among other
issues, we would need to evaluate the
legal and contractual issues associated
with adopting a proprietary DRG
product. Although vendors for four of
the five systems have indicated a
willingness to make their products
available in the public domain, we
believe it is likely there would need to
be some discussion as to whether there
would be any limitations (such as the
source code as well as the DRG logic) on
the availability of the DRG systems to
hospitals or competing vendors.
Further, we would need to resolve
contractual issues for updates and
maintenance of an alternative DRG
system and consider how they interact
with our current ongoing contract to
maintain the CMS DRGs. There may be
further system conversion issues that we
have not yet considered. The RAND
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contract will be complete by September
1, 2007. Once RAND completes its
work, we believe we will be in a better
position to evaluate whether it would be
appropriate to propose to adopt one of
the five alternative DRG systems for
purposes of the IPPS.
As discussed later in this proposed
rule, we are proposing to adopt MS–
DRGs beginning with FY 2008. The MS–
DRGs are the result of modifications to
the CMS DRGs to better account for
severity. While we are proposing to
implement the MS–DRGs on October 1,
2007, we believe the MS–DRGs should
be evaluated by RAND. We have
instructed RAND to evaluate the
proposed MS–DRGs using the same
criteria that it is applying to the other
DRG systems. As described below, we
believe the proposed MS–DRGs
represent a substantial improvement in
the recognition of severity of illness and
resource consumption. For this reason,
we are proposing to adopt MS–DRGs for
FY 2008.
As stated earlier, a final report is
expected from RAND by September 1,
2007. This report will include further
analysis of the five alternative DRG
systems and the additional evaluation of
the MS–DRGs. We look forward to
reviewing RAND’s final report that will
provide a comprehensive evaluation of
each severity DRG system that has been
examined. We anticipate that after this
process is completed, we will have the
necessary information to decide our
next steps in the reform of the IPPS.
Meanwhile, we are proposing to adopt
the MS–DRGs for FY 2008 and are
providing the following update on
RAND’s progress in evaluating
alternative DRG systems.
We invite public comment regarding
RAND’s preliminary analysis of each
vendor-supplied alternative severityadjusted DRG system described below.
a. Overview of Alternative DRG
Classification Systems
Analysis of how each of the five
severity-adjusted DRG systems performs
began by using the current CMS DRGs
as a baseline. Two of the five systems
(CS DRGs and MM–APS–DRGs) are
derivatives of all-patient severityadjusted DRG systems that have been
modified by their developers for the
Medicare population and two of the
systems (HSC–DRGs and Sol–DRGs) are
all-patient systems that incorporate
severity levels into the CMS DRGs. The
CMS–AP–DRGs are a combination of
CMS DRGs and a modification for the
Medicare population of the major CC
severity groupings used in the AP–DRG
system. (The AP–DRG system was
developed by 3M/HIS specifically for
the State of New York to capture the
non-Medicare population.)
Table A below shows how each of the
five alternative severity-adjusted
systems classifies patients into base
DRGs and their corresponding severity
levels.
TABLE A.—LOGIC OF CMS AND ALTERNATIVE DRG SYSTEMS
CMS DRG
CMS+AP–DRG
HSC–DRG
Sol–-DRG
MM–APS–DRG
Number of MDCs ..............
Number of Pre-MDC base
DRGs.
Number of base DRGs .....
Total number of Pre-MDC
DRGs.
Total number of DRGs .....
Number of CC (severity)
subclasses.
CC subclasses ..................
25 ......................
9 ........................
25 ......................
9 ........................
25 ......................
9 ........................
25 ......................
9 ........................
25 ......................
9 ........................
25
7
379 ....................
9 ........................
379 ....................
9 ........................
215 ADRGs .......
30 ......................
248 ADRGs .......
27 ......................
361 ....................
27 ......................
379
9
538 ....................
2 ........................
602 ....................
3 ........................
859
4
Without CC, with
CC with MCC
with some collapsing at
base DRG
level.
Minor, moderate,
major, severe
with some collapsing at
DRG level.
No ......................
Without CC With
CC for selected base
DRGs and
With MCC
across DRGs
within MDC.
No ......................
1,261 .................
3 (medical) or 4
(surgical).
Minor/no substantial CCs,
moderate CCs,
MCCs, catastrophic CCs
(surgical only).
915 ....................
3 ........................
With CC without
CC for selected base
DRGs.
1,274 .................
3 (medical) or 4
(surgical).
No CC, Class C
CC, Class B
CC, Class A
CC (surgical
only).
Multiple CCs recognized ..
No ......................
No ......................
Mostly no ...........
Mostly no ...........
Mostly no ...........
Mostly no ...........
Yes (in computation of weights.
No ......................
Yes.
CC assignment specific to
base DRG.
Logic of CC subdivision ....
Presence/absence.
Principal diagnosis.
Presence/absence.
Principal diagnosis.
Presence/absence.
Principal diagnosis.
Presence/absence.
Principal diagnosis.
Presence/absence.
Principal diagnosis.
18-step process.
Logic of MDC assignment
Death used in DRG assignment.
Yes (in selected
DRGs).
Yes (in selected
DRGs).
Yes ....................
Yes ....................
Yes (includes
‘‘early death’’
DRGs).
Yes ....................
Yes (includes
‘‘early death’’
DRGs).
Yes ....................
Yes (in selected
DRGs).
Complications of care are
CCs.
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Classification element
RAND’s preliminary evaluation of the
logic for each system demonstrated the
following:
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<bullet≤ Four systems add severity
levels to the base CMS DRGs; the CS
DRGs add severity levels to base APR–
DRGs, which are comparable but not
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Yes, when recognized as a
CC No, when
CC represents
‘‘poor medical
care’’.
Con–APR–DRG
Yes.
Principal diagnosis with rerouting.
No.
Few.
identical to the base CMS DRGs. Both
the CS DRGs and MM–APS–DRGs
collapse some base DRGs with low
Medicare volume.
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<bullet≤ The HSC–DRGs and the Sol–
DRGs use uniform severity levels for
each base DRG (three for medical and
four for surgical). The general structure
of the MM–APS–DRG logic includes
three severity levels for each base DRG,
but some severity levels for the same
base DRG are consolidated to address
Medicare low-volume DRGs and
monotonicity issues. Monotonicity is
when the average costs for a severity
group consistently rise as the severity
level of the group increases. For
example, in a monotonic system, if
within a base DRG there are three
severity groups and level 1 severity is
less than level 2 severity and level 2
severity is less than level 3 severity, the
average costs for a level 3 case would be
greater than the average costs for a level
2 case, which would be greater than the
average costs for a level 1 case. The
general structure of the CS DRGs
includes four severity levels for each
base DRG. However, severity level
consolidations occur to address
Medicare low-volume DRGs and
monotonicity. The CS DRGs consolidate
both adjacent severity levels for the
same base DRG and the same severity
level across multiple base DRGs
(especially for severity level 4).
<bullet≤ Under the CMS+AP–DRGs
and MM–APS–DRGs, each diagnosis is
assigned a uniform CC-severity level
across all base DRGs (other than CCs on
the exclusion list for specific principal
diagnoses). The remaining systems
assign diagnoses to CC-severity level
classifications by groups of DRGs.
<bullet≤ Under the grouping logic
used by all systems other than the CS
DRGs, each discharge is assigned to the
highest severity level of any secondary
diagnosis. The CS DRGs adjust the
initial severity level assignment based
on other factors, including the presence
of additional CCs. None of the other
systems adjust the severity level
classification for additional factors or
CCs. However, the MM–APS–DRG
system handles additional CCs through
an enhanced relative weight.
<bullet≤ The HSC–DRGs and the Sol–
DRGs have a medical ‘‘early death’’ DRG
within each MDC.
<bullet≤ The CS DRGs do not use
death in the grouping logic. In addition,
most complications of care do not affect
the DRG assignment.
b. Comparative Performance in
Explaining Variation in Resource Use
In evaluating the comparative
performance of each alternative DRG
system, RAND used MedPAR data from
FY 2004 and FY 2005. RAND excluded
data from CAHs, Indian Health Service
(IHS) hospitals, and hospitals that have
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all-inclusive rate charging practices.
Consistent with CMS practice, RAND
did not exclude data from Maryland
hospitals, which operate under an IPPS
waiver. Records that failed edits for data
consistency or that had missing
variables that were needed to determine
standardized costs were also excluded.
RAND reported that evaluation of
each alternative severity-adjusted DRG
system is a complex process due to
differences in how each of the severity
levels are applied, the number of
severity-adjusted DRGs in each system,
and the average number of discharges
assigned to each DRG. In addition, the
manner in which the DRGs for patients
0–17 years of age are assigned in the
severity-adjusted systems affects the
number of low-volume DRGs using
Medicare discharges.
Low-volume, severity-adjusted DRGs
can affect the relative performance of a
classification system. However, the
percentage of Medicare discharges
assigned to these DRGs is small—
approximately 0.7 percent in the HSC–
DRG and Sol–DRG systems compared to
0.1 percent in the CMS DRGs.
In determining how much withinDRG variation exists for each alternative
severity-adjusted DRG system, RAND
calculated the mean standardized cost,
standard deviation, and coefficient of
variation for each DRG among the
systems. The coefficient of variation
(CV) is the standard deviation divided
by the mean. The CV allowed RAND to
compare the variation of populations
that contain significantly different mean
values. Preliminary results of the
comparison demonstrate that all five
severity-adjusted systems reduce the
amount of variation within DRGs. The
HSC–DRGs and Sol–DRGs have a
slightly higher proportion of patients
assigned to DRGs with a CV<76 percent
but also have a higher proportion of
patients assigned to DRGs with a
CV≤=100 percent. The CS DRGs had a
slightly lower percentage of patients
assigned to DRGs with a CV<76 percent
than the other severity-adjusted
systems. The MM–APS–DRGs, CS
DRGs, and CMS+AP–DRGs all have
fewer than 2 percent of patients
assigned to DRGs with a CV≤=100
percent.
RAND utilized a general linear
regression model to evaluate how well
each severity-adjusted DRG system
explains variation in costs per case. The
initial results demonstrate that all five
severity-adjusted DRG systems predict
cost better than the CMS DRGs. The CS
DRGs have higher adjusted R2 values
(explanatory power) than the other
severity-adjusted systems in nearly
every MDC. In general, the adjusted R2
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24693
value for the CS DRGs is 0.4458, a 13percent improvement over the adjusted
R2 value for the CMS DRGs. The HSC–
DRGs demonstrate an 11-percent
improvement, while the adjusted R2
values for the MM–APS–DRGs and Sol–
DRGs are 10.0 percent and 9.7 percent
higher respectively, than the CMS DRG
R2 value. The CMS+AP–DRGs show the
smallest improvement, nearly 8 percent.
Another aspect of RAND’s evaluation
was to identify the validity of each
alternative DRG system as a
measurement for resource costs. For a
base DRG, the severity levels should be
monotonic; that is, the mean cost per
discharge should increase
simultaneously with an increase in the
severity level. A distinction between
patient groups and varying treatment
costs should be accomplished by the
severity levels. RAND studied the
percentage differences and absolute
differences in cost between the severity
levels within the base DRGs for each
system under evaluation. For the two
systems (CMS+AP–DRGs and CS DRGs)
that include several base DRGs, RAND
assigned those discharges to the lower
severity level base DRG. Following that
methodology, RAND was able to
calculate how much more costly the
discharges assigned to the consolidated
or lower severity levels were than the
discharges in the base DRG assigned to
the next higher severity level.
Preliminary results demonstrate that,
overall, monotonicity is not a factor
across the alternative DRG systems.
There are only a small percentage of
discharges that are assigned to
nonmonotonic DRGs. When a DRG is
nonmonotonic, the mean cost in the
higher severity level is less than the
mean cost in the lower severity level.
Using the data from severity of illness
levels 1 through 3 (except for the MM–
APS–DRGs, which do not have a
severity of illness level 3), RAND
calculated the discharge-weighted mean
cost difference between severity levels
and the mean ratio of the cost per
discharge for the higher severity level to
the adjacent lower severity level. The
greatest cost discrimination was present
in the higher severity levels versus the
lower severity levels across all the
systems. The mean cost difference
between severity of illness level 1 and
severity of illness level 0 was reported
to be less than $2,000 for all the
severity-adjusted systems. The CMS+AP
DRGs have the least amount of cost
discrimination between severity levels
($2,117), while the MM–APS–DRG
system has the highest mean cost
difference ($2,385). The remaining
systems demonstrated equivalent
percentage cost differences between the
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severity levels as shown in Table B
below.
BILLING CODE 4120–01–P
In examining whether each of the
alternative DRG systems provided
stability in the relative weights from
year to year, RAND compared the
relative weights derived from the
MedPAR data in FY 2004 to the relative
weights data from FY 2005. RAND’s
preliminary results demonstrate that
generally, across all the systems, only a
small percentage of DRGs had greater
than a 5 percent change in relative
weights. The HSC–DRGs and Sol–DRGs
had a higher proportion of DRGs with a
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greater than 5 percent change in relative
weights than the other systems. Fewer
than 10 percent of the DRGs in the
remaining systems had relative weight
changes greater than 10 percent. In
addition to differences in the number of
DRGs and the methodology of assigning
the severity levels, RAND noted
additional factors that may affect the
comparative performance of each
alternative severity-adjusted DRG
system. For further details and
discussion, we encourage readers to
view RAND’s full interim report on the
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CMS Web site at: https://
www.cms.hhs.gov/Reports/downloads/
Wynn0307.pdf.
c. Payment Accuracy and Case-Mix
Impact
Similar to how CMS established the
relative weights in the FY 2007 IPPS
final rule, RAND used standardized
costs as determined by the national CCR
and the FY 2005 MedPAR data to
construct relative weights for each of the
DRG systems being evaluated. RAND
analyzed the effect of variations in the
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explanatory power on the distribution of
Medicare payments for each system
under evaluation. The preliminary
findings indicate payment accuracy is
improved by each severity-adjusted
system by redistributing payment from
lower-cost discharges to higher-cost
discharges. However, the total payment
redistribution across systems differs and
reflects the payment impact of improved
explanatory power. Although these
findings are estimates, the percent of
total payment redistributed was the
least under the CMS+AP–DRGs (7.1
percent) and the most under the CS
DRGs (11.9 percent).
Table C shows changes in case-mix
index (CMI) by hospital category across
alternative severity-adjusted DRG
systems. Preliminary results
demonstrate that under the severityadjusted systems, urban hospitals have
a higher average CMI than under the
CMS DRGs, and rural hospitals have a
lower CMI. The analysis suggests that
any system adopted to better recognize
severity of illness with a budget
neutrality constraint will result in
payment redistribution that can be
expected to benefit urban hospitals at
the expense of rural hospitals. This
impact occurs because patients treated
in urban hospitals are generally more
severely ill than patients in rural
hospitals and the CMS DRGs are not
currently recognizing the full extent of
these differences. For purposes of the
study, RAND assumed no behavioral
changes in coding practice or the types
of patients treated.
The shift in case-mix (CMI) is greatest
with the CS DRGs. The CMI for rural
hospitals is 2.4 percent lower than
under the CMS DRGs. The CMI for large
urban (hospitals located in CBSAs with
greater than 1 million population) and
other urban hospitals is 0.6 percent and
0.1 percent higher, respectively, for the
CS DRGs. The CMI generally increases
for larger hospitals and decreases for
smaller hospitals. Under the CMS+AP–
DRG, HSC–DRG, and Sol–DRG systems,
greater than 70 percent of hospitals
would experience less than a 2.5
percent change in their CMI. Under the
MM–APS–DRG and Con–APR–DRG
systems, 65 and 45 percent of hospitals,
respectively, would experience less than
a 2.5 percent change. The percentage of
hospitals experiencing less than a 5
percent change is significant across all
of the CMS–based DRG systems.
Teaching hospitals commonly treat a
higher number of complex cases.
However, depending on the severityadjusted DRG system being analyzed,
the impact will vary. In the CMS+AP–
DRG, HSC–DRG, and MM–APS–DRG
systems, facilities with large teaching
programs (100 or more residents)
demonstrated a larger increase than
those facilities with smaller teaching
programs. Under the Sol–DRG system,
facilities with large teaching programs
would experience a 0.1 percent
increase, while facilities with the
smaller teaching programs would
experience a 0.2 percent increase. The
CS DRGs showed similar results for
hospitals with large teaching programs,
but hospitals with the smaller teaching
programs would experience an increase
of 0.7 percent, relative to the CMS
DRGs. RAND found that CMI would
decline for nonteaching hospitals from
severity adjusted DRGs, from a 0.2
percent decrease under the HSC–DRGs
and Sol–DRGs compared to a 0.5
percent decrease under the CS DRGs.
TABLE C.—CMI CHANGE IN ALTERNATIVE DRG SYSTEMS RELATIVE TO THE CMS DRG CMI
Percentage change from CMS–DRG–CMI
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N
hospitals
ALL ...........................................................
By Geographic Location:
Large urban areas (pop≤1 million) ...
Other urban areas (pop<1 million) ...
Rural hospitals ..................................
Bed Size (Urban):
0–99 beds .........................................
100–199 beds ...................................
200–299 beds ...................................
300–499 beds ...................................
500 or more beds .............................
Bed Size (Rural):
0–49 beds .........................................
50–99 beds .......................................
100–149 beds ...................................
150–199 beds ...................................
200 or more beds .............................
Urban by Region:
New England ....................................
Middle Atlantic ..................................
South Atlantic ....................................
East North Central ............................
East South Central ...........................
West North Central ...........................
West South Central ..........................
Mountain ...........................................
Pacific ...............................................
Puerto Rico .......................................
Rural by Region:
New England ....................................
Middle Atlantic ..................................
South Atlantic ....................................
East North Central ............................
East South Central ...........................
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N
discharges
CMS
DRG
CMI
CMS +
AP–DRG
HSC–
DRG
Sol–DRG
MM–
APS–
DRG
Con–
APR–
DRG
3,890
12,165,763
1.00
0.0
0.0
0.0
0.0
0.0
1,485
1,186
1,219
5,715,356
4,578,447
1,871,960
1.02
1.04
0.84
0.5
-0.2
-1.3
0.4
-0.2
-0.9
0.3
-0.1
-1.0
0.6
-0.2
-1.4
0.6
0.1
-2.4
685
875
511
433
167
611,139
2,346,922
2,446,737
2,965,216
1,923,789
0.91
0.93
1.00
1.08
1.17
-1.0
0.0
0.1
0.3
0.6
-1.1
0.1
0.2
0.3
0.3
-1.1
0.0
0.3
0.3
0.2
-1.3
0.1
0.3
0.4
0.4
-1.6
0.0
0.6
0.8
0.4
543
398
160
69
49
330,242
595,599
415,367
260,910
269,842
0.73
0.80
0.85
0.91
0.99
-2.5
-1.4
-1.1
-0.8
-0.6
-2.1
-1.0
-0.7
-0.6
-0.1
-2.2
-1.1
-0.8
-0.7
-0.1
-2.7
-1.6
-1.2
-0.8
-0.6
-5.0
-2.7
-2.0
-1.5
-0.5
129
370
432
410
168
164
369
153
423
53
541,471
1,621,488
2,208,336
1,856,164
696,943
657,322
1,115,411
465,093
1,016,135
115,440
0.99
1.00
1.04
1.03
1.06
1.08
1.05
1.08
1.03
0.87
0.1
0.0
0.5
0.6
-0.2
-0.3
0.1
0.4
0.0
-1.1
-0.2
-0.4
0.7
0.7
-0.2
-0.3
0.0
0.2
-0.2
-1.4
-0.5
-0.5
0.7
0.6
-0.2
0.0
0.1
0.5
-0.1
-0.1
-0.5
-0.3
0.7
0.8
-0.2
-0.3
0.3
0.4
-0.1
-1.2
-0.6
-1.5
1.4
1.5
-0.3
0.3
0.5
1.0
0.2
-5.1
34
68
191
163
201
49,842
139,639
409,116
290,069
328,326
0.90
0.85
0.82
0.87
0.82
-0.6
-1.1
-0.8
-1.1
-1.5
-0.6
-0.7
-0.4
-0.7
-0.9
-0.5
-0.7
-0.5
-0.9
-1.1
-1.1
-1.3
-0.9
-1.3
-1.4
-0.6
-1.5
-1.8
-1.8
-3.2
Frm 00017
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TABLE C.—CMI CHANGE IN ALTERNATIVE DRG SYSTEMS RELATIVE TO THE CMS DRG CMI—Continued
Percentage change from CMS–DRG–CMI
N
hospitals
%
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West North Central ...........................
West South Central ..........................
Mountain ...........................................
Pacific ...............................................
Teaching Status:
Non-teaching .....................................
Fewer than 100 Residents ...............
100 or more Residents .....................
Urban DSH:
Non-DSH ...........................................
100 or more beds .............................
Less than 100 beds ..........................
Rural DSH:
Non-DSH ...........................................
SCH ..................................................
RRC ..................................................
Other Rural:
100 or more beds .............................
Less than 100 beds ..........................
Urban teaching and DSH:
Both teaching and DSH ....................
Teaching and no DSH ......................
No teaching and DSH .......................
No teaching and no DSH .................
Rural Hospital Types:
RRC ..................................................
SCH ..................................................
MDH ..................................................
SCH and RRC ..................................
MDH and RRC ..................................
Other Rural .......................................
02:00 Aug 26, 2011
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CMS
DRG
CMI
CMS +
AP–DRG
HSC–
DRG
Sol–DRG
MM–
APS–
DRG
Con–
APR–
DRG
184
227
91
60
240,449
266,419
80,219
67,881
0.87
0.80
0.85
0.86
-1.6
-2.1
-1.2
-0.9
-1.2
-1.8
-1.0
-1.0
-1.1
-1.9
-0.4
-1.1
-1.8
-2.0
-1.3
-1.4
-2.5
-4.3
-1.2
-1.6
2,791
853
246
6,115,193
4,061,451
1,989,119
0.92
1.04
1.16
-0.4
0.1
0.8
-0.2
0.2
0.3
-0.2
0.2
0.1
-0.4
0.2
0.5
-0.5
0.7
0.0
778
1,541
352
2,574,640
7,378,095
341,068
1.02
1.05
0.82
-0.1
0.3
-0.9
0.0
0.2
-0.8
0.1
0.2
-1.0
-0.2
0.4
-1.1
0.5
0.4
-2.0
238
402
132
300,747
599,823
466,395
0.87
0.83
0.92
-1.4
-1.3
-0.8
-1.0
-1.0
-0.3
-0.9
-1.0
-0.5
-1.7
-1.4
-0.7
-1.9
-2.4
-1.4
60
387
135,146
369,849
0.80
0.74
-0.9
-2.1
-0.8
-1.6
-1.2
-1.7
-1.3
-2.2
-2.0
-4.3
829
204
1,064
574
4,705,476
1,108,092
3,013,687
1,466,548
1.09
1.06
0.95
1.00
0.5
0.0
-0.1
-0.2
0.3
0.1
0.1
-0.1
0.3
0.0
0.0
0.1
0.5
-0.1
0.1
-0.3
0.5
0.4
0.1
0.5
145
423
180
76
8
387
RAND also noted that changes in
coding patterns or behaviors could
improve payments with each severity
adjusted DRG system. Increases in CMI
after adopting the system could be the
result of improved coding rather than
increases in actual patient severity.
Although the State of Maryland’s
experience using the APR–DRG system
is an indicator, coding behaviors are
expected to vary under alternative
systems according to RAND. Therefore,
the risk of case-mix growth due to
improved documentation and coding
exists with any system. However, RAND
advises that the amount of risk can be
assessed based on the logic of the DRG
system and result in anticipated changes
in coding behavior. RAND found that
the CMS+AP–DRG system may have the
lowest risk of case-mix increase, while
the CS DRGs present the greatest risk.
The remaining systems under
evaluation demonstrated equivalent
risk, based on the DRG logic and other
features specific to each system.
In section II.D.2.c. of the preamble of
this proposed rule, the CMI impact
under the proposed MS–DRGs using the
State of Maryland’s experience and data
is described in detail. RAND’s final
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N
discharges
519,808
457,119
164,453
266,027
19,746
444,807
0.92
0.79
0.75
0.92
0.85
0.77
-0.8
-1.6
-2.1
-0.9
-1.4
-1.6
-0.4
-1.2
-1.7
-0.7
-0.6
-1.2
-0.5
-1.2
-1.7
-0.7
-0.8
-1.4
-0.7
-1.7
-2.3
-1.1
-1.6
-1.8
-1.4
-3.0
-4.1
-1.3
-1.9
-3.3
report will include a comparison of the
CMI impact under the proposed MS–
DRG system with the CMI impact of the
other alternative severity-adjusted DRG
systems.
d. Other Issues for Consideration
RAND was asked to examine whether
each of the alternative severity-adjusted
DRG systems under evaluation appear to
contain logic that is manageable,
administratively feasible, and
understandable. Although its evaluation
is not yet complete, RAND’s preliminary
results describe the extent to which
those features are present in the
grouping logic of each system. A brief
summary of these findings and other
discussion points follow. For more
complete details of the grouping logic
for each system evaluated, we encourage
readers to review RAND’s interim report
at the following Web site: https://
www.cms.hhs.gov/Reports/downloads/
Wynn0307.pdf.
To increase and promote
understanding of a DRG classification
system, the grouping logic should
include a uniform structure. With the
exception of the CS DRGs, RAND found
that there is uniformity in the
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hierarchical structure for assigning
discharges to MDCs, DRGs, and severity
levels for each system evaluated. The CS
DRGs utilize a complex rerouting logic
and severity of illness level assignment.
However, the result is a higher
explanatory power that accounts for
limitations in the current system.
Therefore, due to the complexities
associated with that system, it may not
easily be understood. However, if the
results yield clinically coherent groups
of patients with comparable costs,
RAND concluded that the system may
be worth exploring further. The HSC–
DRG and Sol–DRG grouping logic uses
a standard number of severity levels for
each base DRG, although the result is an
increase in the number of low-volume
DRGs. The standard severity level
structure provides increased
understanding, although as mentioned
previously, low-volume, severityadjusted DRGs can affect the relative
performance of a classification system.
The MM–APS–DRGs and CS DRGs use
standard DRG severity levels. However,
the method of collapsing DRGs varies
due to the modifications made for
Medicare use. By only collapsing DRGs
to determine relative weights, RAND
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notes it is possible to preserve the
underlying DRG structure, which
perhaps would lead to a more
understandable system.
As stated earlier, there are also several
transition issues that require attention
when evaluating alternative severityadjusted DRG systems. In determining
how manageable, administratively
feasible, and understandable the
systems being evaluated are,
consideration should be given to how
they crosswalk or map to the current
CMS DRGs. Because four of the systems
under evaluation are based on the
underlying CMS DRG grouping logic to
establish their base DRGs (CMS+AP–
DRGs, HSC–DRGs, Sol–DRGs, and MM–
APS–DRGs), the CMS DRGs are able to
crosswalk smoothly to these severityadjusted DRGs. Conversely,
crosswalking in reverse or backward
mapping from the CMS+AP DRGs to the
CMS DRGs is problematic due to the
discharges in one severity level of the
CMS+AP–DRG system compared to
several base CMS DRGs. As expected,
the CS DRGs do not crosswalk easily to
the CMS DRGs due to the complex
grouping logic. The MM–APS–DRGs
pose unique complications as well due
to the large number (over 1,000) of
DRGs.
System updates are another important
factor that may have serious
implications. All of the DRG systems
RAND evaluated were reported to make
annual updates to reflect ICD–9–CM
coding changes. However, the CC
severity level assignments for each
system have not routinely been
reviewed and revised. The review of the
CC exclusion list and severity level
assignments should be reviewed where
appropriate to reflect current patterns of
care, according to RAND.
Accessibility to each of the severityadjusted DRG system’s logic and
software is also a concern. Each system
RAND analyzed is currently maintained
as a proprietary product. In general, all
of the vendors indicated a willingness to
place their product in the public
domain, under certain terms. As such,
we believe it is likely there would need
to be discussion as to whether there
would be any limitations (such as the
source code as well as the DRG logic) on
the availability of the DRG systems to
hospitals or competing vendors. The
intent of each vendor to provide public
access to its grouper logic and software
is described in further detail in RAND’s
interim report.
The RAND contract will be complete
by September 1, 2007. The final report
will include evaluation of the proposed
MS–DRGs, with further analysis of the
five alternative severity-adjusted DRG
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classification systems. RAND will also
study various approaches to estimating
costs and developing relative weights,
as well as the payment impacts of
alternative methodologies. Again, we
invite public comment on RAND’s
preliminary analysis of the alternative
severity-adjusted DRG systems. The
interim report can be viewed on the
CMS Web site at: https://
www.cms.hhs.gov/Reports/downloads/
Wynn0307.pdf.
2. Development of Proposed Medicare
Severity DRGs (MS–DRGs)
As discussed previously, we are
committed to continuing our efforts of
making refinements to the current CMS
DRGs to better recognize severity of
illness. In the FY 2007 final rule, we
stated that we had begun a
comprehensive review of over 13,000
diagnosis codes to determine which
codes should be classified as CCs when
present as a secondary diagnosis. We
stated that we would also build on the
severity DRG work we performed in the
mid-1990’s. We received a number of
public comments on last year’s
proposed rule that supported the
refinement of the current CMS DRGs so
that they better capture severity.
We also committed to performing a
more broad based analysis of the entire
DRG system to better recognize severity
of illness. As a result of this broad based
analysis, we developed the proposed
MS–DRGs. The proposed MS–DRGs
represent a comprehensive approach to
applying a severity of illness
stratification for Medicare patients
throughout the DRGs. As discussed in
section II.D.5. of the preamble of this
proposed rule, the proposed MS–DRGs
maintain the significant advancements
in identifying medical technology made
to the DRGs in past years. At the same
time, they greatly improve our ability to
identify groups of patients with varying
levels of severity using secondary
diagnoses. Further, they improve our
ability to assign patients to different
DRG severity levels based on resource
use that is independent of the patient’s
secondary diagnosis—referred to in this
discussion as ‘‘complexity.’’ We are
proposing to adopt the MS–DRGs for FY
2008 and submit the system to RAND as
part of its evaluation of alternative DRG
systems. We encourage comments on
both our proposed methodology as well
as on the resulting proposed DRG
structure.
a. Comprehensive Review of the CC List
Our efforts to better recognize severity
of illness began with a comprehensive
review of the CC list. Currently, 115
DRGs are split based on the presence or
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absence of a CC. For these DRGs, the
presence of a CC assigns the discharge
to a higher weighted DRG. The list of
diagnoses designated as a CC was
initially created at Yale University in
1980–1981 as part of the project to
develop an ICD–9–CM version of the
DRGs. The researchers at Yale
University developed the ICD–9–CM
DRGs using national hospital data with
diagnoses and procedures coded in
ICD–9–CM from the second half of 1979.
Because hospitals only began reporting
ICD–9–CM codes in 1979, discharge
abstracts at that time were much less
likely to fully report all secondary
diagnoses. As a result, the Yale
University researchers developed a
liberal definition of a CC as any
secondary diagnosis that ‘‘would cause
an increase in length of stay by at least
1 day in at least 75 percent of the
patients.’’ Because of the likely
underreporting of secondary diagnoses
in the 1979 data, the Yale University
researchers also used age as a surrogate
for identifying patients with a CC. The
original version of the ICD–9–CM DRGs
assigned patients to a CC DRG if they
had a secondary diagnosis on the CC list
or if the patient was 70 years or older.
With the implementation of the IPPS
in FY 1984, the coding of secondary
diagnoses by hospitals dramatically
improved. During the first 4 years of the
IPPS, the CC definition included the age
70 criterion. With the improved coding
and reporting of diagnoses associated
with the implementation of the IPPS,
the use of age as a surrogate for CCs was
no longer necessary. Thus, beginning in
FY 1988, the age 70 criterion was
removed from the CC definition and a
CC DRG was defined exclusively by the
presence of a secondary diagnosis on
the CC list.
Except for new diagnosis codes that
were added to ICD–9–CM after FY 1984
(for example, HIV), the CC list of
diagnoses currently used in the CMS
DRGs is virtually identical to the CC list
created at Yale University. However,
there have been dramatic changes not
only in the accuracy and completeness
of the coding of secondary diagnoses but
also in the characteristics of patients
admitted to hospitals and the practice
patterns within hospitals as well.
Since the implementation of the IPPS,
Medicare average length of stay has
dropped dramatically from 9.8 days in
1983 to 5.7 days in 2005. The economic
incentives inherent in DRGs motivated
a change in practice patterns to
discharge patients earlier from the
hospital. These changes were facilitated
by the increased availability of
postacute care services, such as nursing
homes and home health services, which
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allowed problems previously requiring
continued hospitalization to be
effectively treated outside the acute care
hospital. Furthermore, there has also
been a dramatic shift to outpatient
surgery that avoids costly inpatient
stays. Many surgical procedures
formerly performed in the hospital are
now routinely performed on an
outpatient basis. As a result, patients
admitted to the hospital today are on
average more likely to have a CC than
when the IPPS was implemented. The
net effect of better coding of secondary
diagnoses, reductions in hospital length
of stay, increased availability of
postacute care services, and the shift to
outpatient care is that most patients
(nearly 80 percent) admitted to a
hospital now have a CC. As a result of
the changes that have occurred during
the 22 years since the implementation of
the IPPS, the CC list as currently
defined has lost much of its power to
discriminate hospital resource use.
Currently, 115 CMS DRGs have a CC
subdivision. Up until FY 2002, the
number of DRGs with a CC subdivision
remained essentially unchanged from
the original FY 1984 version of the
DRGs. As a means of improving the
payment accuracy of the DRGs,
beginning with the FY 2002 DRG
update, each base CMS DRG without a
CC subdivision was evaluated to
determine if a CC subdivision was
warranted. Over the past five DRG
updates, only seven base CMS DRGs
have had a CC subdivision added. The
primary constraint preventing a
significant increase in the number of
base CMS DRGs with a CC subdivision
is the low number of patients that
would be assigned to the non-CC group.
Thus, the expansion of the number of
CMS DRGs subdivided based on a CC is
constrained because the vast majority of
patients would be assigned to the CC
group and few patients would be
assigned to the non-CC group. To
remedy these problems, we reviewed
each of the 13,549 secondary diagnosis
codes to evaluate their assignment as a
CC or non-CC using statistical
information from the Medicare claims
data and applying medical judgment
based on current clinical practice. We
refer to this list in this section as the
‘‘revised CC list.’’
The need for a revised CC list
prompted a reexamination of the
secondary diagnoses that qualify as a
CC. Our intent was to better distinguish
cases that are likely to result in
increased hospital resource use based
on secondary diagnosis. Using a
combination of mathematical data and
the judgment of our medical officers, we
included the condition on the CC list if
it could demonstrate that its presence
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would lead to substantially increased
hospital resource use.
Diagnoses may require increased
hospital resource use because of a need
for such services as:
<bullet≤ Intensive monitoring (for
example, an intensive care unit (ICU)
stay).
<bullet≤ Expensive and technically
complex services (for example, heart
transplant).
<bullet≤ Extensive care requiring a
greater number of caregivers (for
example, nursing care for a
quadriplegic). There are 3,326 diagnosis
codes on the current CC list. Our 2006
review of the CC list reduced the
number of diagnosis codes on the CC
list to 2,583. Based on the current CC
list, 77.6 percent of patients have at
least one CC present. Based on the
revised CC list from our 2007 review,
the percent of patients having at least
one CC present would be reduced to
41.24 percent.
b. Chronic Diagnosis Codes
The 1979 data used in the original
formation of the CC list often did not
have the manifestations of a chronic
disease fully coded. As a result, the CC
list included many chronic diseases
with a broad range of manifestations.
Such chronic illness diagnoses usually
do not cause a significant increase in
hospital resource use unless there is an
acute exacerbation present or there is a
significant deterioration in the
underlying chronic condition.
Therefore, in the revised CC list, we
removed chronic diseases without a
significant acute manifestation.
Recognition of the impact of the chronic
disease is accomplished by separately
coding the acute manifestation. For
example, the mitral valve disease codes
(codes 396.0 through 396.9) are assigned
to the current CC list. However, unless
the mitral valve abnormalities are
associated with other diagnoses
indicating acute deterioration, such as
acute congestive heart failure, acute
pulmonary edema, or respiratory failure,
they would not be expected to
significantly increase hospital resource
use. Therefore, the revised CC list did
not include the mitral valve codes.
Recognition of the contribution of mitral
valve disease to the complexity of
hospital care would be accomplished by
separately coding those diseases on the
CC list that are associated with an acute
exacerbation or deterioration of the
mitral valve disease.
The revised CC list applied the
criterion that chronic diagnoses having
a broad range of manifestations are not
assigned to the CC list as long as there
are codes available that allow the acute
manifestations of the disease to be
coded separately. For some diseases,
there are ICD–9–CM codes that
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explicitly include a specification of the
acute exacerbation of the underlying
disease. For example, for congestive
heart failure, the following codes
specify an acute exacerbation of the
congestive heart failure:
<bullet≤ 428.21, Acute systolic heart
failure
<bullet≤ 428.41, Acute systolic and
diastolic heart failure
<bullet≤ 428.43, Acute on chronic
systolic heart failure
<bullet≤ 428.31, Acute diastolic heart
failure
<bullet≤ 428.33, Acute on chronic
diastolic heart failure
These congestive heart failure codes
are included on the revised CC List.
However, the following congestive heart
failure codes do not indicate an acute
exacerbation and are not included in the
revised CC list:
<bullet≤ 428.0, Congestive heart failure
not otherwise specified
<bullet≤ 428.1, Left heart failure
<bullet≤ 428.20, Systolic heart failure
not otherwise specified
<bullet≤ 428.22, Chronic systolic heart
failure
<bullet≤ 428.32, Chronic diastolic heart
failure
<bullet≤ 428.40, Systolic and diastolic
heart failure
<bullet≤ 428.9, Heart failure not
otherwise specified
As a result of this approach, most
chronic diseases were not assigned to
the revised CC list. In general, a
significant acute manifestation of the
chronic disease must be present and
coded for the patient to be assigned a
CC. We made exceptions for diagnosis
codes that indicate a chronic disease in
which the underlying illness has
reached an advanced stage or is
associated with systemic physiologic
decompensation and debility. The
presence of such advanced chronic
diseases, even in the absence of a
separately coded acute manifestation,
significantly adds to the treatment
complexity of the patient. Thus, the
presence of the advanced chronic
disease inherently makes the reason for
admission more difficult to treat. For
example, under the revised CC list, stage
IV, V, or end-stage chronic renal failure
(codes 585.4 through 585.6) are
designated as a CC, but stage I through
III chronic renal failure (codes 585.1
through 585.3) are not. For obesity, a
body mass index over 35 (codes V85.35
through V85.4) is a CC, but a body mass
index between 19 and 35 is not. Endstage renal failure and extreme obesity
are examples of chronic diseases for
which the advanced stage of the disease
is clearly specified.
However, for most major chronic
diseases, the stage of the disease is not
clearly specified in the code. These
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codes were evaluated based on the
consistency and intensity of the
physiologic decompensation and
debility associated with the chronic
disease. For example, quadriplegia
(codes 344.00 through 344.09) requires
extensive care with a substantial
increase in nursing services and more
intensive monitoring. Therefore,
quadriplegia is considered a CC in the
revised CC list.
c. Acute Diagnosis Codes
Examples of acute diseases included
on the revised CC list included acute
myocardial infarction (AMI),
cerebrovascular accident (CVA) or
stroke, acute respiratory failure, acute
renal failure, pneumonia and
septicemia. These six diseases are
representative of the types of illnesses
we included on the revised CC list.
Other acute diseases were designated as
a CC if their impact on hospital resource
use would be expected to be comparable
to these representative acute diseases.
For example, acute endocarditis was
included on the CC list but urinary tract
infection was not.
The revised CC list is essentially
comprised of significant acute disease,
acute exacerbations of significant
chronic diseases, advanced or end stage
chronic diseases and chronic diseases
associated with extensive debility.
Compared to the existing CC list, the
24699
revised CC list requires a secondary
diagnosis to have a consistently greater
impact on hospital resource.
The following Table D compares the
current CC list and the revised CC list.
There are 3,326 diagnosis codes on the
current CC list. The CC revisions reduce
the number of diagnosis codes on the
CC list to 2,583. Based on the current CC
list, 77.6 percent of patients have at
least one CC present, using FY 2006
MedPAR data. Based on the revised CC
list, the percent of patients having at
least one CC present is reduced to 40.34
percent. The revised CC list increases
the difference in average charges
between patients with and without a CC
by 56 percent ($15,236 versus $9,743).
TABLE D.—COMPARISON OF CURRENT CC LIST AND REVISED CC LIST
Current CC list
Revised CC list
3,326
77.66
22.34
$24,538
$14,795
2,583
40.34
59.66
$31,451
$16,215
Codes designated as a CC .................................................................................................................................
Percent of patients with one or more CCs ..........................................................................................................
Percent of patients with no CC ...........................................................................................................................
Average charge of patients with one or more CCs .............................................................................................
Average charge of patients with no CCs ............................................................................................................
The analysis above suggests that
merely reviewing and updating the CC
list can lead to significant
improvements in the ability of the CMS
DRGs to recognize severity of illness.
Although we could potentially adopt
this one change to better recognize
severity of illness in the CMS DRGs, we
have undertaken additional analyses
that further refine secondary diagnoses
into MCCs, CCs and non-CCs as
described below.
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d. Prior Research on Subdivision of CCs
into Multiple Categories
(1) Refined DRGs
During the mid-1980s, CMS (then
HCFA) funded a project at Yale
University to revise the use of CCs in
the CMS DRGs. The Yale University
project mapped all secondary diagnoses
that were considered a CC in the CMS
DRGs into 136 secondary diagnosis
groups, each of which was assigned a
CC complexity level. For surgical
patients, each of the 136 secondary
diagnosis groups was assigned to 1 of 4
CC complexity levels (non-CC, moderate
CC, MCC, and catastrophic CC). For
medical patients, each of the 136
secondary diagnosis groups was
assigned to 1 of 3 CC complexity levels
(non-CC, moderate/MCC, and
catastrophic CC). All age subdivisions
and CC subdivisions in the DRGs were
eliminated and replaced by the four CC
subgroups for surgical patients, or the
three CC subgroups for medical patients.
The Yale University project did not
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reevaluate the categorization of
secondary diagnosis as a CC versus a
non-CC. Only the diagnoses on the
standard CC list were used to create the
moderate, major, and catastrophic
subgroups. All secondary diagnoses in a
secondary diagnosis group were
assigned the same level, and a patient
was assigned to the subgroup
corresponding to the highest level
secondary diagnosis. The number of
secondary diagnoses had no effect on
the subgroup assigned to the patient
(that is, multiple secondary diagnoses at
one level did not cause a patient to be
assigned to a higher subgroup). The
DRG system developed by the Yale
University project demonstrated that a
subdivision of the CCs into multiple
subclasses would improve the
predictability of hospital costs.
(2) 1994 Severity DRGs
We also examined the work we
performed in the mid-1990’s to revise
the CMS DRGs to better capture
severity. In 1993, we reevaluated the use
of CCs within the CMS DRGs. The
reevaluation excluded the CMS DRGs
associated with pregnancy, newborn,
and pediatric patients (MDCs 14 and 15
and DRGs defined based on age 0–17).
The major CC list from the AP–DRGs
that are used for Medicaid payment by
New York and other States was used to
identify an initial list of MCCs. Using
Medicare data, we reevaluated the
categorization of each secondary
diagnosis as a non-CC, CC, or an MCC.
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The end result was that 111 diagnoses
that were non-CCs in the standard CMS
DRGs were made a CC, 220 diagnoses
that were a CC were made a non-CC,
and 395 CCs were considered an MCC.
All CC splits in the CMS DRGs were
eliminated, and an additional 24 DRGs
were merged together. The resulting
base CMS DRGs were then subdivided
into three, two, or no subgroups based
on an analysis of Medicare data. The
result was 84 DRGs with no subgroups,
124 DRGs with two subgroups, and 85
DRGs with three subgroups. An
additional 63 pregnancy, newborn, and
pediatric DRGs not evaluated resulted in
a total of 652 DRGs.
A patient was assigned to the CC
subgroup corresponding to the highest
level secondary diagnosis. Multiple
secondary diagnoses at one level did not
cause a patient to be assigned to a
higher subgroup. The categorization of a
diagnosis as non-CC, CC, or MCC was
uniform across the CMS DRGs, and
there were no modifications for specific
DRGs. As part of the FY 1995 IPPS
proposed rule, we made a complete file
of the revised DRG descriptions
available to the public. However, we
never adopted the revised DRGs (55 FR
27756).
e. Proposed Medicare Severity DRGs
(MS–DRGs)
We had several options in developing
a refinement to the current CMS DRGs
to better recognize increased resource
use due to severity of illness. One
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option would involve simply taking the
work performed in 1994 and then
updating it with all the code changes
that have taken place since then. We
were reluctant to do this because of
changes in medical practices as well as
the substantial change in ICD–9–CM
codes since that time. Another option
would be to build on current CMS DRGs
which include a number of
advancements that better identify
medical practices and technologies.
Many commenters on the FY 2007 IPPS
proposed rule urged us to take the latter
approach because they believed the
current base CMS DRGs clearly
differentiate between the complexities
of varying surgical procedures and
medical devices. Therefore, we chose
the option of developing a new severity
DRG system based on the current CMS
DRGs.
The development of the 1994 Severity
DRGs involved three steps:
<bullet≤ Consolidation of existing
DRGs into base DRGs.
<bullet≤ Categorization of each
diagnosis as an MCC, CC, or non-CC.
<bullet≤ Subdivision of each base
DRG into subclasses based on CCs.
We reviewed and revised each of the
three steps and applied them to our
current CMS DRGs to develop DRGs that
better identify severity of illness among
Medicare patients. We refer to this
proposed system as the Medicare
Severity DRGs (MS–DRGs). The purpose
of the proposed MS–DRGs is to more
accurately stratify groups of Medicare
patients with varying levels of severity.
(1) Consolidation of Existing CMS DRGs
Into Proposed Base MS–DRGs
The first step in our process was the
consolidation of existing CMS DRGs
into new proposed base MS–DRGs. We
combined together the 115 pairs of CMS
DRGs that are subdivided based on the
presence of a CC. We further
consolidated the CMS DRGs that are
split on the basis of a major
cardiovascular condition, AMI with and
without major complication (CMS DRGs
121 and 122), and cardiac
catheterization with and without
complex diagnoses (CMS DRGs 124 and
125). We also consolidated the three
pairs of burn CMS DRGs that were
defined based on the presence of a CC
or a significant trauma (CMS DRGs 506
and 507; 508 and 509; and 510 and 511).
Next, we consolidated the 43 pediatric
CMS DRGs that are defined based on age
less than or equal to 17. These pediatric
CMS DRGs contain a very low volume
of Medicare patients. As shown in Table
10 of the FY 2007 IPPS final rule (71 FR
48318), only two of these pediatric CMS
DRGs contained more than 100 patients
(CMS DRGs 298 and 333). Seventeen of
these pediatric DRGs had no patients
(CMS DRGs 30, 33, 41, 48, 54, 58, 137,
252, 255, 282, 330, 340, 343, 393, 405,
446, and 448). As we have stated
frequently, our primary focus in
maintaining the CMS DRGs is to serve
the Medicare population. We do not
have the data or the expertise to
maintain the DRGs in clinical areas that
are not relevant to the Medicare
population. We continue to encourage
users of the CMS DRGs (or MS–DRGs if
adopted) to make relevant adaptations if
they are being used for a non-Medicare
patient population.
In addition to the pediatric CMS
DRGs defined by the age of the patient,
there are a number of CMS DRGs that
relate primarily to the pediatric or adult
population that have very low volume
in the Medicare population, such as
male sterilization, tubal interruptions,
circumcisions, tonsillectomies, and
myringotomies. These CMS DRGs were
consolidated into the most clinically
similar proposed MS–DRG.
Over the past two decades, the site of
service for some elective procedures
such as carpal tunnel release, cataract
extraction, and laparoscopy has shifted
from the inpatient to the outpatient
setting, resulting in the CMS DRGs
associated with these procedures having
very low volume. These CMS DRGs
were also consolidated into the most
clinically similar proposed MS–DRG. In
addition, there were some clinically
related CMS DRGs that had significant
Medicare patient volume but had no
significant difference in resource use.
For example, thyroid (CMS DRG 290)
and parathyroid (CMS DRG 289)
procedures were virtually identical in
terms of hospital resource use and were,
therefore, consolidated. In total, 34 of
these CMS DRGs were consolidated.
The DRG consolidations are
summarized in Table E below.
Four pairs of proposed MS–DRGs (223
and 224; 228 and 229; 323 and 324; and
551 and 552) were defined based on the
presence of a CC or some other
condition. For example, proposed MS–
DRG 323 is defined based on the
presence of a CC or the performance of
extracorporeal shock wave lithotripsy.
For these proposed MS–DRGs, the CC
condition was removed and the pair of
DRGs remains separate but defined
based only on the other condition (that
is, proposed MS–DRG 323 became
urinary stones with extracorporeal
shock wave lithotripsy). As was done in
the 1994 severity DRG work, we did not
consolidate any of the CMS DRGs for
maternity or newborn cases.
Before proceeding further, we made
one additional change to a base DRG
assignment after completing these
consolidations. We assigned cranialfacial bone procedures to a proposed
new base DRG (Cranial/Facial Bone
Procedures). These cases were
previously assigned to DRGs 52 and 55
through 63.
Table E below shows how DRGs in
the CMS DRGs (Version 24.0) were
consolidated into proposed new base
MS–DRGs. We refer readers to section
II.D.2. of the preamble of this proposed
rule for a detailed discussion of CCs and
MCCs under the proposed MS–DRGs.
TABLE E.—DRG CONSOLIDATION
Proposed
2008 MSDRG
DRG description
6 .....................
7,8 ..................
mmaher on DSK3CLS3C1PROD with $$_JOB
CMS-DRG
Version 24.0
Carpal Tunnel Release ....................................................
Peripheral & Cranial Nerve & Other Nervous System
Procedure.
40
41
42
36
38
39
42
...................
...................
...................
...................
Retinal Procedures ...........................................................
Primary Iris Procedures ...................................................
Lens Procedures with or without Vitrectomy ...................
Intraocular Procedures Except Retina, Iris & Lens .........
116
117
Intraocular Procedures with and without CC/MCC.
43 ...................
46,47,48 .........
Hyphema ..........................................................................
Other Disorders of the Eye ..............................................
124
125
Other Disorders of the Eye with and without MCC.
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Proposed new base MS-DRGs description
Peripheral & Cranial Nerve & Other Nervous System
Procedure with MCC, with CC, and without CC/MCC.
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24701
TABLE E.—DRG CONSOLIDATION—Continued
Proposed
2008 MSDRG
DRG description
50 ...................
51 ...................
Sialoadenectomy ..............................................................
Salivary Gland Procedures Except Sialoadenectomy .....
139
Salivary Gland Procedures.
52 ...................
55 ...................
Cleft Lip & Palate Repair .................................................
Miscellaneous Ear, Nose, Mouth & Throat Procedures ..
133
134
Other Ear, Nose, Mouth & Throat O.R. Procedures with
and without CC/MCC.
56 ...................
57,58 ..............
59,60 ..............
61,62 ..............
63 ...................
Rhinoplasty .......................................................................
Tonsillectomy & Adenoidectomy Procedure, Except
Tonsillectomy &/or Adenoidectomy Only.
Tonsillectomy &/or Adenoidectomy Only .........................
Myringotomy with Tube Insertion .....................................
Other Ear, Nose, Mouth & Throat O.R. Procedures .......
Epiglottitis .........................................................................
Otitis Media & Upper Respiratory Infection .....................
Laryngotracheitis ..............................................................
131
132
New DRG—Cranial/Facial Bone Procedures with and
without CC/MCC.
67 ...................
68,69,70 .........
71 ...................
152
153
Otitis Media & Upper Respiratory Infection with and
without MCC.
72 ...................
73,74 ..............
Nasal, Trauma & Deformity .............................................
Other Ear, Nose, Mouth & Throat Diagnoses .................
154
155
156
Other Ear, Nose, Mouth & Throat Diagnoses with MCC,
with CC, without CC/MCC.
185,186 ..........
187 .................
Dental & Oral Diseases Except Extractions & Restorations.
Dental Extractions & Restorations ...................................
157
158
159
Dental & Oral Diseases with MCC, with CC, without CC/
MCC.
199 .................
200 .................
Hepatobiliary Diagnostic Procedure for Malignancy ........
Hepatobiliary Diagnostic Procedure for Non-Malignancy
420
421
422
Hepatobiliary Diagnostic Procedures with MCC, with
CC, without CC/MCC.
244,245 ..........
246 .................
Bone diseases & Specific Arthropathies ..........................
Non-Specific Arthropathies ..............................................
553
554
Bone Diseases & Arthropathies with and without MCC.
259,260 ..........
261 .................
262 .................
Subtotal Mastectomy for Malignancy * ............................
Breast Procedures for Non-Malignancy Except Biopsy &
Local Excision.
Breast Biopsy & Local Excision for Non-Malignancy ......
584
585
Breast Biopsy, Local Excision & Other Breast Procedures with and without CC/MCC.
267 .................
268 .................
269,270 ..........
Perianal & Pilonidal Procedures ......................................
Skin, Subcutaneous Tissue & Breast Plastic Procedures
Other Skin, Subcutaneous Tissue & Breast Procedure ..
579
580
581
Other Skin, Subcutaneous Tissue & Breast Procedures
with MCC, with CC, without CC/MCC.
289
290
291
294
295
.................
.................
.................
.................
.................
Parathyroid Procedures ...................................................
Thyroid Procedures ..........................................................
Thyroglossal Procedures .................................................
Diabetes ≤ 35 ...................................................................
Diabetes < 35 ...................................................................
625
626
627
637
638
639
Thyroid, Parathyroid & Thyroglossal Procedures with
MCC, with CC, without CC/MCC.
338 .................
339,340 ..........
Testes Procedures for Malignancy ..................................
Testes Procedures, Non-Malignancy ...............................
711
712
Testes Procedures with and without CC/MCC.
342,343 ..........
Circumcision .....................................................................
................
Procedure 64.0 changed to non-O.R. Cases with only
this procedure will go to medical DRGs.
351 .................
352 .................
Sterilization, Male .............................................................
Other Male Reproductive System Diagnoses ..................
729
730
Other Male Reproductive System Diagnoses with and
without CC/MCC.
361
362
363
364
mmaher on DSK3CLS3C1PROD with $$_JOB
CMS-DRG
Version 24.0
.................
.................
.................
.................
Laparoscopy & Incisional Tubal Interruption ...................
Endoscopic Tubal Interruption .........................................
D&C, Conization & Radio-Implant, for Malignancy ..........
D&C, Conization Except for Malignancy ..........................
History of Malignancy with Endoscopy ............................
744
745
D&C, Conization, Laparascopy & Tubal Interruption with
and without CC/MCC.
411 .................
412 .................
413,414 ..........
History of Malignancy without Endoscopy .......................
Other Myeloproliferative Disease or Poorly Differentiated
Neoplasm Diagnosis.
843
844
845
Other Myeloproliferative Disease or Poorly Differentiated
Neoplasm Diagnosis with MCC, with CC, without CC/
MCC.
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Proposed new base MS-DRGs description
Diabetes with MCC, with CC, without CC/MCC.
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TABLE E.—DRG CONSOLIDATION—Continued
Proposed
2008 MSDRG
CMS-DRG
Version 24.0
DRG description
465 .................
466 .................
Aftercare with History of Malignancy as Secondary Diagnosis.
Aftercare without History of Malignancy as Secondary
Diagnosis.
949
950
Proposed new base MS-DRGs description
Aftercare with and without CC/MCC.
*Codes 85.22 and 85.23 in CMS DRGs 259 and 260 were moved to proposed MS-DRG 582 and 583.
As summarized in the Table F, the
consolidation resulted in the formation
of 335 proposed base MS–DRGs.
TABLE F.—CONSOLIDATION OF CURRENT CMS DRGS INTO PROPOSED
MS–DRGS
Number
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Current CMS DRGs ......................
Elimination of CC subgroups ........
Elimination of MCC subgroups .....
Elimination of CC complexity subgroups .......................................
Elimination of age 0–17 subgroups .......................................
Consolidation due to volume or
resource similarity .....................
New DRG .....................................
Revised Base DRGs ....................
Newborn, maternity and error
DRGs ........................................
Base DRGs for severity subdivision ............................................
538
-114
-7
-5
-43
-34
+1
311
+24
335
The end result of the consolidation of
the CMS DRGs in the proposed MS–
DRGs was similar to the consolidation
performed in the 1994 severity DRGs.
The 1994 DRG consolidations resulted
in 356 base DRGs plus 2 error DRGs.
The number of the 1994 base DRGs is
different because new CMS DRGs have
been added since 1994, the 43 age 0–17
pediatric CMS DRGs were not
consolidated, and some of the volume
shifts to outpatient care had not yet
occurred in 1994. In the 1994 severity
DRGs, 24 DRGs were consolidated due
to volume or resource similarity.
Sixteen of these 1994 DRG
consolidations are included in the 34
consolidations done in the 2007
consolidations. However, due to
concerns expressed by our physician
consultants, 8 of the DRG consolidations
from 1994 were not done. For example,
interstitial lung disease (DRGs 92 and
93) was not consolidated with simple
pneumonia and pleurisy (DRGs 89, 90,
91) as was done in the 1994
consolidations.
(2) Categorization of Diagnoses
We decided to establish three
different levels of CC severity into
which we would subdivide the
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diagnosis codes. The proposed three
levels are MCC, CC, and non-CC.
Diagnosis codes classified as MCCs
reflect the highest level of severity. The
next level of severity includes diagnosis
codes classified as CCs. The lowest level
is for non-CCs. Non-CCs are diagnosis
codes that do not significantly affect
severity of illness and resource use.
Therefore, secondary diagnoses that are
non-CCs do not affect the DRG
assignment under either the current
CMS DRGs or the proposed MS–DRGs.
The categorization of diagnoses as an
MCC, CC, or non-CC was accomplished
using an iterative approach in which
each diagnosis was evaluated to
determine the extent to which its
presence as a secondary diagnosis
resulted in increased hospital resource
use. In order to begin this iterative
process, we started with an initial
categorization of each diagnosis as an
MCC, CC, or non-CC. As noted
previously the 1994 CC revision began
by separating CCs into MCC and CC
based on the AP–DRG major CCs. One
way to begin this iterative process
would have been to use the 1994 CC
categorization. However, the 1994 CC
categorization was based on FY 1992
data and ICD–9–CM diagnosis codes,
which now are 15 years old. Since 1992,
1,897 new diagnoses codes have been
added, and 346 diagnoses codes have
been deleted. Because the revised CC
list (explained in section II.C.2.a. of this
preamble) was based on current ICD–9–
CM codes and used recent data, we
decided to utilize the revised CC list
rather than the 1994 categorization as
our starting point for determining
whether each secondary diagnosis
should be an MCC, a CC, or a non-CC.
The revised CC list categorizes each
diagnosis as a CC or a non-CC. We
decided to use this list in combination
with the categorization under the AP–
DRGs and the APR DRGs. The AP–DRGs
and the APR–DRGs are updated
annually with current codes and
provide a good comparison source to
use with the revised CC list. We
designated as an MCC any diagnosis
that was a CC in the revised CC list and
was an AP–DRG major CC and was an
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Fmt 4701
Sfmt 4702
APR DRG default severity level 3
(major) or 4 (extensive). We designated
as a non-CC any diagnosis that was a
non-CC in the revised CC list and was
an AP–DRG non-CC and was an APR
DRG default severity level of 1 (minor).
Any diagnoses that did not meet either
of the above two criteria was designated
as a CC.
The only exception to our approach
was for diagnoses related to newborns,
maternity, and congenital anomalies.
These diagnoses are very low volume in
the Medicare population and were not
reviewed for purposes of creating the
revised CC list. We used the APR DRGs
to categorize these diagnoses. For
newborn, obstetric, and congenital
anomaly diagnoses, we designated the
APR DRG default severity level 3
(major) and 4 (extreme) diagnoses as an
MCC, the APR–DRG default severity
level 2 (moderate) diagnoses as a CC,
and the APR DRG default severity 1
(minor) diagnoses as a non-CC. Table G
summarizes the number of codes in
each CC category.
TABLE G.—INITIAL CATEGORIZATION
OF CC CODES
Number
of codes
MCC ..............................................
CC .................................................
Non-CC .........................................
1,096
4,221
8,232
Total .......................................
13,549
This initial CC categorization of
diagnosis codes was used to begin the
iterative process of determining the
proposed final CC categorization for
each diagnosis code.
(3) Additional CC Exclusions
For some CMS DRGs, the presence of
specific secondary diagnoses affects the
base DRG assignment. For example, in
MDC 5 (Diseases and Disorders of the
Circulatory System), the presence of an
AMI code as the principal diagnosis or
as a secondary diagnosis will cause the
patient to be assigned to the AMI DRGs
(CMS DRGs 121 through 123).
Therefore, if the AMI code is present as
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a secondary diagnosis, it should not be
used to assign the CC category for a
patient because it is redundant within
the definition of the base DRG.
Similarly, for MDC 24 (Multiple
Significant Trauma), specific
combinations of significant trauma as
principal or secondary diagnosis cause
the assignment to the multiple trauma
DRGs (CMS DRGs 484 through 487).
Therefore, any secondary diagnosis of
trauma is redundant with the definition
of the multiple trauma DRGs and should
not be used to determine the CC
category for a patient. Any secondary
diagnoses that are used to assign a
specific proposed base MS–DRG were
excluded from the determination of the
CC category for patients assigned to that
proposed base MS–DRG.
(4) Analysis of Secondary Diagnoses
The 311 proposed base MS-DRGs (335
total base DRGs minus the MDC 14,
MDC 5, and error DRGs) were
subdivided into three CC subgroups.
Patients were assigned to the subgroup
corresponding to the most extreme CC
present). All but four of the proposed
base MS-DRGs had strictly
monotonically increasing average
charges across the three CC subgroups
(that is, average charges progressively
increased from the non-CC to the CC to
24703
the MCC subgroups). The four proposed
MS-DRGs that failed to have
monotonically increasing charges all
had at least one CC subgroup with very
low volume. For example, the non-CC
subgroup for the pancreas transplant
DRG (CMS DRG 513) had only 2 cases.
The overall statistics by CC subgroup for
the 311 proposed base MS-DRG is
contained in Table H. Patients in the
MCC subgroup have average charges
that are nearly double the average
charge for patients in the CC subgroup.
The CC subgroup with the largest
number of patients is the non-CC
subgroup with 41.1 percent of the
patients.
TABLE H.—OVERALL STATISTICS FOR PROPOSED MS–DRGS EXCLUDING THOSE IN MDCS 14 AND 15
Number of
cases
CC subgroup
Major ............................................................................................................................................
CC ................................................................................................................................................
Non-CC ........................................................................................................................................
In order to evaluate the initial
assignment of secondary diagnoses to
the three CC subclasses, we devised a
system that determined the impact on
resource use of each secondary
diagnosis. For each secondary diagnosis,
we measured the impact in resource use
for the following three subsets of
patients:
(a) Patients with no other secondary
diagnosis or with all other secondary
diagnoses that are non-CCs.
(b) Patients with at least one other
secondary diagnosis that is a CC but
none that is an MCC.
Meaning
0 ..........
Significantly below expected value
for the non-CC subgroup.
Approximately equal to expected
value for the non-CC subgroup.
Approximately equal to expected
value for the CC subgroup.
Approximately equal to expected
value for the MCC subgroup.
3 ..........
2,604,696
4,293,744
4,818,411
22.2
36.6
41.1
Meaning
4 ..........
Value
2 ..........
Average
charges
Value
(c) Patients with at least one other
secondary diagnosis that is an MCC.
Numerical resource impact values
were assigned for each diagnosis as
follows:
1 ..........
Percent
$44,246
24,131
18,435
Significantly above the expected
value for the MCC subgroup.
Each diagnosis for which Medicare
data were available was evaluated to
determine its impact on resource use
and to determine the most appropriate
CC subclass (non-CC, CC, or MCC)
assignment. In order to make this
determination, the average charge for
each subset of cases was compared to
the expected charge for cases in that
subset. The following format was used
to evaluate each diagnosis:
ODE
mmaher on DSK3CLS3C1PROD with $$_JOB
Code
Diagnosis
Cnt1
Count (Cnt) is the number of patients in
each subset and C1, C2, and C3 are a
measure of the impact on resource use
of patients in each of the subsets. The
C1, C2, and C3 values are a measure of
the ratio of average charges for patients
with these conditions to the expected
average charge across all cases. The C1
value reflects a patient with no other
secondary diagnosis or with all other
secondary diagnoses that are non-CCs.
The C2 value reflects a patient with at
least one other secondary diagnosis that
is a CC but none that is a major CC. The
C3 value reflects a patient with at least
one other secondary diagnosis that is a
major CC. A value close to 1.0 in the C1
field would suggest that the code
produces the same expected value as a
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C1
Cnt2
non-CC diagnosis. That is, average
charges for the case are similar to the
expected average charges for that subset
and the diagnosis is not expected to
increase resource usage. A higher value
in the C1 (or C2 and C3) field suggests
more resource usage is associated with
the diagnosis and an increased
likelihood that it is more like a CC or
major CC than a non-CC. Thus, a value
close to 2.0 suggests the condition is
more like a CC than a non-CC but not
as significant in resource usage as an
MCC. A value close to 3.0 suggests the
condition is expected to consume
resources more similar to an MCC than
a CC or non-CC. For example, a C1 value
of 1.8 for a secondary diagnosis means
that for the subset of patients who have
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C2
Cnt3
C3
the secondary diagnosis and have either
no other secondary diagnosis present, or
all the other secondary diagnoses
present are non-CCs, the impact on
resource use of the secondary diagnoses
is greater than the expected value for a
non-CC by an amount equal to 80
percent of the difference between the
expected value of a CC and a non-CC
(that is, the impact on resource use of
the secondary diagnosis is closer to a CC
than a non-CC).
Table I below shows examples of the
results.
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TABLE I.—EXAMPLES OF IMPACT ON RESOURCE USE OF SECONDARY DIAGNOSES
Code
Cnt1
401.1, Benign essential hypertension ..............................
530.81, Esophageal reflux ................................................
560.1, Paralytic Ileus ........................................................
491.20, Obstructive chronic bronchitis .............................
410.71, Subendocardial infarction initial episode .............
518.81, Acute respiratory failure ......................................
The resource use impact reports were
produced for all diagnoses except
obstetric, newborn, and congenital
anomalies (10,690 diagnoses). These
mathematical constructs were used as
guides in conjunction with the
C1
12,308
294,673
10,651
7,003
1,657
5,332
CntC2
0.955
0.986
1.466
1.416
2.245
2.096
40,113
917,058
87,788
32,276
30,226
118,937
judgment of our clinical staff to classify
each secondary diagnosis reviewed as
an MCC, CC or non-CC. Our clinical
panel reviewed the resource use impact
reports and modified 14.9 percent of the
initial CC subclass assignments as
C2
Cnt3
1.715
1.639
2.320
2.193
2.778
2.936
C3
5,297
122,076
51,303
13,355
42,862
223,054
2.384
2.302
3.226
3.035
3.232
3.337
CC subclass
Non-CC.
Non-CC
CC
CC
MCC
MCC
summarized in Table J below. The rows
in the table are the initial CC subclass
categories and the columns are the final
CC subclass categories.
TABLE J.—CC SUBCLASS MODIFICATIONS
Final CC subclass
Initial CC subclass
Total
MCC
CC
MCC ...............................................................................
CC ..................................................................................
Non-CC ..........................................................................
847
542
0
Total ........................................................................
Percent ...........................................................................
1,389
13.0
Of the diagnoses initially designated
as an MCC, 6.8 percent were made a CC
(62/909), and of the diagnoses initially
designated as non-CC, 4.6 percent were
made a CC (272/5,923). The major shift
occurred in the diagnoses initially
assigned to the CC subclass. Fourteen
percent of the diagnoses initially
designated as a CC were made an MCC
(542/3858), and 19.1 percent of the
diagnoses initially designated a CC were
made a non-CC (737/3,858). In
determining the CC subclass assigned to
a diagnosis, imprecise codes were, in
general, not assigned to the MCC or CC
subclass. For example, the congestive
heart failure codes have the following
CC subclass assignments:
mmaher on DSK3CLS3C1PROD with $$_JOB
Code
428.21, Acute systolic heart
failure.
428.41, Acute systolic & diastolic heart failure.
428.43, Acute on chronic
systolic heart failure.
428.31, Acute diastolic heart
failure.
428.33, Acute on chronic diastolic heart failure.
428.1, Left heart failure .........
428.20, Systolic heart failure
NOS.
428.22, Chronic systolic heart
failure.
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CC subclass
assignment
MCC
MCC
MCC
MCC
MCC
CC
CC
CC
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62
2,579
272
0
737
5,651
2,913
27.2
6,388
59.8
CC subclass
assignment
Code
428.32, Chronic diastolic
heart failure.
428.40, Systolic & diastolic
heart failure.
428.0, Congestive heart failure NOS.
428.9, Heart failure NOS ......
CC
CC
NonCC
Non-CC
The acute heart failure codes are
MCCs, and the chronic heart failure
codes are CCs. However, Not Otherwise
Specified (NOS) heart failure codes are
non-CCs. Thus, the precise type of heart
failure must be specified in order for an
MCC or CC to be assigned.
There are currently 13,549 ICD–9-CM
diagnosis codes. The External Cause of
Injury and Poisoning codes (E800—
E999) and congenital codes were not
included in our current CC review for
the proposed MS-DRGs. We excluded
the External Cause of Injury and
Poisoning codes (E codes) from
consideration as an MCC or a CC
because they describe how an injury
occurred, and not the exact nature of the
injury. For instance, if a patient fell on
the deck of a boat and fractured his or
her skull, one would assign an E code
to describe the fall on the boat. A
separate diagnosis code would be
assigned to describe the exact nature of
any resulting injury such as a contusion,
fractured bone, or skull fracture and
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Percent
Non-CC
909
3,858
5,923
8.5
36.1
55.4
10,690
........................
........................
........................
concussion. A patient would be
assigned to a severity level based on the
exact nature of the injury and not the
manner in which the injury occurred.
Therefore, we decided not to classify
any of the E codes as either an MCC or
a CC. The congenital codes describe
abnormalities when a baby is born. At
times, a beneficiary may live with these
congenital abnormalities for years
without a problem. The congenital
abnormalities may later lead to
complications that require hospital
admissions. Should these congenital
abnormalities lead to medical problems
that result in a hospital admission for a
Medicare beneficiary, the exact nature
of the condition being treated would
also be assigned a code. This more
precise code would be evaluated to
determine whether or not it was an MCC
or a CC. Therefore, we decided not to
classify congenital abnormality codes as
an MCC or a CC, but to instead use the
other reported diagnosis codes that
better describe the reason for the
admission. Excluding the external cause
of injury codes, we reviewed 10,690
diagnosis codes.
As was done in our 1994 severity
proposal, diagnoses that were closely
associated with patient mortality were
assigned different CC subclasses,
depending on whether the patient lived
or died. These diagnoses are:
<bullet≤ 427.41, Ventricular fibrillation
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<bullet≤ 427.5, Cardiac arrest
<bullet≤ 785.51, Cardiogenic shock
<bullet≤ 785.59, Other shock without
mention of trauma
<bullet≤ 799.1, Respiratory arrest
Resource use for patients with these
diagnoses who were discharged alive
was consistent with an MCC. Resource
use for patients with these diagnoses
who died was consistent with a non-CC.
Further, most patients who died could
legitimately have one of these diagnoses
coded. As a result, these diagnoses are
assigned an MCC subclass for patients
who lived and a non-CC subclass for
patients who died.
For some secondary diagnoses
assigned to the CC subclass, our medical
consultants identified specific clinical
situations in which the diagnosis should
not be considered a CC. In such clinical
situations, the CC exclusion list was
used to exclude the secondary diagnosis
from consideration in determining the
CC subgroup essentially making the
secondary diagnosis a non-CC. For
example, primary cardiomyopathy (code
425.4) is designated as a CC. However,
for patients admitted for congestive
heart failure, our medical consultants
believed that primary cardiomyopathy
should be treated as a non-CC. In order
to accomplish that, the congestive heart
failure principal diagnoses were added
to the CC exclusion list for primary
cardiomyopathy as a secondary
diagnosis.
The list of diagnosis codes that we are
proposing to classify as an MCC is
included in Table 6J in the Addendum
of this proposed rule. The diagnosis
codes that we are proposing to classify
as a CC are included in Table 6K in the
Addendum of this proposed rule. The
proposed E-codes, which are diagnosis
codes used to classify external causes of
injury and poisoning, are not included
in this list. All proposed E-codes are
designated as non-CCs under the current
CMS DRG system and our evaluation
supports this non-CC designation as
appropriate.
3. Dividing Proposed MS–DRGs on the
Basis of the CCs and MCCs
In developing the proposed MS–
DRGs, two of our major goals were to
create DRGs that would more accurately
reflect the severity of the cases assigned
to them and to create groups that would
have sufficient volume so that
meaningful and stable payment weights
could be developed. As noted above, we
excluded the CMS DRGs in MDCs 14
and 15 from consideration because these
DRGs are low volume. As stated
previously, we do not have the expertise
or data to maintain the CMS DRGs for
newborns, pediatric, and maternity
patients. We continue to maintain MDCs
14 and 15 without modification in order
to have MS–DRGs available for these
patients in the rare instance where there
is a Medicare beneficiary admitted for
maternity or newborn care.
In designating a proposed MS–DRG as
one that will be subdivided into
subgroups based on the presence of a CC
or MCC, we developed a set of criteria
to facilitate our decision-making
process. In order to warrant creation of
a CC or major CC subgroup within a
base MS–DRG, the subgroup had to
meet all of the following five criteria:
<bullet≤ A reduction in variance of
charges of at least 3 percent.
<bullet≤ At least 5 percent of the
patients in the MS–DRG fall within the
CC or MCC subgroup.
<bullet≤ At least 500 cases are in the
CC or MCC subgroup.
<bullet≤ There is at least a 20-percent
difference in average charges between
subgroups.
<bullet≤ There is a $4,000 difference
in average charge between subgroups.
Our objective in developing these
criteria was to create homogeneous
subgroups that are significantly different
from one another in terms of resource
use, that have enough volume to be
meaningful, and that improve our
ability to explain variance in resource
use. These criteria are essentially the
same criteria we used in our 1994
severity analysis.
To begin our analysis, we subdivided
each of the base MS–DRGs into three
subgroups: non-CC, CC, and MCC. Each
subgroup was then analyzed in relation
to the other two subgroups using the
volume, charge, and reduction in
variance criteria. The criteria were
24705
applied in the following hierarchical
manner:
<bullet≤ If a three-way subdivision
met the criteria, we subdivided the base
MS–DRG into three CC subgroups.
<bullet≤ If only one type of two-way
subdivisions met the criteria, we
subdivided the base MS–DRG into two
CC subgroups based on the type of twoway subdivision that met the criteria.
<bullet≤ If both types of two-way
subdivisions met the criteria, we
subdivided the base MS–DRG into two
CC subgroups based on the type of twoway subdivision with the highest R2
(most explanatory power to explain the
difference in average charges).
<bullet≤ Otherwise, we did not
subdivide the base MS–DRG into CC
subgroups.
For any given base MS–DRG, our
evaluation in some cases showed that a
subdivision between a non-CC and a
combined CC/MCC subgroup was all
that was warranted (that is, there was
not a great enough difference between
the CC and MCC subgroups to justify
separate CC and MCC subgroups).
Conversely, in some cases, even though
an MCC subgroup was warranted, there
was not a sufficient difference between
the non-CC and CC subgroups to justify
separate non-CC and CC subgroups.
Based on this methodology, a base
MS–DRG may be subdivided according
to the following three alternatives,
rather than the current ‘‘with CC’’ and
‘‘without CC’’ division.
<bullet≤ DRGs with three subgroups
(MCC, CC, and non-CC).
<bullet≤ DRGs with two subgroups
consisting of an MCC subgroup but with
the CC and non-CC subgroups
combined. We refer to these groups as
‘‘with MCC’’ and ‘‘without MCC.’’
<bullet≤ DRGs with two subgroups
consisting of a non-CC subgroup but
with the CC and MCC subgroups
combined. We refer to these two groups
as ‘‘with CC/MCC’’ and ‘‘without CC/
MCC.’’
As a result of the application of these
criteria, 745 proposed MS–DRGs were
created as shown in the following table.
TABLE K.—NUMBER OF CC SUBGROUPS
Number of
proposed base
MS–DRGs
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Subgroups
Number of
proposed MS–
DRGs
53
152
63
43
311
22
53
456
126
86
721
22
No Subgroups ..........................................................................................................................................................
Three subgroups ......................................................................................................................................................
Two subgroups: major CC and CC; non-CC ..........................................................................................................
Two subgroups: non-CC and CC; major CC ..........................................................................................................
Subtotal ....................................................................................................................................................................
MDC 14 ....................................................................................................................................................................
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TABLE K.—NUMBER OF CC SUBGROUPS—Continued
Number of
proposed base
MS–DRGs
Number of
proposed MS–
DRGs
Error DRGs ..............................................................................................................................................................
2
2
Total ..................................................................................................................................................................
335
745
Subgroups
The 745 proposed MS–DRGs
represent an increase over the 652 DRGs
created in our 1994 CC revision
analysis. The increase in the number of
DRGs is primarily the result of an
increase in the number of proposed base
MS–DRGs that are subdivided into three
CC subgroups. The distribution of
patients across the different types of CC
subdivisions is contained in Table L
below. The table shows that 51.7
percent of the patients are assigned to
base MS–DRGs with three CC
subgroups, and only 11.8 percent of the
patients are assigned to base MS–DRGs
with no CC subgroups.
TABLE L.—DISTRIBUTION OF PATIENTS
BY TYPE OF CC SUBDIVISION
CC subdivision
None .................
(MCC and CC),
Non-CC .........
MCC, (CC and
Non-CC) ........
MCC, CC, and
Non-CC .........
Count
Percent
1,382,810
11.8
629,639
5.4
3,650,321
31.2
6,054,081
51.7
CMS DRGs, the MS–DRGs with all 311
base MS–DRGs subdivided into 3 CC
subgroups, and the MS–DRGs collapsed
into 745 DRGs. Table L below shows
that the R2 for the proposed MS–DRGs
with all 311 base MS–DRGs subdivided
into 3 CC subgroups (957 DRGs
composed of 311 base MS–DRGs
subdivided into 3 CC subgroups plus an
additional 22 MDC 14 and MDC 15
DRGs as well as 2 error DRGs) is 10.62
percent higher than the current CMS
DRGs. Collapsing the 957 proposed MS–
DRGs down to 745 proposed MS–DRGs
lowers this increase in R2 slightly to
9.41 percent. Although adopting a 3way split for each base MS–DRG would
produce a DRG system with higher
explanatory power, the 957 MS–DRGs
would not meet the criteria we specified
above for subdividing each base DRG.
The criteria we specified above would
create a monotonic DRG system. We
believe that the value of having a
monotonic DRG system outweighs the
slight decrease in explanatory power.
For this reason, we are proposing to
adopt the 745 MS–DRGs.
Using Medicare charge data (without
applying any criteria to remove
statistical outlier cases), the reduction in
variance (R2) was computed for current
TABLE M.—EXPLANATORY POWER (R2)
FOR PROPOSED MS–DRGS
R2
Current CMS DRG ...
2007 CMS Severity
DRGs with 3 CC
Subgroups .............
2007 CMS Severity
DRGs Collapsed to
714 DRGs .............
Percent
change
36.19
................
40.03
10.62
39.59
9.41
4. Conclusion
We believe the proposed MS–DRGs
represent a substantial improvement
over the current CMS DRGs in their
ability to differentiate cases based on
severity of illness and resource
consumption. As developed, the
proposed MS–DRGs increase the
number of DRGs by 207, while
maintaining the reasonable patient
volume in each DRG. The proposed
MS–DRGs increase the explanation of
variance in hospital resource use
relative to the current CMS DRGs by
9.41 percent. Further, the data shown
below in Table N and Table O illustrate
how assignment of cases to different
severity of illness subclasses improves
in the proposed MS–DRGs relative to
the CMS DRGs.
TABLE N.—OVERALL STATISTICS FOR CMS DRGS
CC subclass—Current CMS DRG
Percent
One or more CCs ....................................................................................................................................................................
Non-CC ....................................................................................................................................................................................
77.66
22.34
Average
charges
$24,538
14,795
TABLE O.—OVERALL STATISTICS FOR PROPOSED MS–DRGS
Number of
cases
CC subgroup
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MCC .................................................................................................................................................................
CC ....................................................................................................................................................................
Non-CC ............................................................................................................................................................
Under the current CMS DRGs, 78
percent of cases are assigned to the
highest severity levels (CC) and the
remaining 22 percent are assigned to the
lowest severity level (non-CC). Applying
the three severity subclasses to FY 2006
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data would result in approximately 22
percent of patients being assigned to the
severity subgroup with the highest level
of severity (MCC), 41 percent being
assigned to the lowest severity subclass
(non-CC), and the remaining 37 percent
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2,607,351
4,298,362
4,826,980
Percent
22.2
36.6
41.1
Average
charges
$44,219
24,115
18,416
being assigned to the middle severity
subclass (CC). Adding the new MCC
subgroup greatly enhances our ability to
identify and reimburse hospitals for
treating patients with high levels of
severity. As Table N above shows, the
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new subgroups also have significantly
different resource requirements. The
MCC subgroup contains patients with
average charges almost twice as large as
for those in the CC group ($44,219
compared to $24,115).
In addition to resulting in
improvements in the DRG system’s
recognition of severity of illness, we
believe the proposed MS–DRGs are
responsive to the public comments that
were made on last year’s IPPS proposed
rule with respect to how we should
undertake further DRG reform. In the FY
2007 IPPS final rule, we identified three
major concerns in the public comments
about our proposed adoption of CS
DRGs:
We received comments after the FY
2007 IPPS final rule suggesting that
further adjustments are needed to the
proposed DRG system. The commenters
believed that the CS DRGs did not
incorporate many of the changes to the
DRG assignments that have been made
over the year to the CMS DRGs. There
was significant interest in the public
comments in either revising the CS
DRGs to reflect these changes or using
the CMS DRGs at the starting point to
better recognize severity.
We believe that the proposed MS–
DRGs discussed in this proposed rule
are responsive to these suggestions. The
proposed MS–DRGs use the CMS DRGs
as the starting point for revising the
DRGs to better recognize resource
complexity and severity of illness. We
are generally retaining all of the
refinements and improvements that
have been made to the base DRGs over
the years that recognize the significant
advancements in medical technology
and changes to medical practice. At the
same time, the proposed MS–DRGs
greatly improve our ability to identify
groups of patients with varying levels of
severity. They retain all of the
improvements made to the DRGs over
the years, while providing a more
equitable basis for hospital payment.
We received many comments about
the potential use of a proprietary DRG
system. The comments about the CS
DRGs raised compelling issues about the
potential government use of a
proprietary system including concerns
about the availability, price, and
transparency of the source code, logic
and documentation of the DRG system.
The commenters noted that CMS makes
available these resources in the public
domain for purchase through the
National Technical Information Service
at nominal fees to cover costs. The
commenters urged CMS not to adopt a
proprietary DRG system that would not
be available on the same terms as the
current CMS DRGs.
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There are no proprietary issues
associated with the proposed MS–DRGs
in this proposed rule. The proposed
MS–DRGs would be available on the
same terms as the current CMS DRGs
through the National Technical
Information Service.
We also received other comments
concerning the use of CS DRGs. The
commenters stated that no alternatives
to CS DRGs had been evaluated. The
commenters suggested that alternative
DRG systems can better recognize
severity than the CS DRGs and should
be evaluated before CMS decides which
system to adopt.
We currently have a contract with the
RAND Corporation to evaluate several
alternative DRG systems. We believe it
is premature to propose adopting one of
the systems as RAND has not yet
completed its evaluation. However, we
believe the proposed MS–DRGs should
be part of this process and have asked
RAND to evaluate the proposed MS–
DRGs with other DRG products that
have been submitted for review.
Although we are proposing to adopt the
MS–DRGs for FY 2008, this decision
would not preclude us from adopting
any of the systems being evaluated by
RAND for FY 2009.
As indicated above, we believe the
proposed MS–DRGs offer significant
improvements to the DRG system
without many of the liabilities the
public commenters identified with the
CS DRGs. Thus, we believe the
proposed MS–DRGs offer significant
improvements in recognition of severity
of illness and complexity of resources
and are proposing to adopt them for FY
2008. However, we are continuing our
evaluation of alternative DRG systems
that can better recognize severity of
illness and resource consumption and
have submitted the proposed MS–DRGs
to RAND for further evaluation.
5. Impact of the Proposed MS–DRGs
Unlike the CS DRGs we proposed last
year for FY 2008, the payment impacts
from the MS–DRGs we are proposing to
adopt this year would largely be
redistributive within each base MS–
DRG. Such a result occurs because we
collapse the current CC/non-CC, age and
other distinctions that exist in the CMS
DRGs and redivide them based on
MCCs, CCs, and non-CCs. Thus, within
each proposed base MS–DRG, some
cases will be paid more and some less,
but the base MS–DRGs are retained so
there is no redistribution between types
of cases as would have occurred under
the proposed CS DRGs. We encourage
readers to review Table 5 in the
Addendum to this proposed rule for a
list of the proposed MS–DRGs and the
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proposed respective relative weight
from the revisions we are proposing to
better recognize severity of illness to
better understand how payment for
cases within each base MS–DRG will be
affected.
As indicated above, all of the severity
DRG systems being evaluated by RAND
can be expected to result in similar
redistributions in case-mix among
hospitals. The payment models used by
RAND and CMS (and RTI as well) all
assume static utilization. That is,
payment impact models simulate the
effects of a change in policy, assuming
no change to Medicare utilization. Any
system adopted to better recognize
severity of illness with a budget
neutrality constraint will result in casemix changes that can be expected to
benefit urban hospitals at the expense of
rural hospitals. This impact occurs
because patients treated in urban
hospitals are generally more severely ill
than patients in rural hospitals and the
CMS DRGs are not currently recognizing
the full extent of these differences.
Similarly, there will be differential
impacts among other categories of
hospitals (for example, teaching,
disproportionate share, large urban, and
other urban hospitals) depending on the
mix of cases that each hospital treats.
The impact of the proposed MS–DRGs
can be expected to have similar effects
on case-mix as the DRG systems being
analyzed by RAND. In addition, we
believe that it is important to note that
the MS–DRGs are proposed to be
adopted for FY 2008 at the same time
that we are phasing in cost weights. In
the FY 2007 IPPS final rule, we adopted
cost weights over a 3-year transition
period in 1⁄3 increments. Thus, the full
impact of adopting cost weights will not
be incorporated into IPPS payments
until FY 2009. Nevertheless, we believe
it is important to consider together the
effect on case-mix of the fully phasedin cost weights and proposed MS–DRGs
to get a complete understanding of how
IPPS payment reforms would affect
case-mix for different categories of
hospitals from FY 2007 through FY
2009. For instance, using cost weights
are estimated to increase payments to
rural hospitals (see 71 FR 47917). In FY
2007, we are paying hospitals using a
blend of 1⁄3 cost and 2⁄3 charge relative
weights. In FY 2008, we will pay
hospitals using a blend of 2⁄3 cost and
1⁄3 charge relative weights. In FY 2009,
we will pay hospitals using 100 percent
cost relative weights. Therefore, there
will likely be some additional increases
in payments to rural hospitals from the
final year of the transition to fully
implemented cost weights that are not
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6. Changes to Case-Mix Index (CMI)
From the Proposed MS–DRGs
After the 1983 implementation of the
IPPS DRG classification system, CMS
observed unanticipated growth in
inpatient hospital case-mix (the average
relative weight of all inpatient hospital
cases), which we use as a proxy
measurement for severity of illness. We
had projected the rate of growth in casemix for the period 1981 to 1984 to be
3.4 percent. The realized rate of growth
during this period, which included the
introduction of the IPPS, was 8.4
percent, a variance in excess of 1.6
percent per year. The unexpected
growth in payments was due to
increases in the hospital case-mix index
(CMI) beyond the previously projected
trend. Hospitals’ CMI values measure
the expected treatment cost of the mix
of patients treated by a particular
hospital. There are three factors that
determine changes in a hospital’s CMI:
(a) Admitting and treating a more
resource intensive patient-mix (due, for
example, to technical changes that allow
treatment of previously untreatable
conditions and/or an aging population);
(b) Providing services (such as higher
cost surgical treatments, medical
devices, and imaging services) on an
inpatient basis that previously were
more commonly furnished in an
outpatient setting; and
(c) Changes in documentation (more
complete medical records) and coding
practice (more accurate and complete
coding of the information contained in
the medical record).
We note that changes in patient-mix
and medical practice signal real changes
in underlying resource utilization and
cost of treatment. While these changes
may have occurred in response to
incentives from IPPS policies, they
represent real changes in resource
needs. In contrast, changes in CMI as a
result of improved documentation and
coding do not represent real increases in
underlying resource demands. For the
implementation of the IPPS in 1983,
improved documentation and coding
were found to be the primary cause in
the underprojection of CMI increases,
accounting for as much as 2 percent in
the annual rate of CMI growth observed
post-PPS.2
The Medicare Trustees Technical
Review Panel 3 has previously
2 Carter, Grace M. and Ginsburg, Paul: The
Medicare Case Mix Index Increase, Medical Practice
Changes, Aging and DRG Creep, Rand, 1985.
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determined the annual measured change
in CMI for inpatient hospital services to
oscillate around an underlying real
trend of 1 percent annual growth. In
1991 the Medicare specific trend in real
CMI growth was found in a then-HCFA
funded study 4 to be within a range of
1 to 1.4 percent. In the annual study
conducted by CMS, there has been no
evidence to support a real case-mix
increase in excess of the annually
projected 1 percent upper bound in the
period. MedPAC findings have echoed
this with its recent study of real casemix change finding growth rates for
years 2002, 2003, and 2004 of 1 percent,
0.6 percent, and 0.4 percent,
respectively.5
We believe that adoption of the MS–
RGs proposed in this proposed rule
would create a risk of increased
aggregate levels of payment as a result
of increased documentation and coding.
MedPAC notes that ‘‘refinements in
DRG definitions have sometimes led to
substantial unwarranted increase in
payments to hospitals, reflecting more
complete reporting of patients’
diagnoses and procedures.’’ MedPAC
further notes that ‘‘refinements to the
DRG definitions and weights would
substantially strengthen providers’
incentives to accurately report patients’
comorbidities and complications.’’ To
address this issue, MedPAC
recommended that the Secretary
‘‘project the likely effect of reporting
improvements on total payments and
make an offsetting adjustment to the
national average base payment
amounts.’’ 6
The Secretary has broad discretion
under section 1886(d)(3)(A)(vi) of the
Act to adjust the standardized amount
so as to eliminate the effect of changes
in coding or classification of discharges
that do not reflect real changes in casemix. While we modeled the changes to
the DRG system and relative weights to
ensure budget neutrality, we are
concerned that the large increase in the
number of DRGs will provide
opportunities for hospitals to do more
accurate documentation and coding of
information contained in the medical
record. Coding that has no effect on
payment under the current CMS DRGs
may result in a case being assigned to
Review Panel on the Medicare Trustees Reports,
December 2000.
4 ‘‘Has DRG Creep Crept Up? Decomposing the
Case Mix Index Change Between 1987 and 1988’’;
Carter, Newhouse, Relles ; R–4098–HCFA/ProPAC
(1991).
5 Medicare Payment Advisory Commission:
Report to the Congress, March 2006 (p. 52).
6 Medicare Payment Advisory Commission:
Report to Congress on Physician-Owned Specialty
Hospitals, March 2005, p. 42.
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a higher paid DRG under the proposed
MS–DRGs. Thus, more accurate and
complete documentation and coding
may occur because it will result in
higher payments under the proposed
MS–DRGs. We believe the potential for
more accuate and complete
documentation and coding will apply
equally under the acute IPPS as well as
under the LTCH PPS because the same
DRGs are used for both payment
systems. Thus, the analysis below will
apply to both the IPPS and the LTCH
PPS.
CMS in the past has adjusted
standardized amounts under the IRF
PPS to account for case-mix increases
due to improvements in documentation
and coding. In 2004, RAND 7 published
a technical report as part of the
followup to the implementation of the
IRF PPS. The initial weights used
within the IRF PPS were based on a mix
of CY 1999 and CY 1998 data. The study
reviewed the changes between this base
data set and the IRF PPS
implementation year of 2002. The report
found that the weight per discharge for
IRFs had grown by 3.4 percent between
the CY 1999 data set and the CY 2002
data set. In a detailed analysis of both
statistical patterns in acute stay records
and directly measured coding behaviors,
RAND found that the level of case-mix
increase associated with documentation
and coding-induced changes in the
transition year ranged between 1.9 and
5.8 percent, with the upper end of the
estimate associated with real declines in
resource use. (We note that RAND
revised its report in late 2005 to reflect
an upper bound of 5.9 percent, instead
of the 5.8 percent that we reported in
the FY 2006 IRF PPS proposed and final
rules.)
We used the results of this analysis to
justify a 1.9 percent adjustment to
payment rates for IRFs in FY 2006 (70
FR 47904) and a 2.6 percent adjustment
to payment rates for IRFs in FY 2007 (71
FR 48370), for a combined total
adjustment of 4.5 percent. The
implementation year was marked by the
transitioning of hospitals to the IRF PPS
payment based on cost reports
beginning January 1, 2002, and
staggered to October 1, 2002. A
combination of increased familiarity
with the system by providers and the
staggered transition could mean that
documentation and coding-induced
case-mix change continued as hospitals
experienced ongoing changes in the
early years of the IRF PPS and as the
7 Carter, Paddock: Preliminary Analyses of
Changes in Coding and Case Mix Under the
Inpatient Rehabilitation Facility Prospective
Payment System, RAND, 2004.
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incentives within the system were more
widely recognized. We also recognize
that significant changes in IRF patient
populations may be occurring as a result
of recent regulatory changes, such as the
phase-in of the 75 percent rule
compliance percentage. We intend to
continue analyzing changes in coding
and case-mix closely, using the most
current available data, as part of our
ongoing monitoring of the IRF PPS and,
based on this analysis, we intend to
propose additional payment refinements
for IRFs in the future as the analysis
indicates such adjustments are
warranted.
Furthermore, as part of our analysis of
this issue, we considered the recent
experience of the State of Maryland
with adopting the APR DRG system.
Maryland introduced APR DRGs for
payment for three teaching hospitals in
2000. Between State fiscal years (SFYs)
2001 and 2005,8 the remaining hospitals
continued to be paid using modified
CMS DRGs. In June 2004, the remaining
hospitals were notified that Maryland
would expand the use of APR DRGs
throughout its all payer charge-per-case
system beginning in July 2005.
Hospitals in Maryland improved coding
and documentation in response to the
adoption of APR DRGs. As a result of
this improved documentation and
coding, reported CMI increased at a
greater rate than real CMI. Given the
similarity between coding incentives
using the APR DRGs in Maryland and
the MS–DRGs that are being proposed
for Medicare, we analyzed Maryland
data to develop an adjustment for
improved documentation and coding.
For the Maryland analysis, we assume
that, in SFY 2005, those hospitals not
already being paid under the APR DRG
system began acting as if the transition
to the new DRG logic had already taken
place. This assumption is supported by
the following facts: (a) Maryland
hospitals were reporting to the Health
Services and Cost Review Commission
(HSCRC), Maryland’s governing body of
its all-payer ratesetting system) using
the APR DRG GROUPER in 2005; (b)
hospitals were provided training in
coding under the APR DRG GROUPER;
(c) hospitals had access to reports based
on APR DRG logic; and (d) hospitals
were given large amounts of feedback as
to their performance under the
8 Maryland uses a July 1 to June 30 State fiscal
year. Prior to FY 2003, Maryland had a 6-month lag
in the data used to calculate the hospital base casemix index and case-mix change. Maryland used 12
months data ending December even though the
hospitals’ rate year was July 1 to June 30. In FY
2003, Maryland moved to what it called ‘‘Real Time
Case-Mix’’ and started using 12 months data ending
June 30 to calculate case-mix index and case-mix
change for a rate year beginning July 1.
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GROUPER by the HSCRC relative to
peer hospitals.
The incentives for Maryland hospitals
are to code as completely and accurately
as possible because, beginning in July
2005, all Maryland hospitals were paid
using APR DRGs. SFY 2005 was an
important year in Maryland, as it
marked the beginning of the 2-year
period of transition after which a
hospital’s revenues were reduced if
coding was not as complete as a peer
hospital. Under the current CMS DRGs,
each secondary diagnosis code is
recognized as either a CC or non-CC.
Hospitals in Maryland and nationally
for Medicare only needed to code one
secondary diagnosis as a CC when paid
using CMS DRGs for the patient to be
assigned to a higher weighted DRG split
based on the presence or absence of a
CC. Under the APR DRGs, each
secondary diagnosis is designated as
minor, moderate, major, or extreme.
Under the proposed MS–DRGs, each
secondary diagnosis is designated as a
non-CC, CC, or MCC. Hospitals in
Maryland have incentives under the
APR DRGs to code until a case is
assigned to the highest of the four
severity levels within a base DRG.
Under the proposed MS–DRGs,
hospitals will have incentives to code
until a case is assigned to one of up to
three severity levels within a base DRG.
Although the APR DRGs and the
proposed MS–DRGs may be different,
we believe that hospitals have the same
incentive under both systems to code as
completely as possible. For this reason,
we believe that the Maryland experience
is a reasonable basis for projecting
behavioral changes in the wider
national hospital population for the first
2 years of the MS–DRGs.
We believe the analysis presented
below provides a reasonable analysis of
the potential growth in CMI due to
improved documentation and coding. In
addition to the similarity between
coding incentives under the proposed
MS–DRGs and the APR DRGs, we note
that Maryland is an all-payer State;
therefore, hospitals are paid by all third
party payers—not just the State’s
Medicaid program—using the APR
DRGs. Coding has been very important
for each hospital’s overall revenue for
many years, and the incentives are
uniform across all third party payers.
The transition to APR DRGs was known
well in advance of the actual date and,
as stated above, hospitals were provided
training in coding under the APR DRGs.
It is reasonable to expect that hospitals’
experience with improved
documentation and coding will occur
over a period of at least 2 years. Thus,
the experience in Maryland may be
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24709
similar to expectations for case-mix
growth for the nation as a whole.
Finally, in reviewing the results from
Maryland, we note that three large
teaching hospitals began using APR
DRGs prior to SFY 2005. These facilities
generally treat a wider variety of
patients with higher acuity that gives
them a greater potential for increasing
coding under the APR DRG system than
other hospitals throughout Maryland.
Because these hospitals were paid using
the APR DRGs earlier than other
Maryland hospitals, we believe data for
them need to be analyzed from an
earlier time period. However, based on
the consultations with the HSCRC, we
believe there were special issues with
one of these hospitals that may have
made its case-mix growth during the
early years of the transition to the APR
DRGs atypical of the other teaching
hospitals.9 Therefore, we did not
separately analyze the data for this
hospital from the earlier time period
and, as stated below, included its data
with the rest of Maryland hospitals.
As part of its contract with CMS, 3M
Health Information Systems reviewed
the Maryland data in the context of our
proposed changes to adopt MS–DRGs.
3M grouped Medicare cases in
Maryland through both the CMS DRGs
Version 24.0 and the MS–DRGs that we
are proposing to adopt for FY 2008. At
our request, 3M deleted two of the three
early transition hospitals from the data.
It compared the results of the observed
growth in case-mix from these data to
the same process applied to Medicare
data, excluding Maryland hospitals.
The MedPAR data file for Federal
fiscal year (FFY) 2006 (October 2005
through September 2006) was used to
create relative weights for both CMS
DRG Version 24.0 and the proposed
MS–DRGs. The MedPAR data file
contained 12,794,280 records. In
constructing the weights, the following
edits were used:
<bullet≤ Cases with zero covered
charges or length of stay were excluded.
<bullet≤ Cases with length of stay
greater than 2 years were excluded.
<bullet≤ Only hospitals contained in
the impact file for the FY 2007 IPPS
final rule were included.
9 The HSCRC informed us that it began using APR
DRGs for this hospital to calculate the CMI and
case-mix change to set the hospital’s charge per case
target (CPC) that is used in Maryland’s all-payer
ratesetting system for payment. However the
HSCRC also compared the reasonableness of
hospital rates and costs for this hospital relative to
peer institutions using modified CMS DRGs to
calculate CMI and case-mix change. This use of
dual systems to calculate CMI and case-mix change
made it difficult for the hospital to code
aggressively in the first few years of using APR
DRGs.
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The latter criterion excluded
providers reimbursed outside of the
IPPS, including Maryland hospitals,
from the weight calculation. 3M
employed standardized charge-based
relative weights developed in
accordance with the CMS methodology.
Cost-based weights were not used and
no adjustment to the charge weights was
made for application of CMS transfer
and postacute care transfer payment
policy.
3M further grouped 2 years of
MedPAR data from FY 2004 and FY
2005, using CMS DRG Version 24.0 and
the proposed MS–DRGs for hospitals
nationally. Using 2 years of MedPAR
data with one version of each DRG
system further required 3M to make
adjustments to the data to reflect
revisions to ICD–9–CM codes that are
made each year. MedPAR data for
Maryland IPPS acute care providers
within the IPPS data set were similarly
assigned to the proposed MS–DRGs and
CMS DRGs for FYs 2004 through 2006.
Each Maryland record, exclusive of
the two early transition teaching
hospitals for the 3 observed years (SFY
2004 to SFY 2006), was assigned to a
proposed MS–DRG based on the ICD–9–
CM codes the hospital submitted. The
same results were obtained from data at
the national level using the proposed
MS–DRGs. Further, we obtained data
from the HSCRC showing the weighted
average increase in case-mix for
calendar years 2001 to 2003 for the two
large academic medical centers that
began an early transition to the APR
DRGs. In addition, we also obtained
case-mix increases under the CMS DRGs
for FYs 2004 through 2006. The
Medicare Actuary examined the data
below:
TABLE Q.—MARYLAND AND NATIONAL DATA USED FOR CASE-MIX ADJUSTMENT ANALYSIS
FY 2005 to
2006
FY 2004 to
2006
Rest of Maryland MS–DRG CMI [Delta] .....................................................................................................
2.30%
..................
2.57%
..................
Early Transition Hospitals ............................................................................................................................
National MS–DRG CMI [Delta] ....................................................................................................................
National CMS DRG CMI [Delta] ..................................................................................................................
Blend of MS–DRG & CMS DRG [Delta] using 0.47 Percent for 2005 and 1.2 Percent for 2006 ..............
Difference between Maryland Early Transition Hospitals and National Data .............................................
Difference between Rest of Maryland and National Data ...........................................................................
Medicare Actuary Estimate (75%/25%) between Early Transition and Rest of Maryland .........................
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FY 2004 to
2005
4.4
0.47
-0.04
..................
..................
..................
..................
6.7
2.65
1.20
..................
..................
..................
..................
4.93%
CY 2000 to
FY 2003
11.4
3.13
1.16
1.68
9.58
3.20
4.8
The data above show that case-mix for
hospitals increased by 4.93 percent from
SFYs 2004 to 2006, during which
Maryland adopted the APR DRGs for
most hospitals. Case-mix for the two
large teaching hospitals that were paid
using the APR DRGs earlier than other
hospitals in the State increased by 11.4
percent from SFYs 2001 to 2003. The
weighted average increase in Maryland
from these two categories of hospitals is
5.58 percent. Case-mix using the
proposed MS–DRGs would have
increased 0.47 percent in FY 2005 and
2.65 percent in FY 2006. Nationally,
Medicare case-mix using the CMS DRGs
decreased by 0.04 percent in FY 2005
and increased by 1.2 percent in FY
2006. The Actuary calculated a
Medicare case-mix increase nationally
over 2 years using a blend of these data
from proposed MS–DRGs for FY 2005
and national Medicare data for FY 2006
from the CMS DRGs. The Actuary did
not use either the -0.04 percent for the
CMS DRGs or the 2.65 percent for the
proposed MS–DRGs to create this
blended case-mix because these figures
appeared atypical to national trends.
Therefore, the Actuary dropped one
atypically high and low number from
each of the 2 years of data and
calculated an average increase of 1.68
percent from FY 2004 to FY 2006. These
data demonstrate that the measure of
average CMI for Medicare cases is
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growing more rapidly within Maryland
than nationally. Case-mix for the
Maryland teaching hospitals and the
rest of Maryland increased 9.58 percent
and 3.20 percent more, respectively,
than the national average over 2 years,
suggesting that improved
documentation and coding lead to
perceived, but not real, changes in casemix.
The Actuary noted that the case-mix
increase in Maryland for two large
teaching hospitals over a 2-year period
was much higher in the early years of
the APR DRGs than other Maryland
hospitals (11.4 percent compared to 4.93
percent for the rest of Maryland).
Further, teaching hospitals generally
treat cases with higher acuity than other
hospitals and have more opportunity to
improve coding and documentation to
increase case-mix than other hospitals.
Teaching hospitals also represent a
higher proportion of national Medicare
data than they do of the data in
Maryland. The two early transition
teaching hospitals in Maryland account
for approximately 10 percent of the
Medicare discharges in Maryland.
Nationally, teaching hospitals account
for approximately 50 percent of
Medicare discharges. Therefore, the
Actuary believes that the teaching
hospitals should be given a higher
weight in the national data than they
represent in Maryland. However, like
other hospitals, teaching hospitals vary
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in size and patient-mix and not all have
the same opportunity to improve
documentation and coding. Therefore,
we believe the weight given to teaching
hospitals should be higher than the 10
percent for the two early transition
hospitals in Maryland but lower than
the 50 percent of discharges that they
account for in Maryland. The Actuary
gave a weight of 25 percent for teaching
hospitals and 75 percent for the rest of
Maryland to the excess growth in casemix over the national average and
estimates that an adjustment of 4.8
percent will be necessary to maintain
budget neutrality for the transition to
the MS–DRGs. This analyis reflects our
current estimate of the necessary
adjustment needed to maintain budget
neutrality for improvements in
documentation and coding that lead to
increases in case-mix. Consistent with
the statute, we will compare the actual
increase in case-mix due to
documentation and coding to our
projection once we have actual data to
revise the Actuary’s estimate and the
adjustment we make to the standardized
amounts.
Based on the Actuary’s analysis, using
the Secretary’s authority under section
1886(d)(3)(A)(vi) of the Act to adjust the
standardized amount to eliminate the
effect of changes in coding or
classification of discharges that do not
reflect real changes in case-mix, we are
proposing to reduce the IPPS
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standardized amounts by 2.4 percent
each year for FY 2008 and FY 2009. We
are considering proposing a 4.8 percent
adjustment for FY 2008. However, we
believe it would be appropriate to
provide a transition because we would
be making a significant adjustment to
the standardized amounts. We are
interested in public comments on
whether we should apply the proposed
adjustment in a single year, over 2 years,
or in different increments than 1⁄2 of the
adjustment each year. Section
1886(d)(3)(A)(vi) of the Act further gives
the Secretary authority to revisit
adjustments to the standardized
amounts for changes in coding or
classification of discharges that were
based on estimates in a future year.
Consistent with the statute, we will
compare the actual increase in case-mix
due to documentation and coding to our
projection once we have actual data for
FY 2008 and FY 2009 for the FY 2010
and FY 2011 IPPS rules. At that time, if
necessary, we may make a further
adjustment to the standardized amounts
to account for the difference between
our projection and actual data.
Under section 123(a)(1) of Pub. L.
105–33, as amended by section 307(b) of
Pub. L. 106–554, we are also proposing
to adjust the DRG relative weights that
are used for the LTCH PPS by -2.4
percent (0.976) in FYs 2008 and 2009 to
account for the anticipated increase in
case mix from improved documentation
and coding. This proposed budget
neutrality adjustment is necessary to
ensure that estimated aggregate LTCH
PPS payments would be neither greater
than nor less than the estimated
aggregate LTCH PPS payments that
would have been made without the
proposed LTC–DRG reclassification and
update of the relative weights. As
discussed earlier with regards to the
IPPS, we have estimated that a 2.4
percent adjustment is needed to
maintain budget neutrality. We believe
an adjustment of at least 2.4 percent for
both FYs 2008 and 2009 is appropriate
under the LTCH PPS because LTCHs
have an average inpatient length of stay
greater than 25 days and due to the
comorbidities of these patients, LTCHs
will have a significantly increased
opportunity to better code for these
paitents under the proposed MS–LTC–
DRG system. In the LTCH proposed rule
(72 FR 4793) for rate year (RY) 2008, we
proposed to update the LTCH
standardized amounts by 0.71 percent.
The proposed changes to the LTCH
standardized amounts will be effective
on July 1. However, the proposed
changes to adopt MS–LTC–DRGs for
LTCHs would not be effective until
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October 1 if finalized. Because changes
to the LTCH standardized amounts for
RY 2008 are already being set through
a separate rulemaking process and are
effective on July 1 instead of October 1,
we decided that the adjustment for
increases in case mix due to
improvements and documentation and
coding should be applied to the LTCH
relative weights rather than the
standardized amounts.
7. Effect of the Proposed MS–DRGs on
the Outlier Threshold
To qualify for outlier payments, a case
must have costs greater than Medicare’s
payment rate for the case plus a ‘‘fixed
loss’’ or cost threshold. The statute
requires that the Secretary set the cost
threshold so that outlier payments for
any year are projected to be not less
than 5 percent or more than 6 percent
of total operating DRG payments plus
outlier payments. The Secretary is
required by statute to reduce the average
standardized amount by a factor to
account for the estimated proportion of
total DRG payments made to outlier
cases. Historically, the Secretary has set
the cost threshold so that 5.1 percent of
estimated IPPS payments are paid as
outliers. The FY 2007 cost outlier
threshold is $24,485. Therefore, for any
given case, a hospital’s charge adjusted
to cost by its hospital-specific CCR must
exceed Medicare’s DRG payment by
$24,485 for the case to receive cost
outlier payments.
Adoption of the proposed MS–DRGs
will have an effect on calculation of the
outlier threshold. For this proposed
rule, we analyzed how the outlier
threshold would be affected by adopting
the proposed MS–DRGs. Using FY 2005
MedPAR data, we have simulated the
effect of the proposed MS–DRGs on the
outlier threshold. By increasing the
number of DRGs from 538 to 745 to
better recognize severity of illness, the
proposed MS–DRGs would be providing
increased payment that better
recognizes complexity and severity of
illness for cases that are currently paid
as outliers. That is, many cases that are
high-cost outlier cases under the current
CMS DRG system would be paid using
an MCC DRG under the proposed MS–
DRGs and could potentially be paid as
nonoutlier cases. For this reason, we
expected the proposed FY 2008 outlier
threshold to decline from its FY 2007
level of $24,485. We are proposing an
FY 2008 outlier threshold of $23,015. In
section II.A.4. of the Addendum to this
proposed rule, we provide a more
detailed explanation of how we
determined the proposed FY 2008 cost
outlier threshold.
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24711
8. Effect of the Proposed MS–DRGs on
the Postacute Care Transfer Policy
Existing regulations at § 412.4(a)
define discharges under the IPPS as
situations in which a patient is formally
released from an acute care hospital or
dies in the hospital. Section 412.4(b)
defines transfers from one acute care
hospital to another. Section 412.4(c)
establishes the conditions under which
we consider a discharge to be a transfer
for purposes of our postacute care
transfer policy. In transfer situations,
each transferring hospital is paid a per
diem rate for each day of the stay, not
to exceed the full DRG payment that
would have been made if the patient
had been discharged without being
transferred.
The per diem rate paid to a
transferring hospital is calculated by
dividing the full DRG payment by the
geometric mean length of stay for the
DRG. Based on an analysis that showed
that the first day of hospitalization is the
most expensive (60 FR 45804), our
policy provides for payment that is
double the per diem amount for the first
day (§ 412.4(f)(1)). Transfer cases are
also eligible for outlier payments. The
outlier threshold for transfer cases is
equal to the fixed-loss outlier threshold
for nontransfer cases, divided by the
geometric mean length of stay for the
DRG, multiplied by the length of stay for
the case, plus one day. The purpose of
the IPPS postacute care transfer
payment policy is to avoid providing an
incentive for a hospital to transfer
patients to another hospital early in the
patients’ stay in order to minimize costs
while still receiving the full DRG
payment. The transfer policy adjusts the
payments to approximate the reduced
costs of transfer cases.
Beginning with FY 2006 IPPS, the
regulations at § 412.4 specified that,
effective October 1, 2005, we make a
DRG subject to the postacute care
transfer policy if, based on Version 23.0
of the DRG Definitions Manual (FY
2006), using data from the March 2005
update of FY 2004 MedPAR file, the
DRG meets the following criteria:
<bullet≤ The DRG had a geometric
mean length of stay of at least 3 days;
<bullet≤ The DRG had at least 2,050
postacute care transfer cases; and
<bullet≤ At least 5.5 percent of the
cases in the DRG were discharged to
postacute care prior to the geometric
mean length of stay for the DRG.
In addition, if the DRG was one of a
paired set of DRGs based on the
presence or absence of a CC or major
cardiovascular condition (MCV), both
paired DRGs would be included if either
one met the three criteria above.
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If a DRG met the above criteria based
on the Version 23.0 DRG Definitions
Manual and FY 2004 MedPAR data, we
made the DRG subject to the postacute
care transfer policy. We noted in the FY
2006 final rule that we would not revise
the list of DRGs subject to the postacute
care transfer policy annually unless we
make a change to a specific CMS DRG.
We established this policy to promote
certainty and stability in the postacute
care transfer payment policy. Annual
reviews of the list of CMS DRGs subject
to the policy would likely lead to great
volatility in the payment methodology
with certain DRGs qualifying for the
policy in one year, deleted the next
year, only to be reinstated the following
year. However, we noted that, over time,
as treatment practices change, it was
possible that some CMS DRGs that
qualified for the policy will no longer be
discharged with great frequency to
postacute care. Similarly, we explained
that there may be other CMS DRGs that
at that time had a low rate of discharges
to postacute care, but which might have
very high rates in the future.
The regulations at § 412.4 further
specify that if a DRG did not exist in
Version 23.0 of the DRG Definitions
Manual or a DRG included in Version
23.0 of the DRG Definitions Manual is
revised, the DRG will be a qualifying
DRG if it meets the following criteria
based on the version of the DRG
Definitions Manual in use when the
new or revised DRG first became
effective, using the most recent
complete year of MedPAR data:
<bullet≤ The total number of
discharges to postacute care in the DRG
must equal or exceed the 55th percentile
for all DRGs; and
<bullet≤ The proportion of short-stay
discharges to postacute care to total
discharges in the DRG exceeds the 55th
percentile for all DRGs. A short-stay
discharge is a discharge before the
geometric mean length of stay for the
DRG.
A DRG also is a qualifying DRG if it
is paired with another DRG based on the
presence or absence of a CC or MCV that
meets either of the above two criteria.
The MS–DRGs that we are proposing
to adopt for FY 2008 are a significant
revision to the current CMS DRG
system. Because the proposed new MS–
DRGs are not reflected in Version 23.0
of the DRG Definitions Manual,
consistent with § 412.4, we will need to
recalculate the 55th percentile
thresholds in order to determine which
proposed MS–DRGs, if adopted, would
be subject to the postacute care transfer
policy. Further, under the proposed
MS–DRGs, the subdivisions within the
base DRGs will be different than those
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under the current CMS DRGs. Unlike
the current CMS DRGs, the proposed
MS–DRGs are not divided based on the
presence or absence of a CC or MCV.
Rather, the proposed MS–DRGs have up
to three subdivisions based on: (1) The
presence of a MCC; (2) the presence a
CC; or (3) the absence of either an MCC
or CC. Consistent with our existing
policy under which both DRGs in a CC/
non-CC pair are qualifying DRGs if one
of the pair qualifies, we are proposing
that each MS–DRG that shares a base
MS–DRG would be a qualifying DRG if
one of the MS–DRGs that shares the
base DRG qualifies. We are proposing to
revise § 412.4(d)(3)(ii) to codify this
proposed policy.
Similarly, we believe that the
proposed changes to adopt MS–DRGs
also necessitate a revision to one of the
criteria used in § 412.4(f)(5) of the
regulations to determine whether a DRG
meets the criteria for payment under the
‘‘special payment methodology.’’ Under
the special payment methodology, a
case subject to the special payment
methodology that is transferred early to
a postacute care setting will be paid 50
percent of the total IPPS payment plus
the average per diem for the first day of
the stay. Fifty percent of the per diem
amount will be paid for each subsequent
day of the stay, up to the full MS–DRG
payment amount. A CMS DRG is
currently subject to the special payment
methodology if it meets the criteria of §
412.4(f)(5). Section 412.4(f)(5)(iv)
specifies that if a DRG meets the criteria
specified under § 412.4(f)(5)(i) through
(f)(5)(iii), any DRG that is paired with it
based on the presence or absence of a
CC or MCV is also subject to the special
payment methodology. Given that this
criterion would no longer be applicable
under the proposed MS–DRGs, we are
proposing to add a new § 412.4(f)(6)
that includes a DRG in the special
payment methodology if it is part of a
CC/non-CC MCV/non-MCV pair. We are
proposing to update this criterion so
that it conforms to the proposed changes
to adopt MS–DRGs for FY 2008. The
proposed revision would make an MS–
DRG subject to the special payment
methodology if it shares a base MS–DRG
with an MS–DRG that meets the criteria
for receiving the special payment
methodology.
Section 412.4(f)(3) states that the
postacute care transfer policy does not
apply to CMS DRG 385 for newborns
who die or are transferred. We are
proposing to make a conforming change
to this paragraph to reflect that this CMS
DRG would become MS–DRG 789
(Neonates, Died or Transferred to
Another Acute Care Facility) under our
proposed DRG changes for FY 2008.
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These revisions do not constitute a
change to the application of the
postacute care transfer policy.
Therefore, any savings attributed to the
postacute care transfer policy would be
unchanged as a result of adopting the
MS–DRGs. Consistent with section
1886(d)(4)(C)(iii) of the Act, aggregate
payments from adoption of the
proposed MS–DRGs cannot be greater or
less than those that would have been
made had we not proposed to make any
DRG changes.
We are also proposing technical
changes to § § 412.4(f)(5)(i) and (f)(5)(iv)
to correct a cross-reference and a
typographical error, respectively.
E. Refinement of the Relative Weight
Calculation
(If you choose to comment on issues
in this section, please include the
caption ‘‘DRGs: Relative Weight
Calculations’’ at the beginning of your
comment.)
In the FY 2007 IPPS final rule (71 FR
47882), effective for FY 2007, we began
to implement significant revisions to
Medicare’s inpatient hospital rates by
basing the relative weights on hospitals’
estimated costs rather than on charges.
This reform was one of several
measured steps to improve the accuracy
of Medicare’s payment for inpatient
stays that include using costs rather
than charges to set the relative weights
and making refinements to the current
DRGs so they better account for the
severity of the patient’s condition. Prior
to FY 2007, we used hospital charges as
a proxy for hospital resource use in
setting the relative weights. Both
MedPAC and CMS have found that the
limitations of charges as a measure of
resource use include the fact that
hospitals cross-subsidize departmental
services in many different ways that
bear little relation to cost, frequently
applying a lower charge markup to
routine and special care services than to
ancillary services. In MedPAC’s 2005
Report to the Congress on PhysicianOwned Specialty Hospitals, MedPAC
found that hospitals charge much more
than their costs for some types of
services (such as operating room time,
imaging services and supplies) than
others (such as room and board and
routine nursing care).10 Our analysis of
the MedPAC report in the FY 2007 IPPS
proposed rule (71 FR 24006) produced
consistent findings.
In the FY 2007 IPPS proposed rule,
we proposed to implement cost-based
weights incorporating aspects of a
10 Medicare Payment Advisory Commission:
Report to the Congress: Physician-Owned Specialty
Hospitals, March 2005, p. 26.
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methodology recommended by
MedPAC, which we called the hospitalspecific relative value cost center
(HSRVcc) methodology. MedPAC
indicated that an HSRVcc methodology
would reduce the effect of cost
differences among hospitals that may be
present in the national relative weights
due to differences in case-mix adjusted
costs. After studying Medicare cost
report data, we proposed to establish 10
national cost center categories from
which to compute 10 national CCRs
based upon broad hospital accounting
definitions. We made several important
changes to the HSRVcc methodology
that MedPAC recommended using in its
March 2005 Report to the Congress on
Physician-Owned Specialty Hospitals.
We refer readers to the FY 2007 IPPS
proposed rule (71 FR 24007 through
24011) for an explanation and our
reasons for the modification to
MedPAC’s methodology. In its public
comments on the FY 2007 IPPS
proposed rule, MedPAC generally
agreed with the adaptations we made to
its methodology, with the exception of
expanding the number of distinct
hospital department CCRs being used
from 10 to 13 and basing the CCRs on
Medicare-specific costs and charges.11
We did not finalize the HSRVcc
methodology for FY 2007 because of
concerns raised in the public comments
on the FY 2007 IPPS proposed rule (71
FR 47882 through 47898). Rather, we
adopted a cost-weighting methodology
without the hospital-specific relative
weight feature. We also expanded the
number of distinct hospital departments
with CCRs from 10 to 13. We indicated
our intent to study whether to adopt the
HSRVcc methodology after we had the
opportunity to further consider some of
the issues raised in the public
comments. In the interim, we adopted a
cost-weighting methodology over a 3year transition period, substantially
mitigating the redistributive payment
impacts illustrated in the proposed rule,
while we engaged a contractor to assist
us with evaluating the HSRVcc
methodology.
Some public commenters raised
concerns about potential bias in cost
weights due to ‘‘charge compression,’’
which is the practice of applying a
lower percentage markup to higher cost
services and a higher percentage
markup to lower cost services. These
commenters were concerned that our
proposed weighting methodology may
undervalue high cost items and
overvalue low cost items if a single CCR
is applied to items of widely varying
costs in the same cost center. The
11 Hackbarth, Glenn: MedPAC Comments on the
IPPS Rule, June 12, 2006, page 2.
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commenters suggested that the HSRVcc
methodology would exacerbate the
effect of charge compression on the final
relative weights. One of the commenters
suggested an analytic technique of using
regression analysis to identify
adjustments that could be made to the
CCRs to better account for charge
compression. We indicated our interest
in researching whether a rigorous model
should allow an adjustment for charge
compression to the extent that it exists.
We engaged a contractor, RTI
International (RTI), to study several
issues with respect to the cost weights,
including charge compression, and to
review the statistical model provided to
us by the commenter for adjusting the
weights to account for it. We discuss
RTI’s findings in detail below.
Commenters also suggested that the
cost report data used in the cost
methodology are outdated, not
consistent across hospitals, and do not
account for the costs of newer
technologies such as medical devices.
However, the relationship between costs
and charges (not costs alone) is the
important variable in setting the relative
weights under this new system. Older
cost reports also do not include the
hospital’s higher charges for these same
medical devices. Therefore, it cannot be
known whether the CCR for the more
recent technologies will differ from
those we are using to set the relative
weights. The use of national average
cost center CCRs rather than hospitalspecific CCRs may mitigate potential
inconsistencies in hospital cost
reporting. Nevertheless, we agree that it
is important to review how hospitals
report costs and charges on the cost
reports and on the Medicare claims and
asked RTI to further study this issue as
well.
In summary, we proposed to adopt
HSRVcc relative weights for FY 2007
using national average CCRs for 10
hospital departments. Based on public
comments concerned about charge
compression and the accuracy of cost
reporting, we decided not to finalize the
HSRVcc methodology, but adopted costs
weights without the hospital-specific
feature. In response to comments from
MedPAC, we expanded the number of
hospital cost centers used in calculating
the national CCRs from 10 to 13.
Finally, we decided to implement the
cost-based weighting methodology
gradually, by blending the cost and
charge weights over a 3-year transition
period beginning with FY 2007, while
we further studied many of the issues
raised in the public comments. We refer
readers to the FY 2007 IPPS final rule
(71 FR 47882) for more details on our
final policy for calculating the costbased DRG relative weights.
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1. Summary of RTI’s Report on Charge
Compression
In August 2006, we awarded a
contract to RTI to study the effects of
charge compression in calculating DRG
relative weights. The purpose of the
study was to develop more accurate
estimates of the costs of Medicare
inpatient hospital stays that can be used
in calculating the relative weights per
DRG. RTI was asked to assess the
potential for bias in relative weights due
to CCR differences within the 13 CCR
groups used in calculating the costbased DRG relative weights and to
develop an analysis plan that explored
alternative methods of estimating costs,
with the objective of better aligning the
charges and costs used in those
calculations. RTI was asked to consider
methods of reducing the variation in
CCRs across services within cost centers
by:
<bullet≤ Modifying existing cost
centers and/or creating new costs
centers.
<bullet≤ Using statistical methods,
such as the regression adjustment for
charge compression. Some commenters
on the FY 2007 IPPS proposed rule
suggested that we use a regression
adjustment to account for charge
compression.
As part of its contract, RTI convened
a Technical Expert Panel composed of
individuals representing academic
institutions, hospital associations,
medical device manufacturers, and
MedPAC. The members of the panel met
on October 27, 2006, to evaluate RTI’s
analytic plan, to identify other areas that
are likely to be affected by compression
or aggregation problems, and to propose
suggestions for adjustments for charge
compression. We posted RTI’s draft
interim report on the CMS Web site in
March 2007. For more information,
interested individuals can view RTI’s
report at the following Web site: https://
cms.hhs.gov/reports/downloads/
Dalton.pdf.
As the first step in its analysis, RTI
compared the reported Medicare
program charge amounts from the cost
reports to the total Medicare charges
summed across all claims filed by
providers. Using cost and charge data
from the most recent available Medicare
cost reports and inpatient claims from
IPPS hospitals, RTI was charged with
performing an analysis to determine
how well the MedPAR charges matched
the cost report charges used to compute
CCRs. The accuracy of the DRG cost
estimates is directly affected by this
match because MedPAR charges are
multiplied by CCRs to estimate cost. RTI
found consistent matching of charges
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from the Medicare cost report to charges
grouped in the MedPAR claims for some
cost centers but there appeared to be
problems with others. For example, RTI
found that the data between the cost
report and the claims matched well for
total discharges, days, covered charges,
nursing unit charges, pharmacy, and
laboratory. However, there appeared to
be inconsistent reporting between the
cost reports and the claims data for
charges in several ancillary departments
(medical supplies, operating room,
cardiology, and radiology). For example,
the data suggested that hospitals often
include costs and charges for devices
and other medical supplies within the
Medicare cost report cost centers for
Operating Room, Radiology or
Cardiology instead of the Medical
Supplies cost center.
RTI found that some charge
mismatching results from the way in
which charges are grouped in the
MedPAR file. Examples include the
intermediate care nursing charges being
grouped with intensive care nursing
charges, and electroencephalography
(EEG) charges being grouped with
laboratory charges. RTI suggested that
reclassifying intermediate care charges
from the intensive care unit to the
routine cost center could address the
former problem.
As the second step in its analysis, RTI
reviewed the existing cost centers that
are combined into the 13 groups used in
calculating the national average CCRs.
RTI identified CCRs with potential
aggregation problems and considered
whether separating the charge groups
could result in more accurate cost
conversion at the DRG level. The
analysis led RTI to calculate separate
CCRs for Emergency Room and Blood
and Blood Administration, both of
which had been included in ‘‘Other
Services’’ in FY 2007.
During this second step, RTI noted
that a variation of charge compression is
also present in inpatient nursing
services because most patients are
charged a single type of accommodation
rate per day that is linked to the type of
nursing unit (routine, intermediate, or
intensive), but not to the hours of
nursing services given to individual
patients. Unlike the situation with
charge compression in ancillary service
areas, there are virtually no detailed
charge codes that can distinguish
patient nursing care use. Therefore, any
potential bias cannot be empirically
evaluated or adjustments made without
additional data.
Next, RTI examined individual
revenue codes within the cost centers
and used regression analysis to
determine whether certain revenue
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codes in the same cost center had
significantly different markup rates.
Those revenue codes include devices,
prosthetics, implants within the
Medical Supplies cost center, IV
Solutions within the Drugs cost center,
CT scanning and MRI within the
Radiology cost center, Cardiac
Catheterization within the Cardiology
cost center, and Intermediate Care Units
within the Routine Nursing Care cost
center. Devices, prosthetics, and
implants within the Medical Supplies
cost center have a lower markup and, as
a result, a higher CCR than the
remainder of the medical supplies group
according to RTI’s analysis. Within the
Drugs CCR, IV Solutions have a much
higher markup and much lower CCR
than the other drugs included in the
category. Within the Radiology CCR, CT
scanning and MRI have higher markups
and lower CCRs than the remaining
radiology services. RTI’s results for
Cardiac Catheterization and
Intermediate Care Units were
ambiguous due to data problems.
RTI’s analysis also determined the
impact of the disaggregated CCRs on the
relative weights. Differences in CCRs
alone do not necessarily alter the DRG
relative weights. The impact on the
relative weights is the result of the
interaction of CCR differences and DRG
differences in the proportions of the
services with different CCRs. In FY
2007, we calculated relative weights
using CCRs for 13 hospital departments.
The RTI analysis suggests expanding the
number of distinct hospital department
CCRs from 13 to 19. Of the additional
six CCRs, two would result from
separating the Emergency Department
and Blood (Products and
Administration) from the residual
‘‘Other Services’’ category. Four
additional CCRs would result from
applying a regression method similar to
a method suggested in last year’s public
comments to three existing categories:
supplies, radiology, and drugs. This
method, as adapted by RTI, used
detailed coding of charges to
disaggregate hospital cost centers and
derive separate, predicted alternative
CCRs for the disaggregated services.
RTI’s analysis suggests splitting Medical
Supplies into one CCR for devices,
implants, and prosthetics and one CCR
for Other Supplies; splitting Radiology
into one CCR for MRIs, one CCR for CT
scans, and one CCR for Other Radiology;
and splitting Drugs into one CCR for IV
Solutions and one CCR for Other Drugs.
RTI’s draft report provides the
potential impacts of adopting these
changes to the CCRs. We note that RTI’s
analysis was based on Version 24.0 of
the CMS DRGs. Because the proposed
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MS–DRGs were under development for
the FY 2008 IPPS proposed rule, they
were unavailable to RTI for their
analysis. The results of RTI’s analysis
may be different if applied to the
proposed MS–DRGs. However, it seems
reasonable to believe that the impact of
RTI’s suggestions will be consistent
using Version 24.0 of the CMS DRGs
and the proposed MS–DRGs, as both
systems generally use the same base
DRGs while applying different
subdivisions to recognize severity of
illness. Of all the adjusted CCRs, the
largest impact on weights came from
accounting for charge compression in
medical supplies for devices and
implants. The impact on weights from
accounting for CCR differences among
drugs was modest. The impact of
splitting MRI and CT scanning from the
radiology CCR was greater than the
impact of modifying the Drugs CCRs,
but less than the impact of splitting the
medical supplies group. Separating
Emergency Department and Blood
Products and Administration from the
‘‘Other Services’’ category would raise
the CCR for other services in the group.
RTI found that disaggregating cost
centers may have a mitigating effect on
the impact of transitioning from chargebased weights to cost-based weights.
That is, the changes being suggested by
RTI will generally offset (fully or more
than fully in some cases or in part in
other cases) the impacts of fully
implemented cost weights that we are
adopting over the FY 2007–FY 2009
transition period. Thus, RTI’s analysis
suggests that expanding the number of
distinct hospital department CCRs used
to calculate cost weights from 13 to 19
will generally increase the relative
weights for surgical DRGs and decrease
them for the medical DRGs compared to
the fully implemented cost-based
weights to which we began transitioning
in FY 2007.
2. RTI Recommendations
In its report, RTI provides
recommendations for the short term,
medium term, and long term, to mitigate
aggregation bias in the calculation of
relative weights. We summarize RTI’s
recommendations below and respond to
each of them.
a. Short-Term Recommendations
Most of RTI’s short-term
recommendations have already been
described above. The most immediate
changes that RTI recommends
implementing include expanding from
13 distinct hospital department CCRs to
19 by:
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<bullet≤ Disaggregating ‘‘Emergency
Room’’ and ‘‘Blood and Blood Products’’
from the ‘‘Other Services’’ cost center;
<bullet≤ Establishing regression-based
estimates as a temporary or permanent
method for disaggregating the Medical
Supplies, Drugs, and Radiology cost
centers; and
<bullet≤ Reclassifying intermediate
care charges from the intensive care unit
cost center to the routine cost center.
We believe these recommendations
have significant potential to address
issues of charge compression and
potential mismatches between how
costs and charges are reported in the
cost reports and on the Medicare claims.
RTI’s recommendations show
significant promise in the short term for
addressing issues raised in the public
comments on the cost weights in the FY
2007 IPPS proposed rule. However, in
the time available for the development
of this proposed rule, we have been
unable to investigate how RTI’s
recommended changes may interact
with other potential changes to the
DRGs and to the method of calculating
the DRG relative weights. As we noted
above, RTI’s analysis was done on the
Version 24.0 of the CMS DRGs and not
the MS-DRGs we are proposing for FY
2008. For this proposed rule, we were
not able to examine the combined
impacts of the proposed MS-DRGs and
RTI’s recommendations. In addition, we
believe it is also important to consider
that, in the FY 2007 IPPS final rule (71
FR 47897), we anticipated undertaking
further analysis of the HSRVcc
methodology over the next year in
conjunction with the research we were
to do on charge compression. Analysis
of the HSRVcc methodology will be part
of the second phase of the RAND study
of alternative DRG systems to be
completed by September 1, 2007, that
has not been completed in time for this
proposed rule. As a result, we have also
been unable to consider the effects of
the HSRVcc methodology together with
the proposed MS-DRGs and RTI’s
recommendations. Finally, we note that
in order to complete the analysis in time
for this proposed rule, RTI’s study used
only inpatient hospital claims.
However, hospital ancillary
departments typically include both
inpatient and outpatient services within
the same department and only a single
CCR covering both inpatient and
outpatient services can be calculated
from Medicare cost reports. Although
we believe that applying the regression
method used by RTI to only inpatient
services is unlikely to have had much
impact for the adjustments
recommended by RTI, the preferred
approach would be to apply the
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regression method to the combined
inpatient and outpatient services. The
latter approach would ensure that any
potential CCR adjustments in the IPPS
would be consistent with potential CCR
adjustments in the OPPS. We hope to
expand their analysis to incorporate
outpatient services during the coming
year. For all of these reasons, we are not
proposing to adopt RTI’s
recommendations for FY 2008.
Although we are not proposing to
adopt RTI’s recommendations for FY
2008, we are interested in public
comments on expanding from 13 CCRs
to 19 CCRs. Again, we note that RTI’s
analysis suggests significant
improvements that could result in the
cost weights from adopting its
recommendations to adjust for charge
compression. Therefore, we are also
interested in public comments on
whether we should proceed to adopt the
RTI recommended changes for FY 2008
in the absence of a detailed analysis of
how the relative weights would change
if we were to address charge
compression while simultaneously
adopting an HSRVcc methodology
together with the proposed MS-DRGs.
Given the change in the impacts that
were illustrated in last year’s FY 2007
IPPS final rule (71 FR 47915–47916),
going from a hospital-specific to a
nonhospital-specific cost-weighting
methodology, we believe that
sequentially adjusting for charge
compression and later adopting an
HSRVcc methodology could create the
potential for instability in IPPS
payments over the next 2 years (that is,
payments for surgical DRGs would
increase and payment for medical DRGs
would decrease if we were adopt the
RTI recommended changes for FY 2008,
but could potentially reverse direction if
we were to adopt an HSRVcc
methodology for FY 2009). Again, we
are interested in public comments on all
of these issues before we make a final
decision as to whether to proceed with
the RTI’s short-term recommendations
in the final rule for FY 2008.
Among its other short-term
recommendations, RTI also suggested
that we incorporate edits to reject or
require more intensive review of cost
reports from hospitals with extreme
CCRs. This action would reduce the
number of hospitals with excluded data
in the national CCR computations, and
would also improve the accuracy of all
departmental CCRs within problem cost
reports by forcing hospitals to review
and correct the assignment of costs and
charges before the cost report is filed.
Although we do not have a substantive
disagreement with the recommendation,
we generally focus our audit resources
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on areas in which cost report
information directly affects payments to
individual providers.
RTI further suggested revising cost
report instructions to reduce cost and
charge mismatching and program charge
misalignment in its short-term
recommendations. Although RTI
suggests such an action could be
immediately effective for correcting the
reporting of costs and charges for
medical supply items that are now
distributed across multiple cost centers,
we note that changes to improve cost
reporting now will not become part of
the relative weights for several years
because of lags between the submission
of hospital reports and our ability to use
them in setting the relative weights.
Currently, we expect there will continue
to be a 3-year lag between a hospital’s
cost report fiscal year and the year it is
used to set the relative weights. Thus,
even if it were possible to issue
instructions immediately beginning for
FY 2008, revised reporting would not
affect the relative weights until at least
FY 2011. Nevertheless, we agree with
this recommendation, and we welcome
public input on potential changes to
cost reporting instructions to improve
consistency between how charges are
reported on cost reports and in the
Medicare claims. We will consider these
changes to the cost reporting
instructions as we consider further
changes to the cost report described
below.
b. Medium-Term Recommendations
RTI recommended that we expand the
MedPAR file to include separate fields
that disaggregate several existing charge
departments. For compatibility with
prior years’ data, the new fields should
partition the existing ones rather than
recombine charges. RTI recommended
including additional fields in the
MedPAR file for the hospital
departments that it statistically
disaggregated in its report, as well as
intermediate care, observation beds,
other special nursing codes, therapeutic
radiation and EEG, and possibly others.
As with some of RTI’s earlier
recommendations with respect to cost
reports, we will examine this suggestion
in conjunction with other competing
priorities CMS has been given for our
information systems. We have limited
information systems resources, and we
will need to consider whether the time
constraints we have to develop the IPPS
final rule, in conjunction with the
inconvenience of using the SAF and
accounting for charge compression
through regression, will justify the
infrastructure cost to our information
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systems of incorporating these variables
into the MedPAR.
Finally, RTI’s medium-term
recommendations include encouraging
providers to use existing standard cost
centers, particularly those for Blood and
Blood Administration and for
Therapeutic Radiology, in the current
Medicare cost report. We believe this
recommendation is closely related to the
one for improved cost reporting
instructions. Therefore, we will
consider this recommendation as part of
any further effort we may undertake to
revise cost reporting instructions or
change the cost report.
c. Long-Term Recommendations
RTI’s long-term recommendations
include adding new cost centers to the
Medicare cost report and/or undertaking
the following activities:
<bullet≤ Add ‘‘Devices, Implants and
Prosthetics’’ under the line for ‘‘Medical
Supplies Charged to Patients.’’ Consider
also adding a similar line for IV
Solutions as a subscripted line under
the line for ‘‘Drugs Charged to Patients.’’
<bullet≤ Add CT Scanning and MRI
as subscripted lines under the line for
‘‘Radiology-Diagnostic.’’ About onethird of hospitals that offer CT Scanning
and/or MRI services are already
reporting these services on nonstandard
line numbers. More consistent reporting
for both cost centers would eliminate
the need for statistical estimation on the
radiology CCRs.
<bullet≤ In consultation with hospital
industry representatives, determine the
best way to separate cardiology cost
centers and add a new standard cost
center for cardiac catheterization and/or
for all other cardiac diagnostic
laboratory services. About 20 percent of
hospitals already include a nonstandard
line on their cost reports for
catheterization. Creating a new standard
cost center could improve consistency
in reporting and substantially improve
the program charge mismatching that
now occurs.
<bullet≤ In consultation with hospital
industry representatives, consider
establishing a new cost center to capture
intermediate care units as distinct from
routine or intensive care.
<bullet≤ Establish expert study groups
or other research vehicles to study
options for improving patient-level
charging within nursing units. Nursing
accounts for one-fourth of IPPS charges
and 41 percent of the computed costs
from our claims analysis file.
Historically, nursing charges and costs
have been assigned to patients without
relying on individual measures of
service use. Consideration should be
given to finding ways to improve
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precision in nursing cost-finding that
will improve relative resource weights
without adding substantial
administrative costs to either the
Medicare program or to hospitals.
We agree with RTI that attention
should be paid to these issues as we
consider changes to the Medicare cost
report. The cost report has not been
revised in nearly 10 years. During this
time, there have been significant
changes to the Medicare statute and
regulations that have affected the
Medicare payment policies. Necessary
incremental changes have been made to
the Medicare cost report over the years
to accommodate the Medicare wage
index, disproportionate share payments,
indirect and direct graduate medical
education payments, reporting of
uncompensated care costs, among
others. The adoption of cost-based
weights for the IPPS beginning in FY
2007 has brought further attention to the
importance of the Medicare cost report
and how hospitals report costs and
charges. We recently began doing a
comprehensive review of the Medicare
cost report and plan to make updates
that will consider its many uses. As we
update the cost report, we will give
strong consideration to RTI’s
recommendations and potential longterm improvements that could be made
to the IPPS cost-based relative weighting
methodology.
F. Hospital-Acquired Conditions,
Including Infections
(If you choose to comment on issues
in this section, please include the
caption ‘‘DRGs: Hospital-Acquired
Conditions’’ at the beginning of your
comment.)
1. General
Medicare’s IPPS encourages hospitals
to treat patients efficiently. Hospitals
receive the same DRG payment for stays
that vary in length. In many cases,
complications acquired in the hospital
do not generate higher payments than
the hospital would otherwise receive for
other cases in the same DRG. To this
extent, the IPPS does encourage
hospitals to manage their patients well
and to avoid complications, when
possible. However, complications, such
as infections, acquired in the hospital
can trigger higher payments in two
ways. First, the treatment of
complications can increase the cost of
hospital stays enough to generate outlier
payments. However, the outlier
payment methodology requires that
hospitals experience large losses on
outlier cases (for example, in FY 2007,
the fixed-loss amount was $24,485
before a case qualified for outlier
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payments, and the hospital then only
received 80 percent of its costs above
the fixed-loss cost threshold). Second,
there are about 121 sets of DRGs that
split based on the presence or absence
of a complication or comorbidity (CC).
The CC DRG in each pair would
generate a higher Medicare payment. If
a condition acquired during the
beneficiary’s hospital stay is one of the
conditions on the CC list, the result may
be a higher payment to the hospital
under a CC DRG. Under the proposed
MS–DRGs, there will be 258 sets of
DRGs that are split into 2 or 3 subgroups
based on the presence or absence of a
major CC (MCC) or CC. If a condition
acquired during the beneficiary’s
hospital stay is one of the conditions on
the MCC or CC list, the result may be
a higher payment to the hospital under
the MS–DRGs. (See section II.C. of the
FY 2007 IPPS final rule (71 FR 47881)
for a detailed discussion of proposed
DRG reforms.)
2. Legislative Requirement
Section 5001(c) of Pub. L. 109–171
requires the Secretary to select, by
October 1, 2007, at least two conditions
that are (a) high cost or high volume or
both, (b) result in the assignment of a
case to a DRG that has a higher payment
when present as a secondary diagnosis,
and (c) could reasonably have been
prevented through the application of
evidence-based guidelines. For
discharges occurring on or after October
1, 2008, hospitals will not receive
additional payment for cases in which
one of the selected conditions was not
present on admission. That is, the case
will be paid as though the secondary
diagnosis was not present. Section
5001(c) provides that we can revise the
list of conditions from time to time, as
long as the list contains at least two
conditions. Section 5001(c) also requires
hospitals to submit the secondary
diagnoses that are present at admission
when reporting payment information for
discharges on or after October 1, 2007.
3. Public Input
In the FY 2007 IPPS proposed rule (71
FR 24100), we sought input from the
public about which conditions and
which evidence-based guidelines
should be selected in order to
implement section 5001(c) of Public
Law 109–171. The comments that we
received were summarized in the FY
2007 IPPS final rule (71 FR 48051
through 48053). In that final rule, we
indicated that the next opportunity for
formal public comment would be this
FY 2008 proposed rule and encouraged
the public to comment on our proposal
at that time.
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In summary, the majority of the
comments that we received in response
to the FY 2007 IPPS proposed rule
addressed conceptual issues concerning
the selection, measurement, and
prevention of hospital-acquired
infections. Many commenters
encouraged CMS to engage in a
collaborative discussion with relevant
experts in designing, evaluating, and
implementing this section. The
commenters urged CMS to include
individuals with expertise in infection
control and prevention, as well as
representatives from the provider
community, in the discussions.
Many commenters supported the
statutory requirement for hospitals to
submit information regarding secondary
diagnoses present on admission
beginning in FY 2008, and suggested
that it would better enable CMS and
health care providers to more accurately
differentiate between comorbidities and
hospital-acquired complications.
MedPAC, in particular, noted that this
requirement was recommended in its
March 2005 Report to Congress and
indicated that this information is
important to Medicare’s value-based
purchasing efforts. Other commenters
cautioned us about potential problems
with relying on secondary diagnosis
codes to identify hospital-acquired
complications, and indicated that
secondary diagnosis codes may be an
inaccurate method for identifying true
hospital-acquired complications.
A number of commenters expressed
concerns about the data coding
requirement for this payment change
and asked for detailed guidance from
CMS to help them identify and
document hospital-acquired
complications. Other commenters
expressed concern that not all hospitalacquired infections are preventable and
noted that sicker and more complex
patients are at greater risk for hospitalacquired infections and complications.
Commenters suggested that CMS
include standardized infectionprevention process measures, in
addition to outcome measures of
hospital-acquired infections.
Some commenters proposed that CMS
expand the scope of the payment
changes beyond the statutory minimum
of two conditions. They noted that the
death, injury, and cost of hospitalacquired infections are too high to limit
this provision to only two conditions.
Commenters also recommended that
CMS annually select additional
hospital-acquired complications for the
payment change. Conversely, a number
of commenters proposed that CMS
initially begin with limited
demonstrations to test CMS’
methodology before nationwide
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implementation. One commenter
recommended that CMS include
appropriate consumer protections to
prevent providers from billing patients
for the nonreimbursed costs of the
hospital-acquired complications and to
prevent hospitals from selectively
avoiding patients perceived at risk of
complications.
In addition to the broad conceptual
suggestions, some commenters
recommended specific conditions for
possible inclusion in the payment
changes, which we discuss in detail in
section II.D.4. of this preamble. We also
discuss throughout section II.D. of this
preamble other comments that we have
considered in developing hospitalacquired conditions that would be
subject to reporting.
4. Collaborative Effort
CMS worked with public health and
infectious disease experts from the
Centers for Disease Control and
Prevention (CDC) to identify a list of
hospital-acquired conditions, including
infections, as required by section
5001(c) of Public Law 109–171. As
previously stated, the selected
conditions must meet the following
three criteria: (a) High cost or high
volume or both; (b) result in the
assignment of the case to a DRG that has
a higher payment when present as a
secondary diagnosis; and (c) could
reasonably have been prevented through
the application of evidence-based
guidelines. CMS and CDC staff also
collaborated on developing a process for
hospitals to submit a Present on
Admission (POA) indicator with each
secondary condition. The statute
requires the Secretary to begin
collecting this information as of October
1, 2007. The POA indicator is required
in order for us to determine which of
the selected conditions developed
during a hospital stay. The current
electronic format used by hospitals to
obtain this information (ASC X12N 837,
Version 4010) does not provide a field
to obtain the POA information. We are
in the process of issuing instructions to
require acute care IPPS hospitals to
submit the POA indicator for all
diagnosis codes effective October 1,
2007. The instructions will specify how
hospitals under the IPPS will submit
this information in segment K3 in the
2300 loop, data element K301 on the
ASC X12N 837, Version 4010 claim.
Specific instructions on how to select
the correct POA indicator for a
diagnosis code are included in the ICD–
9–CM Official Guidelines for Coding
and Reporting. These guidelines can be
found at the following Web site: https://
www.cdc.gov/nchs/datawh/ftpserv/
ftpicd9/ftpicd9.htm
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CMS and CDC staff also received
input from a number of groups and
organizations on hospital-acquired
conditions, including infections. Many
of these groups and organizations
recommended the selection of
conditions mentioned in the FY 2007
IPPS final rule, including the following
because of the high cost or high volume
(frequency) of the condition, or both,
and because in some cases preventable
guidelines already exist:
<bullet≤ Surgical site infections. The
groups and organizations stated that
there were evidence-based measures to
prevent the occurrence of these
infections which are currently measured
and reported as part of the Surgical Care
Improvement Program (SCIP).
<bullet≤ Ventilator-associated
pneumonias. The groups and
organizations pointed out that these
conditions are currently measured and
reported through SCIP. However, other
organizations counseled against
selecting these conditions because they
believed it was difficult to obtain good
definitions and that it was not always
clear which ones are hospital-acquired.
<bullet≤ Catheter associated
bloodstream infections.
<bullet≤ Pressure ulcers, as an
alternative to hospital-acquired
infections. The groups and
organizations pointed out that the
specific language in section 5001(c) of
Public Law 109–171 mentions hospitalacquired conditions; therefore, the
language does not restrict the Secretary
to the selection of infections.
<bullet≤ Hospital falls, as an
alternative to hospital-acquired
infections. The injury prevention groups
included this condition among a group
referred to as ‘‘serious preventable
events,’’ also commonly referred to as
‘‘never events’’ or ‘‘serious reportable
events.’’ A serious preventable event is
defined as a condition which should not
occur during an inpatient stay.
In addition to the aforementioned
conditions, we received other
recommendations for the selection of
hospital-acquired conditions. These
recommendations were also based on
the high cost and the high volume of the
condition, or both, or the fact that
preventable guidelines exist. The
recommendations include—
<bullet≤ Bloodstream infections/
septicemia. Some commenters suggested
that we focus on one specific organism,
such as staph aureus septicemia.
<bullet≤ Pneumonia. Some
commenters recommended the
inclusion of a broader group of
pneumonia patients, instead of
restricting cases to ventilator-associated
pneumonias. Some commenters
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mentioned that while prevention
guidelines exist for pneumonia, it is not
clear how effective these guidelines may
be in preventing pneumonia.
<bullet≤ Vascular catheter associated
infections. Commenters pointed out that
there are CDC guidelines for these
infections. Other commenters pointed
out that while this condition certainly
deserves focused attention by health
care providers, there is not a clear one
unique ICD–9–CM code that identifies
vascular catheter-associated infections.
Therefore, these commenters suggested
that there would be difficulty separately
identifying these conditions.
<bullet≤ Clostridium difficileassociated disease (CDAD). Several
commenters identified this condition as
a significant public health issue. Other
commenters pointed out that while
prevalence of this condition is emerging
as a public health problem, there is not
currently a strategy for reasonably
preventing these infections.
<bullet≤ Methicillin-resistant
staphylococcus aureus (MRSA). Several
commenters pointed out that MRSA has
become a very common bacteria
occurring both in and outside the
hospital environment. However, other
organizations pointed out that the code
for MRSA (V09.0, Infection with
microorganism resistant to penicillins
Methicillin-resistant staphylococcus
aureus) is not currently classified as a
CC. Therefore, the commenters stated
that MRSA does not lead to a higher
reimbursement when the code is
reported.
<bullet≤ Serious preventable events.
As stated earlier, some commenters
representing injury prevention groups
suggested including a broader group of
conditions than hospital falls which
should not be expected to occur during
a hospital admission. Hey notes that
these conditions are referred to as
‘‘serious preventable events,’’ and
include events such as the following: (a)
Leaving an object in during surgery; (b)
operating on the wrong body part or
patient, or performing the wrong
surgery; (c) air embolism as a result of
surgery; and (d) providing incompatible
blood or blood products. Other
commenters indicated that serious
preventable events are so rare that they
should not be selected as a hospital
condition that cannot result in a case
being assigned to a higher paying DRG.
5. Criteria for Selection of the HospitalAcquired Conditions
CMS and CDC staff greatly appreciate
the many comments and suggestions
offered by organizations and groups that
were interested in providing input into
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the selection of the initial hospitalacquired conditions.
CMS and CDC staff evaluated each
recommended condition under the three
criteria established by section
1886(d)(4)(D)(iv) of the Act. In order to
meet the higher payment criterion, the
condition selected must have an ICD–9–
CM diagnosis code that clearly
identifies the condition and is classified
as a CC, or as an MCC as proposed for
the MS–DRGs in this proposed rule.
Some conditions recommended for
inclusion among the initial hospitalacquired conditions did not have codes
that clearly identified the conditions.
Because there has not been national
reporting of a POA indicator for each
diagnosis, there is no Medicare data to
determine the incidence of the reported
secondary diagnoses occurring after
admission. To the extent possible, we
used information from the CDC on the
incidence of these conditions. CDC’s
data reflect the incidence of hospitalacquired conditions in 2002. We also
examined FY 2006 Medicare data on the
frequency that these conditions were
reported as secondary diagnoses. We
developed the following criteria to assist
in our analysis of the conditions. The
conditions described were those
recommended for inclusion in the
initial hospital-acquired infection
provision.
<bullet≤ Coding—Under section
1886(d)(4)(D)(ii)(I) of the Act, a
discharge is subject to the payment
adjustment if ‘‘the discharge includes a
condition identified by a diagnosis
code’’ selected by the Secretary under
section 1886(d)(4)(D)(iv) of the Act. We
only selected conditions that have (or
could have) a unique ICD–9–CM code
that clearly describes the condition.
Some conditions recommended by the
commenters would require the use of
two or more ICD–9–CM codes to clearly
identify the conditions. Although we
did not exclude these conditions from
further consideration, the need to utilize
multiple ICD–9–CM codes to identify
them may present operational issues.
For instance, below we describe in
detail the complexities associated with
selecting septicemia as a hospitalacquired condition that would be
subject to section 5001(c) of the DRA. In
some cases, septicemia may be a
reasonably preventable condition with
proper hospital care. However, in other
cases, clinicians may argue that the
condition arose from further
development of another infection the
patient did have upon admission and
the septicemia was not preventable. As
we indicate in detail below, there could
be a significant variety of clinical
scenarios and potential coding vignettes
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to describe situations where septicemia
occurs. Although we could select
septicemia, we would also have to
identify many exclusions for situations
where the septicemia is not preventable.
The vast number of clinical scenarios
that we would have to account for could
complicate implementation of the
provision.
<bullet≤ Burden (High Cost/High
Volume)—Under section
1886(d)(4)(D)(iv)(I) of the act, we must
select cases that have conditions that are
high cost or high volume, or both.
<bullet≤ Prevention guidelines—
Under section 1886(d)(4)(D)(iv)(II) of the
Act, we must select codes that describe
conditions that could reasonably have
been prevented through application of
evidence-based guidelines. We
evaluated whether there is information
available for hospitals to follow to
prevent the condition from occurring.
<bullet≤ CC—Under section
1886(d)(4)(D)(iv)(III) of the Act, we must
select codes that result in assignment of
the case to a DRG that has a higher
payment when the code it present as a
secondary diagnosis. The condition
must be an MCC or a CC that would, in
the absence of this provision, result in
assignment to a higher paying DRG.
<bullet≤ Considerations—We evaluate
each condition above according to how
it meets the statutory criteria in light of
the potential difficulties that we would
face if the condition were selected.
6. Proposed Selection of HospitalAcquired Conditions
We discuss below our analysis of each
of the conditions that were raised as
possible candidates for selection under
section 5001(c) of Pub. L. 109–171
according to the criteria described above
in section II.D.5. of this preamble. We
also discuss any considerations, which
would include any administrative issues
surrounding the selection of a proposed
condition. For example, the condition
may only be able to be identified by
multiple codes, thereby requiring the
development of special GROUPER logic
to also exclude similar or related ICD–
9–CM codes from being classified as a
CC. Similarly, a condition acquired
during a hospital stay may arise from
another condition that the patient had
prior to admission, making it difficult to
determine whether the condition was
reasonably preventable. Following a
discussion of each condition, we
provide a summary table that describes
the extent to which each condition
meets each of the above criteria. We
present 13 conditions in rank order. In
our view, the conditions listed at the top
of the table best meet the statutory
selection criteria, while the conditions
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listed lower may meet the selection
criteria but could present a particular
challenge (that is, they may be
preventable only in some circumstances
but not in others). Therefore, we would
submit that the first conditions listed
should receive the highest consideration
of selection among our initial group of
hospital-acquired conditions. We
encourage comments on whether or not
we have ranked these conditions
appropriately. We also encourage
additional comments on clinical,
coding, and prevention issues that may
affect the conditions selected. While we
have ranked these conditions, there may
be compelling public health reasons for
including conditions that are not at the
top of our list. We ask commenters to
recommend how many and which
conditions should be selected for
implementation on October 1, 2008,
along with justifications for these
selections.
(a) Catheter-Associated Urinary Tract
Infections
<bullet≤ Coding—ICD–9–CM code
996.64 (Infection and inflammatory
reaction due to indwelling urinary
catheter) clearly identifies this
condition. The hospital would also
report the code for the specific type of
urinary infection. For instance, when a
patient develops a catheter associated
urinary tract infection during the
inpatient stay, the hospital would report
code 996.64 and 599.0 (Urinary tract
infection, site not specified) to clearly
identify the condition. There are also a
number of other more specific urinary
tract infection codes that could also be
coded with code 996.64. These codes
are classified as CCs. If we were to select
catheter-associated urinary tract
infections, we would implement the
decision by not counting code 996.64
and any of the urinary tract infection
codes listed below when both codes are
present and the condition was acquired
after admission. If only code 996.64
were coded on the claim as a secondary
diagnosis, we would not count it as a
CC.
Burden (High Cost/High Volume)—
CDC reports that there are 561,667
catheter-associated urinary tract
infections per year. For FY 2006, there
were 11,780 reported cases of Medicare
patients who had a catheter associated
urinary tract infection as a secondary
diagnosis. The cases had average
charges of $40,347 for the entire
hospital stay. According to a study in
the American Journal of Medicine,
catheter-associated urinary tract
infection is the most common
nosocomial infection, accounting for
more than 1 million cases in hospitals
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and nursing homes nationwide.12
Approximately 11.3 million women in
the United States had at least one
presumed acute community-acquired
urinary tract infection resulting in
antimicrobial therapy in 1995, with
direct costs estimated at $659 million
and indirect costs totaling $936 million.
Nosocomial urinary tract infection
necessitates one extra hospital day per
patient, or nearly 1 million extra
hospital days per year. It is estimated
that each episode of symptomatic
urinary tract infection adds $676 to a
hospital bill. In total, according to the
study, the estimated annual cost of
nosocomial urinary tract infection in the
United States ranges between $424 and
$451 million.
Prevention guidelines—There are
widely recognized guidelines for the
prevention of catheter-associated
urinary tract infections. Guidelines can
be found at the following Web site:
https://www.cdc.gov/ncidod/dhqp/gl—
catheter—assoc.html.
CC—Codes 996.64 and 599.0 are
classified as CCs in the current CMS
DRGs as well as in the proposed MS–
DRGs.
Considerations—The primary
prevention intervention would be not
using catheters or removing catheters as
soon as possible, both of which are
worthy goals because once catheters are
in place for 3 to 4 days, most clinicians
and infectious disease/infection control
experts do not believe urinary tract
infections are preventable. While there
may be some concern about the
selection of catheter associated urinary
tract infections, it is an important public
health goal to encourage practices that
will reduce urinary tract infections.
Approximately 40 percent of Medicare
beneficiaries have a urinary catheter
during hospitalization based on
Medicare Patient Safety Monitoring
System (MPSMS) data.
As stated above in the Coding section,
this condition is clearly identified
through ICD–9–CM code 996.64. Code
996.64 is classified as a CC. The hospital
would also report the code for the
specific type of urinary infection. For
instance, when a patient develops a
catheter associated urinary tract
infection during the inpatient stay, the
hospital would report codes 996.64 and
599.0 or another more specific code that
clearly identifies the condition. These
codes are classified as CCs under the
current CMS DRGs as well as the
proposed MS–DRGs. To select catheterassociated urinary tract infections as
12 Foxman, B.: ‘‘Epidemiology of urinary tract
infections: incidence, morbidity, and economic
costs,’’ The American Journal of Medicine, 113
Suppl. 1A, pp. 5s–13s, 2002.
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24719
one of the hospital-acquired conditions
that would not be counted as a CC, we
would not classify code 996.64 as a CC
if the condition occurred after
admission. Furthermore, we would also
not classify any of the codes listed
below as CCs if present on the claim
with code 996.64 because these
additional codes identify the same
condition. The following codes
represent specific types of urinary
infections. We did not include codes for
conditions that could be considered
chronic urinary infections, such as code
590.00 (Chronic pyelonephritis, without
lesion or renal medullary necrosis).
Chronic conditions may indicate that
the condition was not acquired during
the current stay. We would not count
code 996.64 or any of the following
codes representing acute urinary
infections if they developed after
admission and were coded together on
the same claim.
<bullet≤ 112.2 (Candidiasis of other
urogenital sites)
<bullet≤ 590.10 (Acute
pyelonephritis, without lesion of renal
medullary necrosis)
<bullet≤ 590.11 (Acute
pyelonephritis, with lesion of renal
medullary necrosis)
<bullet≤ 590.2 (Renal and perinephric
abscess)
<bullet≤ 590.3 (Pyeloureteritis
cystica)
<bullet≤ 590.80 (Pyelonephritis,
unspecified)
<bullet≤ 590.81 (Pyelitis or
pyelonephritis in diseases classified
elsewhere)
<bullet≤ 590.9 (Infection of kidney,
unspecified)
<bullet≤ 595.0 (Acute cystitis)
<bullet≤ 595.3 (Trigonitis)
<bullet≤ 595.4 (Cystitis in diseases
classified elsewhere)
<bullet≤ 595.81 (Cystitis cystica)
<bullet≤ 595.89 (Other specified type
of cystitis, other)
<bullet≤ 595.9 (Cystitis, unspecified)
<bullet≤ 597.0 (Urethral abscess)
<bullet≤ 597.80 (Urethritis,
unspecified)
<bullet≤ 599.0 (Urinary tract
infection, site not specified)
We believe the condition of catheterassociated urinary tract infection meets
all of our criteria for selection as one of
the initial hospital-acquired conditions.
We can easily identify the cases with
ICD–9–CM codes. The condition is a CC
under both the current CMS DRGs and
the proposed MS–DRGs that are
discussed earlier in this proposed rule.
The condition meets our burden
criterion with its high cost and high
frequency. There are prevention
guidelines on which the medical
community agrees. Of all 13 conditions
discussed in this proposed rule, we
believe this condition best meets the
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criteria discussed. Therefore, we are
proposing the selection of catheterassociated urinary tract infections as
one of the initial hospital-acquired
conditions.
We encourage comments on both the
selection of this condition and the
related conditions that we are proposing
to exclude from being counted as CCs.
(b) Pressure Ulcers
Coding—Pressure ulcers are also
referred to as decubitus ulcers. The
following codes clearly identify
pressure ulcers.
<bullet≤ 707.00 (Decubitus ulcer,
unspecified site)
<bullet≤ 707.01 (Decubitus ulcer,
elbow)
<bullet≤ 707.02 (Decubitus ulcer,
upper back)
<bullet≤ 707.03 (Decubitus ulcer,
lower back)
<bullet≤ 707.04 (Decubitus ulcer, hip)
<bullet≤ 707.05 (Decubitus ulcer,
buttock)
<bullet≤ 707.06 (Decubitus ulcer,
ankle)
<bullet≤ 707.07 (Decubitus ulcer,
heel)
<bullet≤ 707.09 (Decubitus ulcer,
other site)
Burden (High Cost/High Volume)—
This is both a high-cost and highvolume condition. For FY 2006, there
were 322,946 reported cases of Medicare
patients who had a pressure ulcer as a
secondary diagnosis. These cases had
average charges for the hospital stay of
$40,381.
Prevention guidelines—Prevention
guidelines can be found at the following
Web sites: https://www.npuap.org/
positn1.html. https://
www.ncbi.nlm.nih.gov/books/
bv.fcgi?rid=hstat2.chapter.4409
CC—Decubitus ulcer codes are
classified as CCs under the current CMS
DRGs. Codes 707.00, 707.01, and 707.09
are CCs under the proposed MS–DRGs.
Codes 707.02 through 707.07 are
considered MCCs under the proposed
MS–DRGs. As discussed earlier, MCCs
result in even larger payments than CCs.
Considerations—Pressure ulcers are
an important hospital-acquired
complication. Prevention guidelines
exist (non-CDC) and can be
implemented by hospitals. Clinicians
may state that some pressure ulcers
present on admission cannot be
identified (skin is not yet broken (Stage
I) but damage to tissue is already done
and skin will eventually break down.
However, by selecting this condition,
we would provide hospitals the
incentive to perform careful
examination of the skin of patients on
admission to identify decubitus ulcers.
If the condition is present on admission,
the provision will not apply. We are
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proposing to include pressure ulcers as
one of our initial hospital-acquired
conditions. This condition can be
clearly identified through ICD–9–CM
codes. These codes are classified as a CC
under the current CMS DRGs and as a
CC or MCC under the proposed MS–
DRGs. Pressure ulcers meet the burden
criteria because they are both high cost
and high frequency cases. There are
clear prevention guidelines. While there
is some question as to whether all cases
with developing pressure ulcers can be
identified on admission, we believe the
selection of this condition will result in
a closer examination of the patient’s
skin on admission. This will result in
better quality of care. We welcome
comments on the proposed inclusion of
this condition.
Serious Preventable Events
Serious preventable events are events
that should not occur in health care.
The injury prevention community has
developed information on serious
preventable events. CMS reviewed the
list of serious preventable events and
identified those events for which there
was an ICD–9–CM code that would
assist in identifying them. We identified
four types of serious preventable events
to include in our evaluation. These
include leaving an object in a patient;
performing the wrong surgery (surgery
on the wrong body part, wrong patient,
or the wrong surgery); air embolism
following surgery; and providing
incompatible blood or blood products.
Three of these serious preventable
events have unique ICD–9–CM codes to
identify them. There is not a clear and
unique code for surgery performed on
the wrong body part, wrong patient, or
the wrong surgery. Each of these events
is discussed separately.
(c) Serious Preventable Event—Object
Left in During Surgery
Coding—Retention of a foreign object
in a patient after surgery is identified
through ICD–9–CM code 998.4 (Foreign
body accidentally left during a
procedure).
Burden (High Cost/High Volume)—
For FY 2006, there were 764 cases
reported of Medicare patients who had
an object left in during surgery reported
as a secondary diagnosis. The average
charges for the hospital stay were
$61,962. This is a rare event. Therefore,
it is not high volume. However, an
individual case will likely have high
costs, given that the patient will need
additional surgery to remove the foreign
body. Potential adverse events
stemming from foreign body could
further raise costs for an individual
case.
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Prevention guidelines—There are
widely accepted and clear guidelines for
the prevention of this event. Prevention
guidelines for avoiding leaving objects
in during surgery are located at the
following Web site: https://
www.qualityindicators.ahrq.gov/psi—
download.htm. This event should not
occur.
CC—This code is a CC under the
current CMS DRGs as well as under the
proposed MS–DRGs.
Considerations—There are no
significant considerations for this
condition. There is a unique ICD–9–CM
code and wide agreement on the
prevention guidelines. We are proposing
to include this condition as one of our
initial hospital-acquired conditions. The
cases can be clearly identified through
an ICD–9–CM. This code is a CC under
both the current CMS DRGs and the
proposed MS–DRGs. There are clear
prevention guidelines. While the cases
may not meet the high frequency
criterion, they do meet the high-cost
criterion. Individual cases can be high
cost. We welcome comments on
including this condition as one of our
initial hospital-acquired conditions.
(d) Serious Preventable Event—Air
Embolism
Coding—An air embolism is
identified through ICD–9–CM code
999.1 (Complications of medical care,
NOS, air embolism).
Burden (High Cost/High Volume)—
This event is rare. For FY 2006, there
were 45 reported cases of air embolism
for Medicare patients. The average
charges for the hospital stay were
$66,007.
Prevention guidelines—There are
clear prevention guidelines for air
embolisms. This event should not occur.
Serious preventable event guidelines
can be found at the following Web site:
https://www.qualityindicators.ahrq.gov/
psi—download.htm.
CC—This code is a CC under the
current CMS DRGs and is an MCC under
the proposed MS–DRGs.
Considerations—There are no
significant considerations for this
condition. There is a unique ICD–9–CM
code and wide agreement on the
prevention guidelines. In addition, as
stated earlier, the condition is a CC
under the current CMS DRGs and an
MCC under the proposed MS–DRGs.
While the condition is rare, it does meet
the cost burden criterion because
individual cases can be expensive.
Therefore, air embolism is a high-cost
condition because average charges per
case are high. We welcome comments
on the proposal to include this
condition.
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Coding—Delivering ABO-incompatible
blood or blood products is identified by
ICM–9–CM code 999.6 (Complications
of medical care, NOS, ABO
incompatibility reaction).
Burden (High Cost/High Volume)—
This event is rare. Therefore, it is not
high volume. For FY 2006, there were
33 reported cases of blood
incompatibility among Medicare
patients, with average charges of
$46,492 for the hospital stay. Therefore,
individual cases have high costs.
Prevention guidelines—There are
prevention guidelines for avoiding the
delivery of incompatible blood or blood
products. The event should not occur.
Serious preventable event guidelines
can be found at the following Web site:
https://www.qualityindicators.ahrq.gov/
psi—download.htm
CC—This code is a CC under the
current CMS DRGs as well as the
proposed MS–DRGs.
Considerations—There are no
significant considerations for this
condition. There is a unique ICD–9–CM
code which is classified as a CC under
the CMS DRGs as well as the proposed
MS–DRGs. There is wide agreement on
the prevention guidelines. While this
may not be a high-volume condition,
average charges per case are high.
Therefore, we believe this condition is
a high-cost condition and, therefore,
meets our burden criterion. We are
proposing to include this condition as
one of our initial hospital-acquired
conditions.
(f) Staphylococcus Aureus Bloodstream
Infection/Septicemia
Coding—ICD–9–CM Code 038.11
(Staphylococcus aureus septicemia)
identifies this condition. However, the
codes selected to identify septicemia are
somewhat complex. The following ICD–
9–CM codes may also be reported to
identify septicemia:
<bullet≤ 995.91 (Sepsis) and 995.92 (
Severe sepsis). These codes are reported
as secondary codes and further define
cases with septicemia.
<bullet≤ 998.59 (Other postoperative
infections). This code includes
septicemia that develops
postoperatively.
<bullet≤ 999.3 (Other infection). This
code includes but is not limited to
sepsis/septicemia resulting from
infusion, injection, transfusion,
vaccination (ventilator-associated
pneumonia also included here).
Burden (High Cost/High Volume)—
CDC reports that there are 290,000 cases
of staphylococcus aureus infection
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annually in hospitalized patients of
which approximately 25 percent are
bloodstream infections or sepsis. For FY
2006, there were 29,500 cases of
Medicare patients who had
staphylococcus aureus infection
reported as a secondary diagnosis. The
average charges for the hospital stay
were $82,678. Inpatient staphylococcus
aureus result in an estimated 2.7 million
days in excess length of stay, $9.5
billion in excess charges, and
approximately 12,000 inpatient deaths
per year.
Prevention guidelines—CDC
guidelines are located at the following
Web site: https://www.cdc.gov/ncidod/
dhqp/gl—intravascular.html.
CC—Codes 038.11, 995.91, 998.59,
and 999.3 are classified as CCs under
the current CMS DRGs and as MCCs
under the proposed MS–DRGs.
Considerations—Preventive health
care associated bloodstream infections/
septicemia that are preventable are
primarily those that are related to a
central venous/vascular catheter, a
surgical procedure (postoperative
sepsis) or those that are secondary to
another preventable infection (for
example, sepsis due to catheterassociated urinary tract infection).
Otherwise, physicians and other public
health experts may argue whether
septicemia is reasonably preventable.
The septicemia may not be simply a
hospital-acquired infection. It may
simply be a progression of an infection
that occurred prior to admission.
Furthermore, physicians cannot always
tell whether the condition was hospitalacquired. We examined whether it
might be better to limit the septicemia
cases to a specific organism (for
example, code 038.11 (Staphylococcus
aureus septicemia)). CDC staff
recommended that we focus on
staphylococcus aureus septicemia
because this condition is a significant
public health issue. As stated earlier,
there is a specific code for
staphylococcus aureus septicemia, code
038.11. Therefore, the cases would be
easy to identify. However, as stated
earlier, while this type of septicemia is
identified through code 038.11, coders
may also provide sepsis code 995.91 or
995.92 to more fully describe the
staphylococcus aureus septicemia.
Codes 995.91 and 995.92 are reported as
secondary codes and further define
cases with septicemia. Codes 995.91 and
995.92 are CCs under the current CMS
DRGs and MCCs under the proposed
MS–DRGs.
<bullet≤ 998.59 (Other postoperative
infections). This code includes
septicemia that develops
postoperatively.
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<bullet≤ 999.3 (Other infection). This
code includes but is not limited to
sepsis/septicemia resulting from
infusion, injection, transfusion,
vaccination (ventilator-associated
pneumonia also indexed here).
To implement this condition as one of
our initial ones, we would have to
exclude the specific code for
staphylococcus aureus septicemia,
038.11, and the additional septicemia
codes, 995.91, 995.92, 998.59, and
999.3.
We acknowledge that there are
additional issues involved with the
selection of this condition that may
involve developing an exclusion list of
conditions present on admission for
which we would not apply a CC
exclusion to staphylococcus aureus
septicemia. For example, a patient may
come into the hospital with a
staphylococcus aureus infection such as
pneumonia. The pneumonia might
develop into staphylococcus aureus
septicemia during the admission. It may
be appropriate to consider excluding
cases such as those of patients admitted
with staphylococcus aureus pneumonia
that subsequently develop
staphylococcus aureus septicemia from
the provision. In order to exclude cases
that did not have a staphylococcus
aureus infection prior to admission, we
would have to develop a list of specific
codes that identified all types of
staphylococcus aureus infections such
as code 482.41 (Pneumonia due to
staphylococcus aureus). We likely
would not apply the new provision to
cases of staphylococcus aureus
septicemia if a patient were admitted
with staphylococcus aureus pneumonia.
However, if the patient had other types
of infections, not classified as being
staphylococcus aureus, and then
developed staphylococcus aureus
septicemia during the admission, we
would apply the provision and exclude
the staphylococcus aureus septicemia as
a CC. We were not able to identify any
other specific ICD–9–CM codes that
identify specific infections as being due
to staphylococcus aureus.
Other types of infections, such as
urinary tract infections, would require
the reporting of an additional code,
041.11 (Staphylococcus aureus), to
identify the staphylococcus aureus
infection. This additional coding
presents administrative issues, because
it will not always be clear which
condition code 041.11 (Staphylococcus
aureus) is describing. We do not believe
it would be appropriate to make code
041.11, in combination with other
codes, subject to the hospital-acquired
conditions provision until we better
understand how to address the
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administrative issues that would be
associated with their selection.
Therefore, we would exclude
staphylococcus aureus septicemia cases
with code 482.41 reported as being
subject to the hospital-acquired
conditions provision. Stated conversely,
we would allow staphylococcus aureus
septicemia to count as a CC if the
patient was admitted with
staphylococcus aureus pneumonia.
We recognize that there may be other
conditions which we should consider
for this type of exclusion. We are
proposing to include staphylococcus
aureus bloodstream infection/
septicemia (code 038.11) as one of our
initial hospital-acquired conditions. We
would also exclude codes 995.91,
998.59, and 999.3 from counting as an
MCC/CC when they are reported with
code 038.11. The condition can be
clearly identified through ICD–9–CM
codes that are classified as CC under the
current CMS DRGs and MCCs under the
proposed MS–DRGs. The condition
meets our burden criterion by being
both high cost and high volume. There
are prevention guidelines which we
acknowledge are subject to some debate
among the medical community. We also
acknowledge that we would have to
exclude this condition if a patient were
admitted with a staphylococcus aureus
infection of a more limited location,
such as pneumonia. We encourage
commenters to make suggestions on this
issue and to recommend any other
appropriate exclusion for
staphylococcus aureus septicemia. We
encourage comments on the
appropriateness of selecting
staphylococcus aureus septicemia as
one of our proposed initial hospitalacquired conditions.
(g) Ventilator Associated Pneumonia
(VAP) and Other Types of Pneumonia
Coding ‘‘ Pneumonia is identified
through the following codes:
<bullet≤ 073.0 (Ornithosis with
pneumonia)
<bullet≤ 112.4 (Candidiasis of lung)
<bullet≤ 136.3 (Pneumocystosis)
<bullet≤ 480.0 (Pneumonia due to
adenovirus)
<bullet≤ 480.1 (Pneumonia due to
respiratory syncytial virus)
<bullet≤ 480.2 (Pneumonia due to
parainfluenza virus)
<bullet≤ 480.3 (Pneumonia due to
SARS-associated coronavirus)
<bullet≤ 480.8 (Pneumonia due to
other virus not elsewhere classified)
<bullet≤ 480.9 (Viral pneumonia,
unspecified)
<bullet≤ 481 (Pneumococcal
pneumonia [Streptococcus pneumoniae
pneumonia])
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<bullet≤ 482.0 (Pneumonia due to
Klebsiella pneumoniae)
<bullet≤ 482.1 (Pneumonia due to
Pseudomonas)
<bullet≤ 482.2 (Pneumonia due to
Hemophilus influenzae [H. influenzae])
<bullet≤ 482.30 (Pneumonia due to
Streptococcus, unspecified)
<bullet≤ 482.31 (Pneumonia due to
Streptococcus, Group A)
<bullet≤ 482.32 (Pneumonia due to
Streptococcus, Group B)
<bullet≤ 482.39 (Pneumonia due to
other Streptococcus)
<bullet≤ 482.40 (Pneumonia due to
Staphylococcus, unspecified)
<bullet≤ 482.41 (Pneumonia due to
Staphylococcus aureus)
<bullet≤ 482.49 (Other
Staphylococcus pneumonia)
<bullet≤ 482.81 (Pneumonia due to
Anaerobes)
<bullet≤ 482.82 (Pneumonia due to
Escherichia coli [E. coli])
<bullet≤ 482.83 (Pneumonia due to
other gram-negative bacteria)
<bullet≤ 482.84 (Pneumonia due to
Legionnaires’ disease)
<bullet≤ 482.89 (Pneumonia due to
other specified bacteria)
<bullet≤ 482.9 (Bacterial pneumonia
unspecified)
<bullet≤ 483.0 (Pneumonia due to
Mycoplasma pneumoniae)
There is not a unique code that
identifies ventilator associated
pneumonia. The creation of a code for
ventilator associated pneumonia was
discussed at the September 29, 2006
meeting of the ICD–9–CM Coordination
and Maintenance Committee meeting.
Many issues and concerns were raised
at the meeting concerning the creation
of this proposed new code. It has been
difficult to define ventilator-associated
pneumonia. We plan to continue
working closely with the CDC to
develop a code that can accurately
describe this condition for
implementation in FY 2009. CDC will
address the creation of a unique code for
this condition at the September 28–29,
2007 ICD–9–CM Coordination and
Maintenance Committee meeting.
While we list 27 pneumonia codes
above, our clinical advisors do not
believe that all of the codes mentioned
could possibly be associated with
ventilator-associated pneumonia. Our
clinical advisors specifically question
whether the following codes would ever
represent cases of ventilator-associated
pneumonia: 073.0, 480.0, 480.1, 480.2,
480.3, 480.8, 480.9, and 483.0.
Therefore, we have a range of
pneumonia codes, all of which may not
represent cases that could involve
ventilator-associated pneumonia. In
addition, we do not have a specific code
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that uniquely identifies cases of
ventilator-associated pneumonia.
Burden (High Cost/High Volume)—
CDC reports that there are 250,205
ventilator-associated pneumonias per
year. Because there is not a unique ICD–
9–CM code for ventilator-associated
pneumonia, there is not accurate data
for FY 2006 on the number of Medicare
patients who had this condition as a
secondary diagnosis. However, we did
examine data for FY 2006 on the
number of Medicare patients who listed
pneumonia as a secondary diagnosis.
There were 92,586 cases with a
secondary diagnosis of pneumonia, with
average charges of $88,781. According
to the journal Critical Care Medicine,
patients with ventilator-associated
pneumonia have statistically
significantly longer intensive care
lengths of stay (mean = 6.10 days) than
those who do not (mean = 5.32–6.87
days). In addition, patients who develop
ventilator-associated pneumonia incur,
on average, greater than or equal to
$10,019 in additional hospital costs
compared to those who do not.13
Therefore, we believe that this is a highvolume condition.
Prevention guidelines—Prevention
guidelines are located at the following
Web site: https://www.cdc.gov/ncidod/
dhqp/ gl—hcpneumonia.html. However,
it is not clear how effective these
guidelines are in preventing pneumonia.
Ventilator-associated pneumonia may
be particularly difficult to prevent.
CC—All of the pneumonia codes
listed above are CCs under the current
CMS DRGs and under the proposed
MS–DRGs, except for the following
pneumonia codes which are non-CCs:
073.0, 480.0, 480.1, 480.2, 480.3, 480.8,
480.9, 483.0. However, as mentioned
earlier, there is not a unique ICD–9–CM
code for ventilator-associated
pneumonia. Therefore, this condition
does not currently meet the statutory
criteria for being selected.
Considerations—Hospital-acquired
pneumonias, and specifically ventilator
associated pneumonias, are an
important problem. However, based on
our work with the medical community
to develop specific codes for this
condition, we have learned that it is
difficult to define what constitutes
ventilator associated pneumonia.
Although prevention guidelines exist, it
is not clear how effective these are in
preventing pneumonia. Clinicians
cannot always tell which pneumonias
are acquired in a hospital. In addition,
13 Safdar N.: Clinical and Economic
Consequences of Ventilator-Associated Pneumonia:
A Systematic Review, Critical Care Medicine, 2005,
33(10), pp. 2184–2193.
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as mentioned above, there is not a
unique code that identifies ventilatorassociated pneumonia. There are a
number of codes that capture a range of
pneumonia cases. It is not possible to
specifically identify if these pneumonia
cases are ventilator-associated or arose
from other sources. Because we cannot
identify cases with ventilator-associated
pneumonia and there are questions
about its preventability, we are not
proposing to select this condition as one
of our initial hospital-acquired
conditions. However, we welcome
public comments on how to create an
ICD–9–CM code that identifies
ventilator-associated pneumonia, and
we encourage participation in our
September 28–29, 2007 ICD–9–CM
Coordination and Maintenance
Committee meeting where this issue
will be discussed. We will reevaluate
the selection of this condition in FY
2009.
(h) Vascular Catheter-Associated
Infections
Coding—The code used to identify
vascular catheter associated infections is
ICD–9–CM code 996.62 (Infection due to
other vascular device, implant, and
graft). This code includes infections
associated with all vascular devices,
implants, and grafts. It does not
uniquely identify a vascular catheter
associated infections. Therefore, there is
not a unique ICD–9–CM code for this
infection. CDC and CMS staff requested
that the ICD–9–CM Coordination and
Maintenance Committee discuss the
creation of a unique ICD–9–CM code for
vascular catheter associated infections
because the issue is important for public
health. The proposal to create a new
ICD–9–CM was discussed at the March
22–23, 2007 meeting of the ICD–9–CM
Coordination and Maintenance
Committee. A summary of this meeting
can be found at: https://www.cdc.gov/
nchs/icd9.htm. Coders would also
assign an additional code for the
infection such as septicemia. Therefore,
a list of specific infection codes would
have to be developed to go along with
code 996.62. If the vascular catheter
associated infection was hospitalacquired, the DRG logic would have to
be modified so that neither the code for
the vascular catheter associated
infection along with the specific
infection code would count as a CC.
Burden (High Cost/High Volume)—
CDC reports that there are 248,678
central line associated bloodstream
infections per year. It appears to be both
high cost and high volume. However,
we were not able to identify Medicare
data on these cases because there is no
existing unique ICD–9–CM code.
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Prevention guidelines—CDC
guidelines are located at the following
Web site: https://www.cdc.gov/ncidod/
dhqp/gl—intravascular.html.
CC—Code 996.62 is a CC under the
current CMS DRGs and the proposed
MS–DRGs. However, as stated earlier,
this code is broader than vascular
catheter-associated infections.
Therefore, there is not a unique ICD–9–
CM code to identify the condition at this
time, and it does not currently meet the
statutory criteria to be selected.
However, as indicated above, we will be
creating a code(s) to identify this
condition and may select it as a
condition under the provision beginning
in FY 2009.
Considerations—There is not yet a
unique ICD–9–CM code to capture this
condition. If one is implemented on
October 1, 2007, we would be able to
specifically identify these cases. Some
patients require long-term indwelling
catheters, which are more prone to
infections. Ideally catheters should be
changed at certain time intervals.
However, circumstances might prevent
such practice (for example, the patient
has a bleeding diathesis). In addition, a
patient may acquire an infection from
another source which can colonize the
catheter. As mentioned earlier, coders
would also assign an additional code for
the infection, such as septicemia.
Therefore, a list of specific infection
codes would have to be developed to go
along with code 996.62. If the vascular
catheter-associated infection was
hospital-acquired, the DRG logic would
have to be modified so that neither the
code for the vascular catheter-associated
infection along with the specific
infection code would count as a CC.
Without a specific code for infections
due to a catheter, it would be difficult
to identify these patients. Given the
current lack of an ICD–9–CM code for
this condition, we are not proposing to
include it as one of our initial hospitalacquired conditions at this time.
However, we believe it shows merit for
inclusion in future lists of hospitalacquired conditions once we have
resolved the coding issues and are able
to better identify the condition in the
Medicare data. We will reevaluate the
selection of this condition in FY 2009.
We encourage comments on this
condition which was identified as an
important public health issue by several
organizations that provided
recommendations on hospital-acquired
conditions. We are particularly
interested in receiving comments on
how we should handle additional
associated infections that might develop
along with the vascular catheterassociated infection.
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(i) Clostridium Difficile-Associated
Disease (CDAD)
Coding—This condition is identified
by ICD–9–CM code 008.45 (Clostridium
difficile).
Burden (High Cost/High Volume)—
CDC reports that there are 178,000 cases
per year in U.S. hospitals. For FY 2006,
there were 110,761 reported cases of
Medicare patients with CDAD as a
secondary diagnosis, with average
charges for the hospital stay of $52,464.
Therefore, this is a high-volume
condition.
Prevention guidelines—Prevention
guidelines are not available. Therefore,
we do not believe this condition can
reasonably be prevented through the
application of evidence-based
guidelines.
CC—Code 008.45 is a CC under the
current CMS DRGs and the proposed
MS–DRGs.
Considerations—CDAD is an
emerging problem with significant
public health importance. If found early
CDAD cases can easily be treated.
However, cases not diagnosed early can
be expensive and difficult to treat.
CDAD occurs in patients on a variety of
antibiotic regiments, many of which are
unavoidable, and therefore
preventability is an issue. We are not
proposing to include CDAD as one of
our initial hospital-acquired conditions
at this time, given the lack of prevention
guidelines. We welcome public
comments on CDAD, specifically on its
preventability and whether there is
potential to develop guidelines to
identify it early in the disease process
and/or diminish its incidence. We will
reevaluate the selection of this
condition in FY 2009.
(j) Methicillin-Resistant Staphylococcus
Aureus (MRSA)
Coding—MRSA is identified by ICD–
9–CM code V09.0 (Infection with
microorganisms resistant to penicillins).
One would also assign a code(s) to
describe the exact nature of the
infection.
Burden (High Cost/High Volume)—
For FY 2006, there were 95,103 reported
cases of Medicare patients who had
MRSA as a secondary diagnosis. The
average charges for these cases were
$31,088. This condition is a high-cost
and high-volume infection. MRSA has
become a very common bacteria
occurring both in and outside of the
hospital environment.
Prevention guidelines—CDC
guidelines are located at the following
Web site: https://www.cdc.gov/ncidod/
dhqp/pdf/ar/mdroGuideline2006.pdf.
CC—Code V09.0 is not a CC under the
current CMS DRGs and the proposed
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MS–DRGs. The specific infection would
be identified in a code describing the
exact nature of the infection, which may
be a CC.
Considerations—As stated earlier,
preventability may be hard to ascertain
since the bacteria has become so
common both inside and outside the
hospital. There are also considerations
in identifying MRSA infections because
hospitals would report the code for
MRSA along with additional codes that
would describe the exact nature of the
infection. We would have to develop a
list of specific infections that could be
the result of MRSA. We are not
proposing to include MRSA as one of
our initial hospital-acquired conditions
because the condition is not a CC. We
recognize that associated conditions
may be a CC. We welcome comments on
the proposal not to include this
condition. Should there be support for
including this condition, we request
recommendations on what codes might
be selected to identify the specific types
of infections associated with MRSA.
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(k) Surgical Site Infections
Coding—Surgical site infections are
identified by ICD–9–CM code 998.59
(Other postoperative infection). The
code does not tell the exact location or
nature of the postoperative wound
infection. The code includes wound
infections and additional types of
postoperative infections such as
septicemia. The coding guidelines
instruct the coder to add an additional
code to identify the type of infection. To
implement this condition we would
have to remove both code 998.59 and
the specific infection from counting as
a CC if they occurred after the
admission. We would have to develop
an extensive list of possible infections
that would be subject to the provision.
We may also need to recommend the
creation of a series of new ICD–9–CM
codes to identify various types of
surgical site infections, should this
condition merit inclusion among those
that are subject to the proposed
hospital-acquired conditions provision.
Burden (High Cost/High Volume)—
CDC reports that there are 290,485
surgical sites infections each year. As
stated earlier, there is not a unique code
for surgical site infection. Therefore, we
examined Medicare data on patients
with any type of postoperative infection.
For FY 2006, there were 38,763 reported
cases of Medicare patients who had a
postoperative infection. These patients
had average charges for the hospital stay
of $79,504. We are unable to determine
how many of these patients had surgical
site infections.
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Prevention guidelines—CDC
guidelines are available at the following
Web site: https://www.cdc.gov/ncidod/
dhqp/gl—surgicalsite.html
CC—Code 998.59 is a CC under the
current CMS DRGs and the proposed
MS–DRGs.
Considerations—As mentioned
earlier, code 998.59 is not exclusive to
surgical site infections. It includes other
types of postoperative infections.
Therefore, code 998.59 does not
currently meet the statutory criteria for
being subject to the provision because it
does not uniquely identify surgical site
infections. To identify surgical site
infections, we would need new codes
that provide more detail about the type
of postoperative infection as well as the
site of the infection. In addition, one
would report both code 998.59 as well
a more specific code for the specific
type of infection, making
implementation difficult. While there
are prevention guidelines, it is not
always possible to identify the specific
types of surgical infections that are
preventable. Therefore, we are not
proposing to select surgical site
infections as one of our proposed
hospital-acquired conditions at this
time. However, we welcome public
comments on whether we can develop
criteria and codes to identify
preventable surgical site infections that
would assist us in reducing their
incidence. We are exploring ways to
identify surgical site infections and will
reevaluate this condition in FY 2009.
(l) Serious Preventable Event—Surgery
on Wrong Body Part, Patient, or Wrong
Surgery
Coding—Surgery performed on the
wrong body part, wrong patient, or the
wrong surgery would be identified by
ICD–9–CM code E876.5 (Performance of
inappropriate operation). This diagnosis
code does not specifically identify
which of these events has occurred.
Burden (High Cost/High Volume)—As
stated earlier, there are not unique ICD–
9–CM codes which capture surgery
performed on the wrong body part or
the wrong patient, or the wrong surgery.
Therefore, we examined Medicare data
on the code for performance of an
inappropriate operation. For FY 2006,
there was one Medicare case reported
with this code, and the patient had
average charges for the hospital stay of
$24,962. This event is rare. Therefore, it
is not high volume. Individual cases
could have high costs. However, we
were unable to determine the impact
with our limited data.
Prevention guidelines—There are
prevention guidelines for performing
the correct surgery on the correct patient
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or correct patient’s body part. This event
should not occur.
CC—This code is not a CC under the
current CMS DRGs and the proposed
MS–DRGs. Therefore, it does not meet
the criteria for selection under section
1886(d)(4)(D)(iv) of the Act. However,
Medicare does not pay for performing
surgery on the wrong body part or
patient, or performing the wrong
surgery. These services are not
considered to be reasonable and
necessary and are excluded from
Medicare coverage.
Considerations—There are significant
considerations for the selection of this
condition. There is not a unique ICD–9–
CM code that would describe the nature
of the inappropriate operation. All types
of inappropriate operations are included
in code E876.5. Unlike other conditions,
performance of an inappropriate
operation is not a complication of a
prior medical event that was medically
necessary. Rather, in this case, there was
a needed intervention but it was done
to either the wrong body part or the
wrong patient, or was not the correct
operation. Thus, a service was
completed that was not reasonable and
necessary and Medicare does not pay for
any inpatient service associated with
the wrong surgery. It is not necessary for
us to select this condition because
Medicare does not pay for it under any
circumstances.
(m) Falls
Coding—There is no single code that
shows that a patient has suffered a fall
in the hospital. Codes would be
assigned to identify the nature of any
resulting injury from the fall such as a
fracture, contusion, concussion, etc.
There is a code to indicate that a patient
fell from bed, code E884.4 (Fall from
bed). One would then assign a code that
identifies the external cause of the
injury (the fall from the bed) and an
additional code(s) for any resulting
injury (a fractured bone).
Burden (High Cost/High Volume)—As
stated earlier, there is not a code to
capture all types of falls. Therefore, we
examined Medicare data on the number
of Medicare beneficiaries who fell out of
bed. For FY 2006, there were 2,591
cases reported of Medicare patients who
fell out of bed. These patients had
average charges of the hospital stay of
$24,962. However, depending on the
nature of the injury, costs may vary in
specific cases.
Prevention guidelines—Falls may or
may not be preventable. Serious
preventable event guidelines can be
found at the following Web site: https://
www.qualityindicators.ahrq.gov/psi—
download.htm
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CC—Code E884.4 is not a CC under
the current CMS DRGs or the proposed
MS–DRGs.
Considerations—There are not clear
codes that identify all types of falls.
Hospitals would also have to use
additional codes for fractures and other
injuries that result from the fall. In
addition, depending on the
circumstances, the falls may or may not
be preventable. We are not proposing
the inclusion of falls as one of our initial
hospital-acquired conditions at this time
because we can only identify a limited
number of these cases, and they are not
classified as a CC. However, we
welcome public comments on how to
develop codes or coding logic that
would allow us to identify injuries that
result from falls in the hospital so that
Medicare would not recognize the
higher costs associated with treating
patients who acquire these conditions in
the hospital. We will reevaluate this
condition in FY 2009.
The following table summarizes
whether or not the potential conditions
meet our criteria and if there are
significant considerations with selecting
the particular condition. As mentioned
earlier, we have listed these conditions
in the priority order according to how
well they meet the statutory criteria. As
discussed earlier, we are proposing to
select the first six conditions (catheter
associated urinary tract infections
through Staphylococcus aureus
septicemia) as our initial hospitalacquired conditions. We would not
include the last seven conditions
(ventilator-associated pneumonia
through falls) as initial hospitalacquired conditions. We welcome
comments on how appropriately we
have evaluated and proposed the
selection of the first six conditions. We
also encourage specific comments on
any additional conditions we should
select for October 1, 2008
implementation. We request
commenters to include a rationale for
selecting any suggested additional
conditions, as well as an analysis of
why each suggested additional
condition meets the criteria under
section 1886(d)(4)(D)(iv) of the Act and
whether there would be coding issues or
other considerations associated with
selecting each condition.
PROPOSED HOSPITAL-ACQUIRED CONDITIONS AND CRITERIA
Proposed hospital-acquired condition
Coding—unique
code?
Burden—high cost
and/or high volume?
Prevention guidelines?
CC?
Considerations?
1. Catheter associated urinary tract
infections.
2. Pressure ulcers (Decubitus ulcers)
3. Serious preventable event—Object
left in surgery.
Yes ......................
Yes ......................
Yes ......................
Yes ......................
Yes ......................
Yes ......................
Yes ......................
Yes ......................
Yes ......................
Yes ......................
4. Serious preventable event—air
embolism.
Yes ......................
Yes ......................
Yes ......................
No .
5. Serious preventable event—Blood
incompatibility.
Yes ......................
Yes ......................
Yes ......................
No.
6. Staphylococcus aureus septicemia
Yes—multiple
codes reported.
No VAP code,
multiple pneumonia codes.
Yes ......................
Yes—high cost in
specific circumstances.
Yes—high cost in
specific circumstances.
Yes—high cost in
specific circumstances.
Yes ......................
Minimal—additional
infection codes.
No.
No.
Yes ......................
Yes ......................
Multiple codes.
Yes ......................
Yes ......................
No—no unique
codes.
Preventability
issues. VAPs—
identification
issues.
Preventability
issues.
Preventability
issues.
Preventability
issues.
Cannot identify.
7. Ventilator associated pneumonia
(VAP)/Pneumonia/.
8. Vascular catheter associated infections.
9. Clostridium difficile-associated disease (CDAD).
10.
Methicillin-resistant
staphylococcus aureus (MRSA).
11. Surgical site infections ................
No ........................
Yes ......................
Yes ......................
Yes ......................
Yes ......................
No ........................
Yes—but code is
too broad.
Yes ......................
Yes ......................
Yes ......................
Yes ......................
No ........................
No ........................
Yes ......................
Yes ......................
12. Serious preventable
Wrong surgery.
Yes ......................
Yes—high cost in
specific circumstances.
Yes—high cost in
specific circumstances.
Yes ......................
Yes—but code is
too broad.
No ........................
event—
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13. Falls .............................................
No—not for all
types of falls.
As stated earlier, we are soliciting
comments on the six conditions we
proposed to include among the initial
hospital-acquired conditions. We
welcome any comments on the clinical
aspects of the conditions and on which
conditions should be selected for
implementation on October 1, 2008. We
also solicit comments on any
problematic issues for specific
conditions that may support not
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No—for all types
of falls.
selecting them as one of the initial
conditions. We encourage comments on
how some of the administrative
problems can be overcome if there is
support for a particular condition.
7. Other Issues
Under section 1886(d)(4)(D)(vi) of the
Act, ‘‘[a]ny change resulting from the
application of this subparagraph shall
not be taken into account in adjusting
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No ........................
Not a CC.
Cannot identify.
the weighting factors under
subparagraph (C)(i) or in applying
budget neutrality under subparagraph
(C)(iii).’’ Subparagraph (C)(i) refers to
DRG classifications and relative
weights. Therefore, the statute requires
the Secretary to continue counting the
conditions selected under section
5001(c) of the DRA as MCCs or CCs
when updating the relative weights
annually. Thus, the higher costs
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associated with a case with a hospitalacquired MCC or CC will continue to be
assigned to the MCC or CC DRG when
calculating the relative weight but
payment will not be made to the
hospital at one of these higher-paying
DRGs. Further, subparagraph (C)(iii)
refers to the budget neutrality
calculations that are done so aggregate
payments do not increase as a result of
changes to DRG classifications and
relative weights. Again, the higher costs
associated with the cases that have a
hospital-acquired MCC or CC will be
included in the budget neutrality
calculation but Medicare will make a
lower payment to the hospital for the
specific case that include an MCC or CC.
Thus, to the extent that the provision
applies and cases with an MCC or CC
are assigned to a lower-paying DRG,
section 5001(c) of the DRA will result in
cost savings to the Medicare program.
We note that the provision will only
apply when the selected conditions are
the only MCCs and CCs present on the
claim. Therefore, if a nonselected MCC
or CC is on the claim, the case will
continue to be assigned to the higher
paying MCC or CC DRG, and there will
be no savings to Medicare from the case.
We believe the provision will apply in
a small minority of cases because it is
rare that one of the selected conditions
will be the only MCC or CC present on
the claim. We provide our estimate of
the savings associated with this
provision in the impact section of this
proposed rule.
G. Proposed Changes to Specific DRG
Classifications
1. Pre-MDC: Intestinal Transplantation
(If you choose to comment on issues
in this section, please include the
caption ‘‘DRGs: Intestinal
Transplantation’’ at the beginning of
your comment.)
In the FY 2005 IPPS final rule (69 FR
48976), we reassigned intestinal
transplant cases from CMS DRG 148
(Major Small and Large Bowel
Procedures with CC) and CMS DRG 149
(Major Small and Large Bowel
Procedures without CC) to CMS DRG
ROPOSED
480 (Liver Transplant and/or Intestinal
Transplantation). In the FY 2006 IPPS
final rule (70 FR 47286), we continued
to evaluate these cases to see if a further
DRG change was warranted. While we
found that intestinal only transplants
and combination liver-intestine
transplants have higher average charges
than other cases in CMS DRG 480, these
cases are extremely rare (there were
only 4 cases in FY 2004) and the
insufficient number of cases does not
warrant creating a separate DRG.
For FY 2008, we examined the
September 2006 update of the FY 2006
MedPAR file and found 1,208 cases
assigned to CMS DRG 480. In the
proposed MS–DRGs described in
section II.C. of the preamble of this
proposed rule, we are proposing to split
CMS DRG 480 into two severity levels:
proposed MS–DRG 005 (Liver
Transplant and/or Intestinal Transplant
with MCC) and proposed MS–DRG 006
(Liver Transplant and/or Intestinal
Transplant without MCC). The
following table displays our results:
MS–DRG
Number of
cases
Proposed MS–DRG
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MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
006—All cases ..............................................................................................................................
006—Intestinal transplant cases only ...........................................................................................
005—All cases ..............................................................................................................................
005—Intestinal transplant cases only ...........................................................................................
005—Intestinal and liver transplant ..............................................................................................
Under the proposed MS–DRGs, 10 of
13 intestinal transplant cases are
assigned to proposed MS–DRG 005
based on the secondary diagnosis of the
patient. The three remaining intestinal
transplant cases do not have an MCC
and would have been assigned to
proposed MS–DRG 006, absent further
changes to the DRG logic. These three
intestinal transplants have average
charges of approximately $354,793 and
an average length of stay of 34 days.
Average charges and length of stay for
these three cases are more comparable
to the average charges of approximately
$243,271 and average length of stay of
40.22 days for all cases assigned to
proposed MS–DRG 005. For this reason,
we are proposing to move all intestinal
transplant cases to proposed MS–DRG
005. As part of this proposal, we would
redefine proposed MS–DRG 005 as
‘‘Liver Transplant with MCC or
Intestinal Transplant.’’ The presence of
a liver transplant with MCC or an
intestinal transplant would assign a case
to the higher severity level. Proposed
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MS–DRG would also be redefined as
‘‘Liver Transplant without MCC.’’
2. MDC 1 (Diseases and Disorders of the
Nervous System)
a. Implantable Neurostimulators
(If you choose to comment on issues
in this section, please include the
caption ‘‘DRGs: Neurostimulators’’ at
the beginning of your comment.)
We received a joint request from three
manufacturers to review the DRG
assignment for cases involving
neurostimulators. The commenters are
concerned that:
<bullet≤ Neurostimulator cases may
be assigned to 30 different DRGs in 12
different MDCs depending upon the
patient’s principal diagnosis.
<bullet≤ Neurostimulator cases
represent a small proportion of the total
cases in their assigned DRG and have
higher costs.
<bullet≤ The 11 new ICD–9–CM codes
created beginning in FY 2007 that
identify pain are assigned to MDC 23
(Factors Influencing Health Status and
PO 00000
Frm 00048
Fmt 4701
Sfmt 4702
446
3
762
9
1
Average
length of
stay
10.05
34
22.25
40.22
56
Average
charges
$129,519
354,793
243,271
460,089
1,179,425
Other Contacts With Health Services)
rather than MDC 1 (Diseases and
Disorders of the Nervous System). The
commenters are concerned that these
pain codes will be a common principal
diagnosis for patients who receive a
neurostimulator and will be assigned to
MDC 23, which contains a wide variety
of dissimilar diagnoses. The new ICD–
9–CM codes are: 338.0 (Central pain
syndrome), 338.11 (Acute pain due to
trauma), 338.12 (Acute postthoracotomy pain), 338.18 (Other acute
postoperative pain), 338.19 (Other acute
pain), 338.21 (Chronic pain due to
trauma), 338.22 (Chronic postthoracotomy pain), 338.28 (Other
chronic postoperative pain), 338.29
(Other chronic pain), 338.3 (Neoplasm
related pain (acute)(chronic)), and 338.4
(Chronic pain syndrome)
The commenters recommended that
we:
<bullet≤ Reroute all spinal and
peripheral neurostimulator cases into a
common set of base DRGs.
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<bullet≤ Reclassify ICD–9–CM pain
codes 338.0 through 338.4 currently
assigned to MDC 23 into MDC 1 when
reported as principal diagnosis.
<bullet≤ Revise surgical CMS DRGs in
MDC 1 based on whether the patient
received a major device.
<bullet≤ Split the single surgical CMS
DRG in MDC 19 (Mental Diseases and
Disorders) and MDC 23 into two CMS
DRGs: one CMS DRG for minor
procedures as defined by CMS DRGs
477 (Non-Extensive O.R. Procedure
Unrelated to Principal Diagnosis) and
CMS DRG 468 (Extensive O.R.
Procedure Unrelated to Principal
Diagnosis) and one CMS DRG for major
procedures.
<bullet≤ Create a new CMS DRG in
MDC 1 for major devices.
The commenters recognize that
implementing a re-routing feature in the
CMS DRG system would be a major
undertaking and, alternatively,
suggested reassigning the pain codes to
MDC 1 as an interim step. We agree
with this suggestion as described further
below. With respect to the suggestion to
split the single surgical CMS DRG in
MDCs 19 and 23 into two CMS DRGs
and create a major device CMS DRG
within MDC 1, we encourage the
commenters to examine the assignment
of neurostimulator cases under the MS–
DRGs to determine whether the changes
we are proposing to adopt to better
recognize severity in the CMS DRG
system would address these concerns.
The implantation of a neurostimulator
requires two types of procedures. First,
the surgeons implant leads containing
electrodes into the targeted section of
the brain, spine, or peripheral nervous
system. Second, a neurostimulator pulse
generator is implanted into the pectoral
region and extensions from the
neurostimulator pulse generator are
tunneled under the skin and connected
with the proximal ends of the leads.
Hospitals stage the two procedures
required for a full system
neurostimulator implant.
There are separate ICD–9–CM
procedure codes that identify the
implant of the leads and the insertion of
the pulse generator. The three codes for
the leads insertion are: 02.93
(Implantation or replacement of
intracranial neurostimulator lead(s));
03.93 (Implantation or replacement of
spinal neurostimulator lead(s)); and
code 04.92 (Implantation or replacement
of peripheral neurostimulator lead(s).
The five codes for the insertion of the
pulse generator are: 86.94 (Insertion or
replacement of single array
neurostimulator pulse generator, not
specified as rechargeable); 86.95
(Insertion or replacement of dual array
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neurostimulator pulse generator, not
specified as rechargeable); 86.96
(Insertion or replacement of other
neurostimulator pulse generator); 86.97
(Insertion or replacement of single array
rechargeable neurostimulator pulse
generator); and 86.98 (Insertion or
replacement of dual array rechargeable
neurostimulator pulse generator).
The patient’s principal diagnosis
determines the MDC assignment.
Implant of a cranial, spinal or peripheral
neurostimulator will result in
assignment of the case to a surgical DRG
within that MDC. Although the
commenters are correct that
neurostimulator cases can potentially be
assigned to many different CMS DRGs
based on the patient’s principal
diagnosis, they also provided data that
showed that nearly 90 percent are
assigned to 6 different CMS DRGs that
cross two MDCs. In MDC 1,
neurostimulator cases are assigned to
four CMS DRGs: CMS DRG 7 (Peripheral
and Cranial Nerve and Other Nervous
System Procedures With CC); CMS DRG
8 (Peripheral and Cranial Nerve and
Other Nervous System Procedures
Without CC); CMS DRG 531 (Spinal
Procedures With CC); and CMS DRG
532 (Spinal Procedures Without CC). In
MDC 8 (Disease and Disorders of the
Musculoskeletal System and Connective
Tissue), neurostimulator cases are
assigned to two CMS DRGs: CMS DRG
499 (Back and Neck Procedures Except
Spinal Fusion With CC); and CMS DRG
500 (Back and Neck Procedures Except
Spinal Fusion Without CC).
With very limited exceptions, such as
tracheostomies and certain types of
transplants, the principal diagnosis is
fundamental to the assignment of a case
to an MDC within the DRG system. By
relying on the patient’s principal
diagnosis, the DRG system will group
together patients who are clinically
similar. For this reason, we are
concerned about adopting the
suggestion that all neurostimulator cases
be rerouted to a common DRG
irrespective of the patient’s principal
diagnosis. We believe such a step would
be fundamentally inconsistent with the
idea of creating common groups of
patients who are clinically similar based
on diagnosis and procedures. For this
reason, we do not believe that a
rerouting step should be adopted that
would group together all
neurostimulator cases.
However, we do agree with the
commenters’ suggestion that the new
ICD–9–CM codes created in FY 2007 for
central and chronic pain syndrome and
chronic pain (codes 338.0, 338.21
through 338.29, and 338.4) should be
assigned to MDC 1 when present as the
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Fmt 4701
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24727
principal diagnosis. The commenters
requested that we reclassify the pain
codes (338.0 through 338.4) from MDC
23 to MDC 1. Our medical consultants
advised that the acute pain codes (codes
338.11 through 338.19) should remain
in MDC 23 because the acute pain is not
a neurological condition. According to
the commenters, the National Center for
Health Statistics’ (NCHS) choice in
locating the pain codes within ICD–9–
CM’s Nervous System chapter has much
clinical validity, particularly for chronic
pain. The commenters further noted that
acute pain is typically self-limited, a
symptomatic response to an immediate
insult that serves the body as a warning
sign. However, chronic pain is
unrelenting and serves no warning or
protective function. It is a disease
process of its own accord, according to
the commenters.
The commenters described pain as
follows. Broadly, there are two main
categories of pain: nociceptive and
neuropathic. Nociceptive pain is caused
by sensory neurons, called nociceptors,
responding to tissue damage. This type
of pain is the body’s normal response to
injury. The pain is usually localized and
time-limited. That is, when the tissue
damage heals, the pain typically
resolves. Acute pain is typically
nociceptive. In general, nociceptive pain
is typically treated with antiinflammatories and, in more severe
cases, with opioids via a morphine
pump for example.
In contrast, neuropathic pain is
caused by malfunctioning or
pathologically altered nervous pathways
stemming from injury to the nervous
system, either as a direct result of
trauma to a nerve (phantom limb
syndrome, reflex sympathetic
dystrophy/complex regional pain
syndrome after injury) or due to other
medical conditions that cause damage to
the nerve such as herpes (postherpetic
neuralgia), diabetes (diabetic
neuropathy), and peripheral vascular
disease (critical limb ischemia). Failed
back surgery syndrome (FBSS) is
another common source of neuropathic
pain. Typically, neuropathic pain is
chronic and may persist for months or
years beyond the healing of damaged
tissue. Because the nerves themselves
have been damaged, neuropathic pain
can be considered its own disease
process. Neuropathic pain may be more
difficult to treat than nociceptive pain
and has been shown to be more
responsive to neurostimulation.
The pain codes, created effective
October 1, 2006, are currently assigned
to MDC 23. The neurostimulator cases
with a principal diagnosis using the
pain codes were assigned to CMS DRG
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461 (O.R. Procedure With Diagnoses of
Other Contact With Health Services) for
the first time in FY 2007. As explained
above, prior to our adoption of the new
pain codes in FY 2007, these cases had
historically been assigned to CMS DRGs
7 and 8 (Peripheral and Cranial Nerve
and Other Nervous System Procedure
With and Without CC, respectively) tin
MDC 1. Adopting the commenters’
recommendation would result in the
neurostimulator cases being assigned to
their historic CMS DRGs.
Our medical officers agree that cases
that use the new pain diagnosis codes
for central and chronic pain syndrome
and chronic pain (codes 338.0, 338.21
through 338.29, and 338.4) as a
principal diagnosis should be assigned
to MDC 1. For this reason, we are
proposing to assign cases with a
principal diagnosis of central pain
syndrome (code 338.0), chronic pain
due to trauma (code 338.21), chronic
post-thoracotomy pain (code 338.22),
other chronic postoperative pain (code
338.28), other chronic pain (code
338.29), or chronic pain syndrome (code
338.4) to MDC 1, although we plan to
monitor their use and may reassign
them if needed.
b. Intracranial Stents
(If you choose to comment on issues
in this section, please include the
caption ‘‘DRGs: Intracranial Stents’’ at
the beginning of your comment.)
Effective October 1, 2004, the ICD–9–
CM Coordination and Maintenance
Committee created procedure code
00.62 (Percutaneous angioplasty or
atherectomy of intracranial vessel(s)). At
the same time, we created code 00.65
(Percutaneous insertion of intracranial
vascular stent(s)). It is our customary
practice to assign new codes to the same
DRG as their predecessor codes. Code
00.62 was removed from code 39.50
(Angioplasty or atherectomy of other
noncoronary vessel(s)), which is
assigned to CMS DRG 533 (Extracranial
Procedures with CC) and CMS DRG 534
(Extracranial Procedures Without CC)
(proposed MS–DRGs 37, 38, and 39
(Extracranial Procedures With MCC,
With CC, and Without CC/MCC,
respectively)) when the patient has
principal diagnosis in MDC 1.
Therefore, we assigned code 00.62 to
CMS DRGs 533 and 534 in MDC 1
beginning in FY 2005. In addition, we
made code 00.65 a non-O.R. procedure
for DRG assignment. We also assigned
code 00.62 to the Non-Covered
Procedure edit of the MCE, as Medicare
had a national noncoverage
determination for intracranial
angioplasty and atherectomy with
stenting.
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Effective November 7, 2006, Medicare
covers percutaneous transluminal
angioplasty (PTA) and stenting of
intracranial arteries for the treatment of
cerebral artery stenosis in cases in
which stenosis is 50 percent or greater
in patients with intracranial
atherosclerotic disease when furnished
in accordance with FDA-approved
protocols governing Category B
Investigational Device Exemption (IDE)
clinical trials. CMS determined that
coverage of intracranial PTA and
stenting is reasonable and necessary
under these circumstances. All other
indications for PTA without stenting to
treat obstructive lesions of the vertebral
and cerebral arteries remain
noncovered. This decision can be found
online in the CMS Coverage Manual:
https://www.cms.hhs.gov/Manuals/IOM/
itemdetail.asp at section 20.7.B.5.
A manufacturer recently met with
CMS to request that code 00.62 be
reassigned to CMS DRGs 1 and 2
(Craniotomy Age ≤ 17 With and Without
CC, respectively) (proposed MS–DRGs
37 (Extracranial Procedures With MCC),
38 (Extracranial Procedures With CC),
and 39 (Extracranial Procedures
Without CC/MCC)) and CMS DRG 543
(Craniotomy with Major Device Implant
or Acute Complex Central Nervous
System Principal Diagnosis) (proposed
MS–DRGs 23 and 24 (Craniotomy With
Major Device Implant or Acute Complex
Central Nervous System Principal
Diagnosis With MCC and Without MCC,
respectively). The manufacturer noted
that other similar endovascular
intracranial procedures that treat a
cerebrovascular blockage are currently
assigned to the craniotomy CMS DRGs.
These endovascular-approach cases
already assigned to the craniotomy CMS
DRGs are identified by procedure codes
39.72 (Endovascular repair or occlusion
of head and neck vessels), 39.74
(Endovascular removal of obstruction
from head and neck vessel(s)), and 39.79
(Other endovascular repair (of
aneurysm) of other vessels). Under the
proposed MS–DRGs, we are proposing
to assign procedure codes 39.72, 39.74,
and 39.79 to MS–DRGs 011 through 013
and MS–DRG 543. Although we are
concerned about the assignment of
additional endovascular procedures to
an open surgical DRG, we agree that
there is clinical consistency between
procedure codes 39.72, 39.74, and 39.79
and procedure code 00.62. For this
reason, we agree that procedure code
00.62 should be assigned to CMS DRGs
1, 2, and 543 (proposed MS–DRGs 37,
38, and 39 and 243 and 24, respectively,
that are divided by the presence or
absence of specific CCs).
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For FY 2008, we are proposing to
remove code 00.62 from CMS DRGs 533
and 534 and assign them to proposed
MS–DRGs 37, 38, and 39, as well as to
proposed MS–DRGs 23 and 24.
In order to assure appropriate DRG
assignment as described above, we are
proposing to make conforming changes
to the MCE by removing code 00.62
from the Non-Covered Procedure edit.
However, as intracranial PTA is only
covered when performed in conjunction
with insertion of a stent, we are
proposing to redefine the edit by
specifying that code 00.62 must be
accompanied by code 00.65
(Percutaneous insertion of intracranial
vascular stent(s)). Should code 00.65 not
be reported on the claim, the case would
fail the MCE edit. For a full discussion
of this proposed change, we refer
readers to the MCE discussion in section
II.F.6. of the preamble of this proposed
rule.
Although we are proposing to assign
endovascular intracranial procedures to
the same DRG as craniotomy, we remain
concerned that endovascular
intracranial procedures are clinically
different than open craniotomy surgical
procedures and may have very different
resource requirements. At the current
time, there are an insufficient number of
cases to warrant creation of a separate
base DRG for endovascular intracranial
procedures. However, we intend to
revisit the assignment of intracranial
endovascular procedures at a later date
when more data are available to analyze
these cases.
3. MDC 3 (Diseases and Disorders of the
Ear, Nose, Mouth, and Throat)—
Cochlear Implants
(If you choose to comment on issues
in this section, please include the
caption ‘‘DRGs: Cochlear Implants’’ at
the beginning of your comment.)
Cochlear implants were first covered
by Medicare in 1986 and were assigned
to CMS DRG 49 (Major Head and Neck
Procedures) in MDC 3 (Diseases and
Disorders of the Ear, Nose, Mouth, and
Throat). CMS DRG 49 is the highest
weighted DRG in that MDC. However,
two manufacturers of cochlear implants
contend that this DRG assignment is
clinically and economically
inappropriate and have requested that
cochlear implant cases be reassigned
from CMS DRG 49 to CMS DRG 543
(Craniotomy With Major Device Implant
or Acute Complex Central Nervous
System Principal Diagnosis).
The manufacturers stated that
procedures assigned to CMS DRG 49 are
performed mostly for diseases such as
head and neck cancers, while
procedures in CMS DRG 543 include
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operations on and inside the skull and
implantation of complex devices,
including intracranial neurostimulators.
The manufacturers described the
cochlear implant procedure as requiring
incisions behind the ear to remove a
section of the temporal bone, followed
by microscopic neurotologic surgery
under general anesthesia, and is
typically completed in 2 to 4 hours to
restore hearing to the profoundly deaf.
For these reasons, these manufacturers
believe cochlear implant procedures are
similar to open craniotomies.
Based on their analysis of the FY 2005
MedPAR data, the manufacturers
identified a total of 139 cochlear
implant cases using ICD–9–CM
procedure codes 20.96 (Implantation or
replacement of cochlear prosthetic
device NOS), 20.97 (Implantation or
replacement of cochlear prosthetic
device, single channel), and 20.98
(Implantation or replacement of
cochlear prosthetic device, multiple
channel). The manufacturers reported
121 out of 139 cochlear implant cases
were assigned to CMS DRG 49 with
average standardized charges of
approximately $58,078.
When we reviewed the FY 2006
MedPAR data, we identified 104
cochlear implant cases assigned to CMS
DRG 49. In the proposed MS–DRGs,
CMS DRG 49 is subdivided into two
severity levels: Proposed MS–DRG 129
(Major Head and Neck Procedures With
CC or MCC) and proposed MS–DRG 130
(Major Head and Neck Procedures
Without CC). The following table
displays our results:
Number of
cases
Proposed MS–DRG
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MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
130—All cases ........................................................................................................................
130—Code 20.96 cases only ..................................................................................................
130—Code 20.97 only ............................................................................................................
130—Code 20.98 only ............................................................................................................
129—All cases ........................................................................................................................
129—Code 20.96 only ............................................................................................................
129—Code 20.97 only ............................................................................................................
129—Code 20.98 only ............................................................................................................
Under the proposed MS–DRGs, 19 out
of 104 cochlear implant cases are
assigned to proposed MS–DRG 129
based on the secondary diagnosis of the
patient. The 85 remaining cochlear
implant cases do not have a CC or MCC
and would be assigned to proposed MS–
DRG 130, absent further changes to the
DRG logic.
The average charges of approximately
$54,238 for cochlear implant cases are
higher than the average charges of
approximately $29,375 for the other
cases in CMS DRG 49. However, the
average charges are not as high as the
average charges of approximately
$78,118 for cases assigned to CMS DRG
543. Further, our medical advisors do
not believe that surgery to implant a
cochlear implant is clinically similar to
an open craniotomy in MDC 1 because
typically a craniotomy involves
removing and then replacing a section
of the skull in order to perform a
procedure on or within the brain,
whereas a cochlear implant involves
drilling a hole in the mastoid bone in
order to insert the implant into the inner
ear.
We have been unable to address this
issue under the current DRGs because
there are not enough inpatient cochlear
implant cases to warrant creation of a
separate DRG. Although these cases will
continue to have higher charges than
other cases in their assigned DRG, we
are proposing to move the cochlear
implant cases to the higher DRG severity
level within CMS DRG 49. As part of
this proposal, we would redefine
proposed MS–DRG 129 as ‘‘Major Head
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and Neck Procedures With CC or MCC
or Major Device’’. The presence of a
major head and neck procedure with a
CC or MCC or major device would
assign the case to the higher severity
level within CMS DRG 49.
4. MDC 8 (Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue)
a. Hip and Knee Replacements
(If you choose to comment on issues
in this section, please include the
caption ‘‘DRGs: Hip and Knee
Replacements’’ at the beginning of your
comment.)
In the FY 2006 IPPS final rule (70 FR
47303), we deleted DRG 209 (Major
Joint and Limb Reattachment
Procedures of Lower Extremity) and
created two new DRGs: 544 (Major Joint
Replacement or Reattachment of Lower
Extremity) and 545 (Revision of Hip or
Knee Replacement). The two new DRGs
were created to identify that revisions of
joint replacement procedures are
significantly more resource intensive
than original hip and knee replacements
procedures. DRG 544 includes the
following procedure code assignments:
<bullet≤ 81.51, Total hip replacement
<bullet≤ 81.52, Partial hip
replacement
<bullet≤ 81.54, Total knee
replacement
<bullet≤ 81.56, Total ankle
replacement
<bullet≤ 84.26, Foot reattachment
<bullet≤ 84.27, Lower leg or ankle
reattachment
<bullet≤ 84.28, Thigh reattachment
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1,095
38
2
45
1,244
10
1
8
Average
length of
stay
3.04
1.63
1.50
1.24
5.35
2.70
5.00
3.13
Average
charges
$23,928
51,740
38,855
50,219
34,169
81,351
95,441
53.510
DRG 545 includes the following
procedure code assignments:
<bullet≤ 00.70, Revision of hip
replacement, both acetabular and
femoral components
<bullet≤ 00.71, Revision of hip
replacement, acetabular component
<bullet≤ 00.72, Revision of hip
replacement, femoral component
<bullet≤ 00.73, Revision of hip
replacement, acetabular liner and/or
femoral head only
<bullet≤ 00.80, Revision of knee
replacement, total (all components)
<bullet≤ 00.81, Revision of knee
replacement, tibial component
<bullet≤ 00.82, Revision of knee
replacement, femoral component
<bullet≤ 00.83, Revision of knee
replacement, patellar component
<bullet≤ 00.84, Revision of knee
replacement, tibial insert (liner)
<bullet≤ 81.53, Revision of hip
replacement, not otherwise specified
<bullet≤ 81.55, Revision of knee
replacement, not otherwise specified
Further, we created a number of new
ICD–9–CM procedure codes effective
October 1, 2005, that better distinguish
the many different types of joint
replacement procedures that are
currently being performed. In the FY
2006 IPPS final rule (70 FR 47305), we
indicated that a commenter had
requested that, once we receive claims
data using the new procedure codes, we
closely examine data from the use of the
codes under the two new DRGs to
determine if future additional DRG
modifications are needed.
Further, the American Association of
Hip & Knee Surgeons (AAHKS)
recommended that we make further
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refinements to the DRGs for knee and
hip arthroplasty procedures. AAHKS
previously presented data to CMS on
the important differences in clinical
characteristics and resource utilization
between primary and revision total joint
arthroplasty procedures. AAHKS stated
that CMS’ decision to create a separate
DRG for revision of total joint
arthroplasty (TJA) in October 2005
resulted in more equitable
reimbursement for hospitals that
perform a disproportionate share of
complex revision of TJA procedures,
recognizing the higher resource
utilization associated with these cases.
AAHKS stated that this important
payment policy change led to increased
access to care for patients with failed
total joint arthroplasties, and ensured
that high volume TJA centers could
continue to provide a high standard of
care for these challenging patients.
AAHKS further stated that the
addition of new, more descriptive ICD–
9–CM diagnosis and procedure codes
for TJA in October 2005 gave it the
opportunity to further analyze
differences in clinical characteristics
and resource intensity among TJA
patients and procedures. Inclusive of
the preparatory work to submit its
recommendations, the AAHKS
compiled, analyzed, and reviewed
detailed clinical and resource utilization
data from over 6,000 primary and
revision TJA procedure codes from 4
high volume joint arthroplasty centers
located within different geographic
regions of the United States: University
of California, San Francisco, CA; Mayo
Clinic, Rochester, MN; Massachusetts
General Hospital, Boston, MA; and the
Hospital for Special Surgery, New York,
NY. Based on its analysis, AAHKS
recommended that CMS examine
Medicare claims data and consider the
creation of separate DRGs for total hip
and total knee arthroplasty procedures.
DRG 545 currently contains revisions of
both hip and knee replacement
procedures. AAHKS stated that based
on the differences between patient
characteristics, procedure
characteristics, resource utilization, and
procedure code payment rates between
total hip and total knee replacements,
separate DRGs were warranted.
Furthermore, AAHKS recommended
that CMS create separate base DRGs for
routine versus complex joint revision or
replacement procedures as shown
below.
Routine Hip Replacements
<bullet≤ 00.73, Revision of hip
replacement, acetabular liner and/or
femoral heal only
<bullet≤ 00.85, Resurfacing hip, total,
acetabulum and femoral head
<bullet≤ 00.86, Resurfacing hip,
partial, femoral head
<bullet≤ 00.87, Resurfacing hip,
partial, acetabulum
<bullet≤ 81.51, Total hip replacement
<bullet≤ 81.52, Partial hip
replacement
<bullet≤ 81.53, Revision of hip
replacement, not otherwise specified
Complex Hip Replacements
<bullet≤ 00.70, Revision of hip
replacement, both acetabular and
femoral components
<bullet≤ 00.71, Revision of hip
replacement, acetabular component
<bullet≤ 00.72, Revision of hip
replacement, femoral component
Routine Knee Replacements and Ankle
Procedures
<bullet≤ 00.83, Revision of knee
replacement, patellar component
<bullet≤ 00.84, Revision of knee
replacement, tibial insert (liner)
<bullet≤ 81.54, Revision of knee
replacement, not otherwise specified
<bullet≤ 81.55, Revision of knee
replacement, not otherwise specified
<bullet≤ 81.56, Total ankle
replacement
Complex Knee Replacements and other
reattachments
<bullet≤ 00.80, Revision of knee
replacement, total (all components)
<bullet≤ 00.81, Revision of knee
replacement, tibial component
<bullet≤ 00.82, Revision of knee
replacement, femoral component
<bullet≤ 84.26, Foot reattachment
<bullet≤ 84.27, Lower leg or ankle
reattachment
<bullet≤ 84.28, Thigh reattachment
AAHKS also recommended the
continuation of DRG 471 (Bilateral or
Multiple Major Joint Procedures of
Lower Extremity) without
modifications. DRG 471 includes any
combination of two or more of the
following procedure codes:
<bullet≤ 00.70, Revision of hip
replacement, both acetabular and
femoral components
<bullet≤ 00.80, Revision of knee
replacement, total (all components)
<bullet≤ 00.85, Resurfacing hip, total,
acetabulum and femoral head
<bullet≤ 00.86, Resurfacing hip,
partial, femoral head
<bullet≤ 00.87, Resurfacing hip,
partial, acetabulum
<bullet≤ 81.51, Total hip replacement
<bullet≤ 81.52, Partial hip
replacement
<bullet≤ 81.54, Total knee
replacement
<bullet≤ 81.56, Total ankle
replacement
As discussed in section II.C. of the
preamble of this proposed rule, we are
proposing to adopt MS–DRGs to better
recognize severity of illness for FY 2008.
The proposed MS–DRGs include two
new severity of illness levels under the
current base DRG 544. We are also
proposing to add three new severity of
illness levels to the base DRG for
Revision of Hip or Knee Replacement
(currently DRG 545). The new MS–
DRGs are as follows:
<bullet≤ Proposed MS–DRG 466
(Revision of Hip or Knee Replacement
with MCC)
<bullet≤ Proposed MS–DRG 467
(Revision of Hip or Knee Replacement
with CC)
<bullet≤ Proposed MS–DRG 468
(Revision of Hip or Knee Replacement
without CC)
<bullet≤ Proposed MS–DRG 483
(Major Joint Replacement or
Reattachment of Lower Extremity with
CC/MCC)
<bullet≤ Proposed MS–DRG 484
(Major Joint Replacement or
Reattachment of Lower Extremity
without CC/MCC)
We found that the proposed MS–
DRGs greatly improved our ability to
identify joint procedures with higher
resource costs. The following table
indicates the average charges for each
new proposed MS–DRG for the joint
procedures.
PROPOSED MS–DRGS THAT REPLACE DRGS 544 AND 535 WITH NEW SEVERITY LEVELS
Number of
cases
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Proposed MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
466
467
468
483
484
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..............................................................................................................................
..............................................................................................................................
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390,344
28,211
26,718
10,078
3,886
E:\FEDREG\03MYP2.LOC
03MYP2
Average
length of stay
4.03
8.46
4.06
6.06
9.55
Average
charges
$33,465.85
53,676.09
38,720.28
48,575.01
69,649.08
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AAHKS analyzed Medicare data
under the current DRG system and was
unaware of how its analysis would
change under the proposed MS–DRGs.
Under the current DRGs, the AAHKS
recommendation would replace 2 DRGs
with 4 new ones. However, under the
proposed MS–DRGs, the AAHKS
recommendation would result in 5
DRGs becoming 12. Because AAHKS is
recommending four new joint
replacement DRGs (two for knees and
two for hips), each would need to be
subdivided into severity levels under
our proposed MS–DRG system.
Therefore, the four new joint DRGs
could be subdivided into three levels
each, leading to 12 new DRGs. At this
time, we believe that the changes we are
proposing to make to adopt the
proposed MS–DRGs are sufficiently
better for recognizing severity of illness
among the hip and knee replacement
cases. We do not believe that there
would be significant improvements in
the proposed MS–DRGs recognition of
severity of illness from creating an
additional 7 DRGs. However, we
acknowledge the valuable assistance the
AAHKS has provided to CMS in
creating the new joint replacement
procedure codes and modifying the joint
replacement DRGs beginning in FY
2006. These efforts greatly improved our
ability to categorize significantly
different groups of patients according to
severity of illness. We welcome
comments from AAHKS on whether the
proposed MS–DRGs recognize patient
complexity and severity of illness in the
hip and knee replacement DRGs
consistent with the concerns it
expressed to us in previous comments.
We also welcome public comments from
others as well on whether the proposed
changes to the hip and knee
replacement DRGs better recognize
severity of illness and complexity of
these operations in the Medicare patient
population.
b. Spinal Fusions
(If you choose to comment on issues
in this section, please include the
caption ‘‘DRGs: Spinal Procedures’’ at
the beginning of your comment.)
In the FY 2007 final rule (71 FR
47947), we discussed a request that
urged CMS to consider applying a
severity concept to all of the back and
spine surgical cases, similar to the
approach that was used in the FY 2006
final rule in refining the cardiac DRGs
with an MCV. Specifically, the
commenter recommended that the use
of spinal devices be uniquely identified
within the spine DRGs. The
commenter’s suggestion involved the
development of 10 new spine DRGs as
well as additional modifications. One of
these modifications included revising
DRG 546 (Spinal Fusions Except
Cervical with Curvature of the Spine or
Malignancy). The commenter stated
DRG 546 did not adequately recognize
clinical severity or the resource
differences among spinal fusion patients
whose surgeries include fusing multiple
levels of their spinal vertebrae.
We agreed with the commenter that it
was important to recognize severity
when classifying groups of patients into
specific DRGs. In addition, in response
to recommendations from MedPAC’s
March 2005 Report to Congress, we
stated that we were conducting a
comprehensive analysis of the entire
DRG system to determine if we could
better identify severity of illness. We
further stated that until results from our
analysis were available, it would be
premature to implement a severity
concept for the spine DRGs. Therefore,
we did not make any adjustments to
those DRGs at that time.
Under the proposed MS–DRGs
described in section II.D. of the
preamble of this proposed rule, we are
proposing a number of refinements that
would better recognize severity for FY
2008. The proposed MS–DRGs include
several refinements to the spine DRGs.
These refinements are described in
detail below.
In the FY 2006 IPPS final rule, we
noted that there are numerous
innovations occurring in spinal surgery
such as artificial spinal disc prostheses,
kyphoplasty, vertebroplasty and the use
of spine decompression devices. As part
of our analysis of the DRG system for
this proposed rule, we did a
comprehensive review of the DRGs for
spinal fusion and other back and neck
procedures to determine whether
additional refinements beyond the
proposed MS–DRGs were necessary. We
studied data from the FY 2006 MedPAR
file for the entire group of spine DRGs.
This group included DRG 496
(Combined Anterior/Posterior Spinal
Fusion), DRGs 497 and 498 (Spinal
Fusion Except Cervical With and
Without CC, respectively), DRGs 499
and 500 (Back and Neck Procedures
Except Spinal Fusion With and Without
CC, respectively), DRGs 519 and 520
(Cervical Spinal Fusion With and
Without CC, respectively), and DRG 546
(Spinal Fusion Except Cervical with
Curvature of the Spine or Malignancy).
As indicated earlier, we are proposing
a two or three-way split for each of these
spine DRGs to better recognize severity
of illness, complexity of service, and
resource utilization. In addition, we
examined the procedure codes that
identify multiple fusion or refusion of
the vertebrae (codes 81.62 through
81.64) to determine if the data
supported further refinement when a
greater number of vertebrae are fused.
In applying the proposed MS–DRG
logic, CMS DRG 497 and 498 were
collapsed and the result is a split with
two severity levels: proposed MS–DRG
459 (Spinal Fusion Except Cervical
With MCC) and proposed MS–DRG 460
(Spinal Fusion Except Cervical Without
MCC). There were a total of 51,667 cases
in proposed MS–DRGs 459 and 460. We
identified 288 cases where nine or more
noncervical vertebrae were fused (code
81.64) that currently are assigned to
proposed MS–DRGs 459 and 460. The
average charges and length of stay for
cases in these MS–DRGs are closer to
the average charges and length of stay
for cases in proposed MS–DRGs 456
through 458 (Spinal Fusion Except
Cervical With Curvature of the Spine or
Malignancy With MCC, With CC, and
Without CC, respectively). For example,
in proposed MS–DRG 460, there were
238 cases with an average length of stay
of 6.20 days and average charges of
$110,908 when nine or more
noncervical vertebrae are fused. There
are an additional 50 cases where nine or
more vertebrae were fused in proposed
MS–DRG 459 with average charges of
$171,839. Without any further
modification to the proposed MS–DRGs,
these cases would be assigned to
proposed MS–DRGs 459 and 460 that
have average charges of $59,698, and
$99,298, respectively. The average
charges for these cases are more
comparable to $142,871, $95,489, and
$77,528, respectively, for proposed MS–
DRGs 456 through 458. We believe these
data support assigning cases where nine
or more noncervical vertebrae are fused
from proposed MS–DRG 459 and 460
into proposed MS–DRG 456 through
458. The table below represents our
findings.
Number of
cases
Proposed MS–DRG
MS–DRG 459 (Spinal Fusion Except Cervical With MCC)—All Cases ..................................................
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3,186
03MYP2
Average
length of
stay
10.10
Average
charges
$99,298
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Number of
cases
Proposed MS–DRG
MS–DRG 459 (Spinal Fusion Except Cervical With MCC)—Cases with Procedure Code 81.64 (Fusion or refusion of 9 or more vertebrae) ..............................................................................................
MS–DRG 460 (Spinal Fusion Except Cervical Without MCC)—All Cases .............................................
MS–DRG 460 (Spinal Fusion Except Cervical Without MCC)—Cases with Procedure Code 81.64
(Fusion or refusion of 9 or more vertebrae) ........................................................................................
MS–DRG 456 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy With
MCC)—All Cases .................................................................................................................................
MS–DRG 456 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy With
MCC)—Cases With Procedure Code 81.64 (Fusion or refusion of 9 or more vertebrae) ..................
MS–DRG 457 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy With
CC)—All Cases ....................................................................................................................................
MS–DRG 457 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy With
CC)—Cases With Procedure Code 81.64 (Fusion or refusion of 9 or more vertebrae) .....................
MS–DRG 458 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy Without
CC—All Cases .....................................................................................................................................
MS–DRG 458 (Spinal Fusion Except Cervical With Curvature of the Spine or Malignancy Without
CC)—Cases With Procedure Code 81.64 (Fusion or refusion of 9 or more vertebrae) .....................
Therefore, we are proposing to move
those cases that include fusing or
refusing nine or more vertebrae from
proposed MS–DRGs 459 and 460 into
proposed MS–DRGs 456 through 458.
This proposed modification would
include revising the MS–DRG title to
reflect the fusion of nine or more
vertebrae. The revised titles for
proposed MS–DRGs 456 through 458
would be as follows:
<bullet≤ Proposed MS–DRG 456
(Spinal Fusion Except Cervical with
Spinal Curvature or Malignancy or 9+
Fusions With MCC)
<bullet≤ Proposed MS–DRG 457
(Spinal Fusion Except Cervical with
Spinal Curvature or Malignancy or 9+
Fusions With CC)
<bullet≤ Proposed MS–DRG 458
(Spinal Fusion Except Cervical with
Spinal Curvature or Malignancy or 9+
Fusions Without CC/MCC)
We invite public comment on this
topic as well as on the additional
changes we are proposing to the spine
MS–DRGs discussed below.
Average
length of
stay
Average
charges
50
48,481
13.00
4.36
171.839
59,698
238
6.20
110,908
548
14.79
142,871
61
13.34
170,655
1,500
8.14
95,489
146
8.88
125,722
1,340
4.58
77,528
81
6.21
123,823
Further analysis demonstrates that
spinal fusion cases with a principal
diagnosis of tuberculosis or
osteomyelitis also have higher average
charges than other cases in CMS DRG
497 (proposed MS–DRGs 459 and 460)
that are more similar to the cases
assigned to CMS DRG 546 (proposed
MS–DRGs 456 through 458). Although
the volume of cases is relatively low, the
data show very high average charges for
these patients. The following tables
display our results:
Number of
cases
Proposed MS–DRG
MS–DRG 459 (Spinal Fusion Except Cervical With MCC) .....................................................................
MS–DRG 460 (Spinal Fusion Except Cervical Without MCC) ................................................................
3,186
48,481
Number of
cases
Proposed MS–DRG
MS–DRG 456 (Spinal Fusion Except Cervical with Spinal Curvature or Malignancy or 9+ Fusions
With MCC) ............................................................................................................................................
MS–DRG 457 (Spinal Fusion Except Cervical with Spinal Curvature or Malignancy or 9+ Fusions
With CC) ...............................................................................................................................................
MS–DRG 458 (Spinal Fusion Except Cervical With Spinal Curvature or Malignancy or 9+ Fusions
Without CC/MCC) ................................................................................................................................
Average
length of
stay
10.10
4.36
Average
length of
stay
Average
charges
$99,298
59,698
Average
charges
548
14.79
$142,870
1,500
8.14
95,489
1,340
4.58
77,528
Tuberculosis and Osteomyelitis
Number of
cases
Principal diagnosis
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Codes 015.02, 015.04, 015.05, 730.08, 730.18 and 730.28 ..................................................................
For this reason, we are proposing to
add the following diagnoses to the
principal diagnosis list for proposed
MS–DRGs 456 through 458:
<bullet≤ 015.02, Tuberculosis of
bones and joints, vertebral column,
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bacteriological or histological
examination unknown (at present)
<bullet≤ 015.04, Tuberculosis of
bones and joints, vertebral column,
tubercle bacilli not found (in sputum)
by microscopy, but found by bacterial
culture
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194
Average
length of
stay
24.8
Average
charges
$128,073
<bullet≤ 015.05, Tuberculosis of
bones and joints, vertebral column,
tubercle bacilli not found by
bacteriological examination, but
tuberculosis confirmed histologically
<bullet≤ 730.08, Acute osteomyelitis
of other specified sites
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<bullet≤ 730.18, Chronic
osteomyelitis of other specified sites
<bullet≤ 730.28, Unspecified
osteomyelitis of other specified sites
For the complete list of principal
diagnosis codes that lead to assignment
of CMS DRG 546 (proposed MS–DRGs
496 through 498), we refer readers to
section II.D.4.b. of the preamble of the
FY 2007 IPPS final rule (71 FR 47947).
c. Spinal Disc Devices
Over the past several years,
manufacturers of spinal disc devices
have requested reassignment of DRGs
for their products and applied for new
technology add-on payments.
CHARITETM is one of these devices.
CHARITETM is a prosthetic
intervertebral disc. On October 26, 2004,
the FDA approved the CHARITETM
Artificial Disc for single level spinal
arthroplasty in skeletally mature
patients with degenerative disc disease
between L4 and S1. On October 1, 2004,
we created new procedure codes for the
insertion of spinal disc prostheses
(codes 84.60 through 84.69). We
provided the CMS DRG assignments for
these new codes in Table 6B of the FY
2005 IPPS proposed rule (69 FR 28673).
We received comments on the FY 2005
proposed rule recommending that we
change the assignments for these codes
from CMS DRG 499 (Back and Neck
Procedures Except Spinal Fusion With
CC) and CMS DRG 500 (Back and Neck
Procedures Except Spinal Fusion
Without CC) to the CMS DRGs for spinal
fusion, CMS DRG 497 (Spinal Fusion
Except Cervical With CC) and CMS DRG
498 (Spinal Fusion Except Cervical
Without CC) for procedures on the
lumbar spine and to CMS DRGs 519 and
520 for procedures on the cervical
spine. In the FY 2005 IPPS final rule (69
FR 48938), we indicated that CMS DRGs
497 and 498 are limited to spinal fusion
procedures. Because the surgery
involving the CHARITETM Artificial
Disc is not a spinal fusion, we decided
not to include this procedure in these
CMS DRGs. However, we stated that we
would continue to analyze this issue
and solicited further public comments
on the DRG assignment for spinal disc
prostheses.
In the FY 2006 final rule (70 FR
47353), we noted that, if a product
meets all of the criteria for Medicare to
pay for the product as a new technology
under section 1886(d)(5)(K) of the Act,
there is a clear preference expressed in
the statute for us to assign the
technology to a DRG based on similar
clinical or anatomical characteristics or
costs. However, for FY 2006, we did not
find that the CHARITETM Artificial Disc
met the substantial clinical
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improvement criterion and, thus, did
not qualify as a new technology.
Consequently, we did not address the
DRG classification request made under
the authority of this provision of the
Act.
We did evaluate whether to reassign
the CHARITETM Artificial Disc to
different CMS DRGs using the
Secretary’s authority under section
1886(d)(4) of the Act (70 FR 47308). We
indicated that we did not have Medicare
charge information to evaluate CMS
DRG changes for cases involving an
implant of a prosthetic intervertebral
disc like the CHARITETM and did not
make a change in its CMS DRG
assignments. We stated that we would
consider whether changes to the CMS
DRG assignments for the CHARITETM
Artificial Disc were warranted for FY
2007, once we had information from
Medicare’s data system that would
assist us in evaluating the costs of these
patients.
As we discussed in the FY 2007 IPPS
proposed rule (71 FR 24036), we
received correspondence regarding the
CMS DRG assignments for the
CHARITETM Artificial Disc, code 84.65
(Insertion of total spinal disc prosthesis,
lumbosacral). The commenter had
previously submitted an application for
the CHARITETM Artificial Disc for new
technology add-on payments for FY
2006 and had requested a reassignment
of cases involving CHARITETM
implantation to CMS DRGs 497 and 498.
The commenter asked that we examine
claims data for FY 2005 and reassign
procedure code 84.65 from CMS DRGs
499 and 500 into CMS DRGs 497 and
498. The commenter again stated the
view that cases with the CHARITETM
Artificial Disc reflect comparable
resource use and similar clinical
indications as do those in CMS DRGs
497 and 498. If CMS were to reject
reassignment of the CHARITETM
Artificial Disc to CMS DRGs 497 and
498, the commenter suggested creating
two separate DRGs for lumbar disc
replacements.
On February 15, 2006, we posted a
proposed national coverage
determination (NCD) on the CMS Web
site seeking public comment on our
proposed finding that the evidence is
not adequate to conclude that lumbar
artificial disc replacement with the
CHARITETM Artificial Disc is reasonable
and necessary. The proposed NCD
stated that lumbar artificial disc
replacement with the CHARITETM
Artificial Disc is generally not indicated
in patients over 60 years old. Further, it
stated that there is insufficient evidence
among either the aged or disabled
Medicare population to make a
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reasonable and necessary determination
for coverage. With an NCD pending to
make spinal arthroplasty with the
CHARITETM Artificial Disc noncovered,
we indicated in the FY 2007 IPPS
proposed rule that we did not believe it
was appropriate at that time to reassign
procedure code 84.65 from CMS DRGs
499 and 500 to CMS DRGs 497 and 498.
After considering the public
comments and additional evidence
received, we made a final NCD on May
16, 2006, that Medicare would not cover
the CHARITETM Artificial Disc for the
Medicare population over 60 years of
age. For Medicare beneficiaries 60 years
of age and under, local Medicare
contractors have the discretion to
determine coverage for lumbar artificial
disc replacement procedures involving
the CHARITETM Artificial Disc. The
final NCD can be found on the CMS
Web site at: https://www.cms.hhs.gov/
mcd/ viewncd.asp:ncd-id 150.10&ncd—
version1& basket=ncd%3A150
%2E10%3A1%3ALumbar+
Artificial+Disc+Replacement
%280ADR%29.
We agreed with a commenter on the
FY 2007 IPPS proposed rule that it was
not appropriate to consider a DRG
revision at that time for the CHARITETM
Artificial Disc, given the recent decision
to limit coverage for surgical procedures
involving this device. Although we had
reviewed the Medicare charge data, we
were concerned that there were a very
small number of cases for patients under
60 years of age who had received the
CHARITETM Artificial Disc. We believed
it appropriate to base the decision of a
DRG change on charge data only on the
population for which the procedure is
covered. We had an extremely small
number of cases for Medicare
beneficiaries under 60 on which to base
such a decision. For this reason, we did
not believe it was appropriate to modify
the CMS DRGs in FY 2007 for
CHARITETM cases.
For FY 2008, we collapsed CMS DRGs
499 and 500 (Back and Neck Procedures
Except Spinal Fusion With and Without
CC, respectively) and identified a total
of 74,989 cases. Under the proposed
MS–DRGs, the result of the analysis of
the data supports that these CMS DRGs
split into two severity levels: proposed
MS–DRG 490 (Back and Neck
Procedures Except Spinal Fusion with
CC or MCC) and proposed MS–DRG 491
(Back and Neck Procedures Except
Spinal Fusion Without CC or MCC). We
found a total of 53 cases that used the
CHARITETM Artificial Disc. Without any
further modification to the proposed
MS–DRGs, average charges are $26,481
for 6 cases with a CC or MCC and
$37,324 for 47 CHARITETM cases
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without a CC or MCC. (We find it
counterintuitive that average charges for
cases in the higher severity level are
lower but checked our data and found
it to be correct).
We also analyzed data for other spinal
disc devices. Average charges for the X
Stop Interspinous Process
Decompression Device (code 84.58) are
$31,400 for cases with a CC or MCC and
$28,821 for cases without a CC or MCC.
Average charges for other specified
spinal devices described by code 84.59
(Coflex, Dynesys, M-Brace) are $34,002
for 18 cases with a CC or MCC and
$33,873 for 65 cases without a CC or
MCC. We compared these average
charges to data in the proposed spinal
fusion MS–DRGs 453 (Combined
Anterior/Posterior Spinal Fusion With
MCC), 454 (Combined Anterior/
Posterior Spinal Fusion With CC), 455
(Combined Anterior/Posterior Spinal
Fusion Without CC/MCC), 459 (Spinal
Fusion Except Cervical With MCC), and
460 (Spinal Fusion Except Cervical
Without MCC). These cases have lower
average charges than the spinal fusion
MS–DRGs. The following tables display
the results:
Number of
cases
Proposed MS–DRGs 490 and 491
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
490—All Cases .......................................................................................................................
490—Cases with Procedure Code 84.65 (CHARITETM) ........................................................
491—All Cases .......................................................................................................................
491—Cases with Procedure Code 84.65 (CHARITETM) ........................................................
491—Cases without Procedure Code 84.65 (CHARITETM) ...................................................
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
490—All Cases .......................................................................................................................
490—Cases with Procedure Code 84.58 (X Stop) .................................................................
490—Cases without Procedure Code 84.58 (X Stop) ............................................................
491—All Cases .......................................................................................................................
491—Cases with Procedure Code 84.58 (X Stop) .................................................................
491—Cases without Procedure Code 84.58 (X-Stop) ............................................................
490—All Cases .......................................................................................................................
490—Cases with Procedure Code 84.59 (Coflex/Dynesys/M-Brace) ....................................
490—Cases without Procedure Code 84.59 (Coflex/Dynesys/M-Brace) ...............................
491—All Cases .......................................................................................................................
491—Cases with Procedure Code 84.59 (Coflex/Dynesys/M-Brace) ....................................
491—Cases without Procedure Code 84.59 (Coflex/Dynesys/M-Brace) ...............................
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MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
453—Combined Anterior/Posterior Spinal Fusion With MCC ................................................
454—Combined Anterior/Posterior Spinal Fusion With CC ...................................................
455—Combined Anterior/Posterior Spinal Fusion Without CC/MCC .....................................
459—Spinal Fusion Except Cervical with MCC .....................................................................
460—Spinal Fusion Except Cervical Without MCC ................................................................
The data demonstrate that the average
charges for CHARITETM and the other
devices are higher than other cases in
proposed MS–DRGs 490 and 491 but
lower than proposed MS–DRGs 453
through 55 and 459 and 460. For this
reason, we do not believe that any of the
cases that use these spine devices
should be assigned to the spinal fusion
MS–DRGs. However, we do believe that
the average charges for cases using these
spine devices are more similar to the
higher severity level in MS–DRG 490.
As such, we are proposing to move
cases with procedure codes 84.58,
84.59, and 84.65 into proposed MS–
DRG 490 and revise the title to reflect
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disc devices. The proposed modified
MS–DRG title would be: MS–DRG 490
(Back and Neck Procedures Except
Spinal Fusion with CC or MCC or Disc
Devices).
We believe these proposed changes to
the spine DRGs are appropriate to
recognize the similar utilization of
resources, differences in levels of
severity, and complexity of the services
performed for various types of spinal
procedures described above. We
encourage commenters to provide input
on this approach to better recognize the
types of patients these procedures are
being performed upon and their
outcomes.
PO 00000
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Average
length of
stay
5.13
2.65
5.15
2.27
1.34
2.29
Average
length of
stay
17,493
18
17,475
57,496
65
57,431
Number of
cases
Proposed MS–DRGs 453, 454, 455, 459 and 460
5.13
3.33
2.27
2.43
2.27
17,493
179
17,314
57,496
1,174
56,322
Number of
cases
Proposed MS–DRGs 490 and 491
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
17,493
6
57,496
47
57,449
Number of
cases
Proposed MS–DRGs 490 and 491
Average
length of
stay
5.13
5.56
5.13
2.27
2.35
2.27
Average
length of
stay
792
1,411
1,794
3,186
48,481
15.84
8.69
4.84
10.10
4.36
Average
charges
$29,656
26,481
17,789
37,324
17,773
Average
charges
$29,656
31,400
29,638
17,789
28,821
17,559
Average
charges
$29,656
34,002
29,651
17,789
33,873
17,770
Average
charges
$180,658
116,402
85,927
99,298
59,698
d. Other Spinal DRGs
We did not identify any data to
support moving cases in or out of CMS
DRGs 496 (Combined Anterior/Posterior
Spinal Fusion), 519 (Cervical Spinal
Fusion With CC), or 520 (Cervical
Spinal Fusion Without CC)). Under the
proposed MS–DRG system, CMS DRG
496 would be split into three severity
levels: proposed MS–DRG 453
(Combined Anterior/Posterior Spinal
Fusion With MCC), proposed MS–DRG
454 (Combined Anterior/Posterior
Spinal Fusion With CC), and proposed
MS–DRG 455 (Combined Anterior/
Posterior Spinal Fusion Without CC).
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CMS DRG 519 would also be split into
three severity levels: proposed MS–DRG
471 (Cervical Fusion With MCC),
proposed MS–DRG 472 (Cervical Fusion
With CC), and proposed MS–DRG 473
(Cervical Fusion Without CC). We are
not proposing changes to these DRGs at
this time.
5. MDC 17 (Myeloproliferative Diseases
and Disorders, Poorly Differentiated
Neoplasm): Endoscopic Procedures
(If you choose to comment on issues
in this section, please include the
caption ‘‘DRGs: Endoscopy’’ at the
beginning of your comment.)
We received a request from a
manufacturer to review the DRG
assignment of codes 33.71 (Endoscopic
insertion or replacement of bronchial
valve(s)), 33.78 (Endoscopic removal of
bronchial device(s) or substances), and
33.79 (Endoscopic insertion of other
bronchial device or substances) with the
intent of moving these three codes out
of CMS DRG 412 (History of Malignancy
With Endoscopy) (proposed MS–DRGs
843, 844, and 845). The requestor has
noted that CMS DRG 412 is titled to be
a DRG for cases with a history of
malignancy, and none of the three codes
(33.71, 33.78, or 33.79) necessarily
involve treatment for malignancies. In
addition, the requestor believed the
integrity of the DRG is compromised
because the other endoscopy codes
assigned to CMS DRG 412 are all
diagnostic in nature, while codes 33.71,
33.78, and 33.79 represent therapeutic
procedures.
The requestor also stated that while
the diagnostic endoscopies in CMS DRG
412 do not have significant costs for
equipment or pharmaceutical agents
beyond the basic endoscopy, the
therapeutic procedures described by
codes 33.71, 33.78, and 33.79 involve
substantial costs for devices or
substances in relation to the cost of the
endoscopic procedure itself. The
requestor was concerned that, if these
three codes continue to be assigned to
CMS DRG 412, payment will be so
inadequate as to constitute a substantial
barrier to Medicare beneficiaries for
these treatments.
ICD–9–CM procedure codes 33.71,
33.78, and 33.79 were all created for use
beginning October 1, 2006. As these
codes have been in use only for a few
months, we have no data to make a
different DRG assignment. We assigned
these codes based on the advice of our
medical officers to a DRG that includes
similar clinical procedures.
On the matter of codes 33.71, 33.78,
and 33.79 being therapeutic in nature
while all other endoscopies assigned to
CMS DRG 412 are diagnostic, we
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disagree with the commenter. CMS DRG
412 includes procedure codes for
therapeutic endoscopic destruction of
lesions of the bronchus, lung, stomach,
anus, and duodenum, as well as codes
for polypectomy of the intestine and
rectum. In addition, we note that there
are codes for insertion of therapeutic
devices currently located in this DRG.
We believe it would be premature to
assign these codes to another DRG
without any supporting data. We will
reconsider our decision for these codes
if we have data suggesting that a DRG
reassignment is warranted. Therefore,
aside from the proposed changes to the
MS–DRGs, we are not proposing to
change the current DRG assignment for
codes 33.71, 33.78, and 33.79 at this
time.
6. Medicare Code Editor (MCE) Changes
(If you choose to comment on issues
in this section, please include the
caption ‘‘Medicare Code Editor’’ at the
beginning of your comment.)
As explained under section II.B.1. of
this preamble, the Medicare Code Editor
(MCE) is a software program that detects
and reports errors in the coding of
Medicare claims data. Patient diagnoses,
procedure(s), discharge status, and
demographic information go into the
Medicare claims processing systems and
are subjected to a series of automated
screens. The MCE screens are designed
to identify cases that require further
review before classification into a DRG.
For FY 2008, we are proposing to
make the following changes to the MCE
edits.
a. Non-Covered Procedure Edit: Code
00.62 (Percutaneous angioplasty or
atherectomy of intracranial vessel(s))
As discussed in II.G.2. of the
preamble of this proposed rule, under
MDC 1, code 00.62 is a covered service
when performed in conjunction with
code 00.65 (Percutaneous insertion of
intracranial vascular stent(s)). Effective
November 6, 2006, Medicare covers
PTA and stenting of intracranial arteries
for the treatment of cerebral artery
stenosis in cases in which stenosis is 50
percent or greater in patients with
intracranial atherosclerotic disease
when furnished in accordance with the
FDA-approved protocols governing
Category B Investigational Device
Exemption (IDE) clinical trials. CMS
determines that coverage of intracranial
PTA and stenting is reasonable and
necessary under these circumstances.
Therefore, we are proposing to make a
conforming change and to add the
following language to this edit:
Procedure code 00.62 (PTA of
intracranial vessel(s)) is identified as a
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noncovered procedure except when it is
accompanied by procedure code 00.65
(Intracranial stent).
b. Non-Specific Principal Diagnosis Edit
7 and Non-Specific O.R. Procedures Edit
10
When MCE Non-Specific Principal
Diagnosis Edit 7 and Non-Specific O.R.
Procedures Edit 10 were created at the
beginning of the IPPS, it was with the
intent that they were to encourage
hospitals to code as specifically as
possible. While the codes on both edits
are valid according to the ICD–9–CM
coding scheme, more precise codes are
preferable to give a more complete
understanding of the services provided
on the Medicare claims. When the MCE
was created, we had intended that these
specific edits would allow educational
contact between the provider and the
contractor. It was never the intention
that these edits would be used to deny/
reject or return-to-provider claims
submitted with non-specific codes.
However, we found these two edits to be
misunderstood, and found that claims
were erroneously being denied, rejected,
or returned. On November 11, 2006,
CMS issued a Joint Signature
Memorandum which instructed all
fiscal intermediaries and all Part A and
Part B Medicare Administrative
Contractors (A/B MACs) to deactivate
the Fiscal Intermediary Shared System
Edits W1436 through W1439 and
W1489 through W1491 which edited for
Non-Specific Diagnoses and the NonSpecific Procedures.
Therefore, we are proposing to make
a conforming change to the MCE by
removing the following codes from Edit
7:
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0538
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In addition, we are proposing to make
a conforming change to the MCE by
removing the following codes from Edit
10:
0650
0700
0763
0769
0780
2630
3500
3510
3520
3550
3560
3570
3610
3710
7670
7700
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7850
7870
3770
3800
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3880
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7880
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7990
8000
8010
8020
8040
4400
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4590
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5310
5640
7550
8070
8080
8090
8100
8120
8130
8153
8155
8400
8440
8460
8469
8660
8670
c. Limited Coverage Edit 17
Edit 17 in the MCE contains ICD–9–
CM procedure codes describing
medically complex procedures,
including lung volume reduction
surgery, organ transplants, and
implantable heart assist devices which
are to be performed only in certain
preapproved medical centers. CMS has
established, through a regulation (CMS–
3835–F: Medicare Conditions of
Participation: Requirements for
Approval and Reapproval of Transplant
Centers to Perform Organ Transplants,
published in the Federal Register on
March 30, 2007 (72 FR 15198)), a survey
and certification process for organ
transplant programs. The organs
covered in this regulation are heart,
heart and lung combined, intestine,
kidney, liver, lung, pancreas, and
multivisceral. Historically, kidney
transplants have been regulated under
the End-Stage Renal Disease (ESRD)
conditions for coverage. Other types of
organ transplant facilities have been
regulated under various NCDs.
The regulation becomes effective on
June 28, 2007. Organ transplant
programs will have 180 days from the
June 28, 2007 effective date of the
regulation to apply for participation in
the Medicare program under the new
survey and certification process. After
these programs apply, we will survey
and approve programs that meet the
new Medicare conditions of
participation. Until transplant facilities
are surveyed and approved, kidney
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transplant facilities will continue to be
regulated under the ESRD conditions for
coverage, and other types of organ
transplant facilities will continue to be
regulated under the NCDs.
In this proposed rule, we are
proposing to add conforming Medicare
Part A payment edits to the MCE,
consistent with the requirements of the
organ transplant regulation (CMS–3835–
F), to ensure that Medicare covers only
those organ transplants performed in
Medicare-approved facilities. We are
proposing to add the following
procedure codes to the existing list of
limited coverage procedures under Edit
17:
<bullet≤ 55.69, Other kidney
transplantation
<bullet≤ 52.80, Pancreatic transplant,
not otherwise specified
<bullet≤ 52.82, Homotransplant of
pancreas
7. Surgical Hierarchies
(If you choose to comment on issues
in this section, please include the
caption ‘‘Surgical Hierarchies’’ at the
beginning of your comment.)
Some inpatient stays entail multiple
surgical procedures, each one of which,
occurring by itself, could result in
assignment of the case to a different
DRG within the MDC to which the
principal diagnosis is assigned.
Therefore, it is necessary to have a
decision rule within the GROUPER by
which these cases are assigned to a
single DRG. The surgical hierarchy, an
ordering of surgical classes from most
resource-intensive to least resourceintensive, performs that function.
Application of this hierarchy ensures
that cases involving multiple surgical
procedures are assigned to the DRG
associated with the most resourceintensive surgical class.
Because the relative resource intensity
of surgical classes can shift as a function
of DRG reclassification and
recalibrations, we reviewed the surgical
hierarchy of each MDC, as we have for
previous reclassifications and
recalibrations, to determine if the
ordering of classes coincides with the
intensity of resource utilization.
A surgical class can be composed of
one or more DRGs. For example, in
MDC 11, the surgical class ‘‘kidney
transplant’’ consists of a single DRG
(DRG 302) and the class ‘‘kidney, ureter
and major bladder procedures’’ consists
of three DRGs (DRGs 303, 304, and 305).
Consequently, in many cases, the
surgical hierarchy has an impact on
more than one DRG. The methodology
for determining the most resourceintensive surgical class involves
weighting the average resources for each
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DRG by frequency to determine the
weighted average resources for each
surgical class. For example, assume
surgical class A includes DRGs 1 and 2
and surgical class B includes DRGs 3, 4,
and 5. Assume also that the average
charge of DRG 1 is higher than that of
DRG 3, but the average charges of DRGs
4 and 5 are higher than the average
charge of DRG 2. To determine whether
surgical class A should be higher or
lower than surgical class B in the
surgical hierarchy, we would weight the
average charge of each DRG in the class
by frequency (that is, by the number of
cases in the DRG) to determine average
resource consumption for the surgical
class. The surgical classes would then
be ordered from the class with the
highest average resource utilization to
that with the lowest, with the exception
of ‘‘other O.R. procedures’’ as discussed
below.
This methodology may occasionally
result in assignment of a case involving
multiple procedures to the lowerweighted DRG (in the highest, most
resource-intensive surgical class) of the
available alternatives. However, given
that the logic underlying the surgical
hierarchy provides that the GROUPER
search for the procedure in the most
resource-intensive surgical class, in
cases involving multiple procedures,
this result is sometimes unavoidable.
We note that, notwithstanding the
foregoing discussion, there are a few
instances when a surgical class with a
lower average charge is ordered above a
surgical class with a higher average
charge. For example, the ‘‘other O.R.
procedures’’ surgical class is uniformly
ordered last in the surgical hierarchy of
each MDC in which it occurs, regardless
of the fact that the average charge for the
DRG or DRGs in that surgical class may
be higher than that for other surgical
classes in the MDC. The ‘‘other O.R.
procedures’’ class is a group of
procedures that are only infrequently
related to the diagnoses in the MDC, but
are still occasionally performed on
patients in the MDC with these
diagnoses. Therefore, assignment to
these surgical classes should only occur
if no other surgical class more closely
related to the diagnoses in the MDC is
appropriate.
A second example occurs when the
difference between the average charges
for two surgical classes is very small.
We have found that small differences
generally do not warrant reordering of
the hierarchy because, as a result of
reassigning cases on the basis of the
hierarchy change, the average charges
are likely to shift such that the higherordered surgical class has a lower
average charge than the class ordered
below it.
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For FY 2008, we are not proposing
any revisions of the surgical hierarchy
for any MDC. In general, the MS–DRGs
that are being proposed for use in FY
2008 and discussed in section II.D. of
the preamble of this proposed rule
follow the same hierarchical order as
the CMS DRGs they are to replace,
except for DRGs that were deleted and
consolidated.
8. CC Exclusion List Proposed for FY
2008
(If you choose to comment on issues
in this section, please include the
caption ‘‘CC Exclusion List’’ at the
beginning of your comment.)
a. Background
As indicated earlier in this preamble,
under the IPPS DRG classification
system, we have developed a standard
list of diagnoses that are considered
complications or comorbidities (CCs).
Historically, we developed this list
using physician panels that classified
each diagnosis code based on whether
the diagnosis, when present as a
secondary condition, would be
considered a substantial complication or
comorbidity. A substantial complication
or comorbidity was defined as a
condition that, because of its presence
with a specific principal diagnosis,
would cause an increase in the length of
stay by at least 1 day in at least 75
percent of the patients. We refer readers
to section II.D.2. and 3. of the preamble
of this proposed rule for a discussion of
the refinement of CCs in relation to the
MS–DRGs we are proposing to adopt for
FY 2008.
b. Proposed CC Exclusions List for FY
2008
In the September 1, 1987 final notice
(52 FR 33143) concerning changes to the
DRG classification system, we modified
the GROUPER logic so that certain
diagnoses included on the standard list
of CCs would not be considered valid
CCs in combination with a particular
principal diagnosis. We created the CC
Exclusions List for the following
reasons: (1) To preclude coding of CCs
for closely related conditions; (2) to
preclude duplicative or inconsistent
coding from being treated as CCs; and
(3) to ensure that cases are appropriately
classified between the complicated and
uncomplicated DRGs in a pair. As we
indicated above, we developed a list of
diagnoses, using physician panels, to
include those diagnoses that, when
present as a secondary condition, would
be considered a substantial
complication or comorbidity. In
previous years, we have made changes
to the list of CCs, either by adding new
CCs or deleting CCs already on the list.
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In the May 19, 1987 proposed notice
(52 FR 18877) and the September 1,
1987 final notice (52 FR 33154), we
explained that the excluded secondary
diagnoses were established using the
following five principles:
<bullet≤ Chronic and acute
manifestations of the same condition
should not be considered CCs for one
another.
<bullet≤ Specific and nonspecific
(that is, not otherwise specified (NOS))
diagnosis codes for the same condition
should not be considered CCs for one
another.
<bullet≤ Codes for the same condition
that cannot coexist, such as partial/total,
unilateral/bilateral, obstructed/
unobstructed, and benign/malignant,
should not be considered CCs for one
another.
<bullet≤ Codes for the same condition
in anatomically proximal sites should
not be considered CCs for one another.
<bullet≤ Closely related conditions
should not be considered CCs for one
another.
The creation of the CC Exclusions List
was a major project involving hundreds
of codes. We have continued to review
the remaining CCs to identify additional
exclusions and to remove diagnoses
from the master list that have been
shown not to meet the definition of a
CC.14
For FY 2008, we are proposing to
make limited revisions to the CC
Exclusions List to take into account the
changes that will be made in the ICD–
14 See the FY 1989 final rule (53 FR 38485,
September 30, 1988), for the revision made for the
discharges occurring in FY 1989; the FY 1990 final
rule (54 FR 36552, September 1, 1989), for the FY
1990 revision; the FY 1991 final rule (55 FR 36126,
September 4, 1990), for the FY 1991 revision; the
FY 1992 final rule (56 FR 43209, August 30, 1991)
for the FY 1992 revision; the FY 1993 final rule (57
FR 39753), September 1, 1992), for the FY 1993
revision; the FY 1994 final rule (58 FR 46278,
September 1, 1993), for the FY 1994 revisions; the
FY 1995 final rule (59 FR 45334, September 1,
1994), for the FY 1995 revisions; the FY 1996 final
rule (60 FR 45782, September 1, 1995), for the FY
1996 revisions; the FY 1997 final rule (61 FR 46171,
August 30, 1996), for the FY 1997 revisions; the FY
1998 final rule (62 FR 45966, August 29, 1997) for
the FY 1998 revisions; the FY 1999 final rule (63
FR 40954, July 31, 1998), for the FY 1999 revisions;
the FY 2001 final rule (65 FR 47064, August 1,
2000), for the FY 2001 revisions; the FY 2002 final
rule (66 FR 39851, August 1, 2001), for the FY 2002
revisions; the FY 2003 final rule (67 FR 49998,
August 1, 2002), for the FY 2003 revisions; the FY
2004 final rule (68 FR 45364, August 1, 2003), for
the FY 2004 revisions; the FY 2005 final rule (69
FR 49848, August 11, 2004), for the FY 2005
revisions; the FY 2006 final rule (70 FR 47640,
August 12, 2005), for the FY 2006 revisions; and the
FY 2007 final rule (71 FR 47870) for the FY 2007
revisions. In the FY 2000 final rule (64 FR 41490,
July 30, 1999), we did not modify the CC Exclusions
List because we did not make any changes to the
ICD–9–CM codes for FY 2000.
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9–CM diagnosis coding system effective
October 1, 2007. (See section II.G.10. of
this preamble for a discussion of ICD–
9–CM changes.) We are proposing to
make these changes in accordance with
the principles established when we
created the CC Exclusions List in 1987.
In addition, as discussed in section
II.D.3. of the preamble of this proposed
rule, we are proposing to indicate on the
CC Exclusion List some updates to
reflect the proposed exclusion of a few
codes from being an MCC under the
MS–DRG system that we are proposing
to adopt for FY 2008.
Table 6I (which is available through
the Internet on the CMS Web site at:
https://www.cms.hhs.gov/
AcuteInpatientPPS) contains the
complete CC Exclusions List that will be
effective for discharges occurring on or
after October 1, 2007. Table 6I shows
the principal diagnoses for which there
is a CC exclusion. Each of these
principal diagnoses is shown with an
asterisk, and the conditions that will not
count as a CC, are provided in an
indented column immediately following
the affected principal diagnosis. Tables
6G and 6H, Additions to and Deletions
from the CC Exclusion List,
respectively, are also available through
the Internet on the CMS Web site at:
https://www.cms.hhs.gov/
AcuteInpatientPPS.)
Beginning with discharges on or after
October 1, 2007, the indented diagnoses
will not be recognized by the GROUPER
as valid CCs for the asterisked principal
diagnosis.
Alternatively, the complete
documentation of the GROUPER logic,
including the current CC Exclusions
List, is available from 3M/Health
Information Systems (HIS), which,
under contract with CMS, is responsible
for updating and maintaining the
GROUPER program. The current DRG
Definitions Manual, Version 24.0, is
available for $225.00, which includes
$15.00 for shipping and handling.
Version 25.0 of this manual, which will
include the final FY 2008 DRG changes,
will be available in hard copy for
$250.00. Version 25.0 of the manual is
also available on a CD for $200.00; a
combination hard copy and CD is
available for $400.00. These manuals
may be obtained by writing 3M/HIS at
the following address: 100 Barnes Road,
Wallingford, CT 06492; or by calling
(203) 949–0303. Please specify the
revision or revisions requested.
9. Review of Procedure Codes in CMS
DRGs 468, 476, and 477
Each year, we review cases assigned
to CMS DRG 468 (Extensive O.R.
Procedure Unrelated to Principal
Diagnosis), CMS DRG 476 (Prostatic
O.R. Procedure Unrelated to Principal
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Diagnosis), and CMS DRG 477
(Nonextensive O.R. Procedure Unrelated
to Principal Diagnosis) to determine
whether it would be appropriate to
change the procedures assigned among
these CMS DRGs. Under the MS–DRGs
that we are proposing to adopt for FY
2008, discussed in section II.D. of the
preamble of this proposed rule, CMS
DRG 468 would have a three-way split
and would become proposed MS–DRGs
981, 982, and 983 (Extensive O.R.
Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and
without CC/MCC). CMS DRG 476 would
become proposed MS–DRGs 984, 985,
and 986 (Prostatic O.R. Procedure
Unrelated to Principal Diagnosis with
MCC, with CC, and Without CC/MCC).
CMS DRG 477 would become proposed
MS–DRGs 987, 988, and 989
(Nonextensive O.R. Procedure Unrelated
to Principal Diagnosis with MCC, with
CC, and without CC/MCC).
Proposed MS–DRGs 981 through 983,
984 through 986, and 987 through 989
(formerly CMS DRGs 468, 476, and 477,
respectively) are reserved for those cases
in which none of the O.R. procedures
performed are related to the principal
diagnosis. These CMS DRGs are
intended to capture atypical cases, that
is, those cases not occurring with
sufficient frequency to represent a
distinct, recognizable clinical group.
Proposed MS–DRGs 984 through 986
(previously CMS DRG 476) are assigned
to those discharges in which one or
more of the following prostatic
procedures are performed and are
unrelated to the principal diagnosis:
<bullet≤ 60.0, Incision of prostate
<bullet≤ 60.12, Open biopsy of
prostate
<bullet≤ 60.15, Biopsy of periprostatic
tissue
<bullet≤ 60.18, Other diagnostic
procedures on prostate and periprostatic
tissue
<bullet≤ 60.21, Transurethral
prostatectomy
<bullet≤ 60.29, Other transurethral
prostatectomy
<bullet≤ 60.61, Local excision of
lesion of prostate
<bullet≤ 60.69, Prostatectomy, not
elsewhere classified
<bullet≤ 60.81, Incision of
periprostatic tissue
<bullet≤ 60.82, Excision of
periprostatic tissue
<bullet≤ 60.93, Repair of prostate
<bullet≤ 60.94, Control of
(postoperative) hemorrhage of prostate
<bullet≤ 60.95, Transurethral balloon
dilation of the prostatic urethra
<bullet≤ 60.96, Transurethral
destruction of prostate tissue by
microwave thermotherapy
<bullet≤ 60.97, Other transurethral
destruction of prostate tissue by other
thermotherapy
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24739
<bullet≤ 60.99, Other operations on
prostate
All remaining O.R. procedures are
assigned to proposed MS–DRGs 981
through 983 and 987 through 989
(previously CMS DRGs 468 and 477),
with proposed MS–DRGs 987 through
989 (previously CMS DRG 477) assigned
to those discharges in which the only
procedures performed are nonextensive
procedures that are unrelated to the
principal diagnosis.15
For FY 2008, we are not proposing to
change the procedures assigned among
these CMS DRGs.
a. Moving Procedure Codes From CMS
DRG 468 (Proposed MS–DRGs 981
Through 983) or CMS DRG 477
(Proposed MS–DRGs 987 Through 989)
to MDCs
We annually conduct a review of
procedures producing assignment to
CMS DRG 468 (proposed MS–DRGs 981
through 983) or CMS DRG 477
(proposed MS–DRGs 987 through 989)
on the basis of volume, by procedure, to
see if it would be appropriate to move
procedure codes out of these DRGs into
one of the surgical DRGs for the MDC
into which the principal diagnosis falls.
The data are arrayed in two ways for
comparison purposes. We look at a
frequency count of each major operative
procedure code. We also compare
procedures across MDCs by volume of
procedure codes within each MDC.
We identify those procedures
occurring in conjunction with certain
principal diagnoses with sufficient
frequency to justify adding them to one
of the surgical DRGs for the MDC in
which the diagnosis falls. Based on this
15 The original list of the ICD–9–CM procedure
codes for the procedures we consider nonextensive
procedures, if performed with an unrelated
principal diagnosis, was published in Table 6C in
section IV. of the Addendum to the FY 1989 final
rule (53 FR 38591). As part of the FY 1991 final rule
(55 FR 36135), the FY 1992 final rule (56 FR 43212),
the FY 1993 final rule (57 FR 23625), the FY 1994
final rule (58 FR 46279), the FY 1995 final rule (59
FR 45336), the FY 1996 final rule (60 FR 45783),
the FY 1997 final rule (61 FR 46173), and the FY
1998 final rule (62 FR 45981), we moved several
other procedures from DRG 468 to DRG 477, and
some procedures from DRG 477 to DRG 468. No
procedures were moved in FY 1999, as noted in the
final rule (63 FR 40962); in FY 2000 (64 FR 41496);
in FY 2001 (65 FR 47064); or in FY 2002 (66 FR
39852). In the FY 2003 final rule (67 FR 49999) we
did not move any procedures from DRG 477.
However, we did move procedure codes from DRG
468 and place them in more clinically coherent
DRGs. In the FY 2004 final rule (68 FR 45365), we
moved several procedures from DRG 468 to DRGs
476 and 477 because the procedures are
nonextensive. In the FY 2005 final rule (69 FR
48950), we moved one procedure from DRG 468 to
477. In addition, we added several existing
procedures to DRGs 476 and 477. In the FY 2006
(70 FR 47317), we moved one procedure from DRG
468 and assigned it to DRG 477. In FY 2007, we
moved one procedure from DRG 468 and assigned
it to DRGs 479, 553, and 554.
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year’s review, we are not proposing to
remove any procedures from CMS DRG
477 or CMS DRG 468 with assignment
to one of the surgical DRGs.
b. Reassignment of Procedures Among
CMS DRGs 468, 476, and 477 (Proposed
MS–DRGs 981 Through 983, 984
Through 986, and 987 Through 989)
We also annually review the list of
ICD–9–CM procedures that, when in
combination with their principal
diagnosis code, result in assignment to
CMS DRGs 468, 476, and 477 (proposed
MS–DRGs 981 through 983, 984 through
986, and 987 through 989, respectively),
to ascertain whether any of those
procedures should be reassigned from
one of these three DRGs to another of
the three DRGs based on average charges
and the length of stay. We look at the
data for trends such as shifts in
treatment practice or reporting practice
that would make the resulting DRG
assignment illogical. If we find these
shifts, we would propose to move cases
to keep the DRGs clinically similar or to
provide payment for the cases in a
similar manner. Generally, we move
only those procedures for which we
have an adequate number of discharges
to analyze the data.
We are not proposing to move any
procedure codes from CMS DRG 476
(proposed MS–DRGs 984, 985, and 986)
to CMS DRG 468 (proposed MS–DRGs
981, 982, and 983) or to CMS DRG 477
(proposed MS–DRGs 987, 988, and 989),
or from CMS DRG 477 (proposed MS–
DRGs 987, 988, and 989) to CMS DRGs
468 (proposed MS–DRGs 981, 982, and
983) or to CMS DRG 476 (proposed MS–
DRGs 984, 985, and 986) for FY 2008.
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c. Adding Diagnosis or Procedure Codes
to MDCs
Based on our review this year, we are
not proposing to add any diagnosis
codes to MDCs for FY 2008.
10. Changes to the ICD–9–CM Coding
System
(If you choose to comment on issues
in this section, please include the
caption ‘‘ICD–9–CM Coding System’’ at
the beginning of your comment.)
As described in section II.B.1. of this
preamble, the ICD–9–CM is a coding
system used for the reporting of
diagnoses and procedures performed on
a patient. In September 1985, the ICD–
9–CM Coordination and Maintenance
Committee was formed. This is a
Federal interdepartmental committee,
co-chaired by the National Center for
Health Statistics (NCHS), the Centers for
Disease Control and Prevention, and
CMS, charged with maintaining and
updating the ICD–9–CM system. The
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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 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 Official Version of the ICD–9–CM
contains the list of valid diagnosis and
procedure codes. (The Official Version
of the ICD–9–CM is available from the
Government Printing Office on CD–
ROM for $25.00 by calling (202) 512–
1800.) The Official Version of the ICD–
9–CM is no longer available in printed
manual form from the Federal
Government; it is only available on CD–
ROM. Users who need a paper version
are referred to one of the many products
available from publishing houses.
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 Committee encourages
participation in the above process by
health-related organizations. In this
regard, the Committee holds public
meetings for discussion of educational
issues and proposed coding changes.
These meetings provide an opportunity
for representatives of recognized
organizations in the coding field, such
as the American Health Information
Management Association (AHIMA), the
American Hospital Association (AHA),
and various physician specialty groups,
as well as individual physicians, health
information management professionals,
and other members of the public, to
contribute ideas on coding matters.
After considering the opinions
expressed at the public meetings and in
writing, the Committee formulates
recommendations, which then must be
approved by the agencies.
The Committee presented proposals
for coding changes for implementation
in FY 2008 at a public meeting held on
September 28–29, 2006, and finalized
the coding changes after consideration
of comments received at the meetings
and in writing by December 4, 2006.
Those coding changes are announced in
Tables 6A through 6F in the Addendum
to this proposed rule. The Committee
held its 2007 meeting on March 22–23,
2007. Proposed new codes for which
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there was a consensus of public support
and for which complete tabular and
indexing changes can be made by May
2007 will be included in the October 1,
2007 update to ICD–9–CM. Code
revisions that were discussed at the
March 22–23, 2007 Committee meeting
could not be finalized in time to include
them in the Addendum to this proposed
rule. These additional codes will be
included in Tables 6A through 6F of the
final rule and are marked with an
asterisk (*).
Copies of the minutes of the
procedure codes discussions at the
Committee’s September 28–29, 2006
meeting can be obtained from the CMS
Web site at: https://cms.hhs.gov/
ICD9ProviderDiagnosticCodes/03—
meetings.asp. The minutes of the
diagnosis codes discussions at the
September 28–29, 2006 meeting are
found at: https://www.cdc.gov/nchs/
icd9.htm. Paper copies of these minutes
are no longer available and the mailing
list has been discontinued. These Web
sites also provide detailed information
about the Committee, including
information on requesting a new code,
attending a Committee meeting, and
timeline requirements and meeting
dates.
We encourage commenters to address
suggestions on coding issues involving
diagnosis codes to: Donna Pickett, CoChairperson, ICD–9–CM Coordination
and Maintenance Committee, NCHS,
Room 2402, 3311 Toledo Road,
Hyattsville, MD 20782. Comments may
be sent by E-mail to: dfp4@cdc.gov.
Questions and comments concerning
the procedure codes should be
addressed to: Patricia E. Brooks, CoChairperson, ICD–9–CM Coordination
and Maintenance Committee, CMS,
Center for Medicare Management,
Hospital and Ambulatory Policy Group,
Division of Acute Care, C4–08–06, 7500
Security Boulevard, Baltimore, MD
21244–1850. Comments may be sent by
E-mail to:
patricia.brooks2@cms.hhs.gov.
The ICD–9–CM code changes that
have been approved will become
effective October 1, 2007. The new ICD–
9–CM codes are listed, along with their
DRG classifications, in Tables 6A and
6B (New Diagnosis Codes and New
Procedure Codes, respectively) in the
Addendum to this proposed rule. As we
stated above, the code numbers and
their titles were presented for public
comment at the ICD–9–CM
Coordination and Maintenance
Committee meetings. Both oral and
written comments were considered
before the codes were approved. In this
proposed rule, we are only soliciting
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comments on the proposed
classification of these new codes.
For codes that have been replaced by
new or expanded codes, the
corresponding new or expanded
diagnosis codes are included in Table
6A. New procedure codes are shown in
Table 6B. Diagnosis codes that have
been replaced by expanded codes or
other codes or have been deleted are in
Table 6C (Invalid Diagnosis Codes).
These invalid diagnosis codes will not
be recognized by the GROUPER
beginning with discharges occurring on
or after October 1, 2007. Table 6D
contains invalid procedure codes. These
invalid procedure codes will not be
recognized by the GROUPER beginning
with discharges occurring on or after
October 1, 2007. Revisions to diagnosis
code titles are in Table 6E (Revised
Diagnosis Code Titles), which also
includes the DRG assignments for these
revised codes. Table 6F includes revised
procedure code titles for FY 2008.
In the September 7, 2001 final rule
implementing the IPPS new technology
add-on payments (66 FR 46906), we
indicated we would attempt to include
proposals for procedure codes that
would describe new technology
discussed and approved at the Spring
meeting as part of the code revisions
effective the following October. As
stated previously, ICD–9–CM codes
discussed at the March 22–23, 2007
Committee meeting that received
consensus and that were finalized by
May 2007, will be included in Tables
6A through 6F of the Addendum to the
final rule.
Section 503(a) of Pub. L. 108–173
included a requirement for updating
ICD–9–CM codes twice a year instead of
a single update on October 1 of each
year. This requirement was included as
part of the amendments to the Act
relating to recognition of new
technology under the IPPS. Section
503(a) amended section 1886(d)(5)(K) of
the Act by adding a clause (vii) which
states that the ‘‘Secretary shall provide
for the addition of new diagnosis and
procedure codes on 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 improves the recognition of
new technologies under the IPPS system
by providing information on these new
technologies at an earlier date. Data will
be available 6 months earlier than
would be possible with updates
occurring only once a year on October
1.
While section 1886(d)(5)(K)(vii) of the
Act states that the addition of new
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diagnosis and procedure codes on April
1 of each year shall not require the
Secretary to adjust the payment, or DRG
classification, under section 1886(d) of
the Act until the fiscal year that begins
after such date, we have to update the
DRG software and other systems in
order to recognize and accept the new
codes. We also publicize the code
changes and the need for a mid-year
systems update by providers to identify
the new codes. Hospitals also have to
obtain the new code books and encoder
updates, and make other system changes
in order to identify and report the new
codes.
The ICD–9–CM Coordination and
Maintenance Committee holds its
meetings in the spring and fall in order
to update the codes and the applicable
payment and reporting systems by
October 1 of each year. Items are placed
on the agenda for the ICD–9–CM
Coordination and Maintenance
Committee meeting if the request is
received at least 2 months prior to the
meeting. This requirement allows time
for staff to review and research the
coding issues and prepare material for
discussion at the meeting. It also allows
time for the topic to be publicized in
meeting announcements in the Federal
Register as well as on the CMS Web site.
The public decides whether or not to
attend the meeting based on the topics
listed on the agenda. Final decisions on
code title revisions are currently made
by March 1 so that these titles can be
included in the IPPS proposed rule. A
complete addendum describing details
of all changes to ICD–9–CM, both
tabular and index, is publicized on CMS
and NCHS Web sites in May of each
year. Publishers of coding books and
software use this information to modify
their products that are used by health
care providers. This 5-month time
period has proved to be necessary for
hospitals and other providers to update
their systems.
A discussion of this timeline and the
need for changes are included in the
December 4–5, 2005 ICD–9–CM
Coordination and Maintenance
Committee minutes. The public agreed
that there was a need to hold the fall
meetings earlier, in September or
October, in order to meet the new
implementation dates. The public
provided comment that additional time
would be needed to update hospital
systems and obtain new code books and
coding software. There was considerable
concern expressed about the impact this
new April update would have on
providers.
In the FY 2005 IPPS final rule, we
implemented section 1886(d)(5)(K)(vii)
of the Act, as added by section 503(a)
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24741
of Pub. L. 108–173, by developing a
mechanism for approving, in time for
the April update, diagnosis and
procedure code revisions needed to
describe new technologies and medical
services for purposes of the new
technology add-on payment process. We
also established the following process
for making these determinations. Topics
considered during the Fall ICD–9–CM
Coordination and Maintenance
Committee meeting are considered for
an April 1 update if a strong and
convincing case is made by the
requester at the Committee’s public
meeting. The request must identify the
reason why a new code is needed in
April for purposes of the new
technology process. The participants at
the meeting and those reviewing the
Committee meeting summary report are
provided the opportunity to comment
on this expedited request. All other
topics are considered for the October 1
update. Participants at the Committee
meeting are encouraged to comment on
all such requests. There were no
requests for an expedited April l, 2007
implementation of an ICD–9–CM code
at the September 28–29, 2006
Committee meeting. Therefore, there
were no new ICD–9–CM codes
implemented on April 1, 2007.
We believe that this process captures
the intent of section 1886(d)(5)(K)(vii) of
the Act. This requirement was included
in the provision revising the standards
and process for recognizing new
technology under the IPPS. In addition,
the need for approval of new codes
outside the existing cycle (October 1)
arises most frequently and most acutely
where the new codes will identify new
technologies that are (or will be) under
consideration for new technology addon payments. Thus, we believe this
provision was intended to expedite data
collection through the assignment of
new ICD–9–CM codes for new
technologies seeking higher payments.
Current addendum and code title
information is published on the CMS
Web site at: https://www.cms.hhs.gov/
icd9ProviderDiagnosticCodes/01—
overview.asp#TopofPage. Information
on ICD–9–CM diagnosis codes, along
with the Official ICD–9–CM Coding
Guidelines, can be found on the Web
site at: https://www.cdc.gov/nchs/
icd9.htm. Information on new, revised,
and deleted ICD–9–CM codes is also
provided to the AHA for publication in
the Coding Clinic for ICD–9–CM. AHA
also distributes information to
publishers and software vendors.
CMS also sends copies of all ICD–9–
CM coding changes to its contractors for
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use in updating their systems and
providing education to providers.
These same means of disseminating
information on new, revised, and
deleted ICD–9–CM codes will be used to
notify providers, publishers, software
vendors, contractors, and others of any
changes to the ICD–9–CM codes that are
implemented in April. The code titles
are adopted as part of the ICD–9–CM
Coordination and Maintenance
Committee process. Thus, although we
publish the code titles in the IPPS
proposed and final rules, they are not
subject to comment in the proposed or
final rules. We will continue to publish
the October code updates in this manner
within the IPPS proposed and final
rules. For codes that are implemented in
April, we will assign the new procedure
code to the same DRG in which its
predecessor code was assigned so there
will be no DRG impact as far as DRG
assignment. This mapping was specified
by section 1886(d)(5)(K)(vii) of the Act
as added by section 503(a) of Pub. L.
108–173. Any midyear coding updates
will be available through the Web sites
indicated above 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. We will strive to have the April
1 updates available through these Web
sites 5 months prior to implementation
(that is, early November of the previous
year), as is the case for the October 1
updates.
11. Other Issues
(If you choose to comment on issues
in this section, please include the
caption ‘‘DRGs: Headaches and
Seizures’’ at the beginning of your
comment.)
a. Seizures and Headaches
After publication of the FY 2007 IPPS
final rule (71 FR 47928), we received
correspondence expressing concerns
about the revisions we made to the
seizure and headache DRGs effective on
October 1, 2006. We created new DRGs
562 (Seizure Age ≤17 With CC), DRG
563 (Seizure Age ≤17 Without CC), and
DRG 564 (Headaches Age ≤17) as an
interim step to better recognize severity
of illness among seizure and headache
patients for FY 2007. Although national
Medicare utilization data supported the
revised DRGs, the commenter indicated
that the change did not appropriately
recognize hospital resources associated
with the patients treated in the
hospital’s inpatient headache program.
The commenter stated that patients who
are admitted to the hospital’s inpatient
headache program suffer from chronic
headache pain and require inpatient
treatment that can last up to 12 days.
The commenter noted that these
patients are referred from around the
country after several months of
Number of
cases
Proposed MS–DRG
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MS–DRG 102 (Headaches with MCC) ........................................................................................
MS–DRG 103 (Headaches without MCC) ...................................................................................
(The criteria for determining whether
to subdivide a DRG are described in
detail earlier in section II.D. of the
preamble of this proposed rule.) Thus,
we are proposing to create two MS–
DRGs for headaches under the MS–
DRGs as shown below:
<bullet≤ Proposed MS–DRG 102
(Headaches With MCC)
<bullet≤ Proposed MS–DRG 103
(Headaches Without MCC)
We believe this proposed structure
would better recognize those headaches
patients who are severely ill and require
more resources as described by the
commenter. We refer the readers to
section II.D. of the preamble of this
proposed rule for a detailed discussion
of the MS–DRG proposal.
b. Devices That Are Replaced Without
Cost or Where Credit for a Replaced
Device Is Furnished to the Hospital
(If you choose to comment on issues
in this section, please include the
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caption ‘‘Replaced Devices’’ at the
beginning of your comment.)
(1) Background
We addressed the topic of Medicare
payment for devices that are replaced
without costs or where credit for a
replaced device is furnished to the
hospital in the FY 2007 IPPS final rule
(71 FR 47962). In that final rule, we
included the following background
information:
In recent years, there have been
several field actions and recalls with
regard to failure of implantable cardiac
defibrillators (ICDs) and pacemakers. In
many of these cases, the manufacturers
have offered replacement devices
without cost to the hospital or credit for
the device being replaced if the patient
required a more expensive device. In
some circumstances, manufacturers
have also offered, through a warranty
package, to pay specified amounts for
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unsuccessful pain relief and treatment.
The commenter indicated that the
majority of patients treated at the
hospital’s inpatient headache program
are drug dependent from being
administered increasing dosages of pain
relievers that have been unsuccessful in
resolving chronic headache pain.
Further, the commenter noted that the
patients require detoxification before
any headache treatment begins. The
commenter urged CMS to subdivide the
headache DRG to better recognize the
higher level of severity associated with
treating chronic headache patients in
the hospital’s program.
Although we are sympathetic to the
commenter, it is not feasible to design
a DRG system that addresses concerns
that may be unique to one facility. Other
than this one commenter, we did not
receive any concern about our decision
to create separate DRGs for seizures and
headaches. However, we agreed to
review this issue as part of our effort to
redesign the DRG system to better
recognize severity of illness for FY 2008.
As discussed in section II.C. of the
preamble of this proposed rule, we are
proposing to adopt MS–DRGs for FY
2008. While our current DRG structure
did not support splitting the headache
DRG based on the presence or absence
of a CC, the proposed MS–DRGs support
the creation of a split for the headache
DRGs based on whether the patient has
an MCC as shown below:
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1,268
14,277
Average
length of stay
5.04
3.22
Average
charges
19,077.33
11,989.43
unreimbursed expenses to persons who
had replacement devices implanted.
Nonetheless, we believe that incidental
device failures that are covered by
manufacturer warranties occur
routinely. While we understand that
some device malfunctions may be
inevitable as medical technology grows
increasingly sophisticated, we believe
that early recognition of problems
would reduce the number of people
who would be potentially adversely
affected by these device problems. The
medical community needs heightened
and early awareness of patterns of
device failures, voluntary field actions,
and recalls so that it can take
appropriate corrective action to care for
patients. Systematic efforts must be
undertaken by all interested and
involved parties, including
manufacturers, insurers, and the
medical community, to ensure that
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device problems are recognized, and are
addressed as early as possible so that
patients’ quality of health care is
protected and high quality medical care,
equipment, and technologies are
provided. We are taking several steps to
assist in the early recognition and
analysis of patterns of device problems
to minimize the potential for harm from
device-related defects to Medicare
beneficiaries and the public in general.
In recent years, CMS has recognized
the importance of data collection as a
condition of Medicare coverage for
selected services. In 2005, we issued an
NCD that expanded coverage of ICDs
and also required registry participation
when the devices were implanted for
certain clinical indications. The NCD
included this requirement in order to
ensure that the medical care received by
Medicare beneficiaries was reasonable
and necessary and, therefore, that the
provider or supplier would be
appropriately paid. Presently, the
American College of Cardiology—
National Cardiovascular Data Registry
(ACC–NCDR) collects these data and
maintains the registry.
In addition to ensuring appropriate
payment of claims, collection, and
ongoing analysis of ICD implantation,
registry data can facilitate public
response to the quality of health care
issues in the event of future device
recalls. Analysis of registry data may
uncover patterns of device malfunction,
device-related infection, or early battery
depletion that would trigger a more
specific investigation. Patterns found in
registry data may identify problems in
patient outcomes earlier than the
currently available mechanisms, which
do not systematically collect detailed
information about each patient who
receives an ICD.
We encourage the medical community
to work to develop additional registries
for implantable devices, so that timely
and comprehensive information is
available regarding devices, recipients
of those devices, and patients’ quality of
health care status and medical
outcomes. While participation in an ICD
registry is required as a Medicare
condition of coverage for ICD
implantation for certain clinical
conditions, we believe that the potential
benefits of other data collection extend
well beyond their application in
Medicare’s specific NCDs. As medical
technology continues to advance
swiftly, data collection regarding the
short-term and long-term medical
outcomes of new technologies,
especially concerning implanted
devices that may remain in the bodies
of patients for their lifetimes, will be
essential to the timely recognition of
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any specific device-related problems,
patterns of complications, and healthrelated outcomes. This information will
facilitate early interventions to mitigate
any harm potentially imposed upon
Medicare beneficiaries and the public,
and to improve the quality and
efficiency of health care services
provided.
Moreover, published data from
registries may further help the
development of high quality, evidencebased clinical practice guidelines for the
care of patients who may receive device
implants. In turn, widespread use of
evidence-based guidelines may reduce
variation in medical practice, leading to
improved personal care and overall
public health. Registry information may
also contribute to the development of
more comprehensive and refined quality
metrics that may be used to
systematically assess the collected data,
and then improve the safety and quality
of health care provided to Medicare
beneficiaries. Such improvements in the
quality of care that result in better
personal health will require the
sustained commitment of industry,
payers, health care providers, and others
to progressively work towards that goal,
and to ensure excellent and open
communication and rapid systemwide
responses.
One strategy for this data collection
involves adding information to the
claims forms. CMS has a long history of
collecting hemoglobin or hematocrit
data from ESRD patients on the claims
form. Modification of claims forms was
necessary to do that. CMS is exploring
the use of claims data to collect other
types of clinical or technical data such
as device manufacturer and model
number. The systematic recording of
model numbers can enhance knowledge
of device-related outcomes and
complications. We look forward to
further discussions with the public
about new strategies to both recognize
device-related problems early as well as
recognize health-related outcomes of
new technologies.
In addition, we believe that the
routine identification of Medicare
claims for certain device implantation
procedures in situations where a
payment adjustment is appropriate may
enhance the medical community’s
recognition of device-related problems,
potentially leading to more timely
improvements in medical device
technologies. This systematic approach,
which enables hospitals to identify and
then appropriately report selected
services when devices are replaced
without cost to the hospital, or with full
or partial credit to the hospital for the
cost of the replaced device, should
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24743
provide comprehensive information
regarding the hospitals’ experiences
with Medicare beneficiaries who have
specific medical devices that are being
replaced. Because Medicare
beneficiaries are common recipients of
implanted devices, the claims
information may be particularly helpful
in identifying patterns of device-related
problems early in their natural history,
so that appropriate strategies to reduce
future problems may be developed. One
possible strategy would be for the
Medicare program to use information
obtained through the use of bar coding
of medical devices. The FDA issued a
final rule in the Federal Register on
February 26, 2004 (69 FR 9119), that
required bar codes for human drugs and
biological product labels effective April
26, 2006. In the final rule, FDA deferred
action on requiring bar codes for
medical devices, noting the difficulty in
standardizing medical devices, as
compared to drugs and biologicals,
which have the unique NDC numbering
system. This rule can be reviewed on
the Federal Register’s Web site at:
https://www.docket.access.gpo.gov/2004/
04-4249.htm.
We intend to monitor FDA’s work in
this area to determine how this
technology could help CMS promote
higher quality through better clinical
decision making and, as discussed
below, assist in improving the accuracy
of the Medicare payment system.
In addition to our concern for overall
public health, we also have a fiduciary
responsibility to the Medicare Trust
Fund to ensure that Medicare pays only
for covered services. Therefore, in the
FY 2007 IPPS final rule, we indicated
that we believe we need to consider
whether it is appropriate to reduce the
Medicare payment in cases in which an
implanted device is replaced at reduced
or no cost to the hospital or with partial
or full credit for the removed device.
Such consideration could cover certain
devices for which credit for the replaced
medical device is given, or medical
devices that are replaced as a result of
or pursuant to a warranty, field action,
voluntary recall, or involuntary recall,
and medical devices that are provided
free of charge. We indicated that
conveying this information to the
Medicare beneficiary could provide for
a reduction in the IPPS payment if we
determine that the device is replaced
without cost to the provider or
beneficiary or when the provider
receives full credit for the cost of a
replaced device.
In FY 2007 IPPS final rule, we
indicated a need to develop a
methodology to determine the amount
of the reduction to the otherwise
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payable IPPS payment for medical
devices furnished to Medicare
beneficiaries. We believe that this policy
is appropriate because, in these cases,
the full cost of the replaced device is not
incurred and, therefore, an adjustment
to the payment is necessary to remove
the cost of the device.
(2) Current and Proposed Policies
In the CY 2007 OPPS final rule (71 FR
68071 through 68077), we adopted a
policy that requires a reduced payment
to a hospital or ambulatory surgical
center when a device is provided to
them at no cost. From our experience
with the OPPS, we understand that a
manufacturer will often provide a credit
or partial credit for the recalled device
rather than a free replacement. In other
situations, a manufacturer will provide
either a full or partial credit for a device
that needs to be replaced only during
the manufacturer’s warranty period. In
either of these situations, the original
implantation of the device was paid for
either by Medicare, another third party
on behalf of the beneficiary by making
payment directly to the hospital, or the
implantation was paid for directly by
the beneficiary. Therefore, we believe
that Medicare should not pay the
hospital for the full cost of the
replacement if the hospital is receiving
a partial or full credit, either due to a
recall or service during the warranty
period. The device was already paid for
at the time of initial implantation, and
Medicare should retain the credit that is
being provided to the hospital for
service to a Medicare beneficiary.
Moreover, we also believe that a
proposed adjustment is consistent with
section 1862(a)(2) of the Act, which
excludes from Medicare coverage an
item or service for which neither the
beneficiary, nor anyone on his or her
behalf, has an obligation to pay.
Payment of the full IPPS payment
amount in cases in which the device
was replaced under warranty or in
which there was a full or partial credit
for the price of the recalled or failed
device effectively results in Medicare
payment for a noncovered item.
Therefore, we are proposing to adjust
the IPPS payment amount in these
circumstances under the authority of
section 1886(d)(5)(I) of the Act, which
permits the Secretary to make
‘‘exceptions and adjustments to such
payment amounts * * * as the Secretary
deems appropriate.’’
Under the OPPS, we currently only
apply the reduced payment amount in
situations where the hospital received a
replacement device at no cost or at full
credit for the replacement device.
Unlike the current OPPS policy, we are
proposing for purposes of the IPPS to
apply the policy for partial as well as
full credit for a replacement device. As
we indicated above, our experience with
the OPPS suggests that the policy
should be applied beyond full
replacement of a recalled device. We are
proposing to reduce the amount of the
Medicare IPPS payment when a full or
partial credit towards a replacement
device is made or the device is replaced
without cost to the hospital or with full
credit for the removed device. However,
we do not believe that the IPPS policy
should apply to all DRGs and all
situations in which a device is replaced
without cost to the hospital for the
device or with full or partial credit for
the removed device. We recognize that,
in many cases, the cost of the device is
a relatively modest part of the IPPS
payment. In other situations, we believe
the amount of the credit will also be
nominal. In these cases, we believe that
the averaging nature of payments under
the IPPS would incorporate any
significant savings from a warranty
replacement, field action, or recall into
the payment rate for the associated DRG,
and that no specific adjustment would
be necessary or appropriate. For this
reason, we are proposing to apply the
policy only to those DRGs under the
IPPS where the implantation of the
device determines the base DRG
assignment and situations where the
hospital received a credit equal to 20
percent or more of the cost of the
device. We believe a credit that is equal
to or more than this percentage is
substantial, and Medicare should not
pay for the full cost of these
replacement devices because hospitals
have received significant savings from
the manufacturer for its replacement
costs. We are seeking comment on the
application of this percentage amount.
We further believe that it is appropriate
to limit application of the policy only to
those DRGs where implantation of the
device determines the DRG assignment.
In making a decision to assign a case
based on whether a device was
implanted, we recognized that the
device cost was a significant portion of
the overall costs faced by the hospital
that treats the case. Therefore, we
believe that Medicare should not make
full payment for those DRGs where the
assignment of the case is made based on
implantation of the device when the
hospital is receiving either a full or
significant partial credit for the device.
We have listed the CMS DRGs that
would be subject to this proposed policy
below. We have also listed, in
parentheses after the CMS DRG title, the
proposed new MS–DRG title to which
these cases would be assigned.
CMS DRGS SUBJECT TO PROPOSED POLICY
MDC
CMS
DRG
Narrative Description of DRG
103
1 ...........
1
1 ...........
2
1 ...........
7
1 ...........
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PRE .....
8
1 ...........
543
3 ...........
49
5 ...........
104
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Heart Transplant or Implant of Heart Assist System (Proposed MS–DRGs 1 and 2, Heart Transplant or Implant of Heart
Assist System With and Without MCC, respectively).
Craniotomy Age ≤ 17 With CC (Proposed MS–DRG 25 and 26, Craniotomy and Endovascular Intracranial Procedure
With MCC or Without CC, respectively).
Craniotomy Age ≤ 17 Without CC (Proposed MS–DRGs 26 and 27, Craniotomy and Endovascular Intracranial Procedure
Without CC/MCC).
Peripheral & Cranial Nerve & Other Nervous System Procedures With CC (Proposed MS–DRGs 40 and 41, Peripheral &
Cranial Nerve & Other Nervous System Procedure With MCC or With CC, respectively).
Peripheral & Cranial Nerve & Other Nervous System Procedures Without CC (Proposed MS–DRG 42, Peripheral & Cranial Nerve & Other Nervous System Procedure Without CC/MCC).
Craniotomy With Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis (Proposed MS–
DRGs 23 and 24, Craniotomy with Major Device Implant or Acute Complex Central Nervous System Principal Diagnosis With and Without MCC, respectively).
Major Head & Neck Procedures (Proposed MS–DRGs 129 and 130, Major Head & Neck Procedures With CC/MCC or
Major Device or Without CC/MCC, respectively).
Cardiac Valve & Other Major Cardiothoracic Procedures with Cardiac Catheterization (Proposed MS–DRGs 216, 217,
and 218, Cardiac Valve & Other Major Cardiothoracic Procedure With Cardiac Catheterization With MCC, or Without
CC, or Without CC/MCC, respectively).
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CMS DRGS SUBJECT TO PROPOSED POLICY—Continued
MDC
CMS
DRG
105
5 ...........
5 ...........
5 ...........
110
111
117
5 ...........
118
5 ...........
515
5 ...........
5 ...........
525
535
5 ...........
536
5 ...........
551
5 ...........
552
8 ...........
471
8 ...........
544
8 ...........
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5 ...........
545
Narrative Description of DRG
Cardiac Valve & Other Major Cardiothoracic Procedures Without Cardiac Catheterization (Proposed MS–DRGs 219, 220,
and 221, Cardiac Valve & Other Major Cardiothoracic Procedure Without Cardiac Catheterization With MCC, or With
CC, or Without CC/MCC, respectively).
Major Cardiovascular Procedures With CC (Proposed MS–DRG 237, Major Cardiovascular Procedures With MCC).
Major Cardiovascular Procedures Without CC (Proposed MS–DRG 238, Major Cardiovascular Procedures Without MCC).
Cardiac Pacemaker Revision Except Device Replacement (Proposed MS–DRGs 260, 261, and 262, Cardiac Pacemaker
Revision Except Device Replacement With MCC, or With CC, or Without CC/MCC, respectively).
Cardiac Pacemaker Device Replacement (Proposed MS–DRGs 258 and 259, Cardiac Pacemaker Device Replacement
With MCC, and Without MCC, respectively).
Cardiac Defibrillator Implant Without Cardiac Catheterization (Proposed MS–DRGs 226 and 227, Cardiac Defibrillator Implant Without Cardiac Catheterization With MCC and Without MCC, respectively).
Other Heart Assist System Implant (Proposed MS–DRG 215, Other Heart Assist System Implant).
Cardiac Defibrillator Implant With Cardiac Catheterization With Acute Myocardial Infarction/Heart Failure/Shock (Proposed
MS–DRGs 222 and 223, Cardiac Defibrillator Implant With Cardiac Catheterization With Acute Myocardial Infarction/
Heart Failure/Shock With MCC and Without MCC, respectively).
Cardiac Defibrillator Implant With Cardiac Catheterization Without Acute Myocardial Infarction/Heart Failure/Shock (Proposed MS–DRGs 224 and 225, Cardiac Defibrillator Implant With Cardiac Catheterization Without Acute Myocardial Infarction/Heart Failure/Shock With MCC and Without MCC, respectively).
Permanent Cardiac Pacemaker Implant With Major Cardiovascular Diagnosis or AICD Lead or Generator (Proposed MS–
DRGs 242, 243, and 244, Permanent Cardiac Pacemaker Implant With MCC, With CC, and Without CC/MCC, respectively).
Other Permanent Cardiac Pacemaker Implant Without Major Cardiovascular Diagnosis (Proposed MS–DRGs 242, 243,
and 244, Permanent Cardiac Pacemaker Implant With MCC, With CC, and Without CC/MCC, respectively).
Bilateral or Multiple Major Joint Procedures of Lower Extremity (Proposed MS–DRGs 461 and 462, Bilateral or Multiple
Major Joint Procedures of Lower Extremity With MCC, or Without MCC, respectively).
Major Joint Replacement or Reattachment of Lower Extremity (Proposed MS–DRGs 469 and 470, Major Joint Replacement or Reattachment of Lower Extremity With MCC or Without MCC, respectively).
Revision of Hip or Knee Replacement (Proposed MS–DRGs 466, 467, and 468, Revision of Hip or Knee Replacement
With MCC, With CC, or Without CC/MCC, respectively).
CMS has requested and received new
condition codes from the National
Uniform Billing Committee to describe
claims where a provider has received a
device or product without cost. We will
use these condition codes to reduce
payment when the hospital used a
device for which full or partial credit is
given, or the item was replaced as a
result of or under a warranty, field
action, voluntary recall, involuntary
recall, or otherwise provided free of
charge. On November 4, 2005, we issued
Change Request 4058, Transmittal 741,
in the Medicare Claims Processing
Manual. The effective date of this
transmittal was April 1, 2006, and the
implementation date was April 3, 2006.
This transmittal specifies that the
following two new condition codes have
been created. They are defined below:
<bullet≤ Condition Code 49—Product
Replacement within Product Lifecycle.
Replacement of a product earlier than
the anticipated lifecycle due to an
indication that the product is not
functioning properly.
<bullet≤ Condition Code 50—Product
Replacement for Known Recall of a
Product. The manufacturer or the FDA
has identified the product for recall and
therefore replacement.
Hospitals must report these codes on
any claim for IPPS services that
includes a replacement device or
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product for which they received full or
partial credit. Hospital billing offices
would report one of these condition
codes in addition to the specific code
for the type of procedure performed (for
example, replacement of a defibrillator).
When this code is received by Medicare
and the discharge is assigned to a DRG
that is subject to this policy, we are
proposing to suspend the claim so that
it does not automatically process and
the fiscal intermediary (or, if applicable,
the MAC) makes a manual payment
determination. We are proposing to
require the hospital to provide invoices
or other information indicating its
normal cost of the device and the
amount of the credit it received.
This transmittal can be accessed at the
following Web site: https://
www.cms.hhs.gov/Transmittals/
downloads/R741CP.pdf.
Under our policy, the fiscal
intermediary (or, if applicable, the
MAC) would manually process claims
involving DRGs that are subject to this
policy that include a device that is
replaced without cost to the hospital for
the device or with full or partial credit
for the removed device as identified by
condition codes 49 or 50. For a device
provided to the hospital without cost,
the fiscal intermediary (or, if applicable,
the MAC) would subtract the cost of the
device from the DRG payment. For a
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device for which the hospital received
a full or partial credit, the fiscal
intermediary (or, if applicable, the
MAC) would subtract the amount
credited from the DRG payment. We are
proposing to require the hospital to
provide invoices or other information
indicating the cost of the device and the
amount of credit it received. We are
seeking comment on the best approach
to making this payment adjustment and
what types of documentation hospitals
should provide to the fiscal
intermediary or MAC.
We are proposing to invoke our
special exceptions and adjustment
authority under section 1886(d)(5)(I)(i)
of the Act to make this adjustment. The
special exceptions and adjustment
authority authorizes us to provide ‘‘for
such other exceptions and adjustments
to [IPPS] payment amounts* * *as the
Secretary deems appropriate.’’ We
believe it would be appropriate to adjust
payments for surgical procedures to
replace certain devices by providing
payments to hospitals only for the
nondevice-related procedural costs
when such a device is replaced without
cost to the hospital for the device or
with full credit for the removed device.
To codify in regulations the proposed
policies for the IPPS discussed above,
we are proposing to add a new
paragraph (g) to § 412.2 and a new
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§ 412.89 to 42 CFR Part 412, Subpart F.
We are also proposing to make a
technical, conforming change to the
heading of Subpart F and to add an
uncoded center heading before the
proposed new § 412.89.
H. Recalibration of DRG Weights
(If you choose to comment on issues
in this section, please include the
caption ‘‘Recalibration of DRG Weights’’
at the beginning of your comment.)
In section II.D.3. of the preamble of
this proposed rule, we stated that we are
proposing to continue to implement the
cost-based DRG relative weights under a
3-year transition period such that, in FY
2008, year two of the transition, the
relative weights would be recalibrated
using a blend of 67 percent of the cost
relative weight and 33 percent of the
charge relative weight. By FY 2009, the
relative weights will be 100 percent
cost-based. We are proposing a few
minor changes to the cost-weighting
methodology that we adopted in the FY
2007 IPPS final rule (71 FR 47962
through 47971). However, in section
II.E.2. of the preamble of this proposed
rule, we request public comments about
whether to adopt any of the short-term
recommendations to the cost relative
weighting methodology for FY 2008
made by RTI. Therefore, if we were to
adopt any of the RTI recommendations
based on public comment, our
description of the cost-weighting
methodology shown below would be
modified accordingly in the IPPS final
rule.
In developing the FY 2008 proposed
system of weights, we used two data
sources: claims data and cost report
data. As in previous years, the claims
data source is the MedPAR file. This file
is based on fully coded diagnostic and
procedure data for all Medicare
inpatient hospital bills. The FY 2006
MedPAR data used in this proposed rule
include discharges occurring on October
1, 2005, through September 30, 2006,
based on bills received by CMS through
December 2006, from all hospitals
subject to the IPPS and short-term acute
care hospitals in Maryland (which are
under a waiver from the IPPS under
section 1814(b)(3) of the Act). The FY
2006 MedPAR file used in calculating
the relative weights includes data for
approximately 11,748,387 Medicare
discharges from IPPS providers.
Discharges for Medicare beneficiaries
enrolled in a Medicare Advantage
managed care plan are excluded from
this analysis. The data exclude CAHs,
including hospitals that subsequently
became CAHs after the period from
which the data were taken. The second
data source used in the cost relative
weight methodology is the FY 2005
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Medicare cost report data files from
HCRIS, which represents the most
recent full set of cost report data
available. We used the December 31,
2006 update of the HCRIS cost report
files for FY 2005 in setting the proposed
relative cost based weights.
Because we are implementing the
relative weights on a transitional basis,
it is necessary to calculate both chargebased and cost-based relative weights.
The charge-based methodology used to
calculate the DRG relative weights from
the MedPAR data is the same
methodology that was in place for FY
2006 and FY 2007 and was applied as
follows:
<bullet≤ To the extent possible, all the
claims were regrouped using the MS–
DRGs being proposed for FY 2008, as
discussed in section II.D. of this
preamble.
<bullet≤ The transplant cases that
were used to establish the relative
weight for heart and heart-lung, liver
and/or intestinal, and lung transplants
(proposed MS–DRGs 001, 002, 005, 006,
and 007, respectively; previously CMS
DRGs 103, 480, and 495) were limited
to those Medicare-approved transplant
centers that have cases in the FY 2005
MedPAR file. (Medicare coverage for
heart, heart-lung, liver and/or intestinal,
and lung transplants is limited to those
facilities that have received approval
from CMS as transplant centers.)
<bullet≤ Organ acquisition costs for
kidney, heart, heart-lung, liver, lung,
pancreas, and intestinal (or
multivisceral organs) transplants
continue to be paid on a reasonable cost
basis. Because these acquisition costs
are paid separately from the IPPS rates,
it was necessary to subtract the
acquisition charges from the total
charges on each transplant bill that
showed acquisition charges before
computing the average charge for the
DRG and before eliminating statistical
outliers.
<bullet≤ Total charges were
standardized to remove the effects of
differences in area wage levels, indirect
medical education and disproportionate
share payments, and, for hospitals in
Alaska and Hawaii, the applicable costof-living adjustment.
<bullet≤ Statistical outliers were
eliminated by removing all cases that
were beyond 3.0 standard deviations
from the mean of the log distribution of
both the standardized charges per case
and the standardized charges per day for
each DRG.
<bullet≤ The average charge for each
DRG was then recomputed (excluding
the statistical outliers). To compute the
average DRG charge, we sum the
standardized charges by DRG and divide
by the transfer adjusted case count. A
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transfer case is counted as a fraction of
a case based on the ratio of its transfer
payment under the per diem payment
methodology to the full DRG payment
for nontransfer cases. That is, a transfer
case receiving payment under the
transfer methodology equal to half of
what the case would receive as a
nontransfer would be counted as 0.5 of
a total case. The average charge per DRG
is then divided by the national average
standardized charge per case to
determine the relative weight.
The new charge-based weights were
then normalized by an adjustment factor
of 1.50808 so that the average case
weight after recalibration was equal to
the average case weight before
recalibration. This normalization
adjustment is intended to ensure that
recalibration by itself neither increases
nor decreases total payments under the
IPPS as required by section
1886(d)(4)(C)(iii) of the Act.
The methodology we used to calculate
the DRG cost-based weights from the FY
2006 MedPAR claims data and FY 2005
Medicare cost report data is as follows:
<bullet≤ To the extent possible, all the
claims were regrouped using the FY
2008 proposed MS–DRG classifications
discussed in section II.D. of this
preamble.
<bullet≤ The transplant cases that
were used to establish the relative
weight for heart and heart-lung, liver
and/or intestinal, and lung transplants
(proposed MS–DRGs 001, 002, 005, 006,
and 007, respectively; previously CMS
DRGs 103, 480, and 495) were limited
to those Medicare-approved transplant
centers that have cases in the FY 2006
MedPAR file. (Medicare coverage for
heart, heart-lung, liver and/or intestinal,
and lung transplants is limited to those
facilities that have received approval
from CMS as transplant centers.)
<bullet≤ Organ acquisition costs for
kidney, heart, heart-lung, liver, lung,
pancreas, and intestinal (or
multivisceral organs) transplants
continue to be paid on a reasonable cost
basis. Because these acquisition costs
are paid separately from the prospective
payment rate, it is necessary to subtract
the acquisition charges from the total
charges on each transplant bill that
showed acquisition charges before
computing the average cost for each
DRG and before eliminating statistical
outliers.
<bullet≤ Claims with total charges or
total length of stay less than or equal to
zero were deleted. Claims that had an
amount in the total charge field that
differed by more than $10.00 from the
sum of the routine day charges,
intensive care charges, pharmacy
charges, special equipment charges,
therapy services charges, operating
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room charges, cardiology charges,
laboratory charges, radiology charges,
other service charges, labor and delivery
charges, inhalation therapy charges and
anesthesia charges were also deleted.
<bullet≤ At least 94 percent of the
providers in the MedPAR file had
charges for 10 of the 13 cost centers.
Claims for providers that did not have
charges greater than zero for at least 10
of the 13 cost centers were deleted.
<bullet≤ Statistical outliers were
eliminated by removing all cases that
were beyond 3.0 standard deviations
from the mean of the log distribution of
both the total charges per case and the
total charges per day for each DRG.
Once the MedPAR data were trimmed
and the statistical outliers were
removed, the charges for each of the 13
cost groups for each claim were
standardized to remove the effects of
differences in area wage levels, indirect
medical education and disproportionate
share payments, and for hospitals in
Alaska and Hawaii, the applicable costof-living adjustment. Charges were then
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summed by DRG for each of the 13 cost
groups such that each DRG had 13
standardized charge totals. These
charges were then adjusted to cost by
applying the national average CCRs
developed from the FY 2005 cost report
data.
The 13 cost centers that we used in
the relative weight calculation are
shown in the following table. In
addition, the table shows the lines on
the cost report that we used to create the
national cost center CCRs that we used
to adjust the DRG charges to cost. For
FY 2008, we are proposing to make
minor revisions to the Cardiology,
Laboratory, Radiology, and Other
Services CCRs we are using to calculate
the DRG relative weights, as follows:
<bullet≤ The costs for cases involving
Electroencephalography (EEG), cost
report line 54, are currently in the
Cardiology cost center group. However,
MedPAR categorizes the claims data for
EEG under Laboratory Charges (revenue
codes 0740 and 0749). In order to
maintain consistency with matching
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costs on the cost report to charges on
MedPAR claims, we are proposing to
move cost report line 54 for EEG out of
the Cardiology cost center group into
the Laboratory cost center group.
<bullet≤ In the FY 2007 IPPS
proposed rule, we originally included
the costs for Radioisotopes, cost report
line 43, in the Radiology cost center
group. However, in response to
comments, we moved Radioisotopes to
the Other Services cost center group.
After researching this issue further over
the past year, we believe that
Radioisotopes is a radiology-related
service that more appropriately belongs
in the Radiology cost center group.
Accordingly, for FY 2008, we are
proposing to move the cost report line
item for line 43, Radioisotopes, out of
the Other Services cost center group and
into the Radiology cost center group.
The proposed version of the 13 cost
center groupings are in the table below:
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We developed the national average
CCRs as follows:
Taking the FY 2005 cost report data,
we removed CAHs, Indian Health
Service hospitals, all-inclusive rate
hospitals, and cost reports that
represented time periods of less than 1
year (365 days). We included hospitals
located in Maryland as we are including
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their charges in our claims database. We
then created CCRs for each provider for
each cost center (see prior table for line
items used in the calculations) and
removed any CCRs that were greater
than 10 or less than 0.01. We
normalized the departmental CCRs by
dividing the CCR for each department
by the total CCR for the hospital for the
purpose of trimming the data. We then
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took the logs of the normalized cost
center CCRs and removed any cost
center CCRs where the log of the cost
center CCR was greater or less than the
mean log plus/minus 3 times the
standard deviation for the log of that
cost center CCR. Once the cost report
data were trimmed, we calculated a
Medicare-specific CCR. The Medicarespecific CCR was determined by taking
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the Medicare charges for each line item
from Worksheet D, Part 4 and deriving
the Medicare specific costs by applying
the hospital-specific departmental CCRs
to the Medicare-specific charges for
each line item from Worksheet D, Part
4. Once each hospital’s Medicarespecific costs were established, we
summed the total Medicare-specific
costs and divided by the sum of the total
Medicare-specific charges to produce
national average, charge-weighted CCRs.
After we multiplied the total charges
for each DRG in each of the 13 cost
centers by the corresponding national
average CCR, we summed the 13 ‘‘costs’’
across each DRG to produce a total
standardized cost for the DRG. The
average standardized cost for each DRG
was then computed as the total
standardized cost for the DRG divided
by the transfer adjusted case count for
the DRG. The average cost for each DRG
was then divided by the national
average standardized cost per case to
determine the relative weight.
The new cost-based weights were
then normalized by an adjustment factor
of 1.50988 so that the average case
weight after recalibration was equal to
the average case weight before
recalibration. Since more trims were
applied to the data under the cost-based
weights methodology than under the
charge-based methodology, a smaller
universe of claims was used in the costbased methodology. In this instance, the
different universe of claims also
resulted in a slightly higher cost-based
normalization factor than the
normalization factor derived for chargebased weights. The normalization
adjustment is intended to ensure that
recalibration by itself neither increases
nor decreases total payments under the
IPPS as required by section
1886(d)(4)(C)(iii) of the Act.
The 13 proposed national average
CCRs for FY 2008 are as follows:
Group
Routine Days ......................................
Intensive Days ....................................
Drugs ..................................................
Supplies & Equipment ........................
Therapy Services ................................
Laboratory ...........................................
Operating Room .................................
Cardiology ...........................................
Radiology ............................................
Other Services ....................................
Labor & Delivery .................................
Inhalation Therapy ..............................
Anesthesia ..........................................
DRG title
789 ..........
791 ..........
Neonates, Died or Transferred to Another
Acute Care Facility.
Extreme Immaturity or Respiratory Distress
Syndrome, Neonate.
Prematurity With Major Problems ...............
792 ..........
Prematurity Without Major Problems ..........
793 ..........
Full-term Neonate With Major Problems ....
794 ..........
Neonate With Other Significant Problems ..
795 ..........
Normal Newborn .........................................
790 ..........
Crosswalk to DRG
I. Proposed MS–LTC–DRG
Reclassifications and Relative Weights
for LTCHs for FY 2008
(If you choose to comment on issues
in this section, please include the
caption ‘‘MS–LTC–DRGs’’ at the
beginning of your comment.)
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0.52
0.48
0.21
0.34
0.42
0.17
0.30
0.19
0.18
0.37
0.47
0.19
0.14
When we recalibrated the DRG
weights for previous years, we set a
threshold of 10 cases as the minimum
number of cases required to compute a
reasonable weight. We used that same
case threshold in recalibrating the DRG
weights for FY 2008. Using the FY 2006
MedPAR data set, there are 7 proposed
MS–DRGs that contain fewer than 10
cases. Under the proposed MS–DRGs,
we have fewer low-volume DRGs than
under the CMS DRGs because we no
longer have separate DRGs for patients
age 0 to 17 years. With the exception of
newborns, we previously separated
Low-volume DRG
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CCR
some DRGs based on whether the
patient was age 0–17 or age 17 and
older. Other than the age split, cases
grouping to these DRGs are identical.
The DRGs for patients age 0 to 17 years
generally have very low volumes
because children are typically ineligible
for Medicare. In the past, we have found
that the low volume of cases for the
pediatric DRGs could lead to significant
year-to-year instability in their relative
weights. Although we have always
encouraged non-Medicare payers to
develop weights applicable to their own
patient populations, we have heard
frequent complaints from providers
about the use of the Medicare relative
weights in the pediatric population. We
believe that eliminating this age split in
the proposed MS–DRGs will provide
more stable payment for pediatric cases
by determining their payment using
adult cases that are much higher in total
volume. All of the low-volume DRGs
listed below are for newborns.
Newborns are unique and require
separate DRGs that are not mirrored in
the adult population. Therefore, it
remains necessary to retain separate
DRGs for newborns. In FY 2008, because
we do not have sufficient MedPAR data
to set accurate and stable cost weights
for these low-volume DRGs, we are
proposing to compute weights for the
low-volume DRGs by adjusting their FY
2007 weights by the percentage change
in the average weight of the cases in
other DRGs. The crosswalk table we are
proposing is shown below:
FY 2007 FR weight
other DRGs).
FY 2007 FR weight
other DRGs).
FY 2007 FR weight
other DRGs).
FY 2007 FR weight
other DRGs).
FY 2007 FR weight
other DRGs).
FY 2007 FR weight
other DRGs).
FY 2007 FR weight
other DRGs).
(adjusted by percent change in average weight of the cases in
(adjusted by percent change in average weight of the cases in
(adjusted by percent change in average weight of the cases in
(adjusted by percent change in average weight of the cases in
(adjusted by percent change in average weight of the cases in
(adjusted by percent change in average weight of the cases in
(adjusted by percent change in average weight of the cases in
1. Background
In the June 6, 2003 LTCH PPS final
rule (68 FR 34122), we changed the
LTCH PPS annual payment rate update
cycle to be effective July 1 through June
30 instead of October 1 through
September 30. In addition, because the
patient classification system utilized
under the LTCH PPS uses the same CMS
DRGs as those currently used under the
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IPPS for acute care hospitals, in that
same final rule, we explained that the
annual update of the long-term care
diagnosis-related group (LTC–DRG)
classifications and relative weights will
continue to remain linked to the annual
reclassification and recalibration of the
CMS DRGs used under the IPPS.
Therefore, we specified that we will
continue to update the LTC–DRG
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classifications and relative weights to be
effective for discharges occurring on or
after October 1 through September 30
each year. We further stated that we will
publish the annual proposed and final
update of the LTC–DRGs in same notice
as the proposed and final update for the
IPPS (69 FR 34125).
In the past, the annual update to the
IPPS CMS DRGs has been based on the
annual revisions to the ICD–9–CM codes
and was effective each October 1. As
discussed in the FY 2007 IPPS final rule
(71 FR 47971 through 47994) and in the
Rate Year (RY) 2008 LTCH PPS
proposed rule (72 FR 4783 through
4789), with the implementation of
section 503(a) of 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 (October 1 and April 1) as required
by the statute for the IPPS. Section
503(a) of Pub. L. 108–173 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 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 fiscal year
that begins after such date.’’ This
requirement improves the recognition of
new technologies under the IPPS by
accounting for those ICD–9–CM codes
in the MedPAR claims data earlier than
the agency had accounted for new
technology in the past. In implementing
the statutory change, the agency has
provided that ICD–9–CM diagnosis and
procedure codes for new medical
technology may be created and assigned
to existing CMS DRGs in the middle of
the Federal fiscal year, on April 1.
However, this policy change will not
impact the DRG relative weights in
effect for that year, which will continue
to be updated only once a year (October
1), nor will it have any impact on
Medicare payments. 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,
promulgated in accordance with the
Health Insurance Portability and
Accountability Act of 1996 (HIPAA),
Pub. L. 104–191.
As noted above, the patient
classification system used under the
LTCH PPS (LTC–DRGs) is based on the
patient classification system used under
the IPPS (CMS DRGs). Therefore, the
ICD–9–CM codes currently used under
both the IPPS and LTCH PPS may be
updated as often as twice a year. This
requirement is included as part of the
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amendments to the Act relating to
recognition of new medical technology
under the IPPS.
Because we do not publish a midyear
IPPS rule, any April 1 ICD–9–CM
coding update will not be published
midyear. 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 (as also
discussed in section II.G.10. of this
preamble). Any coding updates will be
available through the Web sites
provided in section II.G.10. of this
preamble and through the Coding Clinic
for ICD–9–CM, a product of the
American Hospital Association.
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
Pub. L. 108–173, 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
is an open process through the ICD–9–
CM Coordination and Maintenance
Committee. Requestors will be given the
opportunity to present the merits for a
new code and to 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 (as
also discussed in section II.G.10. of this
preamble).
As we discussed in the RY 2008
LTCH PPS proposed rule (72 FR 4783
through 4789), at the September 28,
2006 ICD–9–CM Coordination and
Maintenance Committee meeting, there
were no requests for an April 1, 2007
implementation of ICD–9–CM codes.
Therefore, the next update to the ICD–
9–CM coding system will not occur
until October 1, 2007 (FY 2008).
Because there were no coding changes
suggested for an April 1, 2007 update,
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the ICD–9–CM coding set implemented
on October 1, 2006, will continue
through September 30, 2007 (FY 2008).
The update to the ICD–9–CM coding
system for FY 2008 is discussed above
in section II.G.10. of this preamble.
Accordingly, in this proposed rule, as
discussed in greater detail below, we are
proposing to modify and revise the
LTC–DRG classifications and relative
weights, to be effective October 1, 2007
through September 30, 2008 (FY 2008).
In addition, we will notify LTCHs of any
revisions to the GROUPER software
used under the IPPS and the LTCH PPS
that may be implemented on April 1,
2008. The proposed LTC–DRGs and
proposed relative weights for FY 2008
in this proposed rule are based on the
proposed IPPS MS–DRGs (GROUPER
Version 25.0) discussed in section II.B.
of the preamble to this proposed rule.
2. Proposed Changes in the LTC–DRG
Classifications
a. Background
Section 123 of Pub. L. 106–113
specifically requires that the agency
implement a PPS for LTCHs that is 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
Pub. L. 106–554 modified the
requirements of section 123 of Pub. L.
106–113 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
diagnosis-related groups (DRGs) that
have been modified to account for
different resource use of long-term care
hospital patients as well as the use of
the most recently available hospital
discharge data.’’
In accordance with section 123 of
Pub. L. 106–113 as amended by section
307(b)(1) of Pub. L. 106–554 and §
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. As described in II.D. of
the preamble of this proposed rule, we
are proposing to adopt MS–DRGs under
the IPPS because we believe that
adopting this system will result in a
significant improvement in the DRG
system’s recognition of severity of
illness and resource usage. We believe
these improvements in the DRG system
would be equally applicable to the
LTCH PPS. The changes we are
currently proposing for the IPPS would
be reflected in the FY 2008 GROUPER,
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Version 25.0, to be effective for
discharges occurring on or after October
1, 2007 through September 30, 2008.
Currently, the LTC–DRGs used as the
patient classification component of the
LTCH PPS correspond to the current
CMS DRGs applicable under the IPPS
for acute care hospitals
Consistent with our historical practice
of having LTC–DRGs correspond to the
DRGs applicable under the IPPS, under
the broad authority of section 123(a) of
Pub. L. 106–113, as modified by section
307(b) of Pub. L. 106–554, we are
proposing to use MS–LTC–DRGs which
correspond to the proposed MS–DRGs.
In addition, as stated above, we are
proposing to use the FY 2008 GOUPER
Version 25.0, to be effective for
discharges occurring on or after October
1, 2007 through September 30, 2008.
The proposed changes to the current
CMS DRG classification system used
under the IPPS for FY 2008 (GROUPER
Version 25.0) are discussed in section
II.D. of the preamble to this proposed
rule.
As noted above, the patient
classification system used under the
LTCH PPS (LTC–DRGs) is based on the
patient classification system used under
the IPPS (CMS DRGs), which
historically has been updated annually
as authorized by section 1886(d)(4)(C) of
the Act and is effective for discharges
occurring on or after October 1 through
September 30 of each year. As such, the
proposed updates to the CMS DRG
classification system used under the
IPPS for FY 2008 (GROUPER Version
25.0), discussed in section II.D. of the
preamble of this proposed rule, would
be applicable to updates under the
LTCH PPS. In conjunction with the
proposed changes to the existing CMS
DRGs for the IPPS by adoption of the
proposed MS–DRGs, we are proposing
to adopt the MS–DRGs for the LTCH
PPS, as both sets of DRGs are based on
the same DRG structure. However, we
refer to the proposed DRGs under the
LTCH PPS as MS–LTC–DRGs. This
proposed conforming change, that is, to
replicate the MS–LTC–DRG structure
after the proposed MS–DRG structure is
appropriate in order to maintain
consistency and uniformity among a
number of stakeholders, such as acute
care hospitals, LTCHs, epidemiologists,
ratesetting organizations, and payors,
among others.
Under the LTCH PPS, as described in
greater detail below, we determine
relative weights for each of the DRGs to
account for the difference in resource
use by patients exhibiting the case
complexity and multiple medical
problems characteristic of LTCH
patients. (Unless otherwise noted in this
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proposed rule, our MS–LTC–DRG
analysis is based on LTCH data from the
December 2006 update of the FY 2006
MedPAR file, which contains hospital
bills received through December 31,
2006, for discharges occurring in FY
2006.)
LTCHs do not typically treat the full
range of diagnoses as do acute care
hospitals. Therefore, as we discussed in
the August 30, 2002 LTCH PPS final
rule (67 FR 55985), which implemented
the LTCH PPS, and the FY 2006 IPPS
final rule (70 FR 47324), we use lowvolume quintiles in determining the
LTC–DRG relative weights for LTC–
DRGs with less than 25 LTCH cases
(low-volume LTC–DRGs). Specifically,
we group those low-volume LTC–DRGs
into 5 quintiles based on average
charges per discharge. (A listing of the
composition of low-volume quintiles for
the FY 2007 LTC–DRGs (based on FY
2005 MedPAR data) appears in section
II.I.2.d. of the FY 2007 IPPS final rule
(71 FR 47975 through 47978).) We also
adjust for cases in which the stay at the
LTCH is less than or equal to five-sixths
of the geometric average length of stay;
that is, short-stay outlier cases (§
412.529), as discussed below in section
II.I.4. of this preamble.
b. Patient Classifications into DRGs
Generally, under the LTCH PPS,
Medicare payment is made at a
predetermined specific rate for each
discharge; that is, payment varies by the
LTC–DRG to which a beneficiary’s stay
is assigned. Just as cases have been
classified into the proposed MS–DRGs
for acute care hospitals under the IPPS
(section II. of the preamble of this
proposed rule), cases have been
classified into proposed MS–LTC–DRGs
for payment under the LTCH PPS based
on the principal diagnosis, up to eight
additional diagnoses, and up to six
procedures performed during the stay,
as well as age, sex, and discharge status
of the patient. The diagnosis and
procedure information is reported by
the hospital using the ICD–9–CM codes.
Under the proposed MS–DRGs for the
IPPS and the proposed MS–LTC–DRGs
for the LTCH PPS, these factors will not
change.
Section II.B. of the preamble of this
proposed rule discusses the
organization of the existing CMS DRGs,
which we are proposing to maintain
under the proposed MS–DRG and MS–
LTC–DRG systems. As noted above, the
patient classification system for the
LTCH PPS is derived from the CMS
DRGs and is similarly organized into 25
major diagnostic categories (MDCs).
Most of these MDCs are based on a
particular organ system of the body and
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the remainder involves 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. Under
the present CMS DRGs, some surgical
and medical DRGs are further
differentiated based on the presence or
absence of CCs. The existing LTC–DRGs
are similarly categorized. (See section
II.B. of the preamble of this proposed
rule for further discussion of surgical
DRGs and medical DRGs.)
The proposed MS–DRGs and the
proposed MS–LTC–DRGs contain base
DRGs that have been subdivided into
one, two, or three severity levels. The
most severe level has at least one code
that is a major CC, referred to as ‘‘with
MCC’’. The next lower severity level
contains cases with at least one CC,
referred to as ‘‘with CC’’. Those DRGs
without an MCC or a CC are referred to
as ‘‘without CC/MCC’’. When data did
not support the creation of three
severity levels, the base DRG was
divided into either two levels or the
base was not subdivided. The proposed
two-level subdivisions consist of one of
the following subdivisions:
<bullet≤ With CC/MCC
<bullet≤ Without CC/MCC
In this type of subdivision, cases with
at least one code that is on the CC or
MCC list are assigned to the ‘‘with CC/
MCC’’ DRG. Cases without a CC or an
MCC are assigned to the ‘‘without CC/
MCC’’ DRG.
The other type of proposed two-level
subdivision is as follows:
<bullet≤ With MCC
<bullet≤ Without MCC
In this type of subdivision, cases with
at least one code that is on the MCC list
are assigned to the ‘‘with MCC’’ DRG.
Cases that do not have an MCC are
assigned to the ‘‘without MCC’’ DRG.
This type of subdivision could include
cases with a CC code, but no MCC.
As under the present LTC–DRG
system, we are proposing that the
assignment of a case to a particular MS–
LTC–DRG will determine the amount
that is paid for the case. Therefore, it is
important that the coding is accurate.
Classifications and terminology used
under the LTCH PPS are consistent with
the ICD–9–CM and the Uniform
Hospital Discharge Data Set (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. Again, we point
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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 Transactions and
Code Sets Standards under HIPAA (45
CFR Parts 160 and 162).
The emphasis on the need for proper
coding cannot be overstated. As under
the present LTC–DRG system,
inappropriate coding of cases under the
proposed MS–LTC–DRG system could
adversely affect the uniformity of cases
in each proposed MS–LTC–DRG and
produce inappropriate weighting factors
at recalibration and result in
inappropriate payments under the
LTCH PPS. LTCHs are required to
follow the same coding guidelines
established under the IPPS, described in
section II.G.10 of the preamble of this
proposed rule established under the
IPPS. It is mandatory that the coders
continue to report the same principal
diagnosis on all claims and include all
diagnosis codes for conditions that
coexist at the time of admission, for
conditions that are subsequently
developed, or for conditions that affect
the treatment received. Similarly, all
procedures performed in a LTCH, or
paid for under arrangements by a LTCH
(§ 412.509), during that stay are to be
reported on each claim. Consistent with
current practice, there will be only one
proposed MS–LTC–DRG assigned to
each discharge of the patient from a
LTCH.
Under the proposed MS–LTC–DRG
classification system, as is required
under existing policy, upon the
discharge of the patient from a LTCH,
the LTCH must assign appropriate
diagnosis and procedure codes from the
ICD–9–CM. Completed claim forms are
to be submitted electronically to the
LTCH’s fiscal intermediary (or, if
applicable, MAC). The fiscal
intermediary or MAC enters the clinical
and demographic information into their
claims processing systems and subject
this information to a series of automated
screening processes called the MCE.
These screens are designed to identify
cases that require further review before
assignment into a LTC–DRG can be
made.
After screening through the MCE,
each LTCH claim will be classified into
the appropriate LTC–DRG by the
Medicare LTCH GROUPER. The LTCH
GROUPER is specialized computer
software and is the same GROUPER
used under the IPPS. After the LTC–
DRG is assigned, the fiscal intermediary
or MAC determines the prospective
payment by using the Medicare LTCH
PPS PRICER program, which accounts
for LTCH hospital-specific adjustments
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and payment rates. As provided for
under the IPPS, we provide an
opportunity for the LTCH to review the
LTC–DRG assignments made by the
fiscal intermediary or MAC and to
submit additional information, if
necessary, within a specified timeframe
(§ 412.513(c)). Under the proposed
adoption of the MS–LTC–DRG, there
would be no changes in this procedure.
The LTCH GROUPER is used both to
classify past cases in order to measure
relative hospital resource consumption
to establish the proposed MS–LTC–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 (as discussed in section II.H. of
the preamble of this proposed rule). The
proposed MS–LTC–DRG relative
weights are based on data for the
population of LTCH discharges.
3. Development of the Proposed FY
2008 MS–LTC–DRG Relative Weights
a. General Overview of Development of
the Proposed MS–LTC–DRG Relative
Weights
As we stated in the August 30, 2002
LTCH PPS final rule (67 FR 55981), one
of the primary goals for the
implementation of the LTCH PPS is to
pay each LTCH an appropriate amount
for the efficient delivery of medical care
to Medicare patients. The system must
be able to account adequately for each
LTCH’s case-mix in order to ensure both
fair distribution of Medicare payments
and access to adequate care for those
Medicare patients whose care is more
costly. To accomplish these goals, we
have annually adjusted the LTCH PPS
standard Federal prospective payment
system rate by the applicable LTC–DRG
relative weight in determining payment
to LTCHs for each case. (As we have
noted above, we are proposing to adopt
the MS–LTC–DRGs for the LTCH PPS
for FY 2008. However, this proposed
change in the patient classification
system does not affect the basic
principles of the development of
relative weights under a DRG-based
prospective payment system. For
purposes of clarity, in the general
discussion below in which we describe
the basic methodology of the patient
classification system, in use since the
start of the LTCH PPS, we use ‘‘MS–
LTC–DRG’’ to specify the proposed DRG
system to be used by the LTCH
prospective payment system in FY
2008.)
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Although the proposed adoption of
the MS–LTC–DRGs will result in some
modifications of existing procedures for
assigning weights in cases of zero
volume and/or nonmonotonicity,
discussed in detail in the following
sections, the basic methodology for
developing the proposed FY 2008 MS–
LTC–DRG relative weights in this
proposed rule continue to be
determined in accordance with the
general methodology established in the
August 30, 2002 LTCH PPS final rule
(67 FR 55989 through 55991).
(Therefore, as noted above, in this
preamble, ‘‘LTC–DRGs’’ will be used in
descriptions of the basic methodology
established at the beginning of the
LTCH PPS that will remain unchanged
if we adopt the proposed MS–LTC–
DRGs. Use of ‘‘MS–LTC–DRGs’’ will
indicate a discussion of specifics
aspects of our proposed adoption of the
severity-weighted patient classification
system for FY 2008.)
Under the LTCH PPS, relative weights
for each proposed MS–LTC–DRG are a
primary element used to account for the
variations in cost per discharge and
resource utilization among the payment
groups (§ 412.515). To ensure that
Medicare patients classified to each
proposed MS–LTC–DRG have access to
an appropriate level of services and to
encourage efficiency, we calculate a
relative weight for each proposed MS–
LTC–DRG that represents the resources
needed by an average inpatient LTCH
case in that proposed MS–LTC–DRG.
For example, cases in a proposed MS–
LTC–DRG with a relative weight of 2
will, on average, cost twice as much to
treat as cases in a proposed MS–LTC–
DRG with a weight of 1.
b. Data
To calculate the proposed MS–LTC–
DRG relative weights for FY 2008 in his
proposed rule, we obtained total
Medicare allowable charges from FY
2006 Medicare LTCH bill data from the
December 2006 update of the MedPAR
file, which are the best available data at
this time, and we used the proposed
Version 25.0 of the CMS GROUPER
used under the IPPS (as discussed in
section II.B. of the preamble of this
proposed rule) to classify cases. To
calculate the final MS–LTC–DRG
relative weights for FY 2008, we are
proposing that, if more recent data are
available (that is, data from the March
2007 update of the MedPAR file), we
would use those data and the finalized
Version 25.0 of the CMS GROUPER
used under the IPPS.
As we discussed in the FY 2007 IPPS
final rule (71 FR 47974), we have
excluded the data from LTCHs that are
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all-inclusive rate providers and LTCHs
that are reimbursed in accordance with
demonstration projects authorized
under section 402(a) of Pub. L. 90–248.
Data from demonstration projects
authorized under section 222(a) of Pub.
L. 92–603 are also excluded. Therefore,
in the development of the proposed FY
2008 MS–LTC–DRG relative weights in
this proposed rule, we have excluded
the data of the 19 all-inclusive rate
providers and the 3 LTCHs that are paid
in accordance with demonstration
projects that had claims in the FY 2006
MedPAR file.
c. Hospital-Specific Relative Value
Methodology
By nature, LTCHs often specialize in
certain areas, such as ventilatordependent patients and rehabilitation
and wound care. Some case types
(DRGs) may be treated, to a large extent,
in hospitals that have, from a
perspective of charges, relatively high
(or low) charges. This nonarbitrary
distribution of cases with relatively high
(or low) charges in specific proposed
MS–LTC–DRGs has the potential to
inappropriately distort the measure of
average charges. To account for the fact
that cases may not be randomly
distributed across LTCHs, we use a
hospital-specific relative value (HSRV)
method to calculate the proposed MS–
LTC–DRG relative weights instead of the
methodology used to determine the
proposed CMS DRG relative weights
under the IPPS described in section II.H.
of the preamble this proposed rule. We
believe this method will remove this
hospital-specific source of bias in
measuring LTCH average charges.
Specifically, we reduce the impact of
the variation in charges across providers
on any particular LTC–DRG relative
weight by converting each LTCH’s
charge for a case to a relative value
based on that LTCH’s average charge.
Under the HSRV method, we
standardize charges for each LTCH by
converting its charges for each case to
hospital-specific relative charge values
and then adjusting those values for the
LTCH’s case-mix. The adjustment for
case-mix is needed to rescale the
hospital-specific relative charge values
(which, by definition, average 1.0 for
each LTCH). The average relative weight
for a LTCH is its case-mix, so it is
reasonable to scale each LTCH’s average
relative charge value by its case-mix. In
this way, each LTCH’s relative charge
value is adjusted by its case-mix to an
average that reflects the complexity of
the cases it treats relative to the
complexity of the cases treated by all
other LTCHs (the average case-mix of all
LTCHs).
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In accordance with the methodology
established under § 412.523, as
implemented in the August 30, 2002
LTCH PPS final rule (67 FR 55989
through 55991), we continue to
standardize charges for each case by
first dividing the adjusted charge for the
case (adjusted for short-stay outliers
under § 412.529 as described in section
II.I.4. (step 3) of the preamble of this
proposed rule) by the average adjusted
charge for all cases at the LTCH in
which the case was treated. Short-stay
outliers under § 412.529 are cases with
a length of stay that is less than or equal
to five-sixths the average length of stay
of the proposed MS–LTC–DRG. The
average adjusted charge reflects the
average intensity of the health care
services delivered by a particular LTCH
and the average cost level of that LTCH.
The resulting ratio is multiplied by that
LTCH’s case-mix index to determine the
standardized charge for the case.
Multiplying by the LTCH’s case-mix
index accounts for the fact that the same
relative charges are given greater weight
at a LTCH with higher average costs
than they would at a LTCH with low
average costs, which is needed to adjust
each LTCH’s relative charge value to
reflect its case-mix relative to the
average case-mix for all LTCHs. Because
we standardize charges in this manner,
we count charges for a Medicare patient
at a LTCH with high average charges as
less resource intensive than they would
be at a LTCH with low average charges.
For example, a $10,000 charge for a case
at a LTCH with an average adjusted
charge of $17,500 reflects a higher level
of relative resource use than a $10,000
charge for a case at a LTCH with the
same case-mix, but an average adjusted
charge of $35,000. We believe that the
adjusted charge of an individual case
more accurately reflects actual resource
use for an individual LTCH because the
variation in charges due to systematic
differences in the markup of charges
among LTCHs is taken into account.
d. Proposed Treatment of Severity
Levels in Developing Relative Weights
With the implementation of the LTCH
PPS for FY 2003, we established a
procedure to address setting relative
weights for LTC–DRG ‘‘pairs’’ that were
differentiated on the presence or
absence of CCs (71 FR 47979). For FY
2008, we are proposing to adopt a
severity-based patient classification
system for the LTCH PPS, the MS–LTC–
DRGs described above, which requires
us to adapt our existing procedures for
dealing with setting relative weights for
the severity levels within a specific base
DRG. We are also proposing to modify
our existing methodology for
PO 00000
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maintaining monotonicity when setting
relative weights for the proposed MS–
LTC–DRGs.
As under the existing procedure,
under the proposed MS–LTC–DRGs, for
purposes of the annual setting of the
relative weights, there continue to be
three different categories of DRGs based
on volume of cases within specific LTC–
DRGs. DRGs with at least 25 cases are
each assigned a relative weight; lowvolume proposed MS–LTC–DRGs (that
is, proposed MS–LTC–DRGs that
contain between one and 24 cases
annually) are grouped into quintiles
(described below) and assigned the
weight of the quintile. Cases with novolume proposed MS–LTC–DRGs (that
is, no cases in the databases were
assigned to those proposed MS–LTC–
DRGs) are crosswalked to other
proposed MS–LTC–DRGs based on the
clinical similarities and assigned the
weight of the quintile that is closest to
the relative weight of the crosswalked
proposed MS–LTC–DRG. (We provide
in-depth discussions of our proposals
regarding weightsetting for low-volume
MS–LTC–DRGs in section II.I.3.e. of the
preamble of this proposed rule and for
no-volume MS–LTC–DRGs, under Step
4 in section II.I.4. of the preamble of this
proposed rule.)
As described above, in response to the
need to account for severity and pay
appropriately for cases, we have
developed a severity-adjusted patient
classification system which we are
proposing for both the IPPS and the
LTCH PPS. As described in greater
detail above, the proposed MS–LTC–
DRG system can accommodate three
severity levels: MCC (most severe);
without CC/MCC (the least severe), and
with CC, with each level assigned an
individual MS–LTC–DRG number. In
cases with two subdivisions, the levels
are either with CC/MCC and without
CC/MCC or with MCC and without
MCC. Two parallel numbering systems
have been developed, based on the MS–
DRG patient classification system
proposed under the IPPS, to describe
proposed MS–LTC–DRGs. That is, while
each severity level in each DRG category
gets a unique MS–LTC–DRG number, in
conjunction, each of the severity levels
in a single DRG category are also
assigned the same ‘‘base-DRG’’ number.
We are proposing that the term ‘‘base
DRG’’ is actually the MS–LTC–DRG
number of the highest severity level and
would be used when we refer to the
MS–LTC–DRG category that
encompasses all the levels of severity
for that DRG. Therefore, under the
proposed system, multiple sclerosis and
cerebellar ataxia with MCC is MS–LTC–
DRG 58; multiple sclerosis and
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cerebellar ataxia with CC is MS–LTC–
DRG 59; and multiple sclerosis and
cerebellar ataxia without CC/MCC is
MS–LTC–DRG 59, and the base MS–
LTC–DRG for each is 58.
As noted above, for FY 2008, we are
proposing to adopt the MS–DRGs for
use in both the LTCH PPS and the IPPS.
While the LTCH PPS and the IPPS use
the same patient classification system,
the methodology that is used to set the
DRG weights for use in each payment
system differs because the overall
volume of cases in the LTCH PPS is
much less than in the IPPS. As a general
rule, we are proposing to set the weights
for the MS–LTC–DRGs using the
following steps: (1) If an MS–LTC–DRG
has at least 25 cases, it is assigned its
own relative weight; (2) if an MS–LTC–
DRGs has between 1 and 24 cases, it is
assigned to a quintile to which we will
assign a relative weight; and (3) if an
MS–LTC–DRG has no cases, it is
crosswalked to another DRG based upon
clinical similarities and assigned the
appropriate relative weight (as
described in detail in Step 5, below).
Theoretically, as with the existing
LTC–DRG system, cases under the
proposed MS–LTC–DRG system that are
more severe require greater expenditure
of medical care resources and will result
in higher average charges. Therefore, in
the three severity levels, weights should
increase with severity, from lowest to
highest. If the weights do not increase
(that is, if based on the weight
calculation, a proposed MS–LTC–DRG
with MCC would have a lower relative
weight than one with CC, or the DRG
without CC/MCC would have a higher
relative weight than either of the
others), there is a problem with
monotonicity. Since the start of the
LTCH PPS for FY 2003 (67 FR 55990),
we have adjusted the setting of the LTC–
DRG relative weight in order to
maintain monotonicity by grouping both
sets of cases together and establishing a
new relative weight that is assigned to
both LTC–DRGs. Similarly, we are
proposing a procedure for dealing with
nonmonotonicity under the proposed
MS–LTC–DRG classification system that
we describe in detail in our explanation
of our methodology for setting the
proposed FY 2008 relative weights for
the LTCH PPS, which is discussed in
section II.F.4 of the preamble of this
proposed rule.
e. Low-Volume Proposed MS–LTC–
DRGs
In order to account for LTC–DRGs
with low volume (that is, with fewer
than 25 LTCH cases), under current
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policy, in accordance with the
methodology established in the August
30, 2002 LTCH PPS final rule (67 FR
55984), we group those ‘‘low-volume
LTC–DRGs’’ (that is, DRGs that
contained between 1 and 24 cases
annually) into one of five categories
(quintiles) based on average charges, for
the purposes of determining relative
weights. For this FY 2008 IPPS
proposed rule, we are proposing to
continue to employ this treatment of
low-volume proposed MS–LTC–DRGs
with a modification to combine
proposed MS–LTC–DRGs for the
purpose of computing a relative weight
in cases where necessary to maintain
monotonicity in determining the
proposed FY 2008 MS–LTC–DRG
relative weights using the best available
LTCH data. In this proposed rule, using
LTCH cases from the December 2006
update of the FY 2006 MedPAR file, we
identified 307 proposed MS–LTC–DRGs
that contained between 1 and 24 cases.
This list of proposed MS–LTC–DRGs
was then divided into one of the 5 lowvolume quintiles, each containing a
minimum of 61 proposed MS–LTC–
DRGs (307/5 = 61, with a remainder of
2 proposed MS–LTC–DRGs). Consistent
with our current methodology, we are
proposing to make an assignment to a
specific low-volume quintile by sorting
the low-volume proposed MS–LTC–
DRGs in ascending order by average
charge. For this proposed rule, this
results in a proposed assignment to a
specific low-volume quintile of the
sorted 307 low-volume proposed MS–
LTC–DRGs by ascending order by
average charge. Because the number of
low-volume proposed MS–LTC–DRGs
for FY 2008 is not evenly divisible by
five, to determine the composition of
the low-volume quintiles in accordance
with our established methodology, the
average charge of the low-volume
proposed MS–LTC–DRG was used to
determine which low-volume quintile
received the additional proposed MS–
LTC–DRGs. After sorting the 307 lowvolume proposed MS–LTC–DRGs in
ascending order, we grouped the first
fifth (1st through 61st) of low-volume
proposed MS–LTC–DRGs (with the
lowest average charge) into Quintile 1.
Because the average charge of the 62nd
proposed MS–LTC–DRG in the sorted
list is closer to the 61st proposed MS–
LTC–DRGs average charge (assigned to
Quintile 1) than to the average charge of
the 63rd proposed MS–LTC–DRG in the
sorted list (to be assigned to Quintile 2),
we placed the 62nd proposed MS–LTC–
DRG into Quintile 1. This process was
repeated through the remaining low-
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24759
volume proposed MS–LTC–DRGs so
that 2 low-volume quintiles contain 62
proposed MS–LTC–DRGs and 3 lowvolume quintiles contain 61 proposed
MS–LTC–DRGs. The highest average
charge cases were grouped into Quintile
5.
In order to determine the proposed
relative weights for the proposed MS–
LTC–DRGs with low-volume for FY
2008, based on the methodology
established in the August 30, 2002
LTCH PPS final rule (67 FR 55984), we
are proposing to use the five lowvolume quintiles described above. In
addition, in cases where the initial
assignment of the low-volume proposed
MS–LTC–DRGs to quintiles results in
nonmonotonicity within a base DRG, we
are proposing to combine those
proposed MS–LTC–DRGs for the
purpose of computing a relative weight
and set the same relative weight to each
of the proposed MS–LTC–DRGs within
the base DRG that required combining.
The treatment of low-volume proposed
MS–LTC–DRGs to preserve
monotonicity is further discussed in
detail in section II.I.4 (Step 6 of the
methodology for determining the
proposed FY 2008 MS–LTC–DRG
relative weights). The composition of
each of the proposed five low-volume
quintiles shown in the chart below was
used in determining the proposed MS–
LTC–DRG relative weights for FY 2008.
We would determine a proposed
relative weight and (geometric) average
length of stay for each of the proposed
five low-volume quintiles using the
methodology that we apply to the
regular proposed MS–LTC–DRGs (25 or
more cases), as described below in
section II.I.4. of the preamble of this
proposed rule. We are proposing to
assign the same relative weight and
average length of stay to each of the
proposed MS–LTC–DRGs that make up
an individual proposed low-volume
quintile. We note that, as this system is
dynamic, it is possible that the number
and specific type of MS–LTC–DRGs
with a low volume of LTCH cases will
vary in the future. We use the best
available claims data in the MedPAR
file to identify low-volume MS–LTC–
DRGs and to calculate the relative
weights based on our methodology.
Therefore, we are proposing that, if we
have updated data for the final rule, we
will use that data to determine the
finalized FY 2008 relative weights.
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PROPOSED COMPOSITION OF LOW-VOLUME QUINTILES FOR FY 2008
Proposed
MS–LTC–
DRG
Proposed MS–LTC–DRG description
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QUINTILE 1
30 .................
32 .................
33 .................
58 .................
60 .................
66 .................
67 .................
68 .................
69 .................
72 .................
76 .................
79 .................
88 .................
133 ...............
122 ...............
123 ...............
149 ...............
153 ...............
182 ...............
183 ...............
184 ...............
201 ...............
261 ...............
262 ...............
313 ...............
328 ...............
331 ...............
349 ...............
376 ...............
434 ...............
446 ...............
505 ...............
512 ...............
544 ...............
547 ...............
563 ...............
598 ...............
630 ...............
645 ...............
661 ...............
688 ...............
696 ...............
714 ...............
718 ...............
724 ...............
726 ...............
756 ...............
759 ...............
761 ...............
825 ...............
836 ...............
869 ...............
876 ...............
881 ...............
882 ...............
883 ...............
886 ...............
894 ...............
895 ...............
906 ...............
916 ...............
922 ...............
923 ...............
Spinal procedures w/o CC/MCC.
Ventricular shunt procedures w CC.
Ventricular shunt procedures w/o CC/MCC.
Multiple sclerosis & cerebellar ataxia w MCC*.
Multiple sclerosis & cerebellar ataxia w/o CC/MCC*.
Intracranial hemorrhage or cerebral infarction w/o CC/MCC.
Nonspecific CVA & precerebral occlusion w/o infarct w MCC.
Nonspecific CVA & precerebral occlusion w/o infarct w/o MCC.
Transient ischemia.
Nonspecific cerebrovascular disorders w/o CC/MCC.
Viral meningitis w/o CC/MCC.
Hypertensive encephalopathy w/o CC/MCC.
Concussion w MCC***.
Other ear, nose, mouth & throat O.R. procedures w CC/MCC***.
Acute major eye infections w/o CC/MCC.
Neurological eye disorders.
Dysequilibrium.
Otitis media & URI w/o MCC.
Respiratory neoplasms w/o CC/MCC.
Major chest trauma w MCC.
Major chest trauma w CC**.
Pneumothorax w/o CC/MCC.
Cardiac pacemaker revision except device replacement w CC.
Cardiac pacemaker revision except device replacement w/o CC/MCC.
Chest pain.
Stomach, esophageal & duodenal proc w/o CC/MCC.
Major small & large bowel procedures w/o CC/MCC.
Anal & stomal procedures w/o CC/MCC.
Digestive malignancy w/o CC/MCC.
Cirrhosis & alcoholic hepatitis w/o CC/MCC*.
Disorders of the biliary tract w/o CC/MCC.
Foot procedures w/o CC/MCC.
Shoulder, elbow or forearm proc, exc major joint proc w/o CC/MCC.
Pathological fractures & musculoskelet & conn tiss malig w/o CC/MCC.
Connective tissue disorders w/o CC/MCC.
Fx, sprn, strn & disl except femur, hip, pelvis & thigh w/o MCC.
Malignant breast disorders w CC***.
Other endocrine, nutrit & metab O.R. proc w/o CC/MCC.
Endocrine disorders w/o CC/MCC.
Kidney & ureter procedures for non-neoplasm w/o CC/MCC.
Kidney & urinary tract neoplasms w/o CC/MCC.
Kidney & urinary tract signs & symptoms w/o MCC.
Transurethral prostatectomy w/o CC/MCC.
Other male reproductive system O.R. proc exc malignancy w/o CC/MCC.
Malignancy, male reproductive system w/o CC/MCC.
Benign prostatic hypertrophy w/o MCC.
Malignancy, female reproductive system w/o CC/MCC.
Infections, female reproductive system w/o CC/MCC.
Menstrual & other female reproductive system disorders w/o CC/MCC.
Lymphoma & non-acute leukemia w other O.R. proc w/o CC/MCC.
Acute leukemia w/o major O.R. procedure w/o CC/MCC.
Other infectious & parasitic diseases diagnoses w/o CC/MCC.
O.R. procedure w principal diagnoses of mental illness.
Depressive neuroses.
Neuroses except depressive.
Disorders of personality & impulse control.
Behavioral & developmental disorders.
Alcohol/drug abuse or dependence, left ama.
Alcohol/drug abuse or dependence w rehabilitation therapy.
Hand procedures for injuries.
Allergic reactions w/o MCC.
Other injury, poisoning & toxic effect diag w MCC.
Other injury, poisoning & toxic effect diag w/o MCC.
QUINTILE 2
75 .................
77 .................
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Hypertensive encephalopathy w MCC.
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Proposed
MS–LTC–
DRG
Proposed MS–LTC–DRG description
78 .................
83 .................
84 .................
99 .................
102 ...............
113 ...............
121 ...............
125 ...............
148 ...............
152 ...............
156 ...............
157 ...............
158 ...............
184 ...............
188 ...............
200 ...............
245 ...............
282 ...............
285 ...............
304 ...............
311 ...............
336 ...............
382 ...............
384 ...............
390 ...............
433 ...............
437 ...............
443 ...............
499 ...............
514 ...............
534 ...............
535 ...............
553 ...............
555 ...............
556 ...............
578 ...............
598 ...............
599 ...............
600 ...............
601 ...............
642 ...............
660 ...............
687 ...............
693 ...............
694 ...............
723 ...............
730 ...............
744 ...............
769 ...............
803 ...............
815 ...............
816 ...............
842 ...............
848 ...............
864 ...............
897 ...............
903 ...............
905 ...............
917 ...............
918 ...............
929 ...............
956 ...............
964 ...............
965 ...............
977 ...............
Hypertensive encephalopathy w CC**.
Traumatic stupor & coma, coma ≤1 hr w CC.
Traumatic stupor & coma, coma ≤1 hr w/o CC/MCC.
Non-bacterial infect of nervous sys exc viral meningitis w/o CC/MCC.
Headaches w MCC***.
Orbital procedures w CC/MCC.
Acute major eye infections w CC/MCC.
Other disorders of the eye w/o MCC.
Ear, nose, mouth & throat malignancy w/o CC/MCC.
Otitis media & URI w MCC.
Nasal trauma & deformity w/o CC/MCC.
Dental & Oral Diseases w MCC***.
Dental & Oral Diseases w CC***.
Major chest trauma w CC***.
Pleural effusion w/o CC/MCC*.
Pneumothorax w CC.
AICD lead & generator procedures.
Circulatory disorders w AMI, discharged alive w/o CC/MCC.
Circulatory disorders w AMI, expired w/o CC/MCC*.
Hypertension w MCC.
Angina pectoris.
Peritoneal adhesiolysis w CC.
Complicated peptic ulcer w/o CC/MCC.
Uncomplicated peptic ulcer w/o MCC.
G.I. obstruction w/o CC/MCC.
Cirrhosis & alcoholic hepatitis w CC*.
Malignancy of hepatobiliary system or pancreas w/o CC/MCC.
Disorders of liver except malig, cirr, alc hepa w/o CC/MCC.
Local excision & removal int fix devices of hip & femur w/o CC/MCC.
Hand or wrist proc, except major thumb or joint proc w/o CC/MCC.
Fractures of femur w/o MCC.
Fractures of hip & pelvis w MCC.
Bone diseases & arthropathies w MCC.
Signs & symptoms of musculoskeletal system & conn tissue w MCC.
Signs & symptoms of musculoskeletal system & conn tissue w/o MCC.
Skin graft &/or debrid exc for skin ulcer or cellulitis w/o CC/MCC.
Malignant breast disorders w CC**.
Malignant breast disorders w/o CC/MCC**.
Non-malignant breast disorders w CC/MCC.
Non-malignant breast disorders w/o CC/MCC.
Inborn errors of metabolism.
Kidney & ureter procedures for non-neoplasm w CC.
Kidney & urinary tract neoplasms w CC.
Urinary stones w/o ESW lithotripsy w MCC.
Urinary stones w/o ESW lithotripsy w/o MCC**.
Malignancy, male reproductive system w CC.
Other male reproductive system diagnoses w/o CC/MCC.
D&C, conization, laparoscopy & tubal interruption w CC/MC
Postpartum & post abortion diagnoses w O.R. procedure.
Other O.R. proc of the blood & blood forming organs w CC.
Reticuloendothelial & immunity disorders w CC.
Reticuloendothelial & immunity disorders w/o CC/MCC**.
Lymphoma & non-acute leukemia w/o CC/MCC.
Chemotherapy w/o acute leukemia as secondary diagnosis w/o CC/MCC.
Fever of unknown origin.
Alcohol/drug abuse or dependence w/o rehabilitation therapy w/o MCC.
Wound debridements for injuries w/o CC/MCC.
Skin grafts for injuries w/o CC/MCC.
Poisoning & toxic effects of drugs w MCC.
Poisoning & toxic effects of drugs w/o MCC.
Full thickness burn w skin graft or inhal inj w/o CC/MCC.
Limb reattachment, hip & femur proc for multiple significant trauma.
Other multiple significant trauma w CC.
Other multiple significant trauma w/o CC/MCC.
HIV w or w/o other related condition.
QUINTILE 3
42 .................
53 .................
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Spinal disorders & injuries w/o CC/MCC.
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78 .................
102 ...............
103 ...............
133 ...............
134 ...............
157 ...............
158 ...............
159 ...............
238 ...............
246 ...............
250 ...............
263 ...............
284 ...............
287 ...............
294 ...............
347 ...............
348 ...............
352 ...............
354 ...............
358 ...............
380 ...............
381 ...............
383 ...............
387 ...............
420 ...............
421 ...............
424 ...............
425 ...............
494 ...............
502 ...............
504 ...............
507 ...............
517 ...............
533 ...............
597 ...............
599 ...............
604 ...............
618 ...............
619 ...............
620 ...............
624 ...............
644 ...............
657 ...............
662 ...............
665 ...............
667 ...............
694 ...............
695 ...............
711 ...............
722 ...............
746 ...............
749 ...............
755 ...............
809 ...............
810 ...............
816 ...............
821 ...............
826 ...............
834 ...............
835 ...............
838 ...............
843 ...............
844 ...............
855 ...............
896 ...............
963 ...............
989 ...............
Hypertensive encephalopathy w CC***.
Headaches w MCC**.
Headaches w/o MCC.
Other ear, nose, mouth & throat O.R. procedures w CC/MCC**.
Other ear, nose, mouth & throat O.R. procedures w/o CC/MCC**.
Dental & Oral Diseases w MCC**.
Dental & Oral Diseases w CC**.
Dental & Oral Diseases w/o CC/MCC**.
Major cardiovascular procedures w/o MCC.
Percutaneous cardiovascular proc w drug-eluting stent w MCC.
Perc cardiovasc proc w/o coronary artery stent or AMI w MCC.
Vein ligation & stripping.
Circulatory disorders w AMI, expired w CC*.
Circulatory disorders except AMI, w card cath w/o MCC.
Deep vein thrombophlebitis w CC/MCC.
Anal & stomal procedures w MCC.
Anal & stomal procedures w CC.
Inguinal & femoral hernia procedures w/o CC/MCC.
Hernia procedures except inguinal & femoral w CC.
Other digestive system O.R. procedures w/o CC/MCC.
Complicated peptic ulcer w MCC.
Complicated peptic ulcer w CC.
Uncomplicated peptic ulcer w MCC.
Inflammatory bowel disease w/o CC/MCC*.
Hepatobiliary diagnostic procedures w MCC.
Hepatobiliary diagnostic procedures w CC.
Other hepatobiliary or pancreas O.R. procedures w CC.
Other hepatobiliary or pancreas O.R. procedures w/o CC/MCC.
Lower extrem & humer proc except hip, foot, femur w/o CC/MCC.
Soft tissue procedures w/o CC/MCC.
Foot procedures w CC.
Major shoulder or elbow joint procedures w CC/MCC.
Other musculoskelet sys & conn tiss O.R. proc w/o CC/MCC.
Fractures of femur w MCC.
Malignant breast disorders w MCC.
Malignant breast disorders w/o CC/MCC***.
Trauma to the skin, subcut tiss & breast w MCC.
Amputat of lower limb for endocrine, nutrit, & metabol dis w/o CC/MCC.
O.R. procedures for obesity w MCC.
O.R. procedures for obesity w CC**.
Skin grafts & wound debrid for endoc, nutrit & metab dis w/o CC/MCC.
Endocrine disorders w CC.
Kidney & ureter procedures for neoplasm w CC.
Minor bladder procedures w MCC.
Prostatectomy w MCC.
Prostatectomy w/o CC/MCC.
Urinary stones w/o ESW lithotripsy w/o MCC***.
Kidney & urinary tract signs & symptoms w MCC.
Testes procedures w CC/MCC***.
Malignancy, male reproductive system w MCC.
Vagina, cervix & vulva procedures w CC/MCC.
Other female reproductive system O.R. procedures w CC/MCC.
Malignancy, female reproductive system w CC.
Major hematol/immune diag exc sickle cell crisis & coagul w CC.
Major hematol/immune diag exc sickle cell crisis & coagul w/o CC/MCC.
Reticuloendothelial & immunity disorders w/o CC/MCC***.
Lymphoma & leukemia w major O.R. procedure w CC.
Myeloprolif disord or poorly diff neopl w maj O.R. proc w MCC.
Acute leukemia w/o major O.R. procedure w MCC.
Acute leukemia w/o major O.R. procedure w CC.
Chemo w acute leukemia as sdx or w high dose chemo agent w CC.
Other myeloprolif dis or poorly diff neopl diag w MCC***.
Other myeloprolif dis or poorly diff neopl diag w CC***.
Infectious & parasitic diseases w O.R. procedure w/o CC/MCC.
Alcohol/drug abuse or dependence w/o rehabilitation therapy w MCC.
Other multiple significant trauma w MCC.
Non-extensive O.R. proc unrelated to principal diagnosis w/o CC/MCC.
QUINTILE 4
28 .................
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MS–LTC–
DRG
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29 .................
38 .................
39 .................
88 .................
89 .................
124 ...............
168 ...............
241 ...............
242 ...............
244 ...............
254 ...............
257 ...............
286 ...............
351 ...............
368 ...............
369 ...............
370 ...............
408 ...............
407 ...............
412 ...............
414 ...............
415 ...............
418 ...............
423 ...............
472 ...............
476 ...............
478 ...............
479 ...............
482 ...............
486 ...............
487 ...............
490 ...............
493 ...............
497 ...............
503 ...............
511 ...............
516 ...............
562 ...............
576 ...............
577 ...............
584 ...............
620 ...............
659 ...............
675 ...............
709 ...............
711 ...............
712 ...............
717 ...............
725 ...............
754 ...............
760 ...............
776 ...............
781 ...............
823 ...............
824 ...............
843 ...............
844 ...............
845 ...............
880 ...............
909 ...............
928 ...............
933 ...............
958 ...............
983 ...............
985 ...............
986 ...............
Spinal procedures w CC.
Extracranial procedures w CC.
Extracranial procedures w/o CC/MCC.
Concussion w MCC**.
Concussion w CC.
Other disorders of the eye w MCC.
Other resp system O.R. procedures w/o CC/MCC.
Amputation for circ sys disorders exc upper limb & toe w/o CC/MCC
Permanent cardiac pacemaker implant w MCC***.
Permanent cardiac pacemaker implant w/o CC/MCC.
Other vascular procedures w/o CC/MCC.
Upper limb & toe amputation for circ system disorders w/o CC/MCC*.
Circulatory disorders except AMI, w card cath w MCC.
Inguinal & femoral hernia procedures w CC.
Major esophageal disorders w MCC.
Major esophageal disorders w CC.
Major esophageal disorders w/o CC/MCC**.
Biliary tract proc except only cholecyst w or w/o c.d.e. w MCC***.
Pancreas, liver & shunt procedures w/o CC/MCC.
Cholecystectomy w c.d.e. w CC.
Cholecystectomy except by laparoscope w/o c.d.e. w MCC.
Cholecystectomy except by laparoscope w/o c.d.e. w CC.
Laparoscopic cholecystectomy w/o c.d.e. w CC.
Other hepatobiliary or pancreas O.R. procedures w MCC.
Cervical spinal fusion w CC.
Amputation for musculoskeletal sys & conn tissue dis w/o CC/MCC*.
Biopsies of musculoskeletal system & connective tissue w CC.
Biopsies of musculoskeletal system & connective tissue w/o CC/MCC.
Hip & femur procedures except major joint w/o CC/MCC.
Knee procedures w pdx of infection w CC.
Knee procedures w pdx of infection w/o CC/MCC.
Back & neck procedures except spinal fusion w CC/MCC or disc devices.
Lower extrem & humer proc except hip, foot, femur w CC.
Local excision & removal int fix devices exc hip & femur w/o CC/MCC.
Foot procedures w MCC.
Shoulder, elbow or forearm proc, exc major joint proc w CC.
Other musculoskelet sys & conn tiss O.R. proc w CC.
Fx, sprn, strn & disl except femur, hip, pelvis & thigh w MCC.
Skin graft &/or debrid exc for skin ulcer or cellulitis w MCC.
Skin graft &/or debrid exc for skin ulcer or cellulitis w CC.
Breast biopsy, local excision & other breast procedures w CC/MCC.
O.R. procedures for obesity w CC***.
Kidney & ureter procedures for non-neoplasm w MCC.
Other kidney & urinary tract procedures w/o CC/MCC.
Penis procedures w CC/MCC.
Testes procedures w CC/MCC**.
Testes procedures w/o CC/MCC**.
Other male reproductive system O.R. proc exc malignancy w CC/MCC.
Benign prostatic hypertrophy w MCC.
Malignancy, female reproductive system w MCC.
Menstrual & other female reproductive system disorders w CC/MCC.
Postpartum & post abortion diagnoses w/o O.R. procedure.
Other antepartum diagnoses w medical complications.
Lymphoma & non-acute leukemia w other O.R. proc w MCC.
Lymphoma & non-acute leukemia w other O.R. proc w CC.
Other myeloprolif dis or poorly diff neopl diag w MCC**.
Other myeloprolif dis or poorly diff neopl diag w CC**.
Other myeloprolif dis or poorly diff neopl diag w/o CC/MCC**.
Acute adjustment reaction & psychosocial dysfunction.
Other O.R. procedures for injuries w/o CC/MCC.
Full thickness burn w skin graft or inhal inj w CC/MCC.
Extensive burns or full thickness burns w MV 96+ hrs w/o skin graft.
Other O.R. procedures for multiple significant trauma w CC.
Extensive O.R. procedure unrelated to principal diagnosis w/o CC/MCC.
Prostatic O.R. procedure unrelated to principal diagnosis w CC.
Prostatic O.R. procedure unrelated to principal diagnosis w/o CC/MCC.
QUINTILE 5
12 .................
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MS–LTC–
DRG
Proposed MS–LTC–DRG description
26 .................
31 .................
37 .................
131 ...............
134 ...............
137 ...............
139 ...............
159 ...............
164 ...............
226 ...............
227 ...............
237 ...............
242 ...............
243 ...............
248 ...............
258 ...............
260 ...............
327 ...............
329 ...............
330 ...............
335 ...............
350 ...............
370 ...............
405 ...............
406 ...............
408 ...............
409 ...............
417 ...............
454 ...............
456 ...............
459 ...............
460 ...............
466 ...............
467 ...............
469 ...............
470 ...............
471 ...............
477 ...............
480 ...............
481 ...............
485 ...............
488 ...............
492 ...............
498 ...............
513 ...............
582 ...............
664 ...............
668 ...............
669 ...............
670 ...............
691 ...............
712 ...............
713 ...............
715 ...............
802 ...............
829 ...............
837 ...............
845 ...............
957 ...............
969 ...............
970 ...............
984 ...............
Craniotomy & endovascular intracranial procedures w CC.
Ventricular shunt procedures w MCC.
Extracranial procedures w MCC.
Cranial/facial procedures w CC/MCC.
Other ear, nose, mouth & throat O.R. procedures w/o CC/MCC***.
Mouth procedures w CC/MCC.
Salivary gland procedures.
Dental & Oral Diseases w/o CC/MCC***.
Major chest procedures w CC.
Cardiac defibrillator implant w/o cardiac cath w MCC.
Cardiac defibrillator implant w/o cardiac cath w/o MCC.
Major cardiovascular procedures w MCC.
Permanent cardiac pacemaker implant w MCC**.
Permanent cardiac pacemaker implant w CC.
Percutaneous cardiovasc proc w non-drug-eluting stent w MCC.
Cardiac pacemaker device replacement w MCC.
Cardiac pacemaker revision except device replacement w MCC.
Stomach, esophageal & duodenal proc w CC.
Major small & large bowel procedures w MCC.
Major small & large bowel procedures w CC.
Peritoneal adhesiolysis w MCC.
Inguinal & femoral hernia procedures w MCC.
Major esophageal disorders w/o CC/MCC***.
Pancreas, liver & shunt procedures w MCC.
Pancreas, liver & shunt procedures w CC.
Biliary tract proc except only cholecyst w or w/o c.d.e. w MCC**.
Biliary tract proc except only cholecyst w or w/o c.d.e. w CC.
Laparoscopic cholecystectomy w/o c.d.e. w MCC.
Combined anterior/posterior spinal fusion w CC.
Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w MCC.
Spinal fusion except cervical w MCC.
Spinal fusion except cervical w/o MCC.
Revision of hip or knee replacement w MCC.
Revision of hip or knee replacement w CC.
Major joint replacement or reattachment of lower extremity w MCC.
Major joint replacement or reattachment of lower extremity w/o MCC.
Cervical spinal fusion w MCC.
Biopsies of musculoskeletal system & connective tissue w MCC.
Hip & femur procedures except major joint w MCC.
Hip & femur procedures except major joint w CC.
Knee procedures w pdx of infection w MCC.
Knee procedures w/o pdx of infection w CC/MCC.
Lower extrem & humer proc except hip, foot, femur w MCC.
Local excision & removal int fix devices of hip & femur w CC/MCC.
Hand or wrist proc, except major thumb or joint proc w CC/MCC.
Mastectomy for malignancy w CC/MCC.
Minor bladder procedures w/o CC/MCC.
Transurethral procedures w MCC.
Transurethral procedures w CC.
Transurethral procedures w/o CC/MCC.
Urinary stones w esw lithotripsy w CC/MCC.
Testes procedures w/o CC/MCC***.
Transurethral prostatectomy w CC/MCC.
Other male reproductive system O.R. proc for malignancy w CC/MCC.
Other O.R. proc of the blood & blood forming organs w MCC.
Myeloprolif disord or poorly diff neopl w other O.R. proc w CC/MCC.
Chemo w acute leukemia as sdx or w high dose chemo agent w MCC.
Other myeloprolif dis or poorly diff neopl diag w/o CC/MCC***.
Other O.R. procedures for multiple significant trauma w MCC.
HIV w extensive O.R. procedure w MCC.
HIV w extensive O.R. procedure w/o MCC.
Prostatic O.R. procedure unrelated to principal diagnosis w MCC
* One of the original 307 low-volume proposed MS–LTC–DRGs initially assigned to this proposed low-volume quintile; removed from this proposed low-volume quintile in addressing nonmonotonicity (see step 6 below).
** One of the original 307 low-volume proposed MS–LTC–DRGs initially assigned to a different proposed low-volume quintile but moved to this
proposed low-volume quintile in addressing nonmonotonicity (see step 6 below).
*** One of the original 307 low-volume proposed MS–LTC–DRGs initially assigned to this proposed low-volume quintile but moved to a different proposed low-volume quintile in addressing nonmonotonicity (see step 6 below).
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We note that we will continue to
monitor the volume (that is, the number
of LTCH cases) in these low-volume
quintiles to ensure that our proposed
quintile assignment results in
appropriate payment for such cases and
does not result in an unintended
financial incentive for LTCHs to
inappropriately admit these types of
cases.
4. Steps for Determining the Proposed
FY 2008 MS–LTC–DRG Relative Weights
As we noted previously, although the
proposed adoption of the MS–LTC–
DRGs will result in some modifications
of existing procedures for assigning
weights in cases of zero volume and/or
nonmonotonicity, described in detail
elsewhere in this section, the proposed
FY 2008 MS–LTC–DRG relative weights
in this proposed rule are based on the
methodology established in the August
30, 2002 LTCH PPS final rule (67 FR
55989 through 55991). In summary, for
FY 2008, LTCH cases would be grouped
to the appropriate MS–LTC–DRG, while
taking into account the low-volume
proposed MS–LTC–DRGs as described
above, before the proposed FY 2008
MS–LTC–DRG relative weights can be
determined. After grouping the cases to
the appropriate proposed MS–LTC–
DRG, we are proposing to calculate the
proposed relative weights for FY 2008
by first removing statistical outliers and
cases with a length of stay of 7 days or
less, as discussed in greater detail
below. Next, we are proposing to adjust
the number of cases in each proposed
MS–LTC–DRG for the effect of shortstay outlier cases under § 412.529, as
also discussed in greater detail below.
The short-stay adjusted discharges and
corresponding charges are used to
calculate ‘‘relative adjusted weights’’ in
each proposed MS–LTC–DRG using the
HSRV method described above.
Below we discuss in detail the steps
for calculating the proposed FY 2008
MS–LTC–DRG relative weights. We note
that, as we stated above in section
II.I.3.b. of the preamble of this proposed
rule, we have excluded the data of allinclusive rate LTCHs and LTCHs that
are paid in accordance with
demonstration projects that had claims
in the FY 2006 MedPAR file.
Step 1—Remove statistical outliers.
The first step in the calculation of the
proposed FY 2008 MS–LTC–DRG
relative weights is to remove statistical
outlier cases. We define statistical
outliers as cases that are outside of 3.0
standard deviations from the mean of
the log distribution of both charges per
case and the charges per day for each
proposed MS–LTC–DRG. These
statistical outliers are removed prior to
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calculating the proposed relative
weights. As noted above, we believe that
they may represent aberrations in the
data that distort the measure of average
resource use. Including those LTCH
cases in the calculation of the proposed
relative weights could result in an
inaccurate relative weight that does not
truly reflect relative resource use among
the proposed MS–LTC–DRGs.
Step 2—Remove cases with a length
of stay of 7 days or less.
The proposed FY 2008 MS–LTC–DRG
relative weights reflect the average of
resources used on representative cases
of a specific type. Generally, cases with
a length of stay of 7 days or less do not
belong in a LTCH because these stays do
not fully receive or benefit from
treatment that is typical in a LTCH stay,
and full resources are often not used in
the earlier stages of admission to a
LTCH. As explained above, if we were
to include stays of 7 days or less in the
computation of the proposed FY 2008
MS–LTC–DRG relative weights, the
value of many relative weights would
decrease and, therefore, payments
would decrease to a level that may no
longer be appropriate. We do not believe
that it would be appropriate to
compromise the integrity of the
payment determination for those LTCH
cases that actually benefit from and
receive a full course of treatment at a
LTCH, by including data from these
very short-stays. Thus, as explained
above, in determining the proposed FY
2008 MS–LTC–DRG relative weights, we
remove LTCH cases with a length of stay
of 7 days or less.
Step 3—Adjust charges for the effects
of short-stay outliers.
After removing cases with a length of
stay of 7 days or less, we are left with
cases that have a length of stay of greater
than or equal to 8 days. The next step
in the calculation of the proposed FY
2008 MS–LTC–DRG relative weights is
to adjust each LTCH’s charges per
discharge for those remaining cases for
the effects of short-stay outliers as
defined in § 412.529(a). (We note that
even if a case was removed in Step 2
(that is, cases with a length of stay of 7
days or less), it was paid as a short-stay
outlier if its length of stay was less than
or equal to five-sixths of the average
length of stay of the MS–LTC–DRG, in
accordance with § 412.529.)
We make this adjustment by counting
a short-stay outlier as a fraction of a
discharge based on the ratio of the
length of stay of the case to the average
length of stay for the proposed MS–
LTC–DRG for non-short-stay outlier
cases. This has the effect of
proportionately reducing the impact of
the lower charges for the short-stay
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outlier cases in calculating the average
charge for the proposed MS–LTC–DRG.
This process produces the same result
as if the actual charges per discharge of
a short-stay outlier case were adjusted to
what they would have been had the
patient’s length of stay been equal to the
average length of stay of the proposed
MS–LTC–DRG.
As we explained in the FY 2007 IPPS
final (71 FR 47979), counting short-stay
outlier cases as full discharges with no
adjustment in determining the proposed
MS–LTC–DRG relative weights would
lower the proposed LTC–DRG relative
weight for affected proposed MS–LTC–
DRGs because the relatively lower
charges of the short-stay outlier cases
would bring down the average charge
for all cases within a proposed MS–
LTC–DRG. This would result in an
‘‘underpayment’’ for nonshort-stay
outlier cases and an ‘‘overpayment’’ for
short-stay outlier cases. Therefore, we
adjust for short-stay outlier cases under
§ 412.529 in this manner because it
results in more appropriate payments
for all LTCH cases.
Step 4—Calculate the proposed FY
2008 MS–LTC–DRG relative weights on
an iterative basis.
The process of calculating the
proposed MS–LTC–DRG relative
weights using the HSRV methodology is
iterative. First, for each LTCH case, we
calculate a hospital-specific relative
charge value by dividing the short-stay
outlier adjusted charge per discharge
(see step 3) of the LTCH case (after
removing the statistical outliers (see
step 1)) and LTCH cases with a length
of stay of 7 days or less (see step 2) by
the average charge per discharge for the
LTCH in which the case occurred. The
resulting ratio is then multiplied by the
LTCH’s case-mix index to produce an
adjusted hospital-specific relative
charge value for the case. An initial
case-mix index value of 1.0 is used for
each LTCH.
For each proposed DRG, the proposed
FY 2008 MS–LTC–DRG relative weight
is calculated by dividing the average of
the adjusted hospital-specific relative
charge values (from above) for the
proposed MS–LTC–DRG by the overall
average hospital-specific relative charge
value across all cases for all LTCHs.
Using these proposed recalculated MS–
LTC–DRG relative weights, each LTCH’s
average relative weight for all of its
cases (case-mix) is calculated by
dividing the sum of all the LTCH’s
proposed MS–LTC–DRG relative
weights by its total number of cases. The
LTCHs’ hospital-specific relative charge
values above are multiplied by these
hospital-specific case-mix indexes.
These hospital-specific case-mix
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adjusted relative charge values are then
used to calculate a new set of proposed
MS–LTC–DRG relative weights across
all LTCHs. In this proposed rule, this
iterative process is continued until there
is convergence between the weights
produced at adjacent steps, for example,
when the maximum difference is less
than 0.0001.
Step 5—Determine a proposed FY
2007 MS–LTC–DRG relative weight for
proposed MS–LTC–DRGs with no LTCH
cases.
As we stated above, we determine the
proposed relative weight for each
proposed MS–LTC–DRG using total
Medicare allowable charges reported in
the December 2006 update of the FY
2006 MedPAR file. Of the 745 proposed
MS–LTC–DRGs for FY 2008, we
identified 124 proposed MS–LTC–DRGs
for which there were no LTCH cases in
the database. That is, based on data from
the FY 2006 MedPAR file used in this
proposed rule, no patients who would
have been classified to those proposed
MS–LTC–DRGs were treated in LTCHs
during FY 2006 and, therefore, no
charge data were reported for those
proposed MS–LTC–DRGs. Thus, in the
process of determining the proposed
MS–LTC–DRG relative weights, we are
unable to determine weights for these
124 proposed MS–LTC–DRGs using the
methodology described in Steps 1
through 4 above. However, because
patients with a number of the diagnoses
under these proposed MS–LTC–DRGs
may be treated at LTCHs beginning in
FY 2008, for this proposed rule, we are
proposing to assign relative weights to
each of the 124 no-volume proposed
MS–LTC–DRGs based on clinical
similarity and relative costliness to one
of the remaining 621 (745-124 = 621)
proposed MS–LTC–DRGs for which we
are able to determine proposed relative
weights, based on FY 2006 LTCH claims
data. In general, we determined
proposed relative weights for the 124
proposed MS–LTC–DRGs with no LTCH
cases in the FY 2006 MedPAR file used
in this proposed rule by crosswalking
these proposed MS–LTC–DRGs to other
proposed MS–LTC–DRGs and then
grouping them to the appropriate
proposed low-volume quintile. This
methodology is consistent with our
methodology used in determining
relative weights to account for the lowvolume proposed MS–LTC–DRGs
described above.
Our proposed methodology for
determining the relative weights for the
no-volume MS–LTC–DRGs is as follows:
We crosswalk the no-volume proposed
MS–LTC–DRG to a proposed MS–LTC–
DRG for which there are LTCH cases in
the FY 2006 MedPAR file and to which
it is similar clinically and in intensity
of use of resources as determined by
care provided during the period of time
surrounding surgery, surgical approach
(if applicable), length of time of surgical
procedure, postoperative care, and
length of stay. If the proposed MS–LTC–
DRG to which it is crosswalked is
grouped to one of the proposed lowvolume quintiles, we assign the relative
weight for the applicable low-volume
quintile to the no volume proposed MS–
LTC–DRG. However, if the proposed
MS–LTC–DRG to which the no-volume
proposed MS–LTC–DRG is crosswalked
is not one of the proposed MS–LTC–
DRGs in a low-volume quintile, we do
the following: (1) compare the relative
weight of the proposed MS–LTC–DRG
to which the no-volume proposed MS–
LTC–DRG is crosswalked to the relative
weights of each of the five quintiles; (2)
assign the no volume proposed MS–
LTC–DRG the relative weight of the lowvolume quintile with the relative weight
that is closest to the proposed MS–LTC–
DRG to which the no volume proposed
MS–LTC–DRG is crosswalked. (We note
that in the infrequent case where
nonmonotonicity involving a no volume
proposed MS–LTC–DRG results,
additional measures as described in
Step 6 are required in order to maintain
monotonically increasing relative
weights.) or this proposed rule, a list of
the no-volume proposed FY 2008 MS–
LTC–DRGs and the proposed FY 2008
MS–LTC–DRG to which it is
crosswalked is shown in the chart
below.
NO-VOLUME PROPOSED MS–LTC–DRG CROSSWALK FOR FY 2008
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Proposed
MS–LTC–
DRG
Proposed MS–LTC–DRG description
9 ..................
20 ................
21 ................
22 ................
23 ................
24 ................
34 ................
35 ................
36 ................
61 ................
62 ................
63 ................
115 ..............
116 ..............
117 ..............
129 ..............
130 ..............
135 ..............
136 ..............
150 ..............
151 ..............
215 ..............
216 ..............
217 ..............
218 ..............
219 ..............
220 ..............
221 ..............
Bone marrow transplant .............................................................................................................................................
Intracranial vascular procedures w PDX hemorrhage w MCC ..................................................................................
Intracranial vascular procedures w PDX hemorrhage w CC .....................................................................................
Intracranial vascular procedures w PDX hemorrhage w/o CC/MCC ........................................................................
Craniotomy w major device implant or acute complex CNS PDX w MCC ...............................................................
Craniotomy w major device implant or acute complex CNS PDX w/o MCC ............................................................
Carotid artery stent procedure w MCC ......................................................................................................................
Carotid artery stent procedure w CC .........................................................................................................................
Carotid artery stent procedure w/o CC/MCC .............................................................................................................
Acute ischemic stroke w use of thrombolytic agent w MCC .....................................................................................
Acute ischemic stroke w use of thrombolytic agent w CC ........................................................................................
Acute ischemic stroke w use of thrombolytic agent w/o CC/MCC ............................................................................
Extraocular procedures except orbit ..........................................................................................................................
Intraocular procedures w CC/MCC ............................................................................................................................
Intraocular procedures w/o CC/MCC .........................................................................................................................
Major head & neck procedures w CC/MCC or major device ....................................................................................
Major head & neck procedures w/o CC/MCC ...........................................................................................................
Sinus & mastoid procedures w CC/MCC ..................................................................................................................
Sinus & mastoid procedures w/o CC/MCC ...............................................................................................................
Epistaxis w MCC ........................................................................................................................................................
Epistaxis w/o MCC .....................................................................................................................................................
Other heart assist system implant .............................................................................................................................
Cardiac valve & oth maj cardiothoracic proc w card cath w MCC ............................................................................
Cardiac valve & oth maj cardiothoracic proc w card cath w CC ...............................................................................
Cardiac valve & oth maj cardiothoracic proc w card cath w/o CC/MCC ..................................................................
Cardiac valve & oth maj cardiothoracic proc w/o card cath w MCC .........................................................................
Cardiac valve & oth maj cardiothoracic proc w/o card cath w CC ............................................................................
Cardiac valve & oth maj cardiothoracic proc w/o card cath w/o CC/MCC ...............................................................
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Proposed MS–LTC–DRG description
Cardiac defib implant w cardiac cath w AMI/HF/shock w MCC ................................................................................
Cardiac defib implant w cardiac cath w AMI/HF/shock w/o MCC .............................................................................
Cardiac defib implant w cardiac cath w/o AMI/HF/shock w MCC .............................................................................
Cardiac defib implant w cardiac cath w/oAMI/HF/shock w/o MCC ...........................................................................
Other cardiothoracic procedures w MCC ..................................................................................................................
Other cardiothoracic procedures w CC .....................................................................................................................
Other cardiothoracic procedures w/o CC/MCC .........................................................................................................
Coronary bypass w PTCA w MCC ............................................................................................................................
Coronary bypass w PTCA w/o MCC .........................................................................................................................
Coronary bypass w cardiac cath w MCC ..................................................................................................................
Coronary bypass w cardiac cath w/o MCC ...............................................................................................................
Coronary bypass w/o cardiac cath w MCC ...............................................................................................................
Coronary bypass w/o cardiac cath w/o MCC ............................................................................................................
Cardiac arrest, unexplained w MCC ..........................................................................................................................
Cardiac arrest, unexplained w CC .............................................................................................................................
Cardiac arrest, unexplained w/o CC/MCC .................................................................................................................
Rectal resection w MCC ............................................................................................................................................
Rectal resection w CC ...............................................................................................................................................
Rectal resection w/o CC/MCC ...................................................................................................................................
Appendectomy w complicated principal diag w MCC ...............................................................................................
Appendectomy w complicated principal diag w CC ..................................................................................................
Appendectomy w complicated principal diag w/o CC/MCC ......................................................................................
Appendectomy w/o complicated principal diag w MCC ............................................................................................
Appendectomy w/o complicated principal diag w CC ...............................................................................................
Appendectomy w/o complicated principal diag w/o CC/MCC ...................................................................................
Minor small & large bowel procedures w MCC .........................................................................................................
Minor small & large bowel procedures w CC ............................................................................................................
Minor small & large bowel procedures w/o CC/MCC ................................................................................................
Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w CC ..............................................................................
Bilateral or multiple major joint procs of lower extremity w MCC .............................................................................
Bilateral or multiple major joint procs of lower extremity w/o MCC ..........................................................................
Major joint & limb reattachment proc of upper extremity w CC/MCC .......................................................................
Major joint & limb reattachment proc of upper extremity w/o CC/MCC ....................................................................
Major thumb or joint procedures ................................................................................................................................
Arthroscopy ................................................................................................................................................................
Sprains, strains, & dislocations of hip, pelvis & thigh w CC/MCC ............................................................................
Sprains, strains, & dislocations of hip, pelvis & thigh w/o CC/MCC .........................................................................
Adrenal & pituitary procedures w CC/MCC ...............................................................................................................
Adrenal & pituitary procedures w/o CC/MCC ............................................................................................................
Thyroid, parathyroid & thyroglossal procedures w MCC ...........................................................................................
Thyroid, parathyroid & thyroglossal procedures w CC ..............................................................................................
Thyroid, parathyroid & thyroglossal procedures w/o CC/MCC ..................................................................................
Major bladder procedures w MCC .............................................................................................................................
Major bladder procedures w CC ................................................................................................................................
Major bladder procedures w/o CC/MCC ....................................................................................................................
Prostatectomy w CC ..................................................................................................................................................
Urethral procedures w CC/MCC ................................................................................................................................
Urethral procedures w/o CC/MCC .............................................................................................................................
Urethral stricture ........................................................................................................................................................
Major male pelvic procedures w CC/MCC ................................................................................................................
Major male pelvic procedures w/o CC/MCC .............................................................................................................
Pelvic evisceration, rad hysterectomy & rad vulvectomy w CC/MCC .......................................................................
Pelvic evisceration, rad hysterectomy & rad vulvectomy w/o CC/MCC ....................................................................
Uterine & adnexa proc for ovarian or adnexal malignancy w MCC ..........................................................................
Uterine & adnexa proc for ovarian or adnexal malignancy w CC .............................................................................
Uterine & adnexa proc for ovarian or adnexal malignancy w/o CC/MCC .................................................................
Uterine,adnexa proc for non-ovarian/adnexal malig w MCC .....................................................................................
Uterine,adnexa proc for non-ovarian/adnexal malig w CC ........................................................................................
Uterine,adnexa proc for non-ovarian/adnexal malig w/o CC/MCC ...........................................................................
Uterine & adnexa proc for non-malignancy w CC/MCC ............................................................................................
Uterine & adnexa proc for non-malignancy w/o CC/MCC .........................................................................................
Female reproductive system reconstructive procedures ...........................................................................................
Cesarean section w CC/MCC ....................................................................................................................................
Cesarean section w/o CC/MCC .................................................................................................................................
Vaginal delivery w sterilization &/or D&C ..................................................................................................................
Vaginal delivery w O.R. proc except steril &/or D&C ................................................................................................
Abortion w D&C, aspiration curettage or hysterotomy ..............................................................................................
Vaginal delivery w complicating diagnoses ...............................................................................................................
Vaginal delivery w/o complicating diagnoses ............................................................................................................
Ectopic pregnancy .....................................................................................................................................................
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Threatened abortion ...................................................................................................................................................
Abortion w/o D&C ......................................................................................................................................................
False labor .................................................................................................................................................................
Other antepartum diagnoses w/o medical complications ..........................................................................................
Neonates, died or transferred to another acute care facility .....................................................................................
Extreme immaturity or respiratory distress syndrome, neonate ................................................................................
Prematurity w major problems ...................................................................................................................................
Prematurity w/o major problems ................................................................................................................................
Full term neonate w major problems .........................................................................................................................
Neonate w other significant problems .......................................................................................................................
Normal newborn .........................................................................................................................................................
Splenectomy w MCC .................................................................................................................................................
Splenectomy w CC ....................................................................................................................................................
Splenectomy w/o CC/MCC ........................................................................................................................................
Myeloprolif disord or poorly diff neopl w maj O.R. proc w CC ..................................................................................
Other mental disorder diagnoses ..............................................................................................................................
Extensive burns or full thickness burns w MV 96+ hrs w skin graft .........................................................................
Craniotomy for multiple significant trauma ................................................................................................................
To illustrate this methodology for
determining the proposed relative
weights for the 124 proposed MS–LTC–
DRGs with no LTCH cases, we are
providing the following example, which
refers to the no volume proposed MS–
LTC–DRGs crosswalk information for
FY 2008 provided in the chart above.
Example 1:
There were no cases in the FY 2006
MedPAR file used for this proposed rule
for proposed MS–LTC–DRG 22
(Intracranial vascular procedures w PDX
hemorrhage w/o CC/MCC). We
determined that proposed MS–LTC–
DRG 33 (Ventricular shunt procedures
w/o CC/MCC), which is assigned to lowvolume Quintile 1 for the purpose of
determining the proposed FY 2008
relative weights, is similar clinically
and based on resource use to proposed
MS–LTC–DRG 22. Therefore, we are
proposing to assign the same relative
weight of proposed MS–LTC–DRG 33 of
0.48011 (Quintile 1) for FY 2008 (Table
11 in the Addendum to this proposed
rule) to proposed MS–LTC–DRG 22.
Furthermore, for FY 2008 we are
proposing to establish proposed MS–
LTC–DRG relative weights of 0.0000 for
the following transplant proposed MS–
LTC–DRGs: Heart transplant or implant
of heart assist system w MCC (proposed
LTC–DRG 1); Heart transplant or
implant of heart assist system w/o MCC
(proposed LTC–DRG 2); Liver transplant
w MCC or intestinal transplant
(proposed LTC–DRG 5); Liver transplant
w/o MCC (proposed LTC–DRG 6); Lung
transplant (proposed LTC–DRG 7);
Simultaneous pancreas/kidney
transplant (proposed LTC–DRG 8); and
Pancreas transplant (proposed LTC–
DRG 10). This is because Medicare will
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only cover these procedures if they are
performed at a hospital that has been
certified for the specific procedures by
Medicare and presently no LTCH has
been so certified. Based on our research,
we found that most LTCHs only perform
minor surgeries, such as minor small
and large bowel procedures, to the
extent any surgeries are performed at
all. Given the extensive criteria that
must be met to become certified as a
transplant center for Medicare, we
believe it is unlikely that any LTCHs
will become certified as a transplant
center. In fact, in the nearly 20 years
since the implementation of the IPPS,
there has never been a LTCH that even
expressed an interest in becoming a
transplant center.
If in the future a LTCH applies for
certification as a Medicare-approved
transplant center, we believe that the
application and approval procedure
would allow sufficient time for us to
determine appropriate weights for the
proposed MS–LTC–DRGs affected. At
the present time, we would only include
these seven proposed transplant MS–
LTC–DRGs in the GROUPER program
for administrative purposes only.
Because we use the same GROUPER
program for LTCHs as is used under the
IPPS, removing these proposed MS–
LTC–DRGs would be administratively
burdensome.
Again, we note that, as this system is
dynamic, it is entirely possible that the
number of proposed MS–LTC–DRGs
with no volume of LTCH cases based on
the system will vary in the future. We
used the most recent available claims
data in the MedPAR file to identify no
volume proposed MS–LTC–DRGs and to
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determine the proposed relative weights
in this proposed rule.
Table 11 in the Addendum to this
proposed rule lists the proposed MS–
LTC–DRGs and their respective
proposed relative weights, geometric
mean length of stay, and five-sixths of
the geometric mean length of stay (to
assist in the determination of short-stay
outlier payments under § 412.529) for
FY 2008.
Step 6—Adjust the proposed FY 2008
MS–LTC–DRG relative weights to
account for nonmonotonically
increasing relative weights.
As explained in section II.B. of this
preamble, the IPPS proposed FY 2008
MS–DRGs, on which the proposed FY
2008 MS–LTC–DRGs are based, provide
a significant improvement in the DRG
system’s recognition of severity of
illness and resource usage. The
proposed MS-DRGs contain base DRGs
that have been subdivided into one,
two, or three severity levels. Where
there are three severity levels, the most
severe level has at least one code that is
referred to as an MCC. The next lower
severity level contains cases with at
least one code that is a CC. Those cases
without a MCC or a CC are referred to
as without CC/MCC. When data did not
support the creation of three severity
levels, the base was divided into either
two levels or the base was not
subdivided. The two-level subdivisions
could consist of the CC/MCC and the
without CC/MCC. Alternatively, the
other type of two level subdivision
could consist of the MCC and without
MCC. In base DRGs with two levels,
cases classified into a ‘‘without CC/
MCC’’ proposed MS–LTC–DRG are
expected to have lower resource use
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Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Proposed Rules
(and lower costs) than the ‘‘with CC/
MM’’ and ‘‘with MCC.’’
That is, theoretically, cases that are
more severe typically require greater
expenditure of medical care resources
and will result in higher average
charges. Therefore, in the three severity
levels, relative weights should increase
by severity, from lowest to highest. If
the weights do not increase (that is, if
within a base MS–LTC–DRG, a
proposed MS–LTC–DRG with MCC has
a lower relative weight than one with
CC, or the proposed MS–LTC–DRG
without CC/MCC has a higher relative
weight than either of the others, they are
nonmonotonic. We continue to believe
that utilizing nonmonotonic relative
weights to adjust Medicare payments
would result in inappropriate payments.
Consequently, we are proposing that, in
general, we would combine proposed
MS–LTC–DRG severity levels within a
proposed base MS–LTC–DRG for the
purpose of computing a relative weight
when necessary to ensure that
monotonicity is maintained.
Specifically, under each of the example
scenarios provided below, we would
combine severity levels within a
proposed base MS–LTC–DRG as
follows:
The first example of
nonmonotonically increasing relative
weights for MS–LTC–DRG pertains to
base DRGs with a three-level split and
each of the three levels has 25 or more
LTCH cases and, therefore, did not fall
into one of the proposed five lowvolume quintiles. If nonmonotonicity is
detected in the relative weights of
proposed MS–LTC–DRGs in adjacent
severity levels (for example, the relative
weight of the ‘‘with MCC’’ (the highest
severity level) is less than the ‘‘with CC’’
(the middle level), or the ‘‘with CC’’ is
less than the ‘‘without CC/MCC’’), we
are proposing to combine the adjacent
proposed MS–LTC–DRGs and determine
one relative weight based on the caseweighted average of the combined LTCH
cases of the nonmonotonic proposed
MS–LTC–DRG. The case-weighted
average charge is determined by
dividing the total charges for all LTCH
cases in both severity levels by the total
number of LTCH cases for the combined
proposed MS–LTC–DRGs. We are
proposing to apply this relative weight
to both affected levels of the proposed
base MS–LTC–DRG. If nonmonotonicity
remains an issue because the above
process results in a relative weight that
is still nonmonotonic to the remaining
proposed MS–LTC–DRG, we are
proposing to combine all three of the
severity levels to determine one relative
weight which is assigned to each of the
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proposed MS–LTC–DRG in that
proposed base MS–LTC–DRG.
A second scenario of
nonmonotonically increasing relative
weights for an MS–LTC–DRG pertains to
the situation where one or more of the
severity levels within a base DRG has
less than 25 LTCH cases (that is, low
volume). If nonmonotonicity occurs in
the case where either the highest or
lowest severity level (with MCC’’ or
‘‘without CC/MCC’’) has 25 LTCH cases
or more and the other two severity
levels are low volume (and therefore the
other two severity levels would
otherwise be assigned to quintiles), we
are proposing to combine the data for
the cases in the two adjacent lowvolume proposed MS–LTC–DRGs for
the purpose of determining a relative
weight. If the combination results in at
least 25 cases, we are proposing to
calculate one relative weight and assign
it to both of the proposed severity
levels. If the combination results in less
than 25 cases, based on the caseweighted average charge of the
combined low-volume MS–LTC–DRGs,
both MS–LTC–DRGs, are assigned the
relative weight of the quintile that has
the closest relative weight to the case
weighted average change of the
combined low volume case. If
nonmonotonicity persists, we are
proposing to combine all three severity
levels and one relative weight would be
assigned to all three levels based on the
case weighted average of the combined
severity level. Similarly, in
nonmonotonic cases where the middle
level has 25 cases or more but either or
both the lowest or highest severity level
has less than 25 cases (that is, low
volume), we are proposing to combine
the nonmonotonic low-volume
proposed MS–LTC–DRG with the
middle level proposed MS–LTC–DRG of
the base DRG. We are proposing to
calculate one relative weight and apply
it to both of the affected proposed MS–
LTC–DRGs. If the nonmonotonicity
persists, we are proposing to combine
all three levels for the purpose of
determining a relative weight, and apply
that relative weight to all three levels.
A third scenario addresses
nonmonotonicity in a base DRG where
at least one of the severity levels has no
cases. As discussed in greater detail in
Step 5, based on clinical similarity, we
would cross-walk the proposed MS–
LTC–DRG to a proposed MS–LTC–DRG
to which it is similar clinically and in
intensity of resource use and then assign
it to a quintile with the relative weight
closest to that of the MS–LTC–DRG to
which the no-volume MS–LTC–DRG
had been cross-walked. If this results in
nonmonotonicity, in the case where the
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no-volume proposed MS–LTC–DRG is
either the lowest or highest severity
level, we are proposing to assign to the
no-volume proposed MS–LTC–DRG the
same relative weight that is assigned to
the middle level of the MS–LTC–DRG in
that base DRG. If nonmonotonicity
persists, we are proposing that all three
severity levels be combined for the
purpose of calculating one relative
weight which is applied to each of the
three levels. We note that this is a
departure from our current treatment of
no-volume LTC–DRGs which results in
an ultimate assignment to a quintile.
However, we propose that in the
infrequent case where nonmonotonicity
involves a no-volume proposed MS–
LTC–DRG, we believe it is appropriate
to resolve the nonmonotonicity by
assigning the no-volume proposed MS–
LTC–DRG the relative weight of the
proposed MS–LTC–DRG(s) in the base
DRG, regardless of whether the other
proposed MS–LTC–DRG(s) is low
volume (therefore assigned a relative
weight of a quintile) or high volume
(assigned its own relative weight). We
believe this treatment achieves
monotonically increasing relative
weights while providing appropriate
payment for the no-volume proposed
MS–LTC–DRG because the relative
weight assigned to the no-volume
proposed MS–LTC–DRG is based on the
average charges of services rendered
within the same proposed base MS–
LTC–DRG, rather than a quintile which
contains proposed MS–LTC–DRGs from
different proposed base MS–LTC–DRGs.
We are proposing to apply the same
process where the proposed base MS–
LTC–DRG contains a two-level split. For
example, if nonmonotonicity occurs in
a proposed base MS–LTC–DRG with
two severity levels (that is, the higher
severity level relative weight is less than
the lower severity level), where both of
the MS–LTC–DRGs have at least 25
cases or where one or both of the
proposed MS–LTC–DRGs is low
volume, we are proposing to combine
the two proposed MS–LTC–DRGs of that
proposed base MS–LTC–DRG for the
purpose of determining a case-weighted
relative weight. If the combination still
results in at least 25 cases, we are
proposing to calculate one relative
weight and assign it to both of the
proposed MS–LTC–DRGs. If the
combination results in less than 25
cases, we determine the quintile
assignment for both MS–LTC–DRGs
based on the case-weighted average
charge and assign both MS–LTC–DRGs
the same relative weight of the
appropriate quintile.
Step 7—Calculate the proposed FY
2008 budget neutrality factor.
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Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Proposed Rules
As we stated in the FY 2008 LTCH
PPS proposed rule (72 FR 4784 through
4786), under the broad authority
conferred upon the Secretary under
section 123 of Pub. L. 106–113 as
amended by section 307(b) of Pub. L.
106–554 to develop the LTCH PPS, we
proposed that, beginning with the MS–
LTC–DRG update for FY 2008, the
annual update to the proposed MS–
LTC–DRG classifications and relative
weights would be done in a budget
neutral manner such that estimated
aggregate LTCH PPS payments would be
unaffected, that is, would be neither
greater than nor less than the estimated
aggregate LTCH PPS payments that
would have been made without the
proposed MS–LTC–DRG classification
and relative weight changes. Currently
under § 412.517, the LTC–DRG
classifications and relative weights are
adjusted annually to reflect changes in
factors affecting the relative use of
LTCH resources, such as treatment
patterns, technology and number of
discharges. In addition, there are
currently no statutory or regulatory
requirements that the annual update to
the LTC–DRG classifications and
relative weights be done in a budget
neutral manner. Since the initial
implementation of the LTCH PPS in FY
2003, we have updated the LTC–DRG
relative weights each year without a
budget neutrality adjustment based on
the most recent available LTCH claims
data, which reflect current LTCH patient
mix and coding practices, and
appropriately reflected more or less
resource use than the previous year’s
LTC–DRG relative weights (71 FR
47991). Historically, we have not
updated the LTC–DRGs in a budget
neutral manner because we believed
that past fluctuations in the LTC–DRG
relative weights were primarily due to
changes in LTCH coding practices. We
believe that changes in the LTCH PPS
payment rates, including the LTC–DRG
relative weights, should accurately
reflect changes in LTCHs’ true cost of
treating patients (real CMI increase), and
should not be influenced by changes in
coding practices (apparent CMI
increase). Because LTCH 2006 claims
data does not appear to significantly
reflect changes in LTCH coding
practices in response to the
implementation of the LTCH PPS, we
believe that it may be appropriate to
update the LTC–DRGs so that estimated
aggregate LTCH PPS payments would
neither increase nor decrease. Thus, in
the FY 2008 LTCH PPS proposed rule
(72 FR 4784), we proposed that the
annual update to the LTC–DRG
classifications and relative weights be
done in a budget neutral manner. (For
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a detailed discussion on updating the
LTC–DRG classifications and relative
weights in a budget neutral manner,
refer to the FY 2008 LTCH PPS
proposed rule (72 FR 4784 through
4786). Updating the LTC–DRGs in a
budget neutral manner would result in
an annual update to the individual
LTC–DRG classifications and relative
weights based on the most recent
available data to reflect changes in
relative LTCH resource use, and the
LTC–DRG relative weights would be
uniformly adjusted to ensure that
estimated aggregate payments under the
LTCH PPS would not be affected (that
is, decreased or increased). Consistent
with that proposal, we are proposing to
update the proposed MS–LTC–DRG
classifications and relative weights for
FY 2008 based on the most recent
available data and include a budget
neutrality adjustment.
To ensure budget neutrality in
updating the MS–LTC–DRG
classifications and relative weights
under the proposed change to §
412.517, we are proposing to use a
method that is similar to the
methodology used under the IPPS. (A
discussion of the IPPS DRG budget
neutrality adjustment can be found in
the FY 2007 IPPS final rule (71 FR
47970).) Specifically, we are proposing
that, after recalibrating the proposed
MS–LTC–DRG relative weights, as we
do under the methodology as described
in detail in Steps 1 through 6 above, we
would calculate and apply a
normalization factor to the proposed
MS–LTC–DRG relative weights to
ensure that estimated payments are not
influenced by changes in the
composition of case types or changes
made to the classification system. That
is, the normalization adjustment is
intended to ensure that the recalibration
of the proposed MS–LTC–DRG relative
weights (that is, the process itself)
neither increases nor decreases total
estimated payments. To calculate the
normalization factor, we are proposing
to use the most recent available claims
data (FY 2006) and apply the proposed
GROUPER (Version 25.0) to calculate
the proposed relative weights.
Furthermore, we are proposing to use
the most recent available claims data in
the analysis for the final rule. These
weights are determined such that the
average CMI value is 1.0. Then, we are
proposing to group the same claims data
(FY 2006) using the current GROUPER
(Version 24.0) and current relative
weights. The average CMI is calculated
for the claims data using the current
GROUPER and relative weights. Finally,
the ratio of the average CMI of the
claims data set under the current
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GROUPER and the proposed GROUPER
is calculated as the proposed
normalization factor. For FY 2008,
based on the latest available data, the
proposed normalization factor is
estimated as 1.020302, which is applied
to each proposed MS–LTC–DRG relative
weight. (However, if more current data
become available prior to publication of
the final rule, we will use those data to
determine the normalization factor.)
That is, each proposed MS–LTC–DRG
relative weight is multiplied by
1.020302 in the first step of the budget
neutrality process. We are also
proposing to ensure that estimated
aggregate LTCH PPS payments (based
on the most recent available LTCH
claims data) after recalibration (the
proposed relative weights) would be
equal to estimated aggregate LTCH PPS
payments (for the same most recent
available LTCH claims data) before
recalibration (the existing relative
weights). Therefore, we are proposing to
calculate the budget neutrality
adjustment factor by simulating
estimated payments under both sets of
GROUPERs and relative weights. We are
proposing to simulate total estimated
payments under the current payment
policies (RY 2007) using the most recent
available claims data (FY 2006) and
using the proposed GROUPER (Version
25.0), and normalized relative weights.
Then, we are proposing to simulate
estimated payments using the most
recent available claims data (FY 2006)
and apply the proposed GROUPER
(Version 25.0). We next calculate
payments using the same claims data
(FY 2006) with the current GROUPER
(Version 24.0). The ratio of the
estimated average payment under the
current GROUPER and the proposed
GROUPER is calculated as the proposed
budget neutrality factor. Then each of
the proposed normalized relative
weights is multiplied by the budget
neutrality factor to determine the
proposed budget neutral relative weight
for each proposed MS–LTC–DRG.
Accordingly, based on the most recent
available data, we are proposing a
budget neutrality factor of 1.003924 that
is applied to the relative weights after
normalizing. If more current data
become available prior to publication of
the final rule, we will use those data to
determine the budget neutrality factor.
The relative weights in Table 11 in the
Addendum of this proposed rule reflect
those budget neutral weights. If, as a
result of comments, we decide not to
finalize the proposed budget neutrality
policy, the proposed weights in Table
11 of the Addendum to this proposed
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rule change by the two factors discussed
herein.
Step 8—Apply the proposed case-mix
budget neutrality factor to the proposed
MS–LTC–DRG relative weight.
As discussed under section II.D.6. of
the preamble of this proposed rule, we
are proposing a budget neutral
adjustment for FY 2008 and FY 2009 to
eliminate the effect of changes in coding
or classification of discharges that do
not reflect real change in case-mix
because we believe that adoption of the
proposed MS–LTC–DRGs would create
a risk of increased aggregate levels of
payment as a result of increased
documentation and coding. The
additional step 8 would be necessary for
FY 2008 and FY 2009 to ensure that
estimated aggregate LTCH PPS
payments would be neither greater than
nor less than the estimated aggregate
LTCH PPS payments that would have
been made without the adoption of the
proposed MS–LTC–DRG patient
classification system. Accordingly, each
of the relative weights in Table 11 of the
Addendum to this proposed rule reflects
this proposed adjustment. That is, each
proposed MS–LTC–DRG relative weight
is multiplied by a factor of 0.976 to
account for changes in coding or
classification of discharges resulting
from the adoption of the new patient
classification system.
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J. Proposed Add-On Payments for New
Services and Technologies
(If you choose to comment on issues
in this section, please include the
caption ‘‘New Technology’’ at the
beginning of your comment.)
1. Background
Sections 1886(d)(5)(K) and (L) of the
Act establish a process of identifying
and ensuring adequate payment for new
medical services and technologies
(sometimes collectively referred to in
this section as ‘‘new technologies’’)
under the IPPS. Section
1886(d)(5)(K)(vi) of the Act specifies
that a medical service or technology will
be considered new if it meets criteria
established by the Secretary after notice
and opportunity for public comment.
Section 1886(d)(5)(K)(ii)(I) of the Act
specifies that the process must apply to
a new medical service or technology if,
‘‘based on the estimated costs incurred
with respect to discharges involving
such service or technology, the DRG
prospective payment rate otherwise
applicable to such discharges under this
subsection is inadequate.’’
The regulations implementing this
provision establish three criteria for new
medical services and technologies to
receive an additional payment. First, §
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412.87(b)(2) defines when a specific
medical service or technology will be
considered new for purposes of new
medical service or technology add-on
payments. The statutory provision
contemplated the special payment
treatment for new medical services or
technologies until such time as data are
available to reflect the cost of the
technology in the DRG weights through
recalibration. There is a lag of 2 to 3
years from the point a new medical
service or technology is first introduced
on the market and when data reflecting
the use of the medical service or
technology are used to calculate the
DRG weights. For example, data from
discharges occurring during FY 2006 are
used to calculate the proposed FY 2008
DRG weights in this proposed rule.
Section 412.87(b)(2) provides that, ‘‘a
medical service or technology may be
considered new within 2 or 3 years after
the point at which data begin to become
available reflecting the ICD–9-CM code
assigned to the new medical service or
technology (depending on when a new
code is assigned and data on the new
medical service or technology become
available for DRG recalibration). After
CMS has recalibrated the DRGs based on
available data to reflect the costs of an
otherwise new medical service or
technology, the medical service or
technology will no longer be considered
‘new’ under the criterion for this
section.’’
The 2-year to 3-year period during
which a medical service or technology
can be considered new would ordinarily
begin with FDA approval, unless there
was some documented delay in bringing
the product onto the market after that
approval (for instance, component
production or drug production has been
postponed until FDA approval due to
shelf life concerns or manufacturing
issues). After the DRGs have been
recalibrated to reflect the costs of an
otherwise new medical service or
technology, the special add-on payment
for new medical services or technologies
ceases (§ 412.87(b)(2)). For example, an
approved new technology that received
FDA approval in October 2006 and
entered the market at that time may be
eligible to receive add-on payments as a
new technology until FY 2010
(discharges occurring before October 1,
2009), when data reflecting the costs of
the technology could be used to
recalibrate the DRG weights. Because
the FY 2009 DRG weights would be
calculated using FY 2007 MedPAR data,
the costs of such a new technology
would be reflected in the FY 2009 DRG
weights.
Section 412.87(b)(3) further provides
that new medical services or
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technologies must be inadequately paid
otherwise under the DRG system to
receive the add-on payment. To assess
whether technologies would be
inadequately paid under the DRGs, we
establish thresholds to evaluate
applicants for new technology add-on
payments. In the FY 2004 IPPS final
rule (68 FR 45385), we established the
threshold at the geometric mean
standardized charge for all cases in the
DRG plus 75 percent of 1 standard
deviation above the geometric mean
standardized charge (based on the
logarithmic values of the charges and
transformed back to charges) for all
cases in the DRG to which the new
medical service or technology is
assigned (or the case-weighted average
of all relevant DRGs, if the new medical
service or technology occurs in many
different DRGs).
However, section 503(b)(1) of Pub. L.
108–173 amended section
1886(d)(5)(K)(ii)(I) of the Act to provide
for ‘‘applying a threshold * * * that is
the lesser of 75 percent of the
standardized amount (increased to
reflect the difference between cost and
charges), or 75 percent of 1 standard
deviation for the diagnosis-related group
involved.’’ The provisions of section
503(b)(1) apply to classification for
fiscal years beginning with FY 2005.
(Refer to section IV.D. of the preamble
to the FY 2005 IPPS final rule (69 FR
49084) for a discussion of the revision
of the regulations to incorporate the
change made by section 503(b)(1) of
Pub. L. 108–173.) Table 10 of the
Addendum to the FY 2007 IPPS final
rule (71 FR 48319) contained the final
thresholds that are being used to
evaluate applications for new
technology add-on payments for FY
2008. An applicant must demonstrate
that the cost threshold is met using
information from inpatient hospital
claims.
We were recently asked to revisit the
issue of whether the HIPAA Privacy
Rule at 45 CFR Parts 160 and 164
applies to claims information that
providers submit with applications for
new technology add-on payments. We
previously addressed this issue in the
September 7, 2001 final rule (66 FR
46917) that established the new
technology add-on payment regulations.
In the preamble to that final rule, we
explained that health plans, including
Medicare, and providers that conduct
certain transactions electronically,
including the hospitals that would be
receiving payment under the FY 2001
IPPS final rule, are required to comply
with the HIPAA Privacy Rule. We
further explained how such entities
could meet the applicable HIPAA
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requirements by discussing how the
HIPAA Privacy Rule permitted
providers to share with health plans
information needed to ensure correct
payment, if they have obtained consent
from the patient to use that patient’s
data for treatment, payment, or health
care operations. We also explained that
because the information to be provided
within applications for new technology
add-on payment would be needed to
ensure correct payment, no additional
consent would be required. The HHS
Office of Civil Rights has since amended
the HIPAA Privacy Rule, but the results
remain. The HIPAA Privacy Rule no
longer requires covered entities to
obtain consent from patients to use or
disclose individually identifiable health
information for treatment, payment, or
health care operations, and expressly
permits such entities to use or to
disclose individually identifiable health
information to covered entities for any
of these purposes (45 CFR § §
164.502(a)(1)(ii), and 506(c)(1) and
(c)(3); and the Standards for Privacy of
Individually Identifiable Health
Information published in the Federal
Register on August 14, 2002 for a full
discussion of changes in consent
requirements).
Section 412.87(b)(1) of our existing
regulations provides that a new
technology is an appropriate candidate
for an additional payment when it
represents ‘‘an advance that
substantially improves, relative to
technologies previously available, the
diagnosis or treatment of Medicare
beneficiaries.’’ For example, a new
technology represents a substantial
clinical improvement when it reduces
mortality, decreases the number of
hospitalizations or physician visits, or
reduces recovery time compared to the
technologies previously available. (Refer
to the September 7, 2001 final rule (66
FR 46902) for a complete discussion of
this criterion.)
The new medical service or
technology add-on payment policy
provides additional payments for cases
with high costs involving eligible new
medical services or technologies while
preserving some of the incentives under
the average-based payment system. The
payment mechanism is based on the
cost to hospitals for the new medical
service or technology. Under § 412.88,
Medicare pays a marginal cost factor of
50 percent for the costs of a new
medical service or technology in excess
of the full DRG payment. If the actual
costs of a new medical service or
technology case exceed the DRG
payment by more than the 50-percent
marginal cost factor of the new medical
service or technology, Medicare
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payment is limited to the DRG payment
plus 50 percent of the estimated costs of
the new technology.
The Congressional report language
accompanying section 533 of Pub. L.
106–554 indicated Congress’ intent to
require the Secretary to implement the
new mechanism on a budget neutral
basis (H.R. Conf. Rep. No. 106–1033,
106th Cong., 2nd Sess. at 897 (2000)).
Section 1886(d)(4)(C)(iii) of the Act
requires that the adjustments to annual
DRG classifications and relative weights
must be made in a manner that ensures
that aggregate payments to hospitals are
not affected. Therefore, in the past, we
accounted for projected payments under
the new medical service and technology
provision during the upcoming fiscal
year at the same time we estimated the
payment effect of changes to the DRG
classifications and recalibration. The
impact of additional payments under
this provision was then included in the
budget neutrality factor, which was
applied to the standardized amounts
and the hospital-specific amounts.
Section 1886(d)(5)(K)(ii)(III) of the
Act, as amended by section 503(d)(2) of
Pub. L. 108–173, provides that there
shall be no reduction or adjustment in
aggregate payments under the IPPS due
to add-on payments for new medical
services and technologies. Therefore,
add-on payments for new medical
services or technologies for FY 2005 and
later years have not been budget neutral.
Applicants for add-on payments for
new medical services or technologies for
FY 2009 must submit a formal request,
including a full description of the
clinical applications of the medical
service or technology and the results of
any clinical evaluations demonstrating
that the new medical service or
technology represents a substantial
clinical improvement, along with a
significant sample of data to
demonstrate the medical service or
technology meets the high-cost
threshold. Complete application
information, along with final deadlines
for submitting a full application, will be
available on our web site after
publication of the IPPS FY 2008 final
rule at: https://www.cms.hhs.gov/
AcuteInpatientPPS/08—newtech.asp.
To allow interested parties to identify
the new medical services or
technologies under review before the
publication of the proposed rule for FY
2009, the web site will also list the
tracking forms completed by each
applicant.
2. Public Input Before Publication of a
Notice of Proposed Rulemaking on AddOn Payments
Section 1886(d)(5)(K)(viii) of the Act,
as amended by section 503(b)(2) of Pub.
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L. 108–173, provides for a mechanism
for public input before publication of a
notice of proposed rulemaking regarding
whether a medical service or technology
represents a substantial clinical
improvement or advancement. The
process for evaluating new medical
service and technology applications
requires the Secretary to—
<bullet≤ Provide, before publication
of a proposed rule, for public input
regarding whether a new service or
technology represents an advance in
medical technology that substantially
improves the diagnosis or treatment of
Medicare beneficiaries.
<bullet≤ Make public and periodically
update a list of the services and
technologies for which applications for
add-on payments are pending.
<bullet≤ Accept comments,
recommendations, and data from the
public regarding whether a service or
technology represents a substantial
clinical improvement.
<bullet≤ Provide, before publication
of a proposed rule, for a meeting at
which organizations representing
hospitals, physicians, manufacturers,
and any other interested party may
present comments, recommendations,
and data regarding whether a new
medical service or technology
represents a substantial clinical
improvement to the clinical staff of
CMS.
In order to provide an opportunity for
public input regarding add-on payments
for new medical services and
technologies for FY 2008 before
publication of the FY 2008 IPPS
proposed rule, we published a notice in
the Federal Register on December 22,
2006 (71 FR 77031), and held a town
hall meeting at the CMS Headquarters
Office in Baltimore, MD, on February
22, 2007. In the announcement notice
for the meeting, we stated that the
opinions and alternatives provided
during the meeting would assist us in
our evaluations of applications by
allowing public discussion of the
substantial clinical improvement
criterion for each of the FY 2008 new
medical service and technology add-on
payment applications before the
publication of the FY 2008 IPPS
proposed rule.
Approximately 70 individuals
attended the town hall meeting in
person, while additional participants
listened over an open telephone line.
Boston Scientific presented data on how
its product (Wingspan[reg] Stent System
with GatewayTM PTA Balloon Catheter)
meets the substantial clinical
improvement criterion, as well as the
need for additional payments to ensure
its access to Medicare beneficiaries. No
other attendees at the town hall meeting
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made a presentation with regard to the
Wingspan[reg] new technology add-on
payment application.
We considered Boston Scientific’s
presentation made at the town hall
meeting, as well as written comments
submitted with their application, in our
evaluation of the Wingspan[reg] new
technology application for FY 2008 in
this proposed rule. We have
summarized these comments under
section I.4. of this preamble.
We did not receive any other
comments regarding substantial clinical
improvement of Wingspan[reg].
However, there were a number of public
comments made at the town hall
meeting suggesting that CMS provide
more specific detail about how it would
apply the substantial clinical
improvement criterion. For example, the
public commenters at the town hall
meeting suggested that CMS provide
clear guidance with respect to the type
of data that applicants should submit to
support an application for add-on
payments for new medical services and
technologies. We were asked to work
with stakeholders, including
researchers, clinicians, representatives
of patients, and manufacturers, to
develop specific criteria and data
quality standards that would make
determinations of ‘‘substantial clinical
improvement’’ more predictable and
transparent.
We welcome public comment on this
issue. In particular, we are interested in
any ‘‘specific criteria or data quality
standards’’ that the commenters believe
we should adopt to improve the new
technology add-on application process,
or any concerns or challenges that
commenters believe we may encounter
in undertaking this effort. Again, as we
stated at the new technology town hall
meeting, we are always interested in
working with our stakeholders to
improve the inpatient new technology
add-on payment process. We are
interested in ensuring that the latest
medical technology that improves care
for the Medicare patient population
continues to be available to our
beneficiaries.
3. FY 2008 Status of Technologies
Approved for FY 2007 Add-On
Payments
a. Endovascular Graft Repair of the
Thoracic Aorta
W. L. Gore & Associates, Inc.
submitted an application for
consideration of its Endovascular Graft
Repair of the Thoracic Aorta (GORE
TAG) for new technology add-on
payments for FY 2006. The
manufacturer argued that endovascular
stent-grafting of the descending thoracic
aorta provides a less invasive alternative
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to the traditional open surgical
approach required for the management
of descending thoracic aortic
aneurysms. The GORE TAG device is a
tubular stent-graft mounted on a
catheter-based delivery system, and it
replaces the synthetic graft normally
sutured in place during open surgery.
The device was initially identified using
ICD–9–CM procedure code 39.79 (Other
endovascular repair (of aneurysm) of
other vessels). The applicant also
requested a unique ICD–9–CM
procedure code. As noted in Table 6B of
the FY 2006 IPPS final rule (70 FR
47637), new procedure code 39.73
(Endovascular implantation of graft in
thoracic aorta) was assigned to this
technology.
In the FY 2006 IPPS final rule (70 FR
47356), we approved the GORE TAG
device for new technology add-on
payment for FY 2006. FDA approved
GORE TAG on March 23, 2005. Because
the technology remained within the 2to 3-year period during which it could
be considered new for FY 2007, we
continued add-on payments for the
endovascular graft repair of the thoracic
aorta in the FY 2007 IPPS final rule (71
FR 47999). GORE TAG will have been
on the market for more than 3 years as
of March 23, 2008, or less than 6 months
of FY 2008. Our practice has been to
begin and end new technology add-on
payments on the basis of a fiscal year.
In general, we extend add-on payments
for an additional year only if the 3-year
anniversary date of the product’s entry
on the market occurs in the latter half
of the fiscal year (70 FR 47362). Because
the 3-year anniversary date of GORE
TAG’s entry onto the market was in the
first half of the fiscal year, we are
proposing to discontinue its new
technology add-on payment for FY
2008.
b. Restore[supreg] Rechargeable
Implantable Neurostimulator
Medtronic Neurological submitted an
application for new technology add-on
payments for its Restore[supreg]
Rechargeable Implantable
Neurostimulator for FY 2006. The
Restore[supreg] Rechargeable
Implantable Neurostimulator is
designed to deliver electrical
stimulation to the spinal cord to block
the sensation of pain. The technology
standard for neurostimulators uses
internal sealed batteries as the power
source to generate the electrical current.
These internal batteries have finite lives,
and require replacement when their
power has been completely discharged.
According to the manufacturer, the
Restore[supreg] Rechargeable
Implantable Neurostimulator
‘‘represents the next generation of
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neurostimulator technology, allowing
the physician to set the voltage
parameters in such a way that fully
meets the patient’s requirements to
achieve adequate pain relief without
fear of premature depletion of the
battery.’’ The applicant stated that the
expected life of the Restore[supreg]
rechargeable battery is 9 years,
compared to an average life of 3 years
for conventional neurostimulator
batteries. We approved new technology
add-on payments for all rechargeable,
implantable neurostimulators for FY
2006 and FY 2007. Cases involving
these devices, made by any
manufacturer, are identified by the
presence of newly created ICD–9–CM
code 86.98 (Insertion or replacement of
dual array rechargeable neurostimulator
pulse generator).
The FDA approved the
Restore[supreg] Rechargeable
Implantable Neurostimulator in 2005.
However, as noted in the FY 2006 IPPS
final rule (70 FR 47358), at least one
similar product was approved by the
FDA as early as April 2004. Because the
Restore’’ Rechargeable Implantable
Neurostimulator will be beyond the 2to 3-year period during which it can be
considered new for FY 2008, we are
proposing to discontinue add-on
payments for the technology in FY 2008.
c. X STOP Interspinous Process
Decompression System
St. Francis Medical Technologies
submitted an application for new
technology add-on payments for the X
STOP Interspinous Process
Decompression System (X STOP) for FY
2007. Lumbar spinal stenosis describes
a condition that occurs when the spaces
between bones in the spine become
narrowed due to arthritis and other agerelated conditions. This narrowing, or
stenosis, causes nerves coming from the
spinal cord to be compressed, thereby
causing symptoms including pain,
numbness, and weakness. It particularly
causes symptoms when the spine is in
extension, when a patient stands fully
upright or leans back. The X STOP
device is inserted between the spinous
processes of adjacent vertebrae in order
to provide a minimally invasive
alternative to conservative treatment
(exercise and physical therapy) and
invasive surgery (spinal fusion). It
works by limiting the spine’s extension
that compresses the nerve’s roots while
still preserving as much motion as
possible. The device is inserted in a
relatively simple, primarily outpatient
procedure using local anesthesia.
However, in some circumstances, the
physician may prefer to admit the
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patient for an inpatient stay. The
manufacturer described the device as
providing ‘‘a new minimally invasive,
stand-alone alternative treatment for
lumbar spinal stenosis.’’
The X STOP Interspinous Process
Decompression system received premarket approval from the FDA on
November 21, 2005. The device is
currently described by ICD–9–CM code
84.58 (Implantation of Interspinous
process decompression device)
(excluding: Fusion of spine (codes 81.00
through 81.08, and 81.30 through
81.39)). This ICD–9–CM code went into
effect on October 1, 2005.
In the FY 2007 final rule, with respect
to substantial clinical improvement, we
noted our concern that, during the FDA
approval process, the Center for Devices
and Radiological Health Advisory Panel
voted against pre-market approval of X
STOP because of concerns about proper
patient selection, as well as the lack of
objective endpoints. The applicant
addressed our concerns by
demonstrating that the mechanism of
effect on the spine in cadavers with in
vivo clinical radiographic data. That is,
the applicant was able to show that the
X STOP device limits spine extension
that compresses the nerve. Thus, we
indicated that we believed the
technology has promise for providing a
less invasive alternative to procedures
such as laminectomy or fusion for
patients that have failed conservative
treatment (exercise, physical therapy
and medication). The X STOP system
represents a new level of treatment on
the continuum of care for patients with
lumbar spinal stenosis that previously
did not exist.
Accordingly, after consideration of
the comments received, we approved
the X STOP Interspinous Process
Decompression System for new
technology add-on payment for FY
2007. Cases involving X STOP are
identified by ICD–9–CM code 84.58
(Implantation of interspinous process
decompression device). These cases are
generally included in CMS–DRG 499
(Back and Neck Procedures Except
Spinal Fusion with CC) and CMS–DRG
500 (Back and Neck Procedures Except
Spinal Fusion without CC) for FY 2007.
The X STOP Interspinous Process
Decompression System is still within
the 2- to 3-year period during which it
can be considered new for FY 2008.
However, we are concerned that it may
no longer meet the cost-threshold
criterion. In section II.D. of the preamble
of this proposed rule, we are proposing
to adopt MS–DRGs for FY 2008 and
assign cases with procedure codes 84.58
into proposed MS–DRG 490 (Back and
Neck Procedures Except Spinal Fusion
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with CC or MCC or Disc Devices).
Proposed MS–DRG 490 includes back
and neck procedures except spinal
fusion with a CC or MCC. As indicated
earlier, we did a comprehensive review
of the spinal fusion and nonspinal
fusion DRGs. Based on this review, we
are proposing to further modify MS–
DRG 490 to also include the higher cost
of cases where the patient receives a
spinal disc device such as an artificial
spinal disc prosthesis, or an
interspinous process decompression
system. Our earlier analysis of the
spinal and nonspinal fusion DRGs
showed that the average charge per case
for cases involving X STOP is $29,162.
The average charge per case for MS–
DRG 490 is $29,656. Therefore, cases
that use X STOP have a lower average
charge per case than all cases in MS–
DRG 490. The data show that the
technology is not inadequately paid
under the revised MS–DRGs, and it no
longer meets the cost threshold for new
technology add-on payment. For this
reason, we are proposing to discontinue
new technology add-on payments for X
STOP in FY 2008 and correlate the
payments under MS–DRG 490. The high
costs for cases using X STOP that
necessitated an add-on payment under
the CMS DRGs will no longer be
necessary because of the higher
payment that would be made under the
proposed MS–DRG 490.
4. FY 2008 Application for New
Technology Add-On Payments
Boston Scientific submitted an
application for the Wingspan[reg] Stent
System with Gateway PTA Balloon
Catheter (Wingspan[reg]) for new
technology add-on payments for FY
2008. The device is designed for the
treatment of patients with significant
intracranial arterial stenosis who are
refractory to medical management. The
device consists of the following: a selfexpanding nitinol stent; a multilumen
over wire delivery catheter; and a
GatewayTM PTA Balloon Catheter. The
device is used to treat stenoses that
occur in the intracranial vessels. Prior to
stent placement, the GatewayTM PTA
Balloon is inflated to dilate the target
lesion, and then the stent is deployed
across the lesion to restore and maintain
luminal patency. Effective October 1,
2004, two new ICD–9–CM procedure
codes were created to code intracranial
angioplasty and intracranial stenting
procedures: procedure codes 00.62
(Percutaneous angioplasty or
atherectomy of intracranial vessels) and
00.65 (Percutaneous insertion of
intracranial vascular stents).
On August 3, 2005, the Wingspan[reg]
was approved by the FDA as a
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Humanitarian Device Exemption (HDE).
We note that the applicant submitted an
application for new technology add-on
payments in FY 2006 but was not
approved for add-on payments because
it had not yet received FDA approval. In
November 2006, we issued a national
coverage determination (NCD) on
intracranial stents. The NCD stated that
the treatment of cerebral artery stenosis
in patients with intracranial
atherosclerotic disease with intracranial
percutaneous transluminal angioplasty
(PTA) and stenting is reasonable and
necessary when furnished in accordance
with the FDA-approved protocols
governing Category B Investigational
Device Exemption (IDE) clinical trials.
Currently, there are no clinical trials in
place for the Wingspan[reg]. However,
because the technology is covered by
Medicare, if it is used in the setting of
a clinical trial, we will evaluate whether
the Wingspan[reg] meets the criteria for
an inpatient new technology add-on
payment. The Wingspan[reg] has been
available on the market since August 3,
2005. Therefore, we believe that the
technology meets the newness criterion.
The applicant noted in its application
that cases of intracranial angioplasty
and stenting cases are currently grouped
to CMS DRGs 533 (Extracranial
Procedure with CC) and 534
(Extracranial Procedure Without CC).
However, the applicant believes these
cases should be assigned to CMS DRGs
1 (Craniotomy Age ≤ 17 With CC), 2
(Craniotomy Age ≤ 17 Without CC), and
543 (Craniotomy With Major Device
Implant or Acute Complex Central
Nervous System Principal Diagnosis)
based on resource use and for clinical
consistency with other endovascular
intracranial procedures assigned to
these DRGs. As discussed in section
II.D. of the preamble of this proposed
rule, we are proposing to move
procedure code 00.62 to proposed MS–
DRGs 25, 26, and 27 (Craniotomy &
Endovascular Intracranial Procedures
With MCC, With CC, and Without CC/
MCC, respectively) and proposed MS–
DRGs 23 and 24 (Craniotomy With
Major Device Implant or Acute Complex
Central Nervous System Principal
Diagnosis With MCC or Without MCC,
respectively) under the proposed MS–
DRG system, which are comparable to
DRGs 1, 2, and 543 under the current
CMS–DRG system.
To demonstrate that the
Wingspan[reg] meets the cost threshold,
the manufacturer submitted data from
MedPAR and non-MedPAR databases.
Using the FY 2005 MedPAR data, the
applicant identified cases of intracranial
angioplasty that had a procedure code of
39.50 (Angioplasty or atherectomy of
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other noncoronary vessels) in
combination with one of the following
principal diagnosis codes: Any
principal diagnosis code that begins
with the prefix of 433 (Occlusion and
stenosis of precerebral arteries),
excluding 433.10 (Cartoid artery
without mention of cerebral infarction)
and 433.11 (Cartoid artery with cerebral
infarction); any principal diagnosis code
that begins with the prefix of 434
(Occlusion of cerebral arteries), 437.0
(Cerebral atherosclerosis), 437.1 (Other
generalized ischemic cerebrovascular
disease), or 437.9 (Unspecified). The
applicant noted that procedure code
39.50 is the predecessor code for
identifying cases of intracranial
angioplasty. The applicant explained
that, given the newness of procedure
codes 00.62 and 00.65 that were
implemented beginning October 1,
2005, it believes there are still cases
being coded with the predecessor
procedure codes. Using this
methodology, the applicant found 577
cases in DRG 533 and 179 cases in DRG
534. The applicant noted that charges in
the MedPAR file do not include the total
costs of devices, drugs, and medical
supplies associated with the
Wingspan[reg], so the applicant
conducted an estimate of the charges
associated with the Wingspan[reg]. The
applicant determined that costs
associated with the Wingspan[reg] are
approximately $10,073. Because we use
charges to determine if a technology
meets the threshold, it is necessary to
inflate the costs to charges. Using the
national average CCR of 0.47, the
applicant inflated the costs associated
with the Wingspan[reg] to $21,432 in
charges. After adding the charges
associated with the Wingspan[reg], the
average standardized charge per case
was $76,416 and $51,277 for DRGs 533
and 534, respectively.
We are concerned regarding whether
the cases identified by the applicant are
a useful proxy to identify cases of
intracranial angioplasty. Procedure code
39.50 describes cases of angioplasty in
any artery of the body except the heart.
Intracranial angioplasty with stenting
was not covered by Medicare in any
circumstance prior to October 2006.
Therefore, the Medicare cases submitted
by the applicant under procedure code
39.50 should not involve intracranial
angioplasty because they are neither
described by the code nor covered by
Medicare. Furthermore, procedure code
00.62 is assigned to the Non-Covered
Procedure edit of the MCE. The
applicant supplied Medicare data from
FY 2005 for claims coded with
procedure code 00.62. It is unclear to us
how these claims were processed
despite the Non-Covered Procedure edit.
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Because these data appear to be based
on claims that may not have been coded
or processed correctly, we question the
reliability and validity of these data. We
are concerned that it may not be
appropriate to rely on these data for
purposes of determining whether the
technology meets the cost threshold.
As stated above, the applicant also
submitted non-Medicare data. The
applicant used the 2005 patient
discharge data from California’s Office
of Statewide Health Planning and
Development database for hospitals in
California and the 2005 patient data
from Florida’s Agency for Health Care
Administration for hospitals in Florida.
Similar to the analysis above, the
applicant identified cases of intracranial
angioplasty using procedure code 39.50
in combination with the diagnosis codes
listed above. The applicant identified 43
cases in DRG 533, and 21 cases in DRG
534. Because these cases already
include charges associated with
Wingspan[supreg], it was not necessary
to include the $21,432 in charges
associated with Wingspan[supreg]. The
average standardized charge per case
was $89,697 and $40,475 for DRGs 533
and 534, respectively. As discussed
above, we are concerned about whether
these cases actually represent cases of
intracranial angioplasty. We also note
that we are unable to validate these data
because they are non-Medicare data. In
addition, similar to the analysis
described above, the applicant also
identified cases of intracranial
angioplasty using procedure code 00.62.
The applicant found 30 cases in DRG
533, and 23 cases in DRG 534. The
average standardized charge per case
was $93,215 and $31,479 for DRGs 533
and 534, respectively. Based on these
data, the applicant maintains that the
technology meets the cost threshold.
As noted above, the applicant has
requested that cases of the
Wingspan[supreg] be reassigned to CMS
DRGs 1, 2 and 543. In section II.G.2. of
the preamble of this proposed rule, we
are proposing to assign procedure code
00.62 to proposed MS-DRGs 23, 24, 25,
26 and 27, which replace DRGs 1, 2, and
543 of the current CMS DRGs. The
thresholds in Table 10 of the Addendum
of the FY 2007 IPPS final rule (as
corrected at 71 FR 60040) for DRGs 1,
2 and 543 are $53,969, $37,116 and
$64,397, respectively. Analyzing the
same Medicare and non-Medicare data
that the applicant used to demonstrate
that the Wingspan[supreg] exceeds the
cost threshold for DRGs 533 and 534,
the applicant compared the average
standardized charge per case to the
thresholds for DRGs 1, 2, and 543. The
applicant maintains that the
Wingspan[supreg] would still exceed
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the cost threshold even if it were
reassigned to DRGs 1, 2, and 543.
However, for the reasons described
above, it is not clear whether
Wingspan[supreg] meets the cost
threshold for new technology add-on
payment. We welcome public comments
on this issue.
The applicant also maintains that the
technology meets the substantial
clinical improvement criterion. In the
past there has been no surgical or
medical treatment available for
recurrent strokes that occur despite
optimal medical management. The
applicant asserts that the
Wingspan[supreg] provides a new
treatment option for these patients. The
applicant submitted three studies to
support this position.
First, the applicant cites data derived
from a series of cases of 45 patients who
received the Wingspan[supreg] that
demonstrate 4.4 percent composite
ipsilateral stroke or death at 30 days, 7.0
percent composite ipsilateral stroke or
death at 6 months, and 9.3 percent
ipsilateral stroke or death at 13 months.
The applicant then used patients in the
well known Warfarin-Aspirin
Symptomatic Intracranial Disease
(WASID) trial as a historical control
against which to compare patients who
received Wingspan[supreg]. The WASID
trial compared the warfarin vs. aspirin
therapy in treating symptomatic
intracranial arterial stenosis, and it
demonstrated a 23 percent stroke/death
rate at one year in patients with severe
(70 percent or greater) stenosis, and a 21
percent stroke/death rate at 2 years in
patients with 50 percent or greater
stenosis. The applicant also submitted
data from an ongoing Wingspan[supreg]
registry of patients that demonstrate a
4.8 percent stroke/death rate at 30 days,
and a 9.7 percent stroke/death rate at 3
to 6 month follow up in 72 patients. In
addition, the applicant submitted data
from a multicenter NIH registry of 131
patients with 70 percent or greater
stenosis that demonstrate an 8.4 percent
rate of stroke, intracerebral hemorrhage
or death at 30 days and a 9.9 percent
rate of stroke and death at the mean 3.2
months followup.
While we recognize that
Wingspan[supreg] may represent a
promising technology in patients with
significant intracranial arterial stenosis
who are refractory to medical
management, we are concerned that, to
date, there has been no controlled,
randomized trial to demonstrate its
clinical efficacy. We are also concerned
that the Wingspan[supreg] data did not
compare patients over the same
followup periods as WASID. In
addition, we are concerned over the use
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of WASID patients as a control group
against which to compare
Wingspan[supreg] patients. The current
FDA Humanitarian Device Exemption,
in combination with the current CMS
NCD, while providing access to this
technology for very ill patients with
generally poor prognoses who have few
other options, also effectively designates
the technology as investigational, and in
need of further studies to prove its
effectiveness. We would prefer that the
product’s effectiveness be demonstrated
before we judge whether the product
represents a substantial clinical
improvement. For these reasons, we are
concerned that there may not be
sufficient evidence that
Wingspan[supreg] represents an
advance that substantially improves the
diagnosis or treatment of Medicare
beneficiaries. However, we welcome
public comments that may pertain to
this matter.
5. Technical Correction
Section 1886(d)(5)(K)(i) of the Act
requires that the Secretary establish a
mechanism to recognize the costs of
new medical services and technologies
under subsection (d) of section 1886 of
the Act. As made clear under section
1886(d)(1)(A) of the Act, subsection (d)
provides the methodology for payment
with respect to the operating costs of
inpatient hospital services. Section
1886(g) of the Act provides for payment
of capital costs of inpatient hospital
services. Although it has always been
our policy that new technology add-on
payment is available only with respect
to operating costs, § 412.88(a)(2) of our
regulations does not specifically refer to
operating costs or the operating CCR.
Therefore, we are proposing to revise §
412.88(a)(2) to clarify that the new
technology add-on payment is available
only for operating costs, and that we
estimate the costs of a case by applying
the hospital’s operating CCR to the
billed charges. This proposed correction
would not have an impact on new
technology add-on payments because, to
the best of our knowledge, MACs
already correctly apply only the
operating CCR to calculate new
technology add-on payments.
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III. Proposed Changes to the Hospital
Wage Index
A. Background
Section 1886(d)(3)(E) of the Act
requires that, as part of the methodology
for determining prospective payments to
hospitals, the Secretary must adjust the
standardized amounts ‘‘for area
differences in hospital wage levels by a
factor (established by the Secretary)
reflecting the relative hospital wage
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level in the geographic area of the
hospital compared to the national
average hospital wage level.’’ In
accordance with the broad discretion
conferred under the Act, we currently
define hospital labor market areas based
on the definitions of statistical areas
established by the Office of Management
and Budget (OMB). A discussion of the
proposed FY 2008 hospital wage index
based on the statistical areas, including
OMB’s revised definitions of
Metropolitan Areas, appears under
section III.B. of this preamble.
Beginning October 1, 1993, section
1886(d)(3)(E) of the Act requires that we
update the wage index annually.
Furthermore, this section provides that
the Secretary base the update on a
survey of wages and wage-related costs
of short-term, acute care hospitals. The
survey must exclude the wages and
wage-related costs incurred in
furnishing skilled nursing services. This
provision also requires us to make any
updates or adjustments to the wage
index in a manner that ensures that
aggregate payments to hospitals are not
affected by the change in the wage
index. The proposed adjustment for FY
2008 is discussed in section II.B. of the
Addendum to this proposed rule.
As discussed below in section III.I. of
this preamble, we also take into account
the geographic reclassification of
hospitals in accordance with sections
1886(d)(8)(B) and 1886(d)(10) of the Act
when calculating IPPS payment
amounts. Under section 1886(d)(8)(D) of
the Act, the Secretary is required to
adjust the standardized amounts so as to
ensure that aggregate payments under
the IPPS after implementation of the
provisions of sections 1886(d)(8)(B) and
(C) and 1886(d)(10) of the Act are equal
to the aggregate prospective payments
that would have been made absent these
provisions. The proposed budget
neutrality adjustment for FY 2008 is
discussed in section II.A.4.b. of the
Addendum to this proposed rule.
Section 1886(d)(3)(E) of the Act also
provides for the collection of data every
3 years on the occupational mix of
employees for short-term, acute care
hospitals participating in the Medicare
program, in order to construct an
occupational mix adjustment to the
wage index. A discussion of the
occupational mix adjustment that we
are proposing to apply beginning
October 1, 2007 (the FY 2008 wage
index) appears under section III.C. of
this preamble.
B. Core-Based Statistical Areas for the
Hospital Wage Index
(If you choose to comment on issues
in this section, please include the
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caption ‘‘CBSAs’’ at the beginning of
your comments.)
The wage index is calculated and
assigned to hospitals on the basis of the
labor market area in which the hospital
is located. In accordance with the broad
discretion under section 1886(d)(3)(E) of
the Act, beginning with FY 2005, we
define hospital labor market areas based
on the Core-Based Statistical Areas
(CBSAs) established by OMB and
announced in December 2003 (69 FR
49027). For a discussion of OMB’s
revised definitions of CBSAs and our
implementation of the CBSA
definitions, we refer readers to the
preamble of the FY 2005 IPPS final rule
(69 FR 49026 through 49032). The
revised area designations established by
OMB resulted in a higher wage index for
some areas and a lower wage index for
others. Further, some hospitals that
were previously classified as urban
became classified as rural. Given the
significant payment impacts upon some
hospitals because of these changes, we
provided a transition period to the new
labor market areas in the FY 2005 IPPS
final rule. As part of that transition, we
allowed urban hospitals that became
rural under the new definitions to
maintain their assignment to the MSA
where they were previously located for
the 3-year period of FY 2005, FY 2006,
and FY 2007. For a discussion of the
transition, we refer readers to the FY
2005 IPPS final rule (69 FR 49032
through 49034).
FY 2007 was the last year of the
transition period for urban hospitals
that became classified as rural.
Therefore, for discharges on or after
October 1, 2007 (FY 2008), these
hospitals will receive their statewide
rural wage index or their FY 2008
MGCRB reclassified age index. (These
hospitals were and are eligible to apply
for reclassification by the MGCRB both
during the transition period and in
subsequent years. These hospitals are
considered rural for reclassification
purposes.)
Consistent with the FY 2005, FY
2006, and FY 2007 IPPS final rules, for
FY 2008 we are proposing to provide
that hospitals receive 100 percent of
their wage index based upon the CBSA
configurations. Specifically, for each
hospital, we will determine a wage
index for FY 2008 employing wage
index data from FY 2004 hospital cost
reports and using the CBSA labor
market definitions. We consider CBSAs
that are MSAs to be urban, and CBSAs
that are Micropolitan Statistical Areas as
well as areas outside of CBSAs to be
rural. In addition, where an MSA has
been divided into Metropolitan
Divisions, we consider the Metropolitan
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Division to comprise the labor market
areas for purposes of calculating the
wage index (69 FR 49029).
On December 18, 2006, OMB
announced the inclusion of two new
CBSAs and the revision of designations
for six areas (OMB Bulletin No. 07–01).
The new CBSAs are as follows:
<bullet≤ Lake Havasu-Kingman,
Arizona (CBSA 29420). This CBSA
comes from Mohave County, Arizona;
<bullet≤ Palm Coast, Florida (CBSA
37380). This CBSA comes from Flager
County, Florida;
The revised CBSA designations are as
follows:
<bullet≤ Mauldin, South Carolina and
Easley, South Carolina qualify as new
principal cities of the GreenvilleMauldin-Easley, South Carolina CBSA;
<bullet≤ Conway, Arkansas qualifies
as a new principal city of the Little
Rock-North Little Rock-Conway,
Arkansas CBSA;
<bullet≤ Goleta, California qualifies as
a new principal city of the Santa
Barbara-Santa Maria-Goleta, California
CBSA;
<bullet≤ Franklin, Tennessee qualifies
as a new principal city of the NashvilleDavidson-Murfreesboro-Franklin,
Tennessee CBSA;
<bullet≤ Fort Pierce, Florida no longer
qualifies as a principal city of the Port
St. Lucie-Fort Pierce, Florida CBSA; the
new designation is Port St. Lucie,
Florida CBSA.
(We note also that OMB renamed the
Essex County, Massachusetts
Metropolitan Division as the Peabody,
Massachusetts Metropolitan Division.
OMB also changed the CBSA code from
21604 to 37764.)
The OMB bulletin is available on the
OMB Web site at https://
www.whitehouse.gov/OMB—go to
‘‘Bulletins’’ or ‘‘Statistical Programs and
Standards.’’ CMS will apply these
changes to the IPPS beginning October
1, 2007.
C. Proposed Occupational Mix
Adjustment to the Proposed FY 2008
Wage Index
(If you choose to comment on issues
in this section, please include the
caption ‘‘Occupational Mix
Adjustment’’ at the beginning of your
comment.)
As stated earlier, section 1886(d)(3)(E)
of the Act provides for the collection of
data every 3 years on the occupational
mix of employees for each short-term,
acute care hospital participating in the
Medicare program, in order to construct
an occupational mix adjustment to the
wage index, for application beginning
October 1, 2004 (the FY 2005 wage
index). The purpose of the occupational
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mix adjustment is to control for the
effect of hospitals’ employment choices
on the wage index. For example,
hospitals may choose to employ
different combinations of registered
nurses, licensed practical nurses,
nursing aides, and medical assistants for
the purpose of providing nursing care to
their patients. The varying labor costs
associated with these choices reflect
hospital management decisions rather
than geographic differences in the costs
of labor.
1. Development of Data for the
Proposed FY 2008 Occupational Mix
Adjustment
On October 14, 2005, we published a
notice in the Federal Register (70 FR
60092) proposing to use a new survey,
the 2006 Medicare Wage Index
Occupational Mix Survey (the 2006
survey) to apply an occupational mix
adjustment to the FY 2008 wage index.
In the proposed 2006 survey, we
included several modifications based on
the comments and recommendations we
received on the 2003 survey, including
(1) allowing hospitals to report their
own average hourly wage rather than
using BLS data; (2) extending the
prospective survey period; and (3)
reducing the number of occupational
categories but refining the subcategories
for registered nurses.
We made the changes to the
occupational categories in response to
MedPAC comments to the FY 2005 IPPS
final rule (69 FR 49036). Specifically,
MedPAC recommended that CMS assess
whether including subcategories of
registered nurses would result in a more
accurate occupational mix adjustment.
MedPAC believed that including all
registered nurses in a single category
may obscure significant wage
differences among the subcategories of
registered nurses, for example, the
wages of surgical registered nurses and
floor registered nurses may differ. Also,
to offset additional reporting burden for
hospitals, MedPAC recommended that
CMS should combine the general
service categories that account for only
a small percentage of a hospital’s total
hours with the ‘‘all other occupations’’
category because most of the
occupational mix adjustment is
correlated with the nursing general
service category.
In addition, in response to the public
comments on the October 14, 2005
notice, we modified the 2006 survey. On
February 10, 2006, we published a
Federal Register notice (71 FR 7047)
that solicited comments and announced
our intent to seek OMB approval on the
revised occupational mix survey (Form
CMS–10079 (2006)). OMB approved the
survey on April 25, 2006.
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The 2006 survey provides for the
collection of hospital-specific wages and
hours data, a 6-month prospective
reporting period (that is, January 1,
2006, through June 30, 2006), the
transfer of each general service category
that comprised less than 4 percent of
total hospital employees in the 2003
survey to the ‘‘all other occupations’’
category (the revised survey focuses
only on the mix of nursing occupations),
additional clarification of the
definitions for the occupational
categories, an expansion of the
registered nurse category to include
functional subcategories, and the
exclusion of average hourly rate data
associated with advance practice nurses.
The 2006 survey included only two
general occupational categories: nursing
and ‘‘all other occupations.’’ The
nursing category has four subcategories:
registered nurses, licensed practical
nurses, aides, orderlies, attendants, and
medical assistants. The registered nurse
subcategory includes two functional
subcategories: Management personnel
and staff nurses or clinicians. As
indicated above, the 2006 survey
provided for a 6-month data collection
period, from January 1, 2006 through
June 30, 2006. However, we allowed
flexibility for the reporting period begin
and end dates to accommodate some
hospitals’ bi-weekly payroll and
reporting systems. That is, the 6-month
reporting period had to begin on or after
December 25, 2005, and end before July
9, 2006.
We are proposing to use the 6-month
2006 survey data to calculate the
occupational mix adjustment for the FY
2008 wage index. We used the 1st
quarter of 2006 survey data in the FY
2007 wage index to comply with a court
decision in Bellevue Hosp. Center v.
Leavitt, 443 F.3d 163 (2nd Cir. 2006).
For a discussion of our use of the 2006
survey data in the FY 2007 wage index,
in compliance with the Bellevue
decision, we refer readers to the FY
2007 IPPS final rule (71 FR 48007) as
well as the FY 2007 IPPS final notice
(71 FR 90886). However, as stated
above, we are proposing to use the
entire 6-month 2006 survey data (that is,
from the period January 1, 2006 through
June 30, 2006) to calculate the
occupational mix adjustment for the FY
2008 wage index.
2. Timeline for the Collection, Review,
and Correction of the Occupational Mix
Data
In a Joint-Signature Memorandum
that we issued on April 21, 2006 (JSM–
06412), and in the FY 2007 IPPS final
rule (71 FR 48008), we discussed the
schedule for the 1st quarter 2006
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occupational mix survey data that
would be used in the FY 2007 wage
index. The schedule included deadlines
for—
<bullet≤ Hospitals to submit 1st
quarter occupational mix data. The
deadline was June 1, 2006.
<bullet≤ MAC review of the submitted
1st quarter data. The deadline was June
22, 2006.
<bullet≤ Availability of the submitted
first quarter data on the CMS Web site.
The deadline was June 29, 2006.
<bullet≤ Hospitals to submit requests
to their MACs for corrections to their 1st
quarter occupational mix data. The
deadline was July 13, 2006.
<bullet≤ MACs to submit corrected
1st quarter occupational mix survey
data to CMS. The deadline was July 27,
2006.
In the Joint-Signature Memorandum,
we also indicated that hospitals were to
submit their 2nd quarter 2006
occupational mix survey data to their
intermediaries (MACs) by August 31,
2006. On October 6, we published on
our web site both the audited 1st quarter
and unaudited 2nd quarter 2006
occupational survey data and Worksheet
S–3 wage data to be used in calculating
the FY 2008 wage index. In addition, we
sent a letter to hospitals through their
MACs (dated October 6, 2006) that
discussed the timeframe for reviewing
and correcting Worksheet S–3 wage data
and the 2nd quarter 2006 survey data,
and an opportunity for hospitals to
request additional adjustments to their
1st quarter 2006 survey data for the FY
2008 wage index. The revision and
correction process for all of the data to
be used for computing the FY 2008
wage index is discussed in detail in
section III.K. of this preamble.
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3. Calculation of the Proposed
Occupational Mix Adjustment for FY
2008
For FY 2008 (as we did for FY 2007),
we are proposing to calculate the
occupational mix adjustment factor
using the following steps:
Step 1—For each hospital, determine
the percentage of the total nursing
category attributable to a nursing
subcategory by dividing the nursing
subcategory hours by the total nursing
category’s hours (registered nurse
management personnel and registered
nurse staff nurses or clinicians are
treated as separate nursing
subcategories). Repeat this computation
for each of the five nursing
subcategories: registered nurse
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management personnel, registered nurse
staff nurses or clinicians, licensed
practical nurses; nursing aides,
orderlies, and attendants; and medical
assistants.
Step 2—Determine a national average
hourly rate for each nursing subcategory
by dividing a subcategory’s total salaries
for all hospitals in the occupational mix
survey database by the subcategory’s
total hours for all hospitals in the
occupational mix survey database.
Step 3—For each hospital, determine
an adjusted average hourly rate for each
nursing subcategory by multiplying the
percentage of the total nursing category
(from Step 1) by the national average
hourly rate for that nursing subcategory
(from Step 2). Repeat this calculation for
each of the five nursing subcategories.
Step 4—For each hospital, determine
the adjusted average hourly rate for the
total nursing category by summing the
adjusted average hourly rate (from Step
3) for each of the nursing subcategories.
Step 5—Determine the national
average hourly rate for the total nursing
category by dividing total nursing
category salaries for all hospitals in the
occupational mix survey database by
total nursing category hours for all
hospitals in the occupational mix
survey database.
Step 6—For each hospital, compute
the occupational mix adjustment factor
for the total nursing category by
dividing the national average hourly
rate for the total nursing category (from
Step 5) by the hospital’s adjusted
average hourly rate for the total nursing
category (from Step 4).
If the hospital’s adjusted average
hourly rate is less than the national
average hourly rate (indicating the
hospital employs a less costly mix of
nursing employees), the occupational
mix adjustment factor would be greater
than 1.0000. If the hospital’s adjusted
average hourly rate is greater than the
national average hourly rate, the
occupational mix adjustment factor
would be less than 1.0000.
Step 7—For each hospital, calculate
the occupational mix adjusted salaries
and wage-related costs for the total
nursing category by multiplying the
hospital’s total salaries and wage-related
costs (from Step 5 of the unadjusted
wage index calculation in section III.F.
of this preamble) by the percentage of
the hospital’s total workers attributable
to the total nursing category (using the
occupational mix survey data, this
percentage is determined by dividing
the hospital’s total nursing category
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salaries by the hospital’s total salaries
for ‘‘nursing and all other’’) and by the
total nursing category’s occupational
mix adjustment factor (from Step 6
above).
The remaining portion of the
hospital’s total salaries and wage-related
costs that is attributable to all other
employees of the hospital is not
adjusted by the occupational mix. A
hospital’s all other portion is
determined by subtracting the hospital’s
nursing category percentage from 100
percent.
Step 8—For each hospital, calculate
the total occupational mix adjusted
salaries and wage-related costs for a
hospital by summing the occupational
mix adjusted salaries and wage-related
costs for the total nursing category (from
Step 7) and the portion of the hospital’s
salaries and wage-related costs for all
other employees (from Step 7).
To compute a hospital’s occupational
mix adjusted average hourly wage,
divide the hospital’s total occupational
mix adjusted salaries and wage-related
costs by the hospital’s total hours (from
Step 4 of the unadjusted wage index
calculation in section III.F. of this
preamble).
Step 9—To compute the occupational
mix adjusted average hourly wage for an
urban or rural area, sum the total
occupational mix adjusted salaries and
wage-related costs for all hospitals in
the area, then sum the total hours for all
hospitals in the area. Next, divide the
area’s occupational mix adjusted
salaries and wage-related costs by the
area’s hours.
Step 10—To compute the national
occupational mix adjusted average
hourly wage, sum the total occupational
mix adjusted salaries and wage-related
costs for all hospitals in the Nation, then
sum the total hours for all hospitals in
the Nation. Next, divide the national
occupational mix adjusted salaries and
wage-related costs by the national
hours.
Step 11—To compute the
occupational mix adjusted wage index,
divide each area’s occupational mix
adjusted average hourly wage (Step 9)
by the national occupational mix
adjusted average hourly wage (Step 10).
Step 12—To compute the Puerto Rico
specific occupational mix adjusted wage
index, follow Steps 1 through 11 above.
The table below is an illustrative
example of the proposed occupational
mix adjustment.
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Because the occupational mix
adjustment is required by statute, all
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under the IPPS, or any hospital that
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would be subject to the IPPS if not
granted a waiver, must complete the
occupational mix survey, unless the
hospital has no associated cost report
wage data that are included in the
proposed FY 2008 wage index.
For the FY 2007 wage index, if a
hospital did not respond to the
occupational mix survey, or if we
determined that a hospital’s submitted
data were too erroneous to include in
the wage index, we assigned the
hospital the average occupational mix
adjustment for the labor market area (71
FR 48013). We believed this method had
the least impact on the wage index for
other hospitals in the area. For areas
where no hospital submitted data for
purposes of calculating the occupational
mix adjustment, we applied the national
occupational mix factor of 1.0000 in
calculating the area’s FY 2007
occupational mix adjusted wage index.
We indicated in the FY 2007 IPPS final
rule that we reserve the right to apply
a different approach in future years,
including potentially penalizing
nonresponsive hospitals.
For the FY 2008 wage index, we are
proposing to handle the data for
hospitals that did not respond to the
occupational mix survey (neither the 1st
quarter nor 2nd quarter data) in the
same manner as discussed above for the
FY 2007 wage index. In addition, if a
hospital submitted survey data for either
the 1st quarter or 2nd quarter, but not
for both quarters, we are proposing to
use the data the hospital submitted for
one quarter to calculate the hospital’s
FY 2008 occupational mix adjustment
factor. Lastly, if a hospital submitted a
survey(s), but that survey data could not
be used because we determined it to be
aberrant, we also assigned the hospital
the average occupational mix
adjustment for its labor market area. For
example, if a hospital’s individual nurse
category average hourly wages were out
of range (that is, unusually high or low),
and the hospital did not provide
sufficient documentation to explain the
aberrancy, or the hospital did not
submit any registered nurse staff salaries
or hours data, we assigned the hospital
the average occupational mix
adjustment for the labor market area in
which it is located.
In calculating the average
occupational mix adjustment factor for
a labor market area, we replicated Steps
1 through 6 of the calculation for the
occupational mix adjustment. However,
instead of performing these steps at the
hospital level, we aggregated the data at
the labor market area level. In following
these steps, for example, for CBSAs that
contain providers that did not submit
occupational mix survey data, the
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occupational mix adjustment factor
ranged from a low of 0.8972 (CBSA
39820, Redding, CA), to a high of 1.0728
(CBSA 19, Rural Louisiana). Also, in
computing a hospital’s occupational
mix adjusted salaries and wage-related
costs for nursing employees (Step 7 of
the calculation), in the absence of
occupational mix survey data, we
multiplied the hospital’s total salaries
and wage-related costs by the
percentage of the area’s total workers
attributable to the area’s total nursing
category. For FY 2008, there is one
CBSA in which none of the providers
submitted the occupational mix survey
(CBSA 49740, Yuma, AZ). In the
absence of any data in this labor market
area, we applied an occupational mix
adjustment factor of 1.0 to all
provider(s).
In the FY 2007 IPPS final rule, we
also indicated that we would give
serious consideration to applying a
hospital-specific penalty if a hospital
does not comply with regulations
requiring submission of occupational
mix survey data in future years. We
stated that we believe that section
1886(d)(5)(I)(i) of the Act provides us
with the authority to penalize hospitals
that do not submit occupational mix
survey data. That section authorizes us
to provide for exceptions and
adjustments to the payment amounts
under IPPS as the Secretary deems
appropriate. We also indicated that we
would address this issue in the FY 2008
IPPS proposed rule.
We are soliciting comments and
suggestions for a hospital-specific
penalty for hospitals that do not submit
occupational mix survey. In response to
the FY 2007 IPPS proposed rule, some
commenters suggested a 1-percent to 2percent reduction in the hospital’s wage
index value or a set percentage of the
standardized amount. Any penalty that
we would determine for nonresponsive
hospitals would apply to a future wage
index, not the FY 2008 wage index.
4. Proposed 2007–2008 Occupational
Mix Survey for the FY 2010 Wage Index
As stated earlier, section 304(c) of
Pub. L. 106–554 amended section
1886(d)(3)(E) of the Act to require CMS
to collect data every 3 years on the
occupational mix of employees for each
short-term, acute care hospital
participating in the Medicare program.
We are currently using occupational
mix survey data collected in 2006 in the
FY 2007 IPPS. Since we implemented
the 2006 survey, we received several
public comments suggesting further
improvements to the occupational mix
survey instructions and definitions.
Specifically, some commenters
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recommended that we include certain
employees, such as surgical technicians
and paramedics in the occupational mix
adjustment. The commenters indicated
that these occupations perform similar
functions, and in some cases, are used
as substitutes for nursing staff.
Therefore, they recommended that CMS
include these occupations with the
nursing categories on the survey. (On
the 2003 and 2006 surveys, these
categories were included in the ‘‘All
Other Occupations’’ category.) The
commenters also recommended that
CMS expand the list of cost centers for
the survey to include additional cost
centers that contain a significant
number of nursing personnel.
Some commenters suggested that
CMS not collect occupational mix data
for the ‘‘Registered Nurse’’ subcategories
(that is, Management Personnel and
Staff Nurse/Clinician). The commenters
expressed concern that requiring the
subcategories led to errors and
inconsistencies in reporting, and added
to the hospitals’ collection burden. The
commenters did not believe that this
level of specificity significantly affects
the adjustment. Therefore they
recommended that CMS eliminate the
RN subcategories.
In addition, commenters
recommended that CMS provide for a 1year data collection period rather than
a 6-month data collection period for the
next survey collection. The commenters
suggested that a 1-year data collection
period would provide a better
representation of a hospital’s
employment mix, which can vary
during different times of the year. The
commenters also indicated that a 1-year
data collection period would allow
hospitals to verify their wages and hours
to year-end payroll reports and
contractor invoices.
In response to these suggestions we
have modified the occupational mix
survey. The revised 2007–2008
occupational mix survey will provide
for the collection of hospital-specific
wages and hours data for a 1-year
prospective reporting period from July
1, 2007, through June 30, 2008,
additional clarifications to the survey
instructions, the elimination of the
registered nurse subcategories, some
refinements to the definitions of the
occupational categories, and the
inclusion of additional cost centers that
typically provide nursing services. The
revised 2007–2008 Medicare
occupational mix survey will be applied
beginning with the FY 2010 wage index.
On February 2, 2007, we published a
notice soliciting comments on the
proposed revisions to the occupational
mix survey (Form CMS–10079 (2006))
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(72 FR 5055). The comment period for
the proposed survey ended on April 3,
2007. A final notice is expected to be
published in the Federal Register by
July 1, 2007.
D. Worksheet S–3 Wage Data for the
Proposed FY 2008 Wage Index
(If you choose to comment on issues
in this section, please include the
caption ‘‘Wage Data’’ at the beginning of
your comment.)
The proposed FY 2008 wage index
values (to be effective for hospital
discharges occurring on or after October
1, 2007, and before October 1, 2008) in
section II.B. of the Addendum to this
proposed rule are based on the data
collected from the Medicare cost reports
submitted by hospitals for cost reporting
periods beginning in FY 2004 (the FY
2007 wage index was based on FY 2003
wage data).
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1. Included Categories of Costs
The proposed FY 2008 wage index
includes the following categories of data
associated with costs paid under the
IPPS (as well as outpatient costs):
<bullet≤ Salaries and hours from
short-term, acute care hospitals
(including paid lunch hours and hours
associated with military leave and jury
duty).
<bullet≤ Home office costs and hours.
<bullet≤ Certain contract labor costs
and hours (which includes direct
patient care, certain top management,
pharmacy, laboratory, and nonteaching
physician Part A services).
<bullet≤ Wage-related costs, including
pensions and other deferred
compensation costs.
2. Contract Labor for Indirect Patient
Care Services
In the FY 2003 IPPS final rule (67 FR
50022), we discussed the inclusion of
contract labor cost in calculating the
wage index. Our policy has evolved
over the years with the increasing role
of contract labor in meeting special
personnel needs of hospitals. In
response to suggestions that we further
expand our definition of contract labor
for the wage index, we indicated our
intent to begin collecting data in future
Medicare cost reports on the following
overhead services: administrative and
general (A&G); housekeeping; and
dietary. We selected these three
overhead services for consideration
because they are provided at all
hospitals, either directly or through
contracts, and together they comprise
about 60 percent of a hospital’s
overhead hours. Consistent with our
consideration of contract A&G services,
we also stated that we would begin
collecting costs and hours data
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associated with other contract
management services that would not be
included on the cost report as overhead
A&G and are not top management
contracts (that is, the chief executive
officer, chief financial officer, chief
operating officer, and nurse
administrator) that are included on Line
9 of Worksheet S–3, Part II.
We revised the cost report, beginning
October 1, 2003 (the FY 2004 cost
report), to provide for the collection of
cost and hours data for the four
identified contract indirect patient care
services. We added four new line items
to Worksheet S–3, Part II: Line 9.03
(Contract management and
administrative services); Line 22.01
(Contract A & G services); Line 26.01
(Contract housekeeping services); and
Line 27.01 (Contract dietary services).
We stated in the FY 2003 final rule that
our decision on whether to include
these costs in calculating the wage
index would depend on our analyses of
the data and public comments. The FY
2008 wage index, which is based on FY
2004 cost report data, is the first year
that we can assess the impact of
including these costs in the wage index.
As part of the FY 2008 wage index
desk review program, we required the
fiscal intermediaries (or, if applicable,
the MAC) to verify the accuracy of the
data reported on the new Lines 9.03,
22.01, 26.01, and 27.01. After the
completion of these reviews, some
hospitals continued to fail our edits for
reasonableness: 12 hospitals (0.3
percent) failed edits for Line 9.03; 130
hospitals (3.6 percent) failed edits for
Line 22.01; 56 hospitals (1.6 percent)
failed edits for Line 26.01; and 99
hospitals (2.8 percent) failed edits for
Line 27.01. Many of these edit failures
are for wage data that are not to be
included in the wage index and will be
excluded through the wage index
calculation. That is, as specified in the
cost reporting instructions in the
Provider Reimbursement Manual, Part
II, section 3605.2, if a hospital’s ratio of
excluded area hours (Lines 8 and 8.0) on
Worksheet S–3, Part II to total adjusted
hours is less than 15 percent, Lines 21
through 35 of Part II should not be
completed by hospitals. In addition,
some of the aberrant data will be
resolved by the final rule through the
correction process described in section
III.K. of the preamble of this proposed
rule. Nevertheless, we believe that the
amount of aberrant data on these new
line items is minimal and will have
little impact on area wage index values.
In addition, we have simulated the
effect of including these wage data for
contract indirect patient care services on
the wage index. Under this simulation,
we found that the resulting average
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hourly wage would not affect 3,231
hospitals (90.2 percent), would decrease
for 121 hospitals (3.4 percent), and
would increase for 229 hospitals (6.4
percent). Only one hospital would
experience a decrease of greater than 1
percent (3 percent), and 19 hospitals
would experience an increase of greater
than 1 percent (the largest being 7.8
percent). At the labor market area level,
we found that the resulting average
hourly wage would not affect 316 areas
(72.6 percent), would decrease for 28
areas (6.4 percent), and would increase
for 91 areas (20.9 percent). No area,
rural or urban, would experience an
increase or decrease of greater than 0.6
percent in its wage index. We believe
that the combined effect of including
these costs in the wage index is
negligible because the higher labor costs
associated with contract management
and A&G services are offset by the lower
labor costs associated with contract
housekeeping and dietary services.
Public commenters have expressed
interest in including in the wage index
the costs and hours for contract
management, A&G, housekeeping, and
dietary services. We also believe that
including a more comprehensive
measure of area differences in the cost
of labor will improve the accuracy of the
wage index. For these reasons, we are
proposing to include these contract
services in the wage index, beginning
with FY 2008. Although we invite
public comment on whether we should
revise a future cost report to collect
contract labor data for the remaining
indirect patient care cost centers on
Worksheet S–3, Part II for possible
inclusion in the wage index, we will
consider these comments in the context
of potential reforms of the IPPS wage
index for FY 2009 and subsequent years.
As indicated in section III.M. of the
preamble of this proposed rule, section
106(b) of the MIEA-TRHCA (Pub. L.
109–432) requires the Secretary to
consider a MedPAC study and nine
specific aspects of the wage index in
making one or more proposals for
revisions in FY 2009.
3. Excluded Categories of Costs
Consistent with the wage index
methodology for FY 2007, the proposed
wage index for FY 2008 also excludes
the direct and overhead salaries and
hours for services not subject to IPPS
payment, such as SNF services, home
health services, costs related to GME
(teaching physicians and residents) and
certified registered nurse anesthetists
(CRNAs), and other subprovider
components that are not paid under the
IPPS. The proposed FY 2008 wage index
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also excludes the salaries, hours, and
wage-related costs of hospital-based
rural health clinics (RHCs), and
Federally qualified health centers
(FQHCs) because Medicare pays for
these costs outside of the IPPS (68 FR
45395). In addition, salaries, hours, and
wage-related costs of CAHs are excluded
from the wage index, for the reasons
explained in the FY 2004 IPPS final rule
(68 FR 45397).
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4. Use of Wage Index Data by Providers
Other Than Acute Care Hospitals under
the IPPS
Data collected for the IPPS wage
index are also currently used to
calculate wage indices applicable to
other providers, such as SNFs, home
health agencies, and hospices. In
addition, they are used for prospective
payments to IRFs, IPFs, and LTCHs, and
for hospital outpatient services. We note
that, in the IPPS rules, we do not
address comments pertaining to the
wage indices for non-IPPS providers.
Such comments should be made in
response to separate proposed rules for
those providers.
E. Verification of Worksheet S–3 Wage
Data
(If you choose to comment on this
section, please include the caption
‘‘Wage Data’’ at the beginning of your
comment.)
The wage data for the proposed FY
2008 wage index were obtained from
Worksheet S–3, Parts II and III of the FY
2004 Medicare cost reports. Instructions
for completing the Worksheet S–3, Parts
II and III are in the Provider
Reimbursement Manual, Part I, sections
3605.2 and 3605.3. The data file used to
construct the proposed wage index
includes FY 2004 data submitted to us
as of February 26, 2007 As in past years,
we will perform an intensive review of
the wage data, mostly through the use
of edits designed to identify aberrant
data.
We asked our fiscal intermediaries/
MACs to revise or verify data elements
that resulted in specific edit failures. We
identified and excluded 23 hospitals
with data that was too aberrant to
include in the proposed wage index,
although if these data elements are
corrected, we may include some of these
providers in the FY 2008 final wage
index. However, some unresolved data
elements are included in the calculation
of the proposed FY 2008 wage index.
We instructed fiscal intermediaries/
MACs to complete their data
verification of questionable data
elements and to transmit any changes to
the wage data no later than April 13,
2007. We believe all unresolved data
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elements will be resolved by the date
the final rule is issued. The revised data
will be reflected in the final rule.
In constructing the proposed FY 2008
wage index, we include the wage data
for facilities that were IPPS hospitals in
FY 2004, even for those facilities that
have since terminated their
participation in the program as
hospitals, as long as those data do not
fail any of our edits for reasonableness.
We believe that including the wage data
for these hospitals is, in general,
appropriate to reflect the economic
conditions in the various labor market
areas during the relevant past period.
However, we exclude the wage data for
CAHs as discussed in 68 FR 45397. For
this proposed rule, we removed 18
hospitals that converted to CAH status
between February 17, 2006, the cut-off
date for CAH exclusion from the FY
2007 wage index, and February 16,
2007, the cut-off date for CAH exclusion
from the FY 2008 wage index. After
removing hospitals with aberrant data
and hospitals that converted to CAH
status, the proposed FY 2008 wage
index is calculated based on 3,581
hospitals.
F. Wage Index for Multicampus
Hospitals
(If you choose to comment on issues
in this section, please include the
caption ‘‘Multicampus Hospitals’’ at the
beginning of your comment.)
As discussed earlier under section
III.B. of this preamble, effective October
1, 2004, for the IPPS, CMS implemented
new labor market areas based on the
CBSA definitions of MSAs. As a result
of the new labor market areas, there are
multicampus hospitals previously
located in a single MSA that are now
located in more than one CBSA. A
multicampus hospital is a single
integrated institution. For this reason,
the multicampus hospital has one
provider number and submits a single
cost report that combines the total
wages and hours of each of its
campuses. When campuses of a
multicampus hospital are located in the
same CBSA, the wages and hours for the
entire institution are included in the
calculation of the wage index for that
labor market area and there is no need
to separate the data by campus.
However, when a multicampus hospital
has campuses located in different labor
market areas, wages and hours are
reported in a single CBSA even though
the hospital’s staff is working at
campuses in more than one labor market
area. The wage data are reported in the
labor market area of the hospital campus
associated with the provider number.
Wages and hours are not reported
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separately for each campus and no data
from the multicampus hospital are used
in determining the wage index for the
labor market area(s) where the other
campus(es) are located. Under §
412.64(b)(5) of our regulations, the
wage-adjusted standardized amount is
based on geographic location of the
hospital facility at which the discharge
occurred. Therefore, the wage index for
each hospital campus used to make the
IPPS payment is based on its geographic
location, while the wage data from all of
the campuses, including those that may
be located in a different geographic area,
are applied to one area only. We have
received inquiries from several hospitals
suggesting that we should adopt a
policy that results in an allocation of a
multicampus hospital’s wages and
hours across the different labor market
areas where its campuses are located.
The wage index was developed to
adjust the IPPS standardized amount to
reflect area differences in hospital wage
levels in the hospital’s geographic area
compared to the national hospital wage
level as required under section
1886(d)(3)(E) of the Act. Although we
acknowledge that reporting the wage
data into a single labor market area
when individual campuses of a
multicampus hospital are located in
different labor market areas may not
allocate wage data with exact precision,
the Medicare cost report, in its current
form, does not enable a multicampus
hospital to separately report its costs by
location. The fact that a multicampus
hospital submits a single cost report
reflects that it is an integrated
institution with one accounting
structure. Nevertheless, we agree with
the comments brought to our attention
that we should consider a policy that
allocates a multicampus hospital’s
wages and hours among the different
labor market areas where it is located.
That is, rather than giving 100 percent
of the hospital’s wage data to the labor
market area associated with its provider
number, we believe that an allocation of
its wage data should be made to each
campus.
We considered three alternative
methods of apportionment: beds,
discharges, or FTE staff. A hospital’s
number of discharges can fluctuate from
year to year and may be an unstable data
source to use in allocating a hospital’s
wages and hours among the different
campuses. Alternatively, while a
hospital’s number of beds is a more
static number, it likely does not
correlate well with how a hospital
incurs its wage costs. Furthermore,
neither of these numbers is available on
a campus-specific basis in Medicare’s
data systems. (While an individual
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campus of a multicampus hospital
located in a different labor market area
than the remainder of the institution is
required to indicate a suffix on its
provider number when submitting a
claim in order to receive payment using
the wage index for its geographic
location, the suffix is only used by the
fiscal intermediary (or, if applicable, the
MAC) and is not retained in Medicare’s
historical data files that we use to
determine IPPS rates).
Given the unavailability of beds and
discharges and their respective
drawbacks for allocating wages and
hours across multiple campuses, we are
proposing to apportion wages and hours
for each campus of a multicampus
hospital based on FTE staff. For
example, a multicampus hospital may
have three campuses located in two
different labor market areas. Campuses
A and B are located in labor market area
1 and have 50 and 25 FTEs,
respectively. Campus C is located in
labor market area 2 and has an
additional 25 FTEs. Therefore, 75
percent of the hospital’s FTEs work in
labor market 1 and 25 percent in labor
market area 2. Under the proposed
policy, we would apportion 75 percent
of the hospital’s occupational mix
adjusted total salaries, wage-related
costs and hours to labor market 1 and
25 percent to labor market 2. We believe
that the number of FTEs will provide
the best method of apportioning wages
and hours among the different
campuses, thereby allowing the
apportioned wage data to be included in
each geographic area where the hospital
has employees working.
This proposed policy requires the
identification of all multicampus
hospitals located in more than one
CBSA, the county, State, and zip code
of each campus, and the campusspecific number of FTEs. Based on our
comprehensive interactions with our
fiscal intermediaries since adopting the
revised labor market areas beginning in
FY 2005, we are only aware of three
multicampus hospitals that are located
in more than one labor market area. We
are beginning the process to make
updates and refinements to the cost
report for the future. We are currently
planning to add additional lines to
Worksheet S–2 of the cost report that
will allow a multicampus hospital to
report the locations of its different
campuses (county, State, and zip code)
and number of FTE staff by location so
this information would become part of
the cost report submission process. The
effective date of the revised cost report
is not expected until FY 2009.
Therefore, we would not have data from
multicampus hospitals under our
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normal wage data collection process to
be able to allocate wages to each labor
market area by FTEs until at least the FY
2013 wage index. In the interim, we will
collect this information from
multicampus hospitals on a small
survey form through our fiscal
intermediaries/MACs as part of the
wage index desk review process
beginning with the FY 2009 wage index.
We will not be able to apply this policy
to the FY 2008 wage index unless we
have this information from multicampus
hospitals prior to the close of the
comment period on this proposed rule.
Therefore, for the FY 2008 wage index,
multicampus hospitals with campuses
located in more than one geographic
area should submit the information
during the comment period on this
proposed rule for the county, State, and
zip code of its campuses, and the FTE
number, including contract labor, per
campus along with supporting
documentation to: Centers for Medicare
& Medicaid Services, Wage Index Team,
C4–08–06, 7500 Security Boulevard,
Baltimore, Maryland 21244, Attn: Kathy
Ellingson.
The hospitals should submit data
from their FY 2004 cost reporting period
to match the same data that will be used
for the FY 2008 wage index. However,
if unavailable, the hospital may submit
the data for a subsequent cost reporting
period that is closest to the FY 2004
reporting period that provides the
information in order to apportion the
hospital’s wage data among its
campuses. These data will enable CMS
to apportion the wages and hours of the
multicampus hospital among its
different campuses for use in the FY
2008 wage index calculations should
this proposal become final. As stated
earlier, we are only aware of three
hospitals that would be affected by this
proposed information collection
request. As stipulated under 5 CFR
1320.3(c)(4), the proposed information
collection request is exempt from the
Paperwork Reduction Act (PRA) as it
does not affect 10 or more persons
within a 12-month period. However, if
during the IPPS rule comment period,
we determine the number of affected
persons surpasses the threshold of 10 as
specified in 5 CFR 1320.3(c)(4), we will
not adopt the policy until FY 2009 in
order for us to seek the requisite
approval from OMB under the PRA.
G. Computation of the Proposed FY
2008 Unadjusted Wage Index
(If you choose to comment on issues
in this section, please include the
caption ‘‘Wage Index’’ at the beginning
of your comment.)
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1. Method for Computing the Proposed
FY 2008 Unadjusted Wage Index
The method used to compute the
proposed FY 2008 wage index without
an occupational mix adjustment
follows:
Step 1—As noted above, we based the
proposed FY 2008 wage index on wage
data reported on the FY 2004 Medicare
cost reports. We gathered data from each
of the non-Federal, short-term, acute
care hospitals for which data were
reported on the Worksheet S–3, Parts II
and III of the Medicare cost report for
the hospital’s cost reporting period
beginning on or after October 1, 2003,
and before October 1, 2004. In addition,
we include data from some hospitals
that had cost reporting periods
beginning before October 2003 and
reported a cost reporting period
covering all of FY 2004. These data are
included because no other data from
these hospitals would be available for
the cost reporting period described
above, and because particular labor
market areas might be affected due to
the omission of these hospitals.
However, we generally describe these
wage data as FY 2004 data. We note
that, if a hospital had more than one
cost reporting period beginning during
FY 2004 (for example, a hospital had
two short cost reporting periods
beginning on or after October 1, 2003,
and before October 1, 2004), we include
wage data from only one of the cost
reporting periods, the longer, in the
wage index calculation. If there was
more than one cost reporting period and
the periods were equal in length, we
include the wage data from the later
period in the wage index calculation.
Step 2—Salaries—The method used to
compute a hospital’s average hourly
wage excludes certain costs that are not
paid under the IPPS. In calculating a
hospital’s average salaries plus wagerelated costs, we subtract from Line 1
(total salaries) the GME and CRNA costs
reported on Lines 2, 4.01, 6, and 6.01,
the Part B salaries reported on Lines 3,
5 and 5.01, home office salaries reported
on Line 7, and exclude salaries reported
on Lines 8 and 8.01 (that is, direct
salaries attributable to SNF services,
home health services, and other
subprovider components not subject to
the IPPS). We also subtract from Line 1
the salaries for which no hours were
reported. To determine total salaries
plus wage-related costs, we add to the
net hospital salaries the costs of contract
labor for direct patient care, certain top
management, pharmacy, laboratory, and
nonteaching physician Part A services
(Lines 9 and 10), home office salaries
and wage-related costs reported by the
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hospital on Lines 11 and 12, and
nonexcluded area wage-related costs
(Lines 13, 14, and 18).
We note that contract labor and home
office salaries for which no
corresponding hours are reported are
not included. In addition, wage-related
costs for nonteaching physician Part A
employees (Line 18) are excluded if no
corresponding salaries are reported for
those employees on Line 4.
Step 3—Hours—With the exception of
wage-related costs, for which there are
no associated hours, we compute total
hours using the same methods as
described for salaries in Step 2.
Step 4—For each hospital reporting
both total overhead salaries and total
overhead hours greater than zero, we
then allocate overhead costs to areas of
the hospital excluded from the wage
index calculation. First, we determine
the ratio of excluded area hours (sum of
Lines 8 and 8.01 of Worksheet S–3, Part
II) to revised total hours (Line 1 minus
the sum of Part II, Lines 2, 3, 4.01, 5,
5.01, 6, 6.01, 7, and Part III, Line 13 of
Worksheet S–3). We then compute the
amounts of overhead salaries and hours
to be allocated to excluded areas by
multiplying the above ratio by the total
overhead salaries and hours reported on
Line 13 of Worksheet S–3, Part III. Next,
we compute the amounts of overhead
wage-related costs to be allocated to
excluded areas using three steps: (1) we
determine the ratio of overhead hours
(Part III, Line 13) to revised hours (Line
1 minus the sum of Lines 2, 3, 4.01, 5,
5.01, 6, 6.01, 7, 8, and 8.01); (2) we
compute overhead wage-related costs by
multiplying the overhead hours ratio by
wage-related costs reported on Part II,
Lines 13, 14, and 18; and (3) we
multiply the computed overhead wagerelated costs by the above excluded area
hours ratio. Finally, we subtract the
computed overhead salaries, wagerelated costs, and hours associated with
excluded areas from the total salaries
(plus wage-related costs) and hours
derived in Steps 2 and 3.
Step 5—For each hospital, we adjust
the total salaries plus wage-related costs
to a common period to determine total
adjusted salaries plus wage-related
costs. To make the wage adjustment, we
estimate the percentage change in the
employment cost index (ECI) for
compensation for each 30-day
increment from October 14, 2003,
through April 15, 2005, for private
industry hospital workers from the BLS’
24785
Compensation and Working Conditions.
We use the ECI because it reflects the
price increase associated with total
compensation (salaries plus fringes)
rather than just the increase in salaries.
In addition, the ECI includes managers
as well as other hospital workers. This
methodology to compute the monthly
update factors uses actual quarterly ECI
data and assures that the update factors
match the actual quarterly and annual
percent changes. We also note that,
since April 2006 with the publication of
March 2006 data, the BLS’ ECI uses a
different classification system, the North
American Industrial Classification
System (NAICS), instead of the Standard
Industrial Codes (SICs), which no longer
exist. We have consistently used the ECI
as the data source for our wages and
salaries and other price proxies in the
IPPS market basket and are not
proposing to make any changes to the
usage at this time. However, we are
soliciting comments on our continued
use of the BLS ECI data in light of the
BLS change in system usage to the
NAICS-based ECI. The factors used to
adjust the hospital’s data were based on
the midpoint of the cost reporting
period, as indicated below.
MIDPOINT OF COST REPORTING PERIOD
Before
Adjustment Factor
10/14/2003
11/14/2003
12/14/2003
01/14/2004
02/14/2004
03/14/2004
04/14/2004
05/14/2004
06/14/2004
07/14/2004
08/14/2004
09/14/2004
10/14/2004
11/14/2004
12/14/2004
01/14/2005
02/14/2005
03/14/2005
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After
11/15/2003
12/15/2003
01/15/2004
02/15/2004
03/15/2004
04/15/2004
05/15/2004
06/15/2004
07/15/2004
08/15/2004
09/15/2004
10/15/2004
11/15/2004
12/15/2004
01/15/2005
02/15/2005
03/15/2005
04/15/2005
1.05743
1.05355
1.04964
1.04578
1.04198
1.03830
1.03482
1.03153
1.02821
1.02466
1.02086
1.01705
1.01344
1.01003
1.00671
1.00336
1.00000
0.99663
For example, the midpoint of a cost
reporting period beginning January 1,
2004, and ending December 31, 2004, is
June 30, 2004. An adjustment factor of
1.02821 would be applied to the wages
of a hospital with such a cost reporting
period. In addition, for the data for any
cost reporting period that began in FY
2004 and covered a period of less than
360 days or more than 370 days, we
annualize the data to reflect a 1-year
cost report. Dividing the data by the
number of days in the cost report and
then multiplying the results by 365
accomplishes annualization.
Step 6—Each hospital is assigned to
its appropriate urban or rural labor
market area before any reclassifications
under section 1886(d)(8)(B), section
1886(d)(8)(E), or section 1886(d)(10) of
the Act. Within each urban or rural
labor market area, we add the total
adjusted salaries plus wage-related costs
obtained in Step 5 for all hospitals in
that area to determine the total adjusted
salaries plus wage-related costs for the
labor market area.
Step 7—We divide the total adjusted
salaries plus wage-related costs obtained
under both methods in Step 6 by the
sum of the corresponding total hours
(from Step 4) for all hospitals in each
labor market area to determine an
average hourly wage for the area.
Step 8—We add the total adjusted
salaries plus wage-related costs obtained
in Step 5 for all hospitals in the Nation
and then divide the sum by the national
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sum of total hours from Step 4 to arrive
at a national average hourly wage. Using
the data as described above, the
proposed national average hourly wage
is $30.9298.
Step 9—For each urban or rural labor
market area, we calculate the hospital
wage index value, unadjusted for
occupational mix, by dividing the area
average hourly wage obtained in Step 7
by the national average hourly wage
computed in Step 8.
Step 10—Following the process set
forth above, we develop a separate
Puerto Rico-specific wage index for
purposes of adjusting the Puerto Rico
standardized amounts. (The national
Puerto Rico standardized amount is
adjusted by a wage index calculated for
all Puerto Rico labor market areas based
on the national average hourly wage as
described above.) We add the total
adjusted salaries plus wage-related costs
(as calculated in Step 5) for all hospitals
in Puerto Rico and divide the sum by
the total hours for Puerto Rico (as
calculated in Step 4) to arrive at an
overall proposed average hourly wage of
$13.4729 for Puerto Rico. For each labor
market area in Puerto Rico, we calculate
the Puerto Rico-specific wage index
value by dividing the area average
hourly wage (as calculated in Step 7) by
the overall Puerto Rico average hourly
wage.
Step 11—Section 4410 of Pub. L. 105–
33 provides that, for discharges on or
after October 1, 1997, the area wage
index applicable to any hospital that is
located in an urban area of a State may
not be less than the area wage index
applicable to hospitals located in rural
areas in that State. For FY 2008, this
change affects 239 hospitals in 65 urban
areas. The areas affected by this
provision are identified by a footnote in
Table 4A in the Addendum of this
proposed rule.
2. Expiration of the Imputed Floor
(If you choose to comment on issues
in this section, please include the
caption ‘‘Imputed Floor’’ at the
beginning of your comment.)
Section 4410 of Pub. L. 105–33
provides that the area wage index
applicable to any hospital that is located
in an urban area of a State may not be
less than the area wage index applicable
to hospitals located in rural areas of that
State (‘‘the rural floor’’). There are two
States that have no rural areas (New
Jersey and Rhode Island) and one State
that has rural areas but no IPPS
hospitals located in the rural areas of
the State (Massachusetts). In the FY
2005 IPPS final rule (69 FR 49109), we
adopted an ‘‘imputed’’ floor measure to
address the concern that hospitals in all-
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urban States were disadvantaged by the
absence of rural areas, because there is
no floor within the State. We limited
application of the policy to FYs 2005,
2006, and 2007 and indicated our intent
to make additional changes to the policy
or eliminate it for fiscal years after FY
2007.
In FY 2008, the rural floor will apply
to 239 hospitals in 25 States. If the
imputed rural floor were to continue
into FY 2008, it would apply to an
additional 28 hospitals in New Jersey. In
FY 2007, 40 hospitals in 10 urban areas
received higher wage indices due to the
imputed floor policy: Massachusetts (10
hospitals in 2 areas); New Jersey (30
hospitals in 8 areas); Rhode Island (no
areas and no hospitals). In
Massachusetts, the imputed rural floor
will no longer apply even if it were to
continue because one hospital acquired
rural status under § 412.103. We note
that if a State has a hospital reclassified
as rural under § 412.103, the State will
be considered to have IPPS hospitals
located in rural areas because, in this
case, the reclassified hospital is treated
as being located in a rural area in
accordance with section 1886(d)(8)(E) of
the Act. This policy also accords with
how we defined an ‘‘all-urban State’’
under § 412.64(h)(5) of the regulations,
which specifies that ‘‘A State with rural
areas and with hospitals reclassified as
rural under § 412.103 is not an allurban State.’’ Therefore, in the case
where a State has no hospitals that are
geographically located in its rural areas,
and one or more hospitals in the State
are reclassified as rural under §
412.103, the data for the reclassified
rural hospitals will be used to set the
rural floor for the State until a new
geographically located rural hospital
opens and data are available from that
hospital (as noted above, 4 years later)
to compute the rural floor.
We are proposing to discontinue the
imputed floor policy after the FY 2007
wage index. After further considering
the issue, we do not believe that it is
necessary to have an ‘‘imputed’’ rural
floor in States that have no rural areas
or no rural hospitals. As discussed
above, the imputed floor would not
apply to two of the three States: it is not
necessary for Rhode Island and is no
longer necessary for Massachusetts. In
addition, the imputed rural floor
methodology creates a disadvantage in
the application of the wage index to
hospitals in States with rural hospitals
but no urban hospitals receiving the
rural floor. Because the application of a
rural floor requires a transfer of
payments from hospitals in States with
rural hospitals but where the rural floor
is not applied to hospitals in States
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where either a rural or imputed floor is
applied, we believe the policy should
apply only when required by statute.
Thus, only States with both rural areas
and hospitals located in such areas
(including any hospital reclassified
under § 412.103) would benefit from
the rural floor, as required by Congress.
For all of the reasons stated above, we
are not proposing to continue the
imputed rural floor. Nevertheless, we
recognize that we would still need a
policy for determining the rural wage
index when a new IPPS hospital opens
in a State that has rural areas, but no
IPPS hospitals. There is a lag between
the time a hospital opens or becomes an
IPPS provider and when the hospital’s
cost report wage data are available to
include in calculating the area wage
index. For example, if a hospital files its
first Medicare cost report as an IPPS
provider with a beginning date of
January 1, 2007, and an ending date of
December 31, 2007, the hospital’s FY
2007 wage data would not be included
in the wage index until the FY 2011
IPPS update. Therefore, when a rural
IPPS hospital opens in a State that has
rural areas, but no wage data are
available to calculate a rural wage
index, we are proposing to apply a wage
index to that hospital using the same
methodology that we currently use for
home health and other post-acute care
providers in rural Massachusetts (71 FR
65906). That is, we would use the
unweighted average of the wage indices
from all CBSAs that are contiguous to
the rural counties of the State. (We
define contiguous as sharing a border.)
We would apply the wage index
calculated above until the new IPPS
hospital files a cost report for the base
year that is used in calculating the wage
index. (In the above example, the rural
hospital’s wage index would be
calculated for FYs 2008, 2009, and 2010
using urban area data.) Further, under
section 4410 of Pub. L. 105–33, the wage
index for this rural hospital would
become the State’s rural floor. As stated
above, however, if a State has rural
areas, and a hospital is reclassified as
rural under § 412.103, then there would
be no need to apply the above policy.
The reclassified hospital would set the
rural floor, and the wage data of the
newly opened rural hospitals would be
included in the calculation of the wage
index of the rural area only once their
wage data correlated with the survey
year used to establish the wage index (4
years after wage data are reported).
3. CAHs Reverting Back to IPPS
Hospitals and Raising the Rural Floor
(If you choose to comment on issues
in this section, please include the
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caption ‘‘Rural Floor’’ at the beginning
of your comment.)
Medicare payments to CAHs are based
on 101 percent of reasonable costs and
are generally greater than the payments
Medicare would make if the same
hospitals were paid under the IPPS,
which pays hospitals a fixed rate per
discharge. Also, as a CAH, a hospital is
guaranteed to recover is costs, while
under the IPPS, it is not. We are aware
of a situation where two rural hospitals
in a State are considering converting
from CAH status back to IPPS even
though they continue to be CAH
eligible. The CAHs would convert back
to IPPS even though it would not
directly benefit them. As IPPS
providers, the hospitals’ wage data
would eventually set the rural floor for
the State (that is, in 4 years when the
hospitals’ first IPPS cost reports would
be included in a base year used in
calculating the State’s rural wage index).
In this case, we are concerned that these
hospitals are converting solely in order
to take advantage of the rural floor
provisions for the other hospitals in the
State, but not for any reasons that are
intrinsic to the two specific hospitals.
Because the hospitals’ wage levels are
higher than most, if not all, of the urban
IPPS hospitals in the State, including
one hospital in the State that acquired
rural status under § 412.103, the wage
indices for most, if not all, of the State’s
urban hospitals would increase as a
result of the rural floor provision if the
CAHs convert to IPPS status. Such an
arrangement would increase payments
to the hospitals in the State at the
expense of every other IPPS hospital in
the nation. The two rural hospitals that
are currently CAHs were last paid under
the IPPS in FY 2003. We simulated the
effect of allowing these two hospitals to
set the State’s rural floor with the same
data used to calculate the FY 2003 wage
index as would occur in FY 2011 if
these hospitals were to convert to IPPS
status in FY 2007 and no other hospitals
were to open in the rural area of the
State. Based on this simulation, all
hospitals except two would be paid
using the rural floor, increasing
payments in excess of $220 million for
a single year. If the average hourly wage
for these two hospitals increased faster
than the national average, the increase
in payments would be even higher. It
seems likely that over 5 years, Medicare
payments to hospitals in this State
would increase by more than $1 billion.
Again, these increased payments would
be budget neutralized at the expense of
all other IPPS hospitals nationwide.
Given that the hospitals continue to be
eligible for the higher paying CAH
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status, we are concerned that hospitals
are converting to IPPS status solely in
order to raise the State’s rural floor. We
are concerned about the propriety of
such an arrangement if the intent is to
manipulate the State’s area wage index
values to receive higher Medicare
reimbursement.
Section 1886(d)(5)(I)(i) of the Act
allows the Secretary the authority to
‘‘provide by regulation for such other
exceptions and adjustments * * * as the
Secretary deems appropriate.’’ We are
soliciting comments regarding whether
it would be appropriate for CMS to
establish a policy under this authority to
preclude the arrangement described
above and, if so, how such a policy
would be applied. We believe that any
policy should only apply to a CAH that
continues to meet the CAH certification
requirements and should not apply if a
CAH no longer met those requirements
and converted to an IPPS provider.
4. Application of Rural Floor Budget
Neutrality
Section 4410 of the Balanced Budget
Act of 1997 (BBA) established the rural
floor by requiring that the wage index
for a hospital in any urban area cannot
be less than the area wage index
determined for the State’s rural area.
Since FY 1998, we have implemented
the budget neutrality requirement of this
provision by adjusting the standardized
amounts. A discussion and illustration
of the calculation of the standardized
amounts is shown in the Addendum of
every year’s IPPS rule.16
In this proposed rule, we are
proposing a prospective change to how
budget neutrality is applied to
implement the rural floor for FY 2008
and subsequent years. Section 4410(a) of
the BBA indicates that ‘‘the area wage
index applicable * * * to any hospital
which is not located in a rural area’may
not be less than the area wage index
applicable * * * to hospitals located in
rural areas in the State in which the
hospital is located.’’ Section 4410(b) of
the BBA imposes the budget neutrality
requirement and states that the
Secretary shall ‘‘adjust the area wage
index referred to in subsection (a) for
16 The BBA was enacted on August 5, 1997, and
required application of the rural floor beginning
with the FY 1998 IPPS. See the following for a
description and calculation of the IPPS
standardized amounts since that time: 62 FR
46038–46043, August 29, 1997; 63 FR 41006–41010,
July 31, 1998; 64 FR 41544–41549, July 30, 1999;
65 FR 47111–47116, August 1, 2000; 66 FR 39939–
39946, August 1, 2001; 67 FR 50120–50126, August
1, 2002; 68 FR 45474–45480, August 1, 2003; 69 FR
49273–49282, August 11, 2004; 70 FR 47491–47498,
August 12, 2005; 71 FR 59889–58980, October 11,
2006.
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24787
hospitals not described in such
subsection.’’
One possible interpretation of section
4410(b) of the BBA is that the budget
neutrality adjustment would be applied
only to those hospitals that do not
receive the rural floor. In other words,
the wage index of an urban hospital
subject to the rural floor would be
increased to the level of the rural wage
index in the same State, but would not
be adjusted for budget neutrality. Thus,
urban hospitals receiving the rural floor
would receive a higher wage index than
the rural hospitals within the same State
(because rural floor hospitals would not
be subject to budget neutrality, whereas
rural hospitals would be). We believe
such a reading would not be in
accordance with Congressional intent,
which was to set a floor for urban
hospitals, not to pay urban hospitals a
wage index higher than the wage index
applicable to rural hospitals.
In order to avoid the apparent
contradiction between raising an urban
hospital’s wage index to the rural floor
and not applying budget neutrality to its
wage index, we also believe the statute
could be read to allow an iterative
calculation of budget neutrality and
wage indices. Under such iterative
calculations (consistent with section
4410(a) of the BBA), we would raise the
wage index for urban hospitals to the
level of the pre-budget neutrality rural
wage index. Consistent with section
4410(b) of the BBA, we would adjust the
wage index for all nonrural floor
hospitals to achieve budget neutrality.
However, such an adjustment would
result in an urban hospital that would
receive the rural floor having a higher
wage index than a rural hospital in the
same State. Therefore, we would then
decrease wage indices for the rural floor
hospitals so they are equal to the
adjusted rural wage index in the same
State. At this point, payments would be
less in the aggregate than they were
prior to applying the rural floor.
Accordingly, a new budget neutrality
adjustment would have to be calculated
to raise the wage indices and total
payments for rural hospitals and
nonrural floor urban hospitals. The rural
wage index would now be higher than
the wage index for the rural floor
hospitals in the same State. Therefore,
the wage index for rural floor hospitals
would then be increased again to the
level of the State’s rural wage index,
leading to budget neutrality being
recalculated again, the wage index
reduced for rural floor hospitals, and so
forth until the wage index and the
budget neutrality adjustment stabilize.
We have determined that the iterative
method is substantively equivalent to
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simply adjusting all area wage indices
by a uniform percentage. We have
performed the iterative calculation
using provider-level data based on FY
2007 MedPAR data and the first half of
FY 2007 wage index data. Using such
data, we determined that the iterative
method results in the same final wage
indices through four decimal places that
would result if a uniform budget
neutrality factor were applied to all
hospitals’ wage indices. Furthermore, an
iterative method, which requires
adjusting only the wage index values of
nonrural floor providers, reassigning the
lowered rural floor value to rural floor
providers, and reiterating the budget
neutrality factor applied to the nonrural
floor providers would require an
excessive number of iterations and
computer processing, which is not
necessary if we simply apply a uniform
budget neutrality adjustment to all wage
index values. The latter method is
accomplished more quickly, is less
complex, and arrives at the same final
wage index values. Because the IPPS
schedule is relatively condensed, with a
proposed rule issued in April, a 60-day
comment period until June, and then
only 2 months to analyze comments,
respond to them, determine final
policies and calculate final rates prior to
the August 1 publication, we believe it
would not be practical to require such
multiple layers of calculations, when a
uniform adjustment would produce
substantively identical results.
Therefore, we are proposing to
implement the rural floor budget
neutrality requirement by applying a
uniform budget neutrality adjustment to
all hospital wage indices rather than the
more complicated iterative process
illustrated below.
The following hypothetical example,
which includes a series of nine
iterations, illustrates how the iterative
process works. The example assumes
three IPPS hospitals in one State.
Hospital A is rural and Hospitals B and
C are urban.
PRE-FLOOR WAGE INDEX
Hospital A
Wage Index ............................
Relative Weights ....................
Location ..................................
Standardized Amounts ...........
Payments ...............................
Hospital B
Hospital C
Total
0.9500 ....................................
100 .........................................
Rural ......................................
$1,000 ....................................
$95,000 ..................................
1.1700 ....................................
200 .........................................
Urban .....................................
$1,000 ....................................
$234,000 ................................
0.8600 ....................................
150 .........................................
Urban .....................................
$1,000 ....................................
$129,000 ................................
........................
........................
........................
........................
$458,000
Note: Hospital C is urban and has a lower wage index than Hospital A which is rural.
Post-Floor Wage Index; Pre-Budget
Neutrality
I
Hospital A
Hospital B
Hospital C
Total
Wage Index ............................
Relative Weights ....................
Location ..................................
Standardized Amounts ...........
Payments ...............................
0.9500 ....................................
100 .........................................
Rural ......................................
$1,000 ....................................
$95,000 ..................................
1.1700 ....................................
200 .........................................
Urban .....................................
$1,000 ....................................
$234,000 ................................
0.9500 ....................................
150 .........................................
Urban .....................................
$1,000 ....................................
$142,500 ................................
........................
........................
........................
........................
$471,500
Note: Hospital C’s wage index is raised to the same level as Hospital A.
Post Floor—Budget Neutrality Process
Iteration 1:
Step 1: Apply budget neutrality to
Hospital A and Hospital B.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9110 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$91,102 .............................
1.1220 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$224,398 ...........................
0.9500 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$142,500 ...........................
Total
BN Factor.
0.95897.
Target.
$458,000.
$458,000.
Step 2: Reduce Hospital C’s wage
index to Hospital A’s level.
mmaher on DSK3CLS3C1PROD with $$_JOB
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9110 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$91,102 .............................
1.1220 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$224,398 ...........................
0.9110 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$136,653 ...........................
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Total
BN Factor.
0.95897.
Target.
$458,000.
$452,153.
24789
Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Proposed Rules
Iteration 2:
Step 1: Apply budget neutrality to
Hospital A and Hospital B.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9279 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,790 .............................
1.1428 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$228,557 ...........................
0.9110 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$136,653 ...........................
Total
BN Factor.
1.01853.
Target.
$458,000.
$458,000.
Step 2: Increase Hospital C’s wage
index to Hospital A’s level.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9279 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,790 .............................
1.1428 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$228,557 ...........................
0.9279 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$139,185 ...........................
Iteration 3:
Total
BN Factor.
1.01854.
Target.
$458,000.
$460,532.
Step 1: Apply budget neutrality to
Hospital A and Hospital B.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9206 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,059 .............................
1.1338 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$226,756 ...........................
0.9279 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$139,185 ...........................
Total
BN Factor.
0.99212.
Target.
$458,000.
$458,000.
Step 2: Reduce Hospital C’s wage
index to Hospital A’s level.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9206 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,059 .............................
1.1338 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$226,756 ...........................
0.9206 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$138,088 ...........................
Iteration 4:
Total
BN Factor.
0.99212.
Target.
$458,000.
$456,903.
Step 1: Apply budget neutrality to
Hospital A and Hospital B.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9238 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,376 .............................
1.1377 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$227,536 ...........................
0.9206 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$138,088 ...........................
Total
BN Factor.
1.00344.
Target.
$458,000.
$458,000.
mmaher on DSK3CLS3C1PROD with $$_JOB
Step 2: Increase Hospital C’s wage
index to Hospital A’s level.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9238 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,376 .............................
1.1377 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$227,536 ...........................
0.9238 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$138,563 ...........................
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BN Factor.
1.00344.
Target.
$458,000.
$458,475.
24790
Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Proposed Rules
Iteration 5:
Step 1: Apply budget neutrality to
Hospital A and Hospital B.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9224 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,238 .............................
1.1360 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$227,198 ...........................
0.9238 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$138,563 ...........................
Total
BN Factor.
0.99852.
Target.
$458,000.
$458,000.
Step 2: Reduce Hospital C’s wage
index to Hospital A’s level.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9224 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,238 .............................
1.1360 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$227,198 ...........................
0.9224 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$138,358 ...........................
Iteration 6:
Total
BN Factor.
0.99852.
Target.
$458,000.
$457,794.
Step 1: Apply budget neutrality to
Hospital A and Hospital B.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9230 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,298 .............................
1.1367 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$227,344 ...........................
0.9224 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$138,358 ...........................
Total
BN Factor.
1.00064.
Target.
$458,000.
$458,000.
Step 2: Increase Hospital C’s wage
index to Hospital A’s level.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9230 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,298 .............................
1.1367 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$227,344 ...........................
0.9230 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$138,447 ...........................
Iteration 7:
Total
BN Factor.
1.00064.
Target.
$458,000.
$458,089.
Step 1: Apply budget neutrality to
Hospital A and Hospital B.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9227 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,272 .............................
1.1364 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$227,281 ...........................
0.9230 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$138,447 ...........................
Total
BN Factor.
0.99972.
Target.
$458,000.
$458,000.
mmaher on DSK3CLS3C1PROD with $$_JOB
Step 2: Reduce Hospital C’s wage
index to Hospital A’s level.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9227 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,272 .............................
1.1364 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$227,281 ...........................
0.9227 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$138,408 ...........................
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BN Factor.
0.99972.
Target.
$458,000.
$457,961.
24791
Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Proposed Rules
Iteration 8:
Step 1: Apply budget neutrality to
Hospital A and Hospital B.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9228 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,283 .............................
1.1365 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$227,308 ...........................
0.9227 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$138,408 ...........................
Total
BN Factor.
1.00012.
Target.
$458,000.
$458,000.
Step 2: Increase Hospital C’s wage
index to Hospital A’s level.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9228 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,283 .............................
1.1365 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$227,308 ...........................
0.9228 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$138,425 ...........................
Iteration 9:
Total
BN Factor.
1.00012.
Target.
$458,000.
$458,016.
Step 1: Apply budget neutrality to
Hospital A and Hospital B.
I
Hospital A
Hospital B
Hospital C
Wage Index .......................
Relative Weights ...............
Location .............................
Standardized Amounts ......
Payments ...........................
0.9228 ...............................
100 ....................................
Rural ..................................
$1,000 ...............................
$92,279 .............................
1.1365 ...............................
200 ....................................
Urban ................................
$1,000 ...............................
$227,297 ...........................
0.9228 ...............................
150 ....................................
Urban ................................
$1,000 ...............................
$138,425 ...........................
In the example above, the wage
indices are shown only to the 4th
decimal place even though they are not
rounded. However, the actual wage
indices that we calculate for the IPPS
are rounded to 4 decimal places. In the
9th and final iteration of the budget
neutrality adjustment shown above,
there was no change to the wage indices
through the 4th decimal place relative to
the 8th iteration. Therefore, because the
wage indices stopped changing, we
could not obtain further precision in the
budget neutrality and wage index
calculations in the example shown
above with further iterations. We note
Total
BN Factor.
0.99995.
Target.
$458,000.
$458,000.
that the example above produces the
same result as simply applying a
uniform adjustment to hospital wage
indices. Using the same data as the
above hypothetical example, we show
this result below:
PRE-FLOOR WAGE INDEX
Hospital A
Wage Index ............................
Relative Weights ....................
Location ..................................
Standardized Amounts ...........
Payments ...............................
Hospital B
Hospital C
Total
0.9500 ....................................
100 .........................................
Rural ......................................
$1,000 ....................................
$95,000 ..................................
1.1700 ....................................
200 .........................................
Urban .....................................
$1,000 ....................................
$234,000 ................................
0.8600 ....................................
150 .........................................
Urban .....................................
$1,000 ....................................
$129,000 ................................
........................
........................
........................
........................
$458,000
Note: Hospital C is urban and has a lower wage index than Hospital A which is rural.
Post-Floor Wage Index; Pre-Budget
Neutrality
mmaher on DSK3CLS3C1PROD with $$_JOB
I
Hospital A
Hospital B
Hospital C
Total
Wage Index ............................
Relative Weights ....................
Location ..................................
Standardized Amounts ...........
Payments ...............................
0.9500 ....................................
100 .........................................
Rural ......................................
$1,000 ....................................
$95,000 ..................................
1.1700 ....................................
200 .........................................
Urban .....................................
$1,000 ....................................
$234,000 ................................
0.9500 ....................................
150 .........................................
Urban .....................................
$1,000 ....................................
$142,500 ................................
........................
........................
........................
........................
$471,500
Note: Hospital C’s wage index is raised to the same level as Hospital A.
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Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Proposed Rules
Post Floor—Budget Neutrality
I
Hospital A
Hospital B
Hospital C
Wage Index ............................
Relative Weights ....................
Location ..................................
Standardized Amounts ...........
Payments ...............................
0.9228 ....................................
100 .........................................
Rural ......................................
$1,000 ....................................
$92,280 ..................................
1.1365 ....................................
200 .........................................
Urban .....................................
$1,000 ....................................
$227,300 ................................
0.9228 ....................................
150 .........................................
Urban .....................................
$1,000 ....................................
$138,420 ................................
mmaher on DSK3CLS3C1PROD with $$_JOB
We note that our proposed change
would apply the budget neutrality
adjustment to the wage index, and not
to the standardized amount. In previous
years, we applied a budget neutrality
adjustment to the standardized amount
to ensure that payments remained
constant to payments that would have
occurred in the absence of the rural
floor requirement in section 4410 of the
BBA. We believe such an adjustment is
in keeping with the statute, which
requires that the rural floor will not
result in aggregate payments that are
greater or less than those that would
have been made in the absence of a rural
floor. We believe that an adjustment to
the wage index would result in a
substantially similar payment as an
adjustment to the standardized amount,
as both involve multipliers to the
standardized amount, and both would
be based upon the same modeling
parameters. We do note that because
hospitals have different labor-related
shares (62 percent for hospitals with
wage indices less than or equal to 1;
69.7 percent for hospitals with wage
indices greater than 1), an adjustment to
the wage index would have slightly
different effects from an adjustment to
the standardized amount, as each wage
index would be adjusted by a uniform
percentage.
For FY 2008, we are proposing to use
FY 2006 discharge data and FY 2008
wage indices to simulate IPPS payments
without the rural floor. We would
compare these simulated payments to
simulated payments using the same data
with a rural floor.
We believe that the statute supports
either an adjustment to the standardized
amount or the wage indices because
under either methodology, the rural
floor would not result in aggregate
payments that were greater or less than
those that would have been made in the
absence of a rural floor.
H. Analysis and Implementation of the
Proposed Occupational Mix Adjustment
and the Proposed FY 2008 Occupational
Mix Adjusted Wage Index
(If you choose to comment on issues
in this section, please include the
caption ‘‘Occupational Mix Adjusted
Wage Index’’ at the beginning of your
comment.)
As discussed in section III.C. of this
preamble, for FY 2008, we are proposing
VerDate Mar 15 2010
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Jkt 223001
Total
BN Factor
0.971368
Target
$458,000
$458,000
Based on the January through June
2006 occupational mix survey data, we
determined (in Step 7 of the
occupational mix calculation) that the
proposed national percentage of
hospital employees in the Nurse
category is 42.9 percent, and the
proposed national percentage of
hospital employees in the All Other
Occupations category is 57.1 percent. At
the CBSA level, the percentage of
hospital employees in the Nurse
category ranged from a low of 27.3
percent in one CBSA, to a high of 85.3
percent in another CBSA.
We compared the final FY 2007
occupational mix adjusted wage indices
for each CBSA to the proposed FY 2008
wage indices adjusted for occupational
mix. In proposing to implement an
occupational mix adjusted wage index
based on the above calculation using 6
months of survey data for FY 2008 as
opposed to 3 months of survey data
used for FY 2007, the final wage index
values for 17 rural areas (36.2 percent)
and 189 urban areas (48.7 percent)
would decrease as a result of the
adjustment. Nine rural areas (19.1
percent) and 127 urban areas (32.7
percent) would experience a decrease of
1 percent or greater in their wage index
values. The largest negative impacts
Occupational mix nursing
Average hour- would be 3.40 percent and 14.82
subcategory
ly wage
percent for a rural and urban area,
National RN Management ....
$38.6214 respectively. In addition, 30 rural areas
National RN Staff ..................
33.4800 (63.8 percent) and 197 urban areas (50.8
National LPN ........................
19.2485 percent) would experience an increase
National Nurse Aides, Orderin their wage index values. Twelve rural
lies, and Attendants ..........
13.7267 areas (25.5 percent) and 131 urban areas
National Medical Assistants
15.7936
National Nurse Category ......
28.7439 (33.8 percent) would experience an
increase of 1 percent or greater in their
The proposed national average hourly wage index values. The largest increase
for a rural area would be 10.75 percent
wage for the entire nurse category as
and the largest increase for an urban
computed in Step 5 of the occupational
mix calculation is $28.7439. Hospitals
area would be 16.87 percent. Two urban
with a nurse category average hourly
areas would be unaffected. These results
wage (as calculated in Step 4) of greater
indicate that a larger percentage of rural
than the national nurse category average areas benefit from an occupational mix
hourly wage receive an occupational
adjustment than do urban areas.
mix adjustment factor (as calculated in
However, as was the case with the FY
Step 6) of less than 1.0. Hospitals with
2007 occupational mix data,
a nurse category average hourly wage (as approximately a third of rural CBSAs
calculated in Step 4) of less than the
(36.2 percent) continue to experience a
national nurse category average hourly
decrease in their wage indices as a
wage receive an occupational mix
result of the occupational mix
adjustment factor (as calculated in Step
adjustment.
6) of greater than 1.0.
to apply the occupational mix
adjustment to 100 percent of the FY
2008 wage index. We calculated the
occupational mix adjustment using data
from the 2006 occupational mix survey
data, using the methodology described
in section III.C.3. of this preamble.
Using the first and second quarter
occupational mix survey data and
applying the occupational mix
adjustment to 100 percent of the FY
2008 wage index results in a proposed
national average hourly wage of
$30.9074 and a proposed Puerto Ricospecific average hourly wage of
$13.4678. After excluding data of
hospitals that either submitted aberrant
data that failed critical edits, or that do
not have FY 2004 Worksheet S–3 cost
report data for use in calculating the
proposed FY 2008 wage index, we
calculated the proposed FY 2008 wage
index using the occupational mix
survey data from 3,368 hospitals. Using
the Worksheet S–3 cost report data of
3,581 hospitals and occupational mix
first and/or second quarter survey data
from 3,368 hospitals represents a 94.1
percent survey response rate. The
proposed FY 2008 national average
hourly wages for each occupational mix
nursing subcategory as calculated in
Step 2 of the occupational mix
calculation are as follows:
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The proposed wage index values for
FY 2008 (except those for hospitals
receiving wage index adjustments under
section 1886(d)(13) of the Act) are
shown in Tables 4A, 4B, 4C, and 4F in
the Addendum to this proposed rule.
Tables 3A and 3B in the Addendum
to this proposed rule list the 3-year
average hourly wage for each labor
market area before the redesignation of
hospitals based on FYs 2006, 2007, and
2008 cost reporting periods. Table 3A
lists these data for urban areas and
Table 3B lists these data for rural areas.
In addition, Table 2 in the Addendum
to this proposed rule includes the
adjusted average hourly wage for each
hospital from the FY 2002 and FY 2003
cost reporting periods, as well as the FY
2004 period used to calculate the
proposed FY 2008 wage index. The 3year averages are calculated by dividing
the sum of the dollars (adjusted to a
common reporting period using the
method described previously) across all
3 years, by the sum of the hours. If a
hospital is missing data for any of the
previous years, its average hourly wage
for the 3-year period is calculated based
on the data available during that period.
The proposed wage index values in
Tables 4A, 4B, 4C, and 4F and the
average hourly wages in Tables 2, 3A,
and 3B in the Addendum to this
proposed rule include the proposed
occupational mix adjustment as well as
the budget neutrality adjustment for the
rural floor.
I. Revisions to the Proposed Wage Index
Based on Hospital Redesignations
(If you choose to comment on issues
in this section, please include the
caption ‘‘Hospital Reclassifications and
Redesignations’’ at the beginning of
your comment.)
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1. General
Under section 1886(d)(10) of the Act,
the Medicare Geographic Classification
Review Board (MGCRB) considers
applications by hospitals for geographic
reclassification for purposes of payment
under the IPPS. Hospitals must apply to
the MGCRB to reclassify by September
1 of the year preceding the year during
which reclassification is sought.
Generally, hospitals must be proximate
to the labor market area to which they
are seeking reclassification and must
demonstrate characteristics similar to
hospitals located in that area. The
MGCRB issues its decisions by the end
of February for reclassifications that
become effective for the following fiscal
year (beginning October 1). The
regulations applicable to
reclassifications by the MGCRB are
located in § § 412.230 through 412.280.
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Section 1886(d)(10)(D)(v) of the Act
provides that, beginning with FY 2001,
a MGCRB decision on a hospital
reclassification for purposes of the wage
index is effective for 3 fiscal years,
unless the hospital elects to terminate
the reclassification. Section
1886(d)(10)(D)(vi) of the Act provides
that the MGCRB must use the 3 most
recent years’ average hourly wage data
in evaluating a hospital’s
reclassification application for FY 2003
and any succeeding fiscal year.
Section 304(b) of Pub. L. 106–554
provides that the Secretary must
establish a mechanism under which a
statewide entity may apply to have all
of the geographic areas in the State
treated as a single geographic area for
purposes of computing and applying a
single wage index, for reclassifications
beginning in FY 2003. The
implementing regulations for this
provision are located at § 412.235.
Section 1886(d)(8)(B) of the Act
requires the Secretary to treat a hospital
located in a rural county adjacent to one
or more urban areas as being located in
the MSA to which the greatest number
of workers in the county commute, if
the rural county would otherwise be
considered part of an urban area under
the standards for designating MSAs and
if the commuting rates used in
determining outlying counties were
determined on the basis of the aggregate
number of resident workers who
commute to (and, if applicable under
the standards, from) the central county
or counties of all contiguous MSAs. In
light of the new CBSA definitions and
the Census 2000 data that we
implemented for FY 2005 (69 FR
49027), we undertook to identify those
counties meeting these criteria. The
eligible counties are identified under
section III.I.8. of this preamble.
2. Effects of Reclassification/
Redesignation
Section 1886(d)(8)(C) of the Act
provides that the application of the
wage index to redesignated hospitals is
dependent on the hypothetical impact
that the wage data from these hospitals
would have on the wage index value for
the area to which they have been
redesignated. These requirements for
determining the wage index values for
redesignated hospitals is applicable
both to the hospitals located in rural
counties deemed urban under section
1886(d)(8)(B) of the Act and hospitals
that were reclassified as a result of the
MGCRB decisions under section
1886(d)(10) of the Act. Therefore, as
provided in section 1886(d)(8)(C) of the
Act, the wage index values were
determined by considering the
following:
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<bullet≤ If including the wage data for
the redesignated hospitals would reduce
the wage index value for the area to
which the hospitals are redesignated by
1 percentage point or less, the area wage
index value determined exclusive of the
wage data for the redesignated hospitals
applies to the redesignated hospitals.
<bullet≤ If including the wage data for
the redesignated hospitals reduces the
wage index value for the area to which
the hospitals are redesignated by more
than 1 percentage point, the area wage
index determined inclusive of the wage
data for the redesignated hospitals (the
combined wage index value) applies to
the redesignated hospitals.
<bullet≤ If including the wage data for
the redesignated hospitals increases the
wage index value for the urban area to
which the hospitals are redesignated,
both the area and the redesignated
hospitals receive the combined wage
index value. Otherwise, the hospitals
located in the urban area receive a wage
index excluding the wage data of
hospitals redesignated into the area.
Rural areas whose wage index values
would be reduced by excluding the
wage data for hospitals that have been
redesignated to another area continue to
have their wage index values calculated
as if no redesignation had occurred
(otherwise, redesignated rural hospitals
are excluded from the calculation of the
rural wage index). The wage index value
for a redesignated rural hospital cannot
be reduced below the wage index value
for the rural areas of the State in which
the hospital is located.
CMS has also adopted the following
policies by regulation:
<bullet≤ The wage data for a
reclassified urban hospital is included
in both the wage index calculation of
the area to which the hospital is
reclassified (subject to the rules
described above) and the wage index
calculation of the urban area where the
hospital is physically located.
<bullet≤ In cases where urban
hospitals have reclassified to rural areas
under 42 CFR 412.103, the urban
hospital wage data are: (a) Included in
the rural wage index calculation, unless
doing so would reduce the rural wage
index; and (b) included in the urban
area where the hospital is physically
located.
3. FY 2008 MGCRB Reclassifications
(If you choose to comment on issues
in this section, please include the
caption ‘‘MGCRB’’ at the beginning of
your comment.)
Under section 1886(d)(10) of the Act,
the MGCRB considers applications by
hospitals for geographic reclassification
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for purposes of payment under the IPPS.
The specific procedures and rules that
apply to the geographic reclassification
process are outlined in § 412.230
through § 412.280.
At the time this proposed rule was
constructed, the MGCRB had completed
its review of FY 2008 reclassification
requests. There were 365 hospitals
approved for wage index
reclassifications by the MGCRB for FY
2008. Because MGCRB wage index
reclassifications are effective for 3 years,
hospitals reclassified during FY 2006 or
FY 2007 are eligible to continue to be
reclassified based on prior
reclassifications to current MSAs during
FY 2008. There were 299 hospitals
reclassified for wage index in FY 2006
and 214 hospitals reclassified for wage
index in FY 2007. Some of the hospitals
that reclassified for FY 2006 and FY
2007 have elected not to continue their
reclassifications in FY 2008 because,
under the revised labor market area
definitions, they are now physically
located in the areas to which they
previously reclassified. Of all of the
hospitals approved for reclassification
for FY 2006, FY 2007, and FY 2008, 866
hospitals are in a reclassification status
for FY 2008.
Prior to FY 2004, hospitals had been
able to apply to be reclassified for
purposes of either the wage index or the
standardized amount. Section 401 of
Pub. L. 108–173 established that all
hospitals will be paid on the basis of the
large urban standardized amount,
beginning with FY 2004. Consequently,
all hospitals are paid on the basis of the
same standardized amount, which made
such reclassifications moot. Although
there could still be some benefit in
terms of payments for some hospitals
under the DSH payment adjustment for
operating IPPS, section 402 of Pub. L.
108–173 equalized DSH payment
adjustments for rural and urban
hospitals, with the exception that the
rural DSH adjustment is capped at 12
percent (except that rural referral
centers and, effective for discharges
occurring on or after October 1, 2006,
MDHs have no cap). (A detailed
discussion of this application appears in
section IV.I. of the preamble of the FY
2005 IPPS final rule (69 FR 49085). The
exclusion of MDHs from the 12 percent
DSH cap under Pub. L. 109–171 was
discussed under section IV.F.4. of the
preamble of the FY 2007 IPPS final rule
(71 FR 48066.)
Under § 412.273, hospitals that have
been reclassified by the MGCRB are
permitted to withdraw their
applications within 45 days of the
publication of a proposed rule. The
request for withdrawal of an application
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for reclassification or termination of an
existing 3-year reclassification that
would be effective in FY 2008 must be
received by the MGCRB within 45 days
of the publication of this proposed rule.
If a hospital elects to withdraw its wage
index application after the MGCRB has
issued its decision, but prior to the
above date, it may later cancel its
withdrawal in a subsequent year and
request the MGCRB to reinstate its wage
index reclassification for the remaining
fiscal year(s) of the 3-year period (§
412.273(b)(2)(i)). The request to cancel a
prior withdrawal or termination must be
in writing to the MGCRB no later than
the deadline for submitting
reclassification applications for the
following fiscal year (§ 412.273(d)). For
further information about withdrawing,
terminating, or canceling a previous
withdrawal or termination of a 3-year
reclassification for wage index
purposes, we refer the reader to §
412.273, as well as the August 1, 2002,
IPPS final rule (67 FR 50065) and the
August 1, 2001 IPPS final rule (66 FR
39887).
Changes to the wage index that result
from withdrawals of requests for
reclassification, wage index corrections,
appeals, and the Administrator’s review
process will be incorporated into the
wage index values published in the final
rule. These changes may affect not only
the wage index value for specific
geographic areas, but also the wage
index value redesignated hospitals
receive; that is, whether they receive the
wage index that includes the data for
both the hospitals already in the area
and the redesignated hospitals. Further,
the wage index value for the area from
which the hospitals are redesignated
may be affected.
Applications for FY 2009
reclassifications are due to the MGCRB
by September 4, 2007 (the first working
day of September 2007). We note that
this is also the deadline for canceling a
previous wage index reclassification
withdrawal or termination under §
412.273(d). Applications and other
information about MGCRB
reclassifications may be obtained,
beginning in mid-July 2007, via the
CMS Internet Web site at: https://
cms.hhs.gov/providers/prrb/
mgcinfo.asp, or by calling the MGCRB at
(410) 786–1174. The mailing address of
the MGCRB is: 2520 Lord Baltimore
Drive, Suite L, Baltimore, MD 21244–
2670.
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4. Hospitals That Applied for
Reclassification Effective in FY 2008
and Reinstating Reclassifications in FY
2008
Applications for FY 2008
reclassifications were due to the
MGCRB by September 1, 2006. We note
that this deadline also applied for
canceling a previous wage index
reclassification withdrawal or
termination under § 412.273(d). The
MGCRB, in evaluating a hospital’s
request for reclassification for FY 2008
for the wage index, utilized the official
data used to develop the FY 2007 wage
index. The wage data used to support
the hospital’s wage comparisons were
from the CMS hospital wage survey.
Generally, the source for these data is
the IPPS final rule to be published on
or before August 1, 2006. However, the
wage tables identifying the 3-year
average hourly wage of hospitals were
not available in time to include them in
the FY 2007 IPPS final rule. Therefore,
we made the data available subsequent
to the publication of the FY 2007 IPPS
final rule.
Section 1886(d)(10)(C)(ii) of the Act
indicates that a hospital requesting a
change in geographic classification for a
fiscal year must submit its application
to the MGCRB not later than the first
day of the 13-month period ending on
September 30 of the preceding fiscal
year. Thus, the statute requires that FY
2008 reclassification applications were
to be submitted to the MGCRB by no
later than September 1, 2006. For this
reason, we required hospitals to file an
FY 2008 reclassification application by
the September 1, 2006 deadline even
though the average hourly wage data
used to develop the final FY 2007 wage
indices were not yet available. However,
as outlined in § 412.256(c)(2), we also
allowed hospitals with incomplete
applications submitted by the deadline
to request an extension beyond
September 1, 2006, to complete their
applications. We also allowed hospitals
30 days from the date the final wage
data were posted on the CMS Web site
to request to cancel a withdrawal or
termination in order to reinstate a
reclassification for FY 2008 or FY 2009,
or both fiscal years. For a more detailed
discussion of the procedures used for
the FY 2008 MGCRB applications we
refer readers to the FY 2007 IPPS final
rule (71 FR 48022–48023).
5. Clarification of Policy on Reinstating
Reclassifications
Under § 412.273(a) of our regulations,
a hospital or group of hospitals may
withdraw its application for
reclassification at any time before the
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MGCRB issues its decision or, if after
the MGCRB issues its decision, within
45 days after publication of CMS’s
annual notice of proposed rulemaking
for the upcoming fiscal year. In
addition, a hospital may terminate a
reclassification that is already in effect
within 45 days after publication of the
notice of proposed rulemaking for the
upcoming fiscal year. Once a
withdrawal or termination has been
made, the hospital or group of hospitals
will not be reclassified for purposes of
the wage index to the same area for that
year. The hospital also will not be
reclassified to the withdrawn or
terminated reclassification area in
subsequent fiscal years unless the
hospital subsequently cancels its
withdrawal or termination. The
procedures for making a withdrawal or
termination, as well as for canceling a
withdrawal or termination are specified
at § 412.273. In the FY 2003 IPPS final
rule (67 FR 50065–50066), we clarified
our existing policy stating that a
previous 3-year reclassification may not
be reinstated after a subsequent 3-year
reclassification to another area takes
effect. Therefore, a hospital can only
have one active 3-year reclassification at
a time.
We have been asked whether a
hospital (or group of hospitals) can
reinstate the two remaining years of a
previously approved 3-year
reclassification to one area, while at the
same time the individual hospital (or
group) request a new 3-year
reclassification from the MGCRB to a
different area and be approved for both
at the same time. In this case, the
hospital or group of hospitals is
permitted to apply to a different area
than the previously approved
reclassification but, as stated in §
412.273(b)(2), once they accept a newly
approved reclassification, a previously
terminated and reinstated 3-year
reclassification would be permanently
terminated.
Following the policy set forth at §
412.273(d), a hospital may cancel a
previous withdrawal or termination by
submitting written notice of its intent to
the MGCRB no later than September 1
for reclassifications effective at the start
of the second following fiscal year 13
months later. At the same time (because
the deadline for geographic
reclassification applications for the
second following fiscal year 13 months
later is also September 1), a hospital or
group of hospitals could apply for
reclassification to a different area. If the
application is denied, the hospital or
group of hospitals can select between
the reinstated geographic
reclassification and the home area wage
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index for the following fiscal year. The
hospital or group of hospitals must file
a written request to the MGCRB within
45 days after publication of the notice
of proposed rulemaking to terminate the
reinstated reclassification and receive
the home area wage index. If the
hospital or group of hospitals takes no
action, the pending geographic
reclassification will go into effect. If the
new geographic reclassification
application is approved, the hospital or
group of hospitals will have 45 days
from publication of the notice of
proposed rulemaking to accept either of
the two pending geographic
reclassifications or revert to the home
area wage index. If the hospital or group
of hospitals takes no action, the most
recent approved geographic
reclassification will go into effect and
the prior reclassification will be
permanently terminated. Alternatively,
the hospital or group of hospitals can
withdraw the most recent approved
reclassification and accept the
previously approved and reinstated
reclassification within 45 days of
publication of the notice of proposed
rulemaking. Such an action will
permanently terminate the most
recently approved geographic
reclassification. Finally, the hospital or
group hospitals can write to the MGCRB
within 45 days of publication of the
notice of proposed rulemaking to
withdraw both geographic
reclassifications in order to receive the
home area wage index. In this case, the
hospital or group of hospitals can only
reinstate one of the two geographic
reclassifications. The other geographic
reclassification is permanently
terminated. Once a hospital or group of
hospitals makes a decision for the
following fiscal year within 45 days of
publication of the notice of proposed
rulemaking, the hospital or group of
hospitals cannot change the decision for
that fiscal year. It is also important to
note that the reinstatement of a
reclassification only applies to those
withdrawals which were made after the
MGCRB issued an approved 3-year
decision, not a withdrawal made prior
to the MGCRB issuing an approval
decision.
For example, a hospital has been
reclassified to area ‘‘A’’ for FYs 2007
through 2009. The hospital accepts this
geographic reclassification for FY 2007.
The hospital also applies for
reclassification to a different area ‘‘B’’
for FYs 2008 through 2010 by
September 1, 2006. If reclassification to
area ‘‘B’’ is denied, the hospital can
either withdraw or terminate its
reclassification to area ‘‘A’’ within 45
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24795
days of publication of the proposed rule
for FY 2008 and receive the home area
wage index for FY 2008 or receive the
reclassification to area ‘‘A’’ for FY 2008.
If the hospital does nothing, it will
receive the area ‘‘A’’ reclassification. If
the hospital’s reclassification
application to area ‘‘B’’ is approved by
the MGCRB, the hospital can (1) do
nothing (and, therefore, receives the
reclassification to area ‘‘B’’ for FY 2008,
permanently terminating the
reclassification to area ‘‘A’’); (2) within
45 days of publication of the notice of
proposed rulemaking, withdraw the
reclassification to area ‘‘B’’ and receive
the reclassification to area ‘‘A’’ for FY
2008 (permanently terminating the
reclassification to area ‘‘B’’); or (3)
withdraw or terminate both the
reclassifications to both areas ‘‘A’’ and
‘‘B’’ and receive the home area wage
index for FY 2008). If the latter option
is selected, the hospital can only
reinstate one of the withdrawn/
terminated reclassifications by
September 1, 2007 (to take effect for FY
2009). Upon the sunset of the 45-day
window, the reclassification selection is
final and the hospital will receive that
wage index for the fiscal year, in this
case for FY 2008.
6. ‘‘Fallback’’ Reclassifications
As indicated in section III.I.3. of this
preamble, the regulations at § 412.273
provide the process that a hospital
wishing to withdraw or terminate a
reclassification must follow. If a
hospital has an existing reclassification
and then applies to the MGCRB to a
second area and is approved, it has a
choice between two reclassifications
and its home area wage index for the
following fiscal year. We have been
asked a procedural question about how
the hospital accepts its previously
approved reclassification (its ‘‘fall back’’
reclassification) or how it can ‘‘fall
back’’ to its home area wage index. As
the example provided in the section
III.I.5. of this preamble illustrates, a
hospital will automatically be given its
most recently approved reclassification
(thereby permanently terminating any
previously approved reclassifications)
unless it provides written notice to the
MGCRB within 45 days of publication of
the notice of proposed rulemaking that
it wishes to withdraw its most recently
approved reclassification and ‘‘fall
back’’ to either its prior reclassification
or its home area wage index for the
following fiscal year. If the hospital
wishes to accept its home area wage
index in preference to its previous ‘‘fall
back’’ reclassification, the hospital must
also state in its request to the MGCRB
that it is not only withdrawing its most
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recently approved reclassification but
also terminating its previously approved
reclassification.
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7. Geographic Reclassification Issues for
Multicampus Hospitals
(If you choose to comments on issues
in this section, please include the
caption ‘‘Multicampus Hospitals’’ at the
beginning of your comment.]
In FY 2005, we modified the
reclassification rules at §
412.230(d)(2)(iii) to allow campuses of
multicampus hospitals located in
separate wage index areas to support a
reclassification application to the
geographic area in which another
campus is located using the average
hourly wage data submitted on the cost
report for the entire hospital. This
special rule applies for applications for
reclassifications effective in FYs 2006
through FY 2008. In the FY 2007 IPPS
final rule, we decided not to extend this
special rule for multicampus hospitals.
However, we believe that the proposed
change to how we allocate a
multicampus hospital’s wage data has
implications for multicampus hospitals’
reclassification requests.
As stated above, we are proposing to
allocate the multicampus hospital’s
wage data across the different labor
market areas where the campuses are
located based upon FTEs. For this
reason, an individual campus located in
a geographic area distinct from the
geographic area associated with the
provider number of the multicampus
hospital will now have published,
hospital-specific wage data that it may
use to support a request for individual
reclassification. The campus’s wage data
will be included in the wage data public
use file and also provided to the
MGCRB. These data will be considered
appropriate wage data under § 412.230,
because it will be part of the CMS
hospital wage survey used to construct
the wage index. We note, that where a
multicampus hospital spanning two or
more geographic areas does not provide
us with appropriate FTE data, its
campus-specific data will not be
included in the public use files we use
to construct the wage index. For this
reason, unless a multicampus hospital
has provided us with FTE data, we will
not have appropriate campus-specific
wage data that could be used to support
an individual reclassification under §
412.230, and the reclassification request
for the individual campus would be
denied. In this sense, our policy
allowing the allocation of wage data
using FTEs is somewhat different from
our prior policy on multicampus
hospitals.
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We note that when a multicampus
hospital’s wage data are divided by
FTEs, the ratio of wages to hours
remains constant. Thus, the effect of our
policy, in some sense, is that the
individual campus of a multicampus
hospital effectively uses the average
hourly wage of the entire multicampus
institution to support its individual
reclassification request. However, as
stated in the paragraph above,
appropriate wage data will exist, only if
the hospital has provided FTE data that
can be used to allocate institution-wide
wages and hours.
Under current policy, an individual
campus of a multicampus hospital
located in a different area than the one
associated with the provider number
does not have to provide any official
wage index data to join a group
reclassification. However, given that we
are allocating a portion of the average
hourly wage of the hospital’s data to the
labor market area that includes this
campus, we are also proposing that this
same data be used as part of a group
reclassification application. Again, these
data will be published in a public use
file and will be considered appropriate
wage data under § § 412.232 and
412.234. If a multicampus hospital
spanning more than one geographic area
has not provided us with FTE data,
then, in accordance with our current
policies for treating hospitals without
official wage data, the individual
campus would still be permitted to join
the group application (and indeed
would be required to join the
application since all hospitals in a
group must join in the application). In
this case, the group application would
omit the wage data from the individual
campus of a multicampus hospital.
8. Redesignations of Hospitals Under
Section 1886(d)(8)(B) of the Act
Beginning October 1, 1988, section
1886 (d)(8)(B) of the Act required us to
treat a hospital located in a rural county
adjacent to one or more urban areas as
being located in the MSA if certain
criteria were met. Prior to FY 2005, the
rule was that a rural county adjacent to
one or more urban areas would be
treated as being located in the MSA to
which the greatest number of workers in
the county commute, if the rural county
would otherwise be considered part of
an urban area under the standards
published in the Federal Register on
January 3, 1980 (45 FR 956) for
designating MSAs (and New England
County Metropolitan Areas (NECMAs)),
and if the commuting rates used in
determining outlying counties (or, for
New England, similar recognized areas)
were determined on the basis of the
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aggregate number of resident workers
who commute to (and, if applicable
under the standards, from) the central
county or counties of all contiguous
MSAs (or NECMAs). Hospitals that met
the criteria using the January 3, 1980
version of these OMB standards were
deemed urban for purposes of the
standardized amounts and for purposes
of assigning the wage data index.
Effective beginning FY 2005, we use
OMB’s 2000 CBSA standards and the
Census 2000 data to identify counties
qualifying for redesignation under
section 1886(d)(8)(B) for the purpose of
assigning the wage index to the urban
area. Hospitals located in these counties
have been known as ‘‘Lugar’’ hospitals
and the counties themselves are often
referred to as ‘‘Lugar’’ counties. We
provide the chart below with the listing
of the rural counties designated as urban
under section 1886(d)(8)(B) of the Act
that we are proposing to use for FY
2008. For discharges occurring on or
after October 1, 2007, hospitals located
in the first column of this chart will be
redesignated for purposes of using the
wage index of the urban area listed in
the second column.
RURAL COUNTIES REDESIGNATED AS
URBAN
UNDER
SECTION
1886(D)(8)(B) OF THE ACT
[Based on CBSAs and Census 2000 Data]
Rural county
Cherokee, AL
Macon, AL ......
Talladega, AL
Hot Springs,
AR.
Windham, CT
Bradford, FL ...
Flagler, FL ......
Hendry, FL .....
Levy, FL .........
Walton, FL .....
Banks, GA ......
Chattooga, GA
Jackson, GA ..
Lumpkin, GA ..
Morgan, GA ...
Peach, GA .....
Polk, GA .........
Talbot, GA ......
Bingham, ID ...
Christian, IL ....
DeWitt, IL .......
Iroquois, IL .....
Logan, IL ........
Mason, IL .......
Ogle, IL ..........
E:\FEDREG\03MYP2.LOC
03MYP2
CBSA
Rome, GA.
Auburn-Opelika, AL.
Anniston-Oxford, AL.
Hot Springs, AR.
Hartford-West Hartford-East
Hartford, CT.
Gainesville, FL.
Deltona-Daytona Beach-Ormond Beach, FL.
West Palm Beach-Boca
Raton-Boynton, FL.
Gainesville, FL.
Fort Walton BeachCrestview-Destin, FL.
Gainesville, GA.
Chattanooga, TN–GA.
Atlanta-Sandy Springs-Marietta, GA.
Atlanta-Sandy Springs-Marietta, GA.
Atlanta-Sandy Springs-Marietta, GA.
Macon, GA.
Atlanta-Sandy Springs-Marietta, GA.
Columbus, GA–AL.
Idaho Falls, ID.
Springfield, IL.
Bloomington-Normal, IL.
Kankakee-Bradley, IL.
Springfield, IL.
Peoria, IL.
Rockford, IL.
Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Proposed Rules
RURAL COUNTIES REDESIGNATED AS
URBAN
UNDER
SECTION
1886(D)(8)(B) OF THE ACT—Continued
RURAL COUNTIES REDESIGNATED AS
URBAN
UNDER
SECTION
1886(D)(8)(B) OF THE ACT—Continued
[Based on CBSAs and Census 2000 Data]
[Based on CBSAs and Census 2000 Data]
Rural county
Rural county
CBSA
Clinton, IN ......
Henry, IN ........
Spencer, IN ....
Starke, IN .......
Warren, IN .....
Boone, IA .......
Buchanan, IA
Cedar, IA ........
Allen, KY ........
Assumption
Parish, LA.
St. James Parish, LA.
Allegan, MI .....
Montcalm, MI
Oceana, MI ....
Shiawassee,
MI.
Tuscola, MI ....
Fillmore, MN ..
Dade, MO ......
Pearl River,
MS.
Caswell, NC ...
Granville, NC
Harnett, NC ....
Lincoln, NC ....
Polk, NC .........
Los Alamos,
NM.
Lyon, NV ........
Cayuga, NY ...
Columbia, NY
Genesee, NY
Greene, NY ....
Schuyler, NY ..
Sullivan, NY ...
Wyoming, NY
Ashtabula, OH
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Champaign,
OH.
Columbiana,
OH.
Cotton, OK .....
Linn, OR .........
Adams, PA .....
Clinton, PA .....
Greene, PA ....
Monroe, PA ....
Schuylkill, PA
Susquehanna,
PA.
Clarendon, SC
Lee, SC ..........
Oconee, SC ...
Union, SC ......
Meigs, TN ......
Bosque, TX ....
Falls, TX .........
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CBSA
Lafayette, IN.
Indianapolis-Carmel, IN.
Evansville, IN–KY.
Gary, IN.
Lafayette, IN.
Ames, IA.
Waterloo-Cedar Falls, IA.
Iowa City, IA.
Bowling Green, KY.
Baton Rouge, LA.
Fannin, TX .....
Grimes, TX .....
Harrison, TX ...
Henderson, TX
Milam, TX .......
Van Zandt, TX
Willacy, TX .....
Buckingham,
VA.
Floyd, VA .......
Baton Rouge, LA.
Middlesex, VA
Holland-Grand Haven, MI.
Grand Rapids-Wyoming, MI.
Muskegon-Norton Shores,
MI.
Lansing-East Lansing, MI.
Page, VA ........
Shenandoah,
VA.
Island, WA .....
Saginaw-Saginaw Township
North, MI.
Rochester, MN.
Springfield, MO.
Gulfport-Biloxi, MS.
Burlington, NC.
Durham, NC.
Raleigh-Cary, NC.
Charlotte-Gastonia-Concord,
NC–SC.
Spartanburg, NC.
Santa Fe, NM.
Carson City, NV.
Syracuse, NY.
Albany-Schenectady-Troy,
NY.
Rochester, NY.
Albany-Schenectady-Troy,
NY.
Ithaca, NY.
Poughkeepsie-NewburghMiddletown, NY.
Buffalo-Niagara Falls, NY.
Cleveland-Elyria-Mentor,
OH.
Springfield, OH.
Youngstown-WarrenBoardman, OH–PA.
Lawton, OK.
Corvallis, OR.
York-Hanover, PA.
Williamsport, PA.
Pittsburgh, PA.
Allentown-Bethlehem-Easton, PA–NJ.
Reading, PA.
Binghamton, NY.
Sumter, SC.
Sumter, SC.
Greenville, SC.
Spartanburg, SC.
Cleveland, TN.
Waco, TX.
Waco, TX.
02:00 Aug 26, 2011
Jkt 223001
Mason, WA ....
Wahkiakum,
WA.
Jackson, WV ..
Roane, WV ....
Green, WI ......
Green Lake,
WI.
Jefferson, WI ..
Walworth, WI
Dallas-Plano-Irving, TX.
College Station-Bryan, TX.
Longview, TX.
Dallas-Plano-Irving, TX.
Austin-Round Rock, TX.
Dallas-Plano-Irving, TX.
Brownsville-Harlingen, TX.
Charlottesville, VA.
Blacksburg-ChristiansburgRadford, VA.
Virginia Beach-Norfolk-Newport News, VA.
Harrisonburg, VA.
Winchester, VA–WV.
Seattle-Bellevue-Everett,
WA.
Olympia, WA.
Longview, WA.
Charleston, WV.
Charleston, WV.
Madison, WI.
Fond du Lac, WI.
Milwaukee-Waukesha-West
Allis, WI.
Milwaukee-Waukesha-West
Allis, WI.
As in the past, hospitals redesignated
under section 1886(d)(8)(B) of the Act
are also eligible to be reclassified to a
different area by the MGCRB. Affected
hospitals are permitted to compare the
reclassified wage index for the labor
market area in Table 4C in the
Addendum to this proposed rule into
which they have been reclassified by the
MGCRB to the wage index for the area
to which they are redesignated under
section 1886(d)(8)(B) of the Act.
Hospitals may withdraw from an
MCGRB reclassification within 45 days
of the publication of this proposed rule.
9. Reclassifications Under Section
1886(d)(8)(B) of the Act
We have been asked whether Lugar
hospitals and counties (discussed above
in section III.H.8. of this preamble) are
considered urban or rural for MGCRB
reclassification purposes. As stated in
the regulations at 42 CFR 412.64(b)(3),
as well as in section 1886(d)(8)(C) of the
Act, Lugar hospitals and counties are
deemed to be located in an urban area.
Therefore, because they are physically
located in a rural area and are deemed
urban, they receive the reclassified wage
index (Table 4C in the Addendum to
this proposed rule) for the urban area to
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24797
which they have been redesignated.
Because Lugar hospitals are treated like
reclassified hospitals, when they are
seeking reclassification by the MCGRB,
they are subject to the rural
reclassification rules set forth at §
412.230. The procedural rules set forth
at § 412.230 list the criteria which a
hospital must meet in order to reclassify
as a rural hospital. Lugar hospitals
would be subject to the proximity
criteria and payment thresholds that
apply to rural hospitals. Specifically,
the hospital would have to be no more
than 35 miles from the area to which it
seeks reclassification (§ 412.230(b)(1));
the hospital would have to show that its
average hourly wage is at least 106
percent of the average hourly wage of all
other hospitals in the area in which the
hospital is located (§
412.230(d)(1)(iii)(C)); and the hospital
would have to demonstrate that its
average hourly wage is equal to at least
82 percent of the average hourly wage
of hospitals in the area to which it seeks
redesignation (§ 412.230(d)(1)(iv)(C)).
Hospitals not located in a Lugar
county seeking reclassification to the
urban area where the Lugar hospitals
have been redesignated are not
permitted to measure to the Lugar
county to demonstrate proximity (no
more than 15 miles for an urban
hospital, and no more than 35 miles for
a rural hospital or the closest urban or
rural area for RRCs or SCHs) in order to
be reclassified to such urban area. These
hospitals must measure to the urban
area exclusive of the Lugar County to
meet the proximity or nearest urban or
rural area requirement.
10. New England Deemed Counties
Our regulations at 42 CFR
412.64(b)(1)(ii)(B) list New England
counties that are deemed to be parts of
urban areas under section 601(g) of the
Social Security Amendments of 1983
(Pub. L. 98–21, 42 U.S.C.
1395ww(note)). These counties include
Litchfield County, Connecticut; York
County, Maine; Sagadahoc County,
Maine; Merrimack County, New
Hampshire; and Newport County,
Rhode Island. OMB standards designate
and define two categories of CBSAs:
Metropolitan Statistical Areas (MSAs)
and Micropolitan Statistical Areas (65
FR 82235). For our labor market area
definitions, we treat micropolitan areas
as rural.
Of these five counties, three (York
County, Sagadahoc County, and
Newport County) are also included in
metropolitan areas by OMB, whereas the
remaining two, Litchfield County and
Merrimack County, are located in
micropolitan statistical areas and would
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be treated as rural under our labor
market area definitions were they not
deemed urban under §
412.64(b)(1)(ii)(B) of the regulations.
Litchfield County and Merrimack
County have been listed as being part of
urban CBSA 25540 Hartford-West
Hartford-East Hartford, CT, and urban
CBSA 31700 Manchester-Nashua, NH,
respectively. Even though hospitals
located in Litchfield County and
Merrimack County are in micropolitan
statistical areas, they have been treated
as urban for reclassification purposes.
Under our regulations, we have deemed
both of these two New England counties
and the hospitals within them as urban.
Because the counties themselves were
deemed urban, the hospitals within
them have also been treated as urban for
reclassification purposes, even though
Litchfield and Merrimack counties are
in micropolitan statistical areas.
However, upon further consideration of
this issue, we believe the hospitals
located within these New England
counties should be treated the same as
Lugar hospitals. That is, the area would
be considered rural but the hospitals
within them would be deemed to be
urban. Therefore, we are proposing to
change our policy and consider
Litchfield County and Merrimack
County as rural but would continue to
consider the hospitals within them as
being redesignated to urban CBSA
25540 Hartford-West Hartford-East
Hartford, CT, and urban CBSA 31700
Manchester-Nashua, NH, respectively.
Under our proposal, hospitals located in
these counties—like the Lugar hospitals
described in section III.I.8. of this
preamble—must meet the rural
requirements set forth at § 412.230 for
individual reclassifications and §
412.232 for group reclassifications. We
are proposing to revise §
412.64(b)(1)(ii)(B) accordingly.
Hospitals not located inside one of these
deemed New England counties are not
permitted to measure to these counties
to demonstrate close proximity in order
to be reclassified to the CBSA(s) to
which the hospitals in Litchfield and
Merrimack counties are redesignated.
We note that Tables 2, 3A, 3B, 4A, and
4B in the Addendum to this proposed
rule do not reflect this proposed change;
rather, they reflect the wage index based
on the current policy.
11. Reclassifications Under Section 508
of Pub. L. 108–173
(If you choose to comment on issues
in this section, please include the
caption ‘‘508 Reclassifications’’ at the
beginning of your comment.)
Under section 508 of Pub. L. 108–173,
a qualifying hospital could appeal the
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02:00 Aug 26, 2011
Jkt 223001
wage index classification otherwise
applicable to the hospital and apply for
reclassification to another area of the
State in which the hospital is located
(or, at the discretion of the Secretary, to
an area within a contiguous State). We
implemented this process through
notices published in the Federal
Register on January 6, 2004 (69 FR 661),
and February 13, 2004 (69 FR 7340).
Such reclassifications were applicable
to discharges occurring during the 3year period beginning April 1, 2004, and
ending March 31, 2007. Section 106(a)
of the MIEA–TRHCA (Pub. L. 109–432),
extended any geographic
reclassifications of hospitals that were
made under section 508 and that would
expire on March 31, 2007, by 6 months
until September 30, 2007. On March 23,
2007, we published a notice in the
Federal Register (72 FR 13799) that
indicated how we are implementing
section 106(a) of the MIEA–TRHCA
through September 30, 2007. Because
the section 508 provision will expire on
September 30, 2007, and will not be
applicable in FY 2008, in this proposed
rule, we are not making any proposals
related to the provision.
12. Other Issues
We have been advised of a
reclassification scenario of concern to a
particular hospital. In this scenario, two
hospitals were approved by the
Medicare Geographic Classification
Review Board (MGCRB) for a 3-year
group reclassification. Prior to the
second year of the 3-year
reclassification, one of the hospitals
reclassified individually to another area.
Consistent with our policy, the second
hospital retained its group geographic
reclassification for the two remaining
years (see 66 FR 39888, August 1, 2001).
However, once the group
reclassification expires, the second
hospital does not qualify to reclassify
individually to another area. We have
been asked to consider potential
regulatory options that would allow this
hospital to either reclassify or receive a
declining blend of its home area and
reclassified wage index as a transition to
its post-reclassified wage index.
There are no options under our
current regulations that would allow
this hospital to reclassify individually
or as a group. The hospital does not
meet the well established wage data
comparison criteria to reclassify as an
individual hospital. In order for a group
reclassification to be approved, all
hospitals in the county must apply as a
group. We have been informed that one
hospital will not join the group
reclassification because it qualifies
individually to reclassify to a different
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area with a higher wage index than
where the group applied.
We considered whether to change our
regulations for this type of situation.
However, we decided not to propose a
change to our regulations given the need
to gather additional information and
better understand the policy issues in
such a case. In this regard, we would be
interested in receiving comments on
whether such a situation is consistent
with the purpose of reclassification. In
particular, we would like to receive
comments on how a hospital that is
applying to reclassify would
demonstrate similarity to hospitals in
the neighboring area when the hospital
would qualify to be part of a group
reclassification if all other hospitals in
the county the hospital is located agreed
to apply.
In addition, we would be interested in
comments on how we could make a
determination that a hospitals own area
wage index is inappropriate when the
hospital does not meet the current
criteria for reclassification on its own,
but would meet the criteria for a group
reclassification in the event all hospitals
in the county in which the hospital is
located would agree to submit a group
application. Finally, given that
reclassifications are in effect for three
years, we request comments on whether
or how we could address this situation
while simultaneously maintaining the
distinction between group and
individual reclassifications—
particularly the rule that all members of
a group must apply for a group
reclassification.
For all the above reasons, we decided,
as noted, not to propose changes to the
regulations to address the situation
brought to our attention. Rather, we
think it is appropriate to gather
additional information and seek
comment on this or similar situations. If
commenters wish to raise issues with
the points described in this section or
comment on other issues we did not
consider in the questions raised above,
we welcome such public comments.
J. Proposed FY 2008 Wage Index
Adjustment Based on Commuting
Patterns of Hospital Employees
(If you choose to comment on issues
in this section, please include the
caption ‘‘Out-Migration Adjustment’’ at
the beginning of your comment.)
In accordance with the broad
discretion under section 1886(d)(13) of
the Act, as added by section 505 of Pub.
L. 108–173, beginning with FY 2005, we
established a process to make
adjustments to the hospital wage index
based on commuting patterns of
hospital employees. The process,
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Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Proposed Rules
outlined in the FY 2005 IPPS final rule
(69 FR 49061), provides for an increase
in the wage index for hospitals located
in certain counties that have a relatively
high percentage of hospital employees
who reside in the county but work in a
different county (or counties) with a
higher wage index. Such adjustments to
the wage index are effective for 3 years,
unless a hospital requests to waive the
application of the adjustment. A county
will not lose its status as a qualifying
county due to wage index changes
during the 3-year period, and counties
will receive the same wage index
increase for those 3 years. However, a
county that qualifies in any given year
may no longer qualify after the 3-year
period, or it may qualify but receive a
different adjustment to the wage index
level. Hospitals that receive this
adjustment to their wage index are not
eligible for reclassification under
section 1886(d)(8) or section 1886(d)(10)
of the Act. Adjustments under this
provision are not subject to the budget
neutrality requirements under section
1886(d)(3)(E) of the Act.
Hospitals located in counties that
qualify for the wage index adjustment
are to receive an increase in the wage
index that is equal to the average of the
differences between the wage indices of
the labor market area(s) with higher
wage indices and the wage index of the
resident county, weighted by the overall
percentage of hospital workers residing
in the qualifying county who are
employed in any labor market area with
a higher wage index. To date, we have
used pre-reclassified wage indices when
determining the out-migration
adjustment. In the FY 2005 IPPS final
rule (69 FR 49061 through 49063), we
stated that it was reasonable to interpret
the term ‘‘wage index’’ in section
1886(d)(13)(D) of the Act to mean the
pre-reclassified, pre-adjusted wage
index. At the time, we stated that it was
unclear whether to use the pre- or postreclassified wage index as the basis for
comparison to determine the outmigration adjustment. We also cited
complicating factors such as the use of
blended wage indices as a result of the
labor market area transition as another
reason to base the out-migration
adjustment on the pre-reclassified wage
index. However, we indicated that we
will continue to examine the possibility
of employing post-reclassification wage
indexes as we refine our policy for
future adjustments.
We have reconsidered our policy in
this proposed rule and are proposing to
calculate the out-migration adjustment
using the post-reclassified wage index.
First, the labor-market area transition
has ended and the use of blended wage
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indexes is no longer a complicating
factor in determining whether to use
pre- or post-reclassified wage indexes to
determine the out-migration adjustment.
Second, we are proposing to apply
budget neutrality for application of the
rural floor to area wage indices rather
than to the standardized amount
beginning in FY 2008. The budget
neutrality adjustment for the rural floor
is being applied to the postreclassification wage indices and is a
component of the wage index that is
being used to adjust for area differences
in wages. Therefore, we believe the outmigration adjustment should be
determined using post-reclassified wage
index that reflects the budget neutrality
adjustment for application of the rural
floor.
We are proposing to use the same
formula described in the FY 2005 final
rule (69 FR 49064), with the addition of
now using the post-reclassified wage
indices, to calculate the out-migration
adjustment. This adjustment is
calculated as follows:
Step 1. Subtract the wage index for
the qualifying county from the wage
index of each of the higher wage area(s)
to which hospital workers commute.
Step 2. Divide the number of hospital
employees residing in the qualifying
county who are employed in such
higher wage index area by the total
number of hospital employees residing
in the qualifying county who are
employed in any higher wage index
area. For each of the higher wage areas,
multiply this result by the result
obtaining in Step 1.
Step 3. Sum the products resulting
from Step 2 (if the qualifying county has
workers commuting to more than one
higher wage area).
Step 4. Multiply the result from Step
3 by the percentage of hospital
employees who are residing in the
qualifying county and who are
employed in any higher wage index
area.
These adjustments will be effective
for each county for a period of 3 fiscal
years. Hospitals that received the
adjustment in FY 2007 will be eligible
to retain that same adjustment for FY
2008. For hospitals in newly qualified
counties, adjustments to the wage index
are effective for 3 years, beginning with
discharges occurring on or after October
1, 2007.
Hospitals receiving the wage index
adjustment under section 1886(d)(13)(F)
of the Act are not eligible for
reclassification under sections
1886(d)(8) or (d)(10) of the Act unless
they waive the out-migration
adjustment. Consistent with our FY
2005, 2006, and 2007 final rules, we are
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24799
proposing that hospitals redesignated
under section 1886(d)(8) of the Act or
reclassified under section 1886(d)(10) of
the Act will be deemed to have chosen
to retain their redesignation or
reclassification. Section 1886(d)(10)
hospitals that wish to receive the outmigration adjustment, rather than their
reclassification, should follow the
termination/withdrawal procedures
specified in 42 CFR 412.273 and section
III.I.3. of the preamble of this proposed
rule. Otherwise, they will be deemed to
have waived the out-migration
adjustment. Hospitals redesignated
under section 1886(d)(8) of the Act will
be deemed to have waived the outmigration adjustment, unless they
explicitly notify CMS that they elect to
receive the out-migration adjustment
instead within 45 days from the
publication of this proposed rule. These
notifications should be sent to the
following address: Centers for Medicare
and Medicaid Services, Center for
Medicare Management, Attention: Wage
Index Adjustment Waivers, Division of
Acute Care, Room C4–08–06, 7500
Security Boulevard, Baltimore, MD
21244–1850.
Table 4J in the Addendum to this
proposed rule lists the proposed outmigration wage index adjustments for
FY 2008. Hospitals that are not
otherwise reclassified or redesignated
under section 1886(d)(8) or section
1886(d)(10) of the Act will
automatically receive the listed
adjustment. In accordance with the
procedures discussed above,
redesignated/reclassified hospitals will
be deemed to have waived the outmigration adjustment unless CMS is
otherwise notified. Hospitals that are
eligible to receive the out-migration
wage index adjustment and that
withdraw their application for
reclassification automatically receive
the wage index adjustment listed in
Table 4J in the Addendum to this
proposed rule. Hospitals should
carefully review the wage index
adjustment that they would receive
under this provision (as listed in Table
4J) and the area wage index value as
listed in Table 4A (both included in the
Addendum to this proposed rule) in
comparison to the wage index value that
they would receive under the MGCRB
reclassification (Table 4C in the
Addendum to this proposed rule).
K. Process for Requests for Wage Index
Data Corrections
(If you choose to comment on issues
in this section, please include the
caption ‘‘Wage Index Data Corrections’’
at the beginning of your comment.)
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The preliminary Worksheet S–3 wage
data and occupational mix survey data
files (1st and 2nd quarter 2006) for the
FY 2008 wage index were made
available on October 6, 2006, through
the Internet on the CMS Web site at:
https://cms.hhs.gov/AcuteInpatientPPS/.
In a memorandum dated October 6,
2006, we instructed all fiscal
intermediaries to inform the IPPS
hospitals they service of the availability
of the wage index data files and the
process and timeframe for requesting
revisions (including the specific
deadlines listed below). We also
instructed the fiscal intermediaries to
advise hospitals that these data are also
made available directly through their
representative hospital organizations.
If a hospital wished to request a
change to its data as shown in the
October 6, 2006 wage and occupational
mix data files, the hospital was to
submit corrections along with complete,
detailed supporting documentation to
its fiscal intermediary by December 4,
2006. Hospitals were notified of this
deadline and of all other possible
deadlines and requirements, including
the requirement to review and verify
their data as posted on the preliminary
wage index data file on the Internet,
through the October 6, 2006
memorandum referenced above.
In the October 6, 2006 memorandum,
we also specified that a hospital could
request revisions to 1st and/or 2nd
quarter occupational mix survey data if
they missed the previous deadlines
(June 1, 2006, for the 1st quarter data
collection and August 31, 2006, for the
2nd quarter collection) for submitting
occupational mix survey data to their
fiscal intermediaries. A hospital
requesting revisions to its 1st and/or
2nd quarter occupational mix survey
data was to copy its record(s) from the
CY 2006 occupational mix preliminary
files posted to our website in October,
highlight the revised cells on its
spreadsheet, and submit its
spreadsheet(s) and complete
documentation to its fiscal intermediary
no later than December 4, 2006.
The fiscal intermediaries (or, if
applicable, the MAC) notified the
hospitals by mid-February 2007 of any
changes to the wage index data as a
result of the desk reviews and the
resolution of the hospitals’ earlyDecember revision requests. The fiscal
intermediaries or MAC also submitted
the revised data to CMS by midFebruary 2007. CMS published the
proposed wage index public use files
that included hospitals’ revised wage
data on February 23, 2007. In a
memorandum also dated February 23,
2007, we instructed fiscal
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Jkt 223001
intermediaries and the MAC to notify all
hospitals regarding the availability of
the proposed wage index public use
files and the criteria and process for
requesting corrections and revisions to
the wage index data. Hospitals had until
March 12, 2007 to submit requests to the
fiscal intermediaries or the MAC for
reconsideration of adjustments made by
the fiscal intermediaries or the MAC as
a result of the desk review, and to
correct errors due to CMS’s or the fiscal
intermediary’s (or, if applicable, the
MAC’s) mishandling of the wage index
data. Hospitals were also required to
submit sufficient documentation to
support their requests.
After reviewing requested changes
submitted by hospitals, fiscal
intermediaries or the MAC are to
transmit any additional revisions
resulting from the hospitals’
reconsideration requests by April 13,
2007. The deadline for a hospital to
request CMS intervention in cases
where the hospital disagreed with the
fiscal intermediary’s (or, if applicable,
the MAC’s) policy interpretations is
April 20, 2007.
Hospitals should also examine Table
2 in the Addendum to this proposed
rule. Table 2 of this proposed rule
contained each hospital’s adjusted
average hourly wage used to construct
the wage index values for the past 3
years, including the FY 2004 data used
to construct the proposed FY 2008 wage
index. We note that the hospital average
hourly wages shown in Table 2 only
reflect changes made to a hospital’s data
and transmitted to CMS by February 21,
2007.
We will release the final wage index
data public use files in early May 2007
on the Internet at http:/
www.cms.hhs.gov/AcuteInpatientPPS/.
The May 2007 public use files will be
made available solely for the limited
purpose of identifying any potential
errors made by CMS or the fiscal
intermediary or MAC in the entry of the
final wage index data that result from
the correction process described above
(revisions submitted to CMS by the
fiscal intermediaries or the MAC by
April 13, 2007). If, after reviewing the
May 2007 final files, a hospital believes
that its wage or occupational mix data
are incorrect due to a fiscal intermediary
or MAC or CMS error in the entry or
tabulation of the final data, the hospital
should send a letter to both its fiscal
intermediary or MAC and CMS that
outlines why the hospital believes an
error exists and to provide all
supporting information, including
relevant dates (for example, when it first
became aware of the error). CMS and the
fiscal intermediaries (or, if applicable,
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the MAC) must receive these requests
no later than June 08, 2007. Requests
mailed to CMS should be sent to:
Centers for Medicare & Medicaid
Services, Center for Medicare
Management, Attention: Wage Index
Team, Division of Acute Care, C4–08–
06, 7500 Security Boulevard, Baltimore,
MD 21244–1850.
Each request also must be sent to the
fiscal intermediary or the MAC. The
fiscal intermediary or the MAC will
review requests upon receipt and
contact CMS immediately to discuss its
findings.
At this point in the process, that is,
after the release of the May 2007 wage
index data files, changes to the wage
and occupational mix data will only
made in those very limited situations
involving an error by the fiscal
intermediary or the MAC or CMS that
the hospital could not have known
about before its review of the final wage
index data files. Specifically, neither the
fiscal intermediary or the MAC nor CMS
will approve the following types of
requests:
<bullet≤ Requests for wage index data
corrections that were submitted too late
to be included in the data transmitted to
CMS by fiscal intermediaries or the
MAC on or before April 13, 2007.
<bullet≤ Requests for correction of
errors that were not, but could have
been, identified during the hospital’s
review of the February 23, 2007 wage
index public use files.
<bullet≤ Requests to revisit factual
determinations or policy interpretations
made by the fiscal intermediary or the
MAC or CMS during the wage index
data correction process.
Verified corrections to the wage index
data received timely by CMS and the
fiscal intermediaries or the MAC (that
is, by June 08, 2007) will be
incorporated into the final wage index
to be published by August 1, 2007, to be
effective October 1, 2007.
We created the processes described
above to resolve all substantive wage
index data correction disputes before we
finalize the wage and occupational mix
data for the FY 2008 payment rates.
Accordingly, hospitals that do not meet
the procedural deadlines set forth above
will not be afforded a later opportunity
to submit wage index data corrections or
to dispute the fiscal intermediary’s (or,
if applicable the MAC’s) decision with
respect to requested changes.
Specifically, our policy is that hospitals
that do not meet the procedural
deadlines set forth above will not be
permitted to challenge later, before the
Provider Reimbursement Review Board,
the failure of CMS to make a requested
data revision. (See W.A. Foote Memorial
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Hospital v. Shalala, No. 99–CV–75202–
DT (E.D. Mich. 2001) and Palisades
General Hospital v. Thompson, No. 99–
1230 (D.D.C. 2003.) We refer the reader
also to the FY 2000 final rule (64 FR
41513) for a discussion of the
parameters for appealing to the PRRB
for wage index data corrections.
Again, we believe the wage index data
correction process described above
provides hospitals with sufficient
opportunity to bring errors in their wage
and occupational mix data to the fiscal
intermediary’s (or, if applicable, the
MAC’s) attention. Moreover, because
hospitals will have access to the final
wage index data by early May 2007,
they have the opportunity to detect any
data entry or tabulation errors made by
the fiscal intermediary or the MAC or
CMS before the development and
publication of the final FY 2008 wage
index by August 1, 2007, and the
implementation of the FY 2008 wage
index on October 1, 2007. If hospitals
avail themselves of the opportunities
afforded to provide and make
corrections to the wage and
occupational mix data, the wage index
implemented on October 1 should be
accurate. Nevertheless, in the event that
errors are identified by hospitals and
brought to our attention after June 08,
2007, we retain the right to make
midyear changes to the wage index
under very limited circumstances.
Specifically, in accordance with §
412.64(k)(1) of our existing regulations,
we make midyear corrections to the
wage index for an area only if a hospital
can show that: (1) The fiscal
intermediary or the MAC or CMS made
an error in tabulating its data; and (2)
the requesting hospital could not have
known about the error or did not have
an opportunity to correct the error,
before the beginning of the fiscal year.
For purposes of this provision, ‘‘before
the beginning of the fiscal year’’ means
by the June deadline for making
corrections to the wage data for the
following fiscal year’s wage index. This
provision is not available to a hospital
seeking to revise another hospital’s data
that may be affecting the requesting
hospital’s wage index for the labor
market area. As indicated earlier, since
CMS makes the wage index data
available to hospitals on the CMS Web
site prior to publishing both the
proposed and final IPPS rules, and the
fiscal intermediaries or the MAC notify
hospitals directly of any wage index
data changes after completing their desk
reviews, we do not expect that midyear
corrections will be necessary. However,
under our current policy, if the
correction of a data error changes the
wage index value for an area, the
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revised wage index value will be
effective prospectively from the date the
correction is made.
In the FY 2006 IPPS final rule (70 FR
47385), we revised § 412.64(k)(2) to
specify that, effective on October 1,
2005, that is beginning with the FY 2006
wage index, a change to the wage index
can be made retroactive to the beginning
of the Federal fiscal year only when: (1)
the fiscal intermediary (or, if applicable,
the MAC) or CMS made an error in
tabulating data used for the wage index
calculation; (2) the hospital knew about
the error and requested that the fiscal
intermediary (or if applicable the MAC)
and CMS correct the error using the
established process and within the
established schedule for requesting
corrections to the wage index data,
before the beginning of the fiscal year
for the applicable IPPS update (that is,
by the June 08, 2007 deadline for the FY
2008 wage index); and (3) CMS agreed
that the fiscal intermediary (or if
applicable, the MAC) or CMS made an
error in tabulating the hospital’s wage
index data and the wage index should
be corrected.
In those circumstances where a
hospital requests a correction to its wage
index data before CMS calculates the
final wage index (that is, by the June
deadline), and CMS acknowledges that
the error in the hospital’s wage index
data was caused by CMS’s or the fiscal
intermediary’s (or, if applicable, the
MAC’s) mishandling of the data, we
believe that the hospital should not be
penalized by our delay in publishing or
implementing the correction. As with
our current policy, we indicated that the
provision is not be available to a
hospital seeking to revise another
hospital’s data. In addition, the
provision cannot be used to correct
prior years’ wage index data; it can only
be used for the current Federal fiscal
year. In other situations where our
policies would allow midyear
corrections, we continue to believe that
it is appropriate to make prospectiveonly corrections to the wage index.
We note that, as with prospective
changes to the wage index, the final
retroactive correction will be made
irrespective of whether the change
increases or decreases a hospital’s
payment rate. In addition, we note that
the policy of retroactive adjustment will
still apply in those instances where a
judicial decision reverses a CMS denial
of a hospital’s wage index data revision
request.
L. Labor-Related Share for the Proposed
Wage Index for FY 2008
(If you choose to comment on issues
in this section, please include the
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caption ‘‘Labor-Related Share’’ at the
beginning of your comment.)
Section 1886(d)(3)(E) of the Act
directs the Secretary to adjust the
proportion of the national prospective
payment system base payment rates that
are attributable to wages and wagerelated costs by a factor that reflects the
relative differences in labor costs among
geographic areas. It also directs the
Secretary to estimate from time to time
the proportion of hospital costs that are
labor-related: ‘‘The Secretary shall
adjust the proportion (as estimated by
the Secretary from time to time) of
hospitals’ costs which are attributable to
wages and wage-related costs of the
DRG prospective payment rates* * *’’
We refer to the portion of hospital costs
attributable to wages and wage-related
costs as the labor-related share. The
labor-related share of the prospective
payment rate is adjusted by an index of
relative labor costs, which is referred to
as the wage index.
Section 403 of Pub. L. 108–173
amended section 1886(d)(3)(E) of the
Act to provide that the Secretary must
employ 62 percent as the labor-related
share unless this ‘‘would result in lower
payments to a hospital than would
otherwise be made.’’ However, this
provision of Pub. L. 108–173 did not
change the legal requirement that the
Secretary estimate ‘‘from time to time’’
the proportion of hospitals’ costs that
are ‘‘attributable to wages and wagerelated costs.’’ We believe that this
reflected Congressional intent that
hospitals receive payment based on
either a 62-percent labor-related share,
or the labor-related share estimated from
time to time by the Secretary, depending
on which labor-related share resulted in
a higher payment.
We have continued our research into
the assumptions employed in
calculating the labor-related share. Our
research involves analyzing the
compensation share separately for urban
and rural hospitals, using regression
analysis to determine the proportion of
costs influenced by the area wage index,
and exploring alternative methodologies
to determine whether all or only a
portion of professional fees and
nonlabor intensive services should be
considered labor-related.
In the FY 2006 IPPS final rule (70 FR
47392), we presented our analysis and
conclusions regarding the frequency and
methodology for updating the laborrelated share for FY 2006. We also
recalculated a labor-related share of
69.731 percent, using the FY 2002-based
PPS market basket for discharges
occurring on or after October 1, 2005. In
addition, we implemented this revised
and rebased labor-related share in a
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budget neutral manner, but consistent
with section 1886(d)(3)(E) of the Act, we
did not take into account the additional
payments that would be made as a
result of hospitals with a wage index
less than or equal to 1.0 being paid
using a labor-related share lower than
the labor-related share of hospitals with
a wage index greater than 1.0.
The labor-related share is used to
determine the proportion of the national
PPS base payment rate to which the area
wage index is applied. In this proposed
rule, we are not proposing to make any
changes to the national average
proportion of operating costs that are
attributable to wages and salaries, fringe
benefits, professional fees, contract
labor, and labor intensive services.
Therefore, we are proposing to continue
to use a labor-related share of 69.731
percent for discharges occurring on or
after October 1, 2007. Tables 1A and 1B
will reflect this proposed labor-related
share. We note that section 403 of Pub.
L. 108–173 amended sections
1886(d)(3)(E) and 1886(d)(9)(C)(iv) of
the Act to provide that the Secretary
must employ 62 percent as the laborrelated share unless this employment
‘‘would result in lower payments to a
hospital than would otherwise be
made.’’
We also are proposing to continue to
use a labor-related share for the Puerto
Rico-specific standardized amounts of
58.7 percent for discharges occurring on
or after October 1, 2007. Consistent with
our methodology for determining the
national labor-related share, we added
the Puerto Rico-specific relative weights
for wages and salaries, fringe benefits,
contract labor, nonmedical professional
fees, and other labor-intensive services
to determine the labor-related share.
Puerto Rico hospitals are paid based on
75 percent of the national standardized
amounts and 25 percent of the Puerto
Rico-specific standardized amounts. For
Puerto Rico hospitals, the national
labor-related share will always be 62
percent because the wage index for all
Puerto Rico hospitals is less than 1.0. A
Puerto Rico-specific wage index is
applied to the Puerto Rico-specific
portion of payments to the hospitals.
The labor-related share of a hospital’s
Puerto Rico-specific rate will be either
62 percent or the Puerto Rico-specific
labor-related share depending on which
results in higher payments to the
hospital. If the hospital has a Puerto
Rico-specific wage index of greater than
1.0, we will set the hospital’s rates using
a labor-related share of 62 percent for
the 25 percent portion of the hospital’s
payment determined by the Puerto Rico
standardized amounts because this
amount will result in higher payments.
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Conversely, a hospital with a Puerto
Rico-specific wage index of less than 1.0
will be paid using the Puerto Ricospecific labor-related share of 58.7
percent of the Puerto Rico-specific rates
because the lower labor-related share
will result in higher payments. The
Puerto Rico labor-related share of 58.7
percent for FY 2007 is reflected in the
Table 1C of the Addendum to this
proposed rule.
M. Wage Index Study Required Under
Pub. L. 109–432
Section 106(b)(1) of the MIEA–
TRHCA (Pub. L. 109–432) requires
MedPAC to submit to Congress, not later
than June 30, 2007, a report on the
Medicare wage index classification
system applied under the Medicare
Prospective Payment System. Section
106(b) of MIEA–TRHCA requires the
report to include any alternatives that
MedPAC recommends to the method to
compute the wage index under section
1886(d)(3)(E) of the Act.
In addition, section 106(b)(2) of Pub.
L. 109–432 instructs the Secretary of
Health and Human Services, taking into
account MedPAC’s recommendations on
the Medicare wage index classification
system, to include in the FY 2009 IPPS
proposed rule one or more proposals to
revise the wage index adjustment
applied under section 1886(d)(3)(E) of
the Act for purposes of the IPPS. The
proposal (or proposals) must consider
each of the following:
<bullet≤ Problems associated with the
definition of labor markets for the wage
index adjustment;
<bullet≤ The modification or
elimination of geographic
reclassifications and other adjustments;
<bullet≤ The use of Bureau of Labor
of Statistics data or other data or
methodologies to calculate relative
wages for each geographic area;
<bullet≤ Minimizing variations in
wage index adjustments between and
within MSAs and statewide rural areas;
<bullet≤ The feasibility of applying all
components of CMS’ proposal to other
settings;
<bullet≤ Methods to minimize the
volatility of wage index adjustments
while maintaining the principle of
budget neutrality;
<bullet≤ The effect that the
implementation of the proposal would
have on health care providers on each
region of the country;
<bullet≤ Methods for implementing
the proposal(s) including methods to
phase in such implementations; and
<bullet≤ Issues relating to
occupational mix such as staffing
practices and any evidence on quality of
care and patient safety including any
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recommendation for alternative
calculations to the occupational mix.
We look forward to reviewing the
MedPAC report on the wage index later
this year. As required by the law, we
will consider MedPAC’s
recommendations and each of the
factors specified above in making a
proposal (or proposals) in the FY 2009
IPPS proposed rule.
N. Proxy for the Hospital Market Basket
(If you choose to comment on issues
in this section, please include the
caption ‘‘Hospital Market Basket’’ at the
beginning of your comment.)
In the FY 2006 IPPS final rule (70 FR
47387), we changed the base year cost
structure for the IPPS hospital index for
the hospital market basket for operating
costs from FY 1997 to FY 2002. As
discussed in that final rule, the IPPS
hospital index primarily uses the BLS
data as price proxies, which are grouped
in one of the three BLS categories. The
categories are Producer Price Indexes
(PPIs), Consumer Price Indexes (CPIs),
and Employment Cost Indexes (ECIs),
discussed in detail in the FY 2006 IPPS
final rule (70 FR 47388 through 47391).
We evaluate the price proxies using the
criteria of reliability, timeliness,
availability, and relevance. The PPIs,
CPIs, and ECIs selected by us and used
for this proposed rule meet these criteria
as described in the FY 2006 IPPS final
rule. We believe they continue to be the
best measures of price changes for the
cost categories.
Beginning April 2006 with the
publication of March 2006 data, the
BLS’ ECI began using a different
classification system, the North
American Industrial Classification
System (NAICS), instead of the Standard
Industrial Codes (SIC), which no longer
exists. We have consistently used the
ECI as the data source for our wages and
salaries and other price proxies in the
IPPS market basket and are not making
any changes to the usage at this time.
Thus, we propose to use the BLS–
NAICS-based ECIs as price proxies in
the market basket.
IV. Other Decisions and Proposed
Changes to the IPPS for Operating Costs
and GME Costs
A. Reporting of Hospital Quality Data
for Annual Hospital Payment Update (§
412.64(d)(2))
(If you choose to comment on issues
in this section, please include the
caption ‘‘Hospital Quality Data’’ at the
beginning of your comment.)
1. Background
Section 5001(a) of the Deficit
Reduction Act of 2005, Pub. L. 109–171
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(DRA), set out new requirements for the
Reporting Hospital Quality Data for
Annual Payment Update (RHQDAPU)
program. We established the RHQDAPU
program in order to implement section
501(b) of Pub. L. 108–173. It builds on
our ongoing voluntary Hospital Quality
Initiative which is intended to empower
consumers with quality of care
information to make more informed
decisions about their health care while
also encouraging hospitals and
clinicians to improve their quality of
care.
Section 5001(a) of the DRA revised
the mechanism used to update the
standardized amount for payment for
hospital inpatient operating costs.
Specifically, sections
1886(b)(3)(B)(viii)(I) and (II) of the Act
provide that the payment update for FY
2007 and each subsequent fiscal year
will be reduced by 2.0 percentage points
for any ‘‘subsection (d) hospital’’ (that
is, a hospital paid under the IPPS) that
does not submit certain quality data in
a form and manner, and at a time,
specified by the Secretary.
Sections 1886(b)(3)(B)(viii)(III) and
(IV) of the Act required that we expand
the ‘‘starter set’’ of 10 quality measures
established by the Secretary as of
November 1, 2003, provided certain
requirements were met. In expanding
this set of measures, section
1886(b)(3)(B)(viii)(IV) of the Act
provides that we must begin to adopt
the baseline set of performance
measures as set forth in a 2005 report
issued by the Institute of Medicine
(IOM) of the National Academy of
Sciences under section 238(b) of the
MMA,17 effective for payments
beginning with FY 2007.
The IOM measures include: Hospital
Quality Alliance (HQA) quality
measures (the HQA is a public-private
collaboration to improve the quality of
care provided by the nation’s hospitals
by measuring and publicly reporting on
that care), the HCAHPS patient
perspective survey, and three structural
measures. The structural measures are:
(1) Implementation of computerized
provider order entry for prescriptions,
(2) staffing of intensive care units with
intensivists, and (3) evidence-based
hospital referrals. These structural
measures constitute the Leapfrog
Group’s original ‘‘three leaps,’’ and are
part of the National Quality Forum’s 30
Safe Practices for Better Healthcare.
Sections 1886(b)(3)(B)(viii)(V) and
(VI) of the Act require that, effective for
payments beginning with FY 2008, we
17 Institute of Medicine, ‘‘Performance
Measurement: Accelerating Improvement,’’
December 1, 2005, available at https://www.iom.edu/
CMS/3809/ 19805/31310.aspx.
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add other quality measures that reflect
consensus among affected parties, and
provide the Secretary with the
discretion to replace any quality
measures or indicators in appropriate
cases, such as where all hospitals are
effectively in compliance with a
measure, or the measures or indicators
have been subsequently shown to not
represent the best clinical practice.
Thus, the Secretary has broad discretion
to replace measures on the basis that
they are not appropriate.
Section 1886(b)(3)(B)(viii)(VII) of the
Act requires that we establish
procedures for making quality data
available to the public after ensuring
that a hospital has the opportunity to
review, in advance, its data that are to
be made public. In addition, this section
requires that we report quality measures
of process, structure, outcome, patients’
perspective on care, efficiency, and
costs of care that relate to services
furnished in inpatient settings on the
CMS Web site.
Section 1886(b)(3)(B)(viii)(I) of the
Act also provides that any reduction in
a hospital’s payment update will apply
only with respect to the fiscal year
involved, and will not be taken into
account for computing the applicable
percentage increase for a subsequent
fiscal year.
The starter set of 10 quality measures
we established as of November 1, 2003
are as follows:
Heart Attack (Acute Myocardial
Infarction or AMI)
<bullet≤ Was aspirin given to the
patient upon arrival to the hospital?
<bullet≤ Was aspirin prescribed when
the patient was discharged?
<bullet≤ Was a beta-blocker given to
the patient upon arrival to the hospital?
<bullet≤ Was a beta-blocker
prescribed when the patient was
discharged?
<bullet≤ Was an ACE inhibitor given
for the patient with heart failure?
Heart Failure (HF)
<bullet≤ Did the patient get an
assessment of his or her heart function?
<bullet≤ Was an ACE inhibitor given
to the patient?
Pneumonia (PNE)
<bullet≤ Was an antibiotic given to
the patient in a timely way?
<bullet≤ Had the patient received a
pneumococcal vaccination?
<bullet≤ Was the patient’s oxygen
level assessed?
We adopted these measures after the
Secretary of HHS joined in a partnership
with several collaborators intended to
promote hospital quality improvement
and public reporting of hospital quality
information. These collaborators
included the American Hospital
Association, the Federation of American
Hospitals, the Association of American
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24803
Medical Colleges, the Joint Commission
on Accreditation of Healthcare
Organizations (the Joint Commission),
the National Quality Forum (NQF), the
American Medical Association, the
Consumer-Purchaser Disclosure Project,
the AARP, the American Federation of
Labor-Congress of Industrial
Organizations, the Agency for
Healthcare Research and Quality
(AHRQ), as well as CMS and others.
This collaboration, originally known as
the National Voluntary Hospital
Reporting Initiative, is now known as
the HQA.
This starter set of 10 quality measures
was endorsed by the NQF. NQF is a
voluntary consensus standard-setting
organization established to standardize
health care quality measurement and
reporting through its consensus
development process. In addition, this
starter set is a subset of measures
currently collected for The Joint
Commission as part of its certification
program.
We chose these 10 quality measures
in order to collect data that will: (1)
Provide useful and valid information
about hospital quality to the public; (2)
provide hospitals with a sense of
predictability about public reporting
expectations; (3) begin to standardize
data and data collection mechanisms;
and (4) foster hospital quality
improvement.
Hospitals submit quality data through
the QualityNet Exchange secure Web
site (https://www.qnetexchange.org). We
believe that this Web site meets or
exceeds all current Health Insurance
Portability and Accountability Act
requirements for security of personal
health information. Data from this
initiative are used to populate the
Hospital Compare Web site, https://
www.hospitalcompare.hhs.gov. This
Web site assists beneficiaries and the
general public by providing information
on hospital quality of care for
consumers who need to select a
hospital. It further serves to encourage
consumers to work with their doctors
and hospitals to discuss the quality of
care they provide to patients, thereby
providing an additional incentive to
improve their quality of that care.
In the FY 2007 IPPS final rule (71 FR
48137), we amended our regulations at
§ 412.64(d)(2) to reflect the 2.0
percentage point reduction in the
payment update for FY 2007 and
subsequent fiscal years for hospitals that
do not comply with requirements for
reporting quality data as provided for
under section 5001(a) of the DRA. We
also added 11 additional quality
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measures to the 10 measure starter set
to establish an expanded set of 21
quality measures (71 FR 48029 through
48037). These 21 measures are as
follows:
Topic
Quality measure
Heart Attack (Acute Myocardial Infarction) ..............................................
<bullet≤ Aspirin at arrival.*
<bullet≤ Aspirin prescribed at discharge.*
<bullet≤ ACE inhibitor (ACE–I) or Angiotensin Receptor Blocker (ARBs)
for left ventricular systolic dysfunction.*
<bullet≤ Beta blocker at arrival.*
<bullet≤ Beta blocker prescribed at discharge.*
<bullet≤ Thrombolytic agent received within 30 minutes of hospital arrival.
<bullet≤ Percutaneous Coronary Intervention (PCI) received within 120
minutes of hospital arrival.
<bullet≤ Adult smoking cessation advice/counseling.
<bullet≤ Left ventricular function assessment.*
<bullet≤ ACE inhibitor (ACE–I) or Angiotensin Receptor Blocker (ARBs)
for left ventricular systolic dysfunction.*
<bullet≤ Discharge instructions.
<bullet≤ Adult smoking cessation advice/counseling.
<bullet≤ Initial antibiotic received within 4 hours of hospital arrival.*
<bullet≤ Oxygenation assessment.*
<bullet≤ Pneumococcal vaccination status.*
<bullet≤ Blood culture performed before first antibiotic received in hospital.
<bullet≤ Adult smoking cessation advice/counseling.
<bullet≤ Appropriate initial antibiotic selection.
<bullet≤ Influenza vaccination status.
<bullet≤ Prophylactic antibiotic received within 1 hour prior to surgical
incision.
<bullet≤ Prophylactic antibiotics discontinued within 24 hours after surgery end time.
Heart Failure (HF) ....................................................................................
Pneumonia (PNE) .....................................................................................
Surgical Care Improvement Project (SCIP)—named SIP for discharges
prior to July 2006 (3Q06).
*Measure included in 10 measure starter set.
In addition, in the FY 2007 IPPS final
rule (71 FR 48031 through 48044), we
set out RHQDAPU program procedures
for data submission, program
withdrawal, data validation, attestation,
public display of hospitals’ quality data,
and reconsiderations. In response to
public comments, we required that
reporting of the expanded quality
measures begin with discharges
occurring on or after the third calendar
quarter of 2006 (July through September
discharges). We also responded to
public comments regarding whether we
should establish more structured
reconsideration procedures for FY 2008
and what such procedures might
include.
Under section 1886(b)(3)(B)(viii)(V) of
the Act, for payments beginning with
FY 2008, we are required to add other
measures that reflect consensus among
affected parties, and, to the extent
feasible and practicable, we must
include measures set forth by one or
more national consensus building
entities.
2. FY 2008 Quality Measures
Commenters on the FY 2007 IPPS
proposed rule requested that we notify
the public as far in advance as possible
of any proposed expansions of the
measurement set and program
procedures in order to encourage broad
collaboration and to give hospitals time
to prepare for any anticipated change.
Taking these concerns into account, in
the CY 2007 OPPS final rule (71 FR
68201), we adopted additional quality
measures for the FY 2008 update. The
six additional measures we adopted are
as follows:
<bullet≤ HCAHPS survey
<bullet≤ SCIP Quality Measures
—SCIP–VTE 1: Venous
thromboembolism (VTE)
prophylaxis ordered for surgery
patient
—SCIP–VTE 2: VTE prophylaxis
within 24 hours pre/post surgery
—SCIP Infection 2: Prophylactic
antibiotic selection for surgical
patients
<bullet≤ Mortality (Medicare Patients)
—Acute Myocardial Infarction 30-day
mortality Medicare patients
—Heart Failure 30-day mortality
Medicare patients
For the FY 2008 payment
determination, hospitals are required to
report the following 27 measures:
Quality measure
Heart Attack (Acute Myocardial Infarction) ..............................................
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Topic
<bullet≤ Aspirin at arrival.*
<bullet≤ Aspirin prescribed at discharge.*
<bullet≤ ACE inhibitor (ACE–I) or Angiotensin Receptor Blocker (ARBs)
for left ventricular systolic dysfunction.*
<bullet≤ Beta blocker at arrival.*
<bullet≤ Beta blocker prescribed at discharge.*
<bullet≤ Thrombolytic agent received within 30 minutes of hospital arrival.**
<bullet≤ Percutaneous Coronary Intervention (PCI) received within 120
minutes of hospital arrival.**
<bullet≤ Adult smoking cessation advice/counseling.**
<bullet≤ Left ventricular function assessment.*
<bullet≤ ACE inhibitor (ACE–I) or Angiotensin Receptor Blocker (ARBs)
for left ventricular systolic dysfunction.*
Heart Failure (HF) ....................................................................................
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Topic
24805
Quality measure
Pneumonia (PNE) .....................................................................................
Surgical Care Improvement Project (SCIP)—named SIP for discharges
prior to July 2006 (3Q06).
Mortality Measures (Medicare patients) ...................................................
Patients’ Experience of Care ....................................................................
<bullet≤ Discharge instructions.**
<bullet≤ Adult smoking cessation advice/counseling.**
<bullet≤ Initial antibiotic received within 4 hours of hospital arrival.*
<bullet≤ Oxygenation assessment.*
<bullet≤ Pneumococcal vaccination status.*
<bullet≤ Blood culture performed before first antibiotic received in hospital.**
<bullet≤ Adult smoking cessation advice/counseling.**
<bullet≤ Appropriate initial antibiotic selection.**
<bullet≤ Influenza vaccination status.**
<bullet≤ Prophylactic antibiotic received within 1 hour prior to surgical
incision.**
<bullet≤ Prophylactic antibiotics discontinued within 24 hours after surgery end time.**
<bullet≤ SCIP–VTE 1: Venous thromboembolism (VTE) prophylaxis ordered for surgery patients.***
<bullet≤ SCIP–VTE 2: VTE prophylaxis within 24 hours pre/post surgery.***
<bullet≤ SCIP Infection 2: Prophylactic antibiotic selection for surgical
patients.***
<bullet≤ Acute Myocardial Infarction 30-day mortality Medicare patients.***
<bullet≤ Heart Failure 30-day mortality Medicare patients.***
<bullet≤ HCAHPS patient survey.***
*Measure included in 10 measure starter set.
**Measure included in 21 measure expanded set.
*** Measure added in CY 2007 OPPS final rule.
We did not adopt any other new
RHQDAPU measures for FY 2008.
3. New Quality Measures and Program
Requirements for FY 2009 and
Subsequent Years
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a. Proposed New Quality Measures for
FY 2009 and Subsequent Years
We are proposing to add 1 outcome
measure and 4 process measures to the
existing 27 measure set to establish a
new set of 32 quality measures to be
used for the FY 2009 annual payment
determination. We plan to adopt these
measures a year in advance in order to
provide additional time for hospitals to
prepare for changes related to the
RHQDAPU program. We are proposing
to add the following quality measures
for the FY 2009 RHQDAPU program.
<bullet≤ Pneumonia 30-day Mortality
(Medicare patients)
<bullet≤ SCIP Infection 4: Cardiac
Surgery Patients with Controlled 6AM
Postoperative Serum Glucose
<bullet≤ SCIP Infection 6: Surgery
Patients with Appropriate Hair Removal
<bullet≤ SCIP Infection 7: Colorectal
Patients with Immediate Postoperative
Normothermia
<bullet≤ SCIP Cardiovascular 2:
Surgery Patients on a Beta-Blocker Prior
to Arrival Who Received a Beta-Blocker
During the Perioperative Period
The above measures reflect our
continuing commitment to quality
improvement in both clinical care and
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patient safety. These additional
measures also demonstrate our
commitment to include in the
RHQDAPU program only those quality
measures that reflect consensus among
the affected parties and that have been
reviewed by a consensus building
process. The proposed measures have
been put forth by the HQA for inclusion
in its public reporting set, contingent on
endorsement by the NQF. (In the case of
SCIP Infection 7, the HQA recently
withdrew its previous support unless
the measure receives NQF
endorsement.) We anticipate that the
NQF will endorse these measures prior
to the publication of the FY 2008 IPPS
final rule. Any measure that has not
been endorsed by that time will not be
finalized in that rule.
CMS requests public comment on
these five measures, as well as whether
to add other measures to the RHQDAPU
program measure set for FY 2009 and
subsequent years. CMS may, based on
comments received, include one or
more of the measures discussed below
in the RHQDAPU program measure set
for FY 2009 payments. We will finalize
the FY 2009 RHQDAPU measure set in
the FY 2008 IPPS final rule.
The following table contains a list of
18 measures and 8 measure sets from
which additional quality measures
could be selected for inclusion in the
RHQDAPU program. It includes
measures and measure sets that
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highlight CMS’ interest in improving
patient safety and outcomes of care,
with a particular focus on the quality of
surgical care and patient outcomes. In
order to engender a broad review of
potential performance measures, the list
includes measures that have not yet
been considered for approval by the
HQA or endorsement by the NQF
consensus review process for public
reporting. It also includes measures
developed by organizations other than
CMS as well as measures that are to be
derived from administrative data (such
as claims) that may need to be modified
for specific use by the Medicare
program if implemented under the
RHQDAPU program.
We hope to receive comment from a
broad set of stakeholders on the
measures and measure sets that are
listed, as well as any critical gaps or
‘‘missing’’ measures or measure sets. We
specifically requests input concerning
the following:
<bullet≤ Which of the measures or
measure sets should be included in the
FY 2009 RHQDAPU program or in
subsequent years?
<bullet≤ What challenges for data
collection and reporting are posed by
the identified measures and measure
sets? What improvements could be
made to data collection or reporting that
might offset or otherwise address those
challenges?
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POSSIBLE MEASURES AND MEASURE SETS FOR THE RHQDAPU PROGRAM FOR FY 2009 AND SUBSEQUENT YEARS
Measure
Clinical condition
Intensive Care Unit (ICU) Critical Care Measures
1 .......
2 .......
Stress Ulcer Disease Prophylaxis .....................................................................................................................
Urinary Catheter-Associated Urinary Tract Infection For Intensive Care Unit (ICU) Patients ..........................
ICU/critical care.
ICU/critical care.
Readmission Measures
3
4
5
6
.......
.......
.......
.......
Readmission
Readmission
Readmission
Readmission
Heart Failure (HF) Within 30 Days Rate—Medicare Only (CMS Methodology) .........................
(same hospital) Acute Myocardial Infarction (AMI) Within 30 Days Rate ...................................
(same hospital) PNE Within 30 Days Rate .................................................................................
Within 30 Days Of Surgery—Medicare Only (SCIP Global–2) ...................................................
Efficiency/HF.
Efficiency/AMI.
Efficiency/PNE.
Surgical Care.
NQF—Nursing Sensitive Condition Set (Outcomes Measures Only)
7 .......
8 .......
9 .......
10 .....
Failure To Rescue—Nursing Sensitive Measure ..............................................................................................
Pressure Ulcer Prevalence—Nursing Sensitive Measure .................................................................................
Patient Falls Prevalence—Nursing Sensitive Measure .....................................................................................
Patient Falls With Injury—Nursing Sensitive Measure ......................................................................................
Patient
Patient
Patient
Patient
centered.
centered.
centered.
centered.
Cancer (Inpatient) Measures
11
12
13
14
15
.....
.....
.....
.....
.....
Patients With Early Stage Breast Cancer Who Have Evaluation Of The Axilla ...............................................
College Of American Pathologists Breast Cancer Protocol ..............................................................................
Surgical Resection Includes At Least 12 Nodes (ACOS–02) ...........................................................................
College Of American Pathologists Colon And Rectum Protocol .......................................................................
Completeness Of Pathologic Reporting (CCO–04) ...........................................................................................
Cancer—Breast.
Cancer—Breast.
Cancer—Colon.
Cancer—Colon.
Cancer—Colon.
Leapfrog Leaps, identified by IOM and Deficit Reduction Act
16 .....
17 .....
18 .....
Use Of Computerized Physician Order Entry (CPOE) Systems .......................................................................
Use of Intensivists in ICUs/ICU Physician Staffing (IPS) ..................................................................................
Evidence-Based Hospital Referrals ...................................................................................................................
Patient safety.
Patient safety.
Patient Safety.
Measure Sets of Potential Interest (Individual measures not specified in this proposed rule)
Sets Under Active Review by National Quality Forum (NQF)
1 .......
2 .......
3 .......
4 .......
Healthcare-Associated Infection measures—under consideration by the NQF National Voluntary Consensus Standards for Reporting of Healthcare-associated Infections Data Project.
Readmission Rates by Condition—under consideration by NQF National Voluntary Consensus Standards
for Hospital Care: Additional Priorities, 2007 Project.
Average Length of Stay (ALOS) by Condition—under consideration by NQF National Voluntary Consensus
Standards for Hospital Care: Additional Priorities, 2007 Project.
AHRQ Quality Indicators, including Patient Safety Indicators—under consideration by NQF National Voluntary Consensus Standards for Hospital Care: Additional Priorities, 2007 Project.
Patient Safety.
Efficiency.
Efficiency.
Patient Safety, various
conditions.
Measure Sets/Practices Previously Endorsed by NQF
5 .......
6 .......
Safe Practices for Better Healthcare .................................................................................................................
Serious Reportable Events in Healthcare (‘‘Never Events’’) .............................................................................
Patient Safety.
Patient Safety.
Other Hospital Measure Sets
7 .......
8 .......
Hospital Emergency Department Measures ......................................................................................................
Vascular Surgery Complications (for Carotid Endarterectomy, Lower Extremity Bypass, Open Surgery Abdominal Aortic Aneurysm Repair, Endovascular Abdominal Aortic Aneurysm Repair).
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b. Data Submission
In order to be eligible for the full FY
2009 market basket update, we are
proposing that hospitals will be
required to submit data on 32 measures
(the 27 existing measures plus the 5
proposed new measures). The technical
specifications for this requirement are
published in the CMS/Joint Commission
Specifications Manual for National
Hospital Quality Measures. This manual
can be found on the QualityNet.org Web
site.
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For the additional SCIP measures that
we are proposing to add through this
rule, (SCIP Infection 4, 6, and 7 and
SCIP–Card–2), hospitals will be
required to submit data to the QIO
Clinical Warehouse starting with
discharges that occur in CY 2008. We
are proposing that the deadline for
hospitals to submit this data for first
calendar quarter of 2008 would be
August 15, 2008. Data must be
submitted for each subsequent quarter
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Various.
Surgical Care.
by 4.5 months after the end of the
quarter.
We are proposing this time period to
allow hospitals sufficient time to
prepare for the data collection. The
three SCIP Infection measures that we
are proposing to include for FY 2009
were added to the Manual in version
2.0, effective with third calendar quarter
of 2006 (3Q06) and the proposed SCIP
Cardiovascular measure was added in
version 2.1d of the Manual, effective
with fourth calendar quarter of 2006
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(4Q06). Hospitals may report data on
these measures for discharges prior to
CY 2008 discharges, if they so choose.
For the proposed Pneumonia 30-day
Mortality measure, we are proposing to
use claims data that are already being
collected for index hospitalizations to
calculate the mortality rates. As is the
case with the other 30-day mortality
(outcome) measures already associated
with the RHQDAPU program (AMI, HF),
hospitals need not submit additional
data. Claims data submitted to CMS for
index hospitalizations occurring from
July 2006 through June 2007 (3Q06
through 2Q07) will be used to calculate
the Pneumonia 30-day mortality rate
that will be used for FY 2009 annual
payment determination.
All measures that we have previously
finalized, and that we finalize in the
future through the rulemaking process,
will be required for the RHQDAPU
program annual payment determination
each year until further notice. CMS,
working in conjunction with The Joint
Commission, maintains the
specifications for the set of measures
used both for the RHQDAPU program
and for reporting under the HQA
initiative. The specifications are
updated semiannually and changes are
made prospectively, except in
exceptional circumstances. Revised
specifications can be found at https://
www.qualitynet.org.
4. Retiring or Replacing RHQDAPU
Program Quality Measures
Over time, CMS expects that the set
of measures used for the RHQDAPU
program will evolve and change. New
measures will be added to reflect
clinical and other program goals.
Measures that are no longer supported
by clinical evidence would be modified
or dropped. Through its public
reporting and RHQDAPU program
activities, CMS seeks to balance the
competing goals of assuring the
development of a comprehensive yet
parsimonious set of quality measures
while reducing reporting burden on
hospitals. Section 1886(b)(3)(B)(viii)(VI)
of the Act gives the Secretary authority
to replace any measures or indicators in
appropriate cases, such as where all
hospitals are effectively in compliance
or the measures or indicators have been
subsequently shown not to represent the
best clinical practice. CMS recognizes
the need to develop a process related to
the retirement and/or replacement of
measures that comprise the RHQDAPU
program measure set. In this proposed
rule, we solicit public comment and
suggestions concerning the criteria and
mechanism for a process that would
identify and, where appropriate, retire
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or replace measures that comprise the
RHQDAPU program measure set.
5. Procedures for the RHQDAPU
Program for FY 2008 and FY 2009
a. Procedures for Participating in the
RHQDAPU Program
The ‘‘Reporting Hospital Quality Data
for Annual Payment Update Reference
Checklist’’ section of the QualityNet
Exchange Web site contains all of the
forms to be completed by hospitals
participating in the program. In order to
participate in the hospital reporting
initiative for FY 2008, hospitals must
follow these steps:
<bullet≤ Identify a QualityNet
Exchange Administrator who follows
the registration process and submits the
information through the QIO Clinical
Warehouse. This must be done
regardless of whether the hospital uses
a vendor for transmission of data.
<bullet≤ Complete the revised
‘‘Reporting Hospital Quality Data for
Annual Payment Update Notice of
Participation’’ form. These hospitals
must send this form to their QIO, no
later than August 15, 2007. In effort to
alleviate the burden associated with
submitting this form annually, we are
proposing that a hospital that submits
this form will be considered an active
RHQDAPU program participant until
such time as the hospital submits a
withdrawal form to CMS.
In addition, before participating
hospitals initially begin reporting data,
they must register with the QualityNet
Exchange, regardless of the method used
for submitting data.
<bullet≤ Collect and report data for 24
of the 27 required measures (listed in
Table—under the following headings:
Acute Myocardial Infarction, Heart
Failure, Pneumonia and SCIP). A
hospital must report this data for
discharges occurring in or after first
quarter CY 2007. Hospitals must submit
the data to the QIO Clinical Warehouse
either using the CMS Abstraction &
Reporting Tool (CART), the JCAHO
ORYX[reg] Core Measures Performance
Measurement System, or using another
third-party vendor tool that has met the
measurement specification requirements
for data transmission to QualityNet
Exchange. All submissions will be
executed through QualityNet Exchange.
Because the information in the QIO
Clinical Warehouse is considered QIO
information, it is subject to the stringent
QIO confidentiality regulations in 42
CFR part 480. The QIO Clinical
Warehouse will submit the data to CMS
on behalf of the hospitals.
<bullet≤ For each quality measure
that requires hospitals to collect and
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24807
report data, submit complete data
regarding the quality measures in
accordance with the joint CMS/Joint
Commission sampling requirements
located on the QualityNet Exchange
Web site. These requirements specify
that hospitals must submit a random
sample or complete population of cases
for each of topics covered by the quality
measures. Hospitals must meet these
sampling requirements for these quality
measures for discharges in each quarter.
<bullet≤ Submit aggregate population
and sample size counts for Medicare
and non-Medicare discharges for the
four topic areas (AMI, HF, PNE, and
SCIP) on a quarterly basis to CMS.
<bullet≤ Continuously collect
HCAHPS data beginning with July 2007
discharges in accordance with the
HCAHPS Quality Assurance Guidelines,
Version 2.0, located at https://
www.hcahpsonline.org. The CY 2007
OPPS rule required HCAHPS-eligible
hospitals to participate in the March
2007 dry run of the HCAHPS survey, if
they have not already participated in a
previous dry run. Hospitals must submit
HCAHPS dry run data to the QIO
Clinical Warehouse by July 13, 2007. As
part of the March 2007 dry run,
hospitals were required to survey
HCAHPS-eligible discharges between 48
hours and 6 weeks following hospital
discharge.
<bullet≤ For the AMI 30-day and HF
30-day mortality measures, CMS will
use Part A and Part B claims for
Medicare fee-for-service patients to
calculate the mortality measures. For FY
2008, hospital inpatient claims (Part A)
from July 1, 2005 to June 30, 2006 will
be used to identify the relevant patients
and the index hospitalizations. Inpatient
claims for the index hospitalization and
Part A and Part B claims for all
inpatient, outpatient and physician
services received one year prior to the
index hospitalizations are used to
determine patient comorbidity, which is
used in the risk adjustment calculation
(see https://www.qualitynet.org/ dcs/
ContentServer?cid=1163010398556
&pagename=QnetPublic%2FPage
%2FQnetTier2&c=Page). No other
hospital data submission is required to
calculate the mortality rates.
b. Procedures for Participating in the
RHQDAPU Program for FY 2009
For FY 2009, the requirements for FY
2008 discussed above will apply, except
that hospitals will be required to collect
and report data on any additional
measures that we finalize through the
rulemaking process and for which we
specify that data submission is required.
Mortality measures will be expanded to
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include pneumonia pending final NQF
endorsement.
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c. Chart Validation Requirements
(1) FY 2008 Validation Requirements
For the FY 2008 update, and until
further notice, we will continue to
require that hospitals meet the chart
validation requirements that we
implemented in the FY 2006 IPPS final
rule. There were no chart-audit
validation criteria in place for FY 2005.
Based upon our experience with the FY
2005 submissions and our requirement
for reliable and validated data, in the FY
2006 IPPS final rule we discussed
additional requirements that we had
established for the data that hospitals
were required to submit in order to
receive the full FY 2006 payment
update (70 FR 47421 and 47422). These
requirements, as well as additional
information on validation requirements,
will continue and are being placed on
the QualityNet Exchange Web site.
For the FY 2008 payment update, and
until further notice, hospitals must pass
our validation requirement of a
minimum of 80 percent reliability,
based upon our chart-audit validation
process, for the first three quarters of
data from CY 2006. These data are due
to the QIO Clinical Warehouse by
August 15, 2006 (first quarter CY 2006
discharges), November 15, 2006 (second
quarter CY 2006 discharges), and
February 15, 2007 (third quarter CY
2006 discharges).
We use confidence intervals to
determine if a hospital has achieved an
80-percent reliability aggregated over
the three quarters. The use of
confidence intervals allows us to
establish an appropriate range below the
80-percent reliability threshold that
demonstrates a sufficient level of
reliability to allow the data to still be
considered validated. We estimate the
percent reliability based upon a review
of five charts, and then calculate the
upper 95-percent confidence limit for
that estimate. If this upper limit is above
the required 80-percent reliability, the
hospital data are considered validated.
We are using the design-specific
estimate of the variance for the
confidence interval calculation, which,
in this case, is a stratified single stage
cluster sample, with unequal cluster
sizes. (For reference, see Cochran,
William G.: Sampling Techniques, John
Wiley & Sons, New York, chapter 3,
section 3.12 (1977); and Kish, Leslie.:
Survey Sampling, John Wiley & Sons,
New York, chapter 3, section 3.3
(1964).) Each quarter is treated as a
stratum for variance estimation
purposes.
We will use a two-step process to
determine if a hospital is submitting
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valid data. In the first step, we calculate
the percent agreement for all of the
variables submitted in all of the charts.
If a hospital falls below the 80-percent
cutoff, we proceed to the second step
and restrict the comparison to those
variables associated with payment. For
first and second quarter CY 2006
discharges (1Q06, 2Q06), that means we
limit the calculations to the 10-measure
starter set. For third quarter CY 2006
discharges (3Q06), we include 21
measures. We recalculate the percent
agreement and the estimated 95-percent
confidence interval and again compare
to the 80-percent cutoff point. If a
hospital passes under this restricted set
of variables, the hospital is considered
to be submitting valid data for purposes
of the RHQDAPU program.
Due to time constraints, we will not
apply the validation requirement for the
FY 2008 update to 3 SCIP measures that
are included in the RHQDAPU measure
set, Infection 2, VTE 1 and VTE 2.
For HCAHPS, hospitals and survey
vendors must participate in a quality
oversight process conducted by the
HCAHPS project team. Prior to July
2007, the purpose of the oversight
activities will be to provide feedback to
hospitals and survey vendors on data
collection procedures. Starting in July
2007, we may ask hospitals/survey
vendors to correct any problems that are
found and provide follow-up
documentation of corrections for review
within a defined time period. If the
HCAHPS project team finds that the
hospital has not made these corrections,
CMS may determine that the hospital is
not submitting appropriate HCAHPS
data for the RHQDAPU program. As part
of these activities, HCAHPS project staff
will review and discuss with survey
vendors and hospitals selfadministering the survey their specific
Quality Assurance Plans, survey
management procedures, sampling and
data collection protocols, and data
preparation and submission. This
review may take place in-person or
through other means of communication.
(2) FY 2009 Chart Validation
Requirements
For the FY 2009 update, all 2008
requirements apply, except for the
following modifications. We will
modify the validation requirement to
pool the quarterly validation estimates
for 4th quarter CY 2006 through 3rd
quarter 2007 discharges. We will also
expand the list of validated measures in
the FY 2009 update to add SCIP
Infection-2, SCIP VTE–1, and SCIP
VTE–2 starting with 4th quarter CY
2006 discharges. We will also drop the
current two-step process to determine if
the hospital is submitting valid data. We
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propose for the FY 2009 update to pool
validation estimates covering the 4
quarters (4th quarter CY 2006 discharges
through 3rd quarter 2007 discharges) in
a similar manner to the current 3 quarter
pooled confidence interval.
(3) Validation and Submission
Requirements
We plan to apply the validation and
submission requirements for FY 2008
and FY 2009 payment determination for
the quality measures. For the validation
and submission requirements for the FY
2008 payment year, we plan to use the
following:
<bullet≤ The 10 measure starter set for
both submission and validation for 1st
through 3rd quarters CY 2006
discharges.
<bullet≤ The additional 11 measures
that make up the expanded measure set
for both submission and validation for
3rd quarter CY 2006 discharges.
<bullet≤ SCIP VTE 1, 2, and SCIP
Infection 2 submission only for 1Q 2007
discharges only.
<bullet≤ HCAHPS measures, both
submission of dry run data and
continuous submission beginning with
July 2007 discharges.
<bullet≤ AMI and HF 30-day
mortality measures as described
previously. For FY 2009 payment year,
we plan to use the following:
<bullet≤ The 21 expanded measure
set for submission and validation
starting with fourth quarter CY 2006
(4Q06) through third quarter CY 2007
discharges.
<bullet≤ SCIP VTE 1, 2, and SCIP
Infection 2 submission and validation
second quarter CY 2007 and 3rd Quarter
CY 2007 discharges.
<bullet≤ HCAHPS measures,
continuous submission.
<bullet≤ AMI, HF, and PN 30-day
mortality measures as described
previously.
As additional measures are finalized
for inclusion in the FY 2009 payment
decision, we anticipate making changes
to the above plan to incorporate those
measures.
c. Data Validation and Attestation
For the FY 2008 update and in
subsequent years, we will revise and
post up-to-date confidence interval
information on the QualityNet Exchange
Web site explaining the application of
the confidence interval to the overall
validation results. The data are being
validated at several levels. There are
consistency and internal edit checks to
ensure the integrity of the submitted
data; there are external edit checks to
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verify expectations about the volume of
the data received.
We will require for FY 2008 and
subsequent years that hospitals attest
each quarter to the completeness and
accuracy of their data, including the
volume of data, submitted to the QIO
Clinical Warehouse in order to improve
aspects of the validation checks. We
will provide additional information to
explain this attestation requirement, as
well as provide the relevant form to be
completed on the QualityNet Exchange
Web site.
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d. Public Display
We will continue to display quality
information for public viewing as
required by section
1886(b)(3)(B)(viii)(VII) of the Act. Before
we display this information, hospitals
will be permitted to review their
information as recorded in the QIO
Clinical Warehouse.
Currently, hospitals that share the
same Medicare Provider Number (MPN)
must combine data collection and
submission across their multiple
campuses (for both clinical measures
and for HCAHPS). These measures are
then publicly reported as if they apply
to a single hospital. We estimate that
approximately 5 to 10 percent of the
hospitals reported on the Hospital
Compare Web site share MPNs. For FY
2008 and subsequent years, we are
proposing to require hospitals to begin
to report the name and address of each
hospital that shares the same MPN. This
information will be gathered through
the RHQDAPU program Notice of
Participation form, which hospitals will
submit to their QIOs by August 15,
2007. To increase transparency in
public reporting and improve the
usefulness of Hospital Compare, CMS
plans to note on the Web site where
publicly reported measures combine
results from two or more hospitals.
e. Reconsideration and Appeal
Procedures
If we deny a hospital the full market
basket update, the hospital may submit
a letter requesting that we reconsider
our decision that the hospital did not
meet the RHQDAPU program
requirements. For FY 2008, a hospital
must submit such a request for
reconsideration on or before November
1, 2007. We also are establishing
additional procedural rules that will
govern RHQDAPU program
reconsiderations. We will post these
rules on the QualityNet Exchange Web
site.
If a hospital is dissatisfied with the
result of a RHQDAPU program
reconsideration, the hospital may file a
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claim under 42 CFR Part 405, Subpart
R (a Provider Reimbursement Review
Board (PRRB) appeal).
In this proposed rule we are again
soliciting public comment and
suggestions related to reconsideration.
f. RHQDAPU Program Withdrawal
Requirements
For the FY 2008 update, hospitals
may withdraw from the RHQDAPU
program at any time up to August 15,
2007. If a hospital withdraws from the
program, it will receive a 2.0 percentage
point reduction in its payment update.
6. Electronic Medical Records
In the FY 2006 IPPS final rule, we
encouraged hospitals to take steps
toward the adoption of electronic
medical records (EMRs) that will allow
for reporting of clinical quality data
from the EMRs directly to a CMS data
repository (70 FR 47420). We intend to
begin working toward creating measures
specifications and a system or
mechanism, or both, that will accept the
data directly without requiring the
transfer of the raw data into an XML file
as is currently done. The Department
continues to work cooperatively with
other Federal agencies in the
development of Federal health
architecture data standards. We
encouraged hospitals that are
developing systems to conform them to
both industry standards and, when
developed, the Federal Health
Architecture Data standards, and to
ensure that the data necessary for
quality measures are captured. Ideally,
such systems will also provide point-ofcare decision support that enables high
levels of performance on the measures.
Hospitals using EMRs to produce data
on quality measures will be held to the
same performance expectations as
hospitals not using EMRs.
Due to the low volume of comments
we received on this issue in response to
the FY 2006 proposed IPPS rule, in the
proposed IPPS rule for FY 2007 (71 FR
24095), we again invited comments on
these requirements and options. In the
FY 2007 IPPS final rule, we summarized
and addressed the additional comments
we received. We would welcome
additional comments on this issue.
7. New Hospitals
In addition, we are proposing a minor
change to our policies regarding new
hospitals. In the FY 2006 IPPS final
rule, we noted that a new hospital
should begin collecting and reporting
data immediately and complete the
registration requirements for the
RHQDAPU. (70 FR 47421 and 47428).
We also explained that a new hospital
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24809
would be held to the same standard as
established facilities when determining
the expected number of discharges for
the calendar quarters covered for each
fiscal year. We also stated that fiscal
intermediaries would provide
information on new hospitals to the QIO
in the state in which the hospital has
opened for operations as a Medicare
provider as soon as possible so that the
QIO can enter the provider information
into its Program Resource System (PRS)
and follow through with ensuring
provider participation with the
requirements for quality data reporting
under this rule.
We believe that some new hospitals
have found it difficult to start reporting
RHQDAPU measures immediately after
signing up to participate in the
RHADAPU program. Therefore, we are
proposing a modification to our policy
to reduce burden on new hospitals. We
are proposing that the fiscal
intermediary would continue to provide
information on the new hospital to the
QIO in the state in which the hospital
is located as soon as possible so that the
QIO could enter the provider
information into its PRS and follow
through with ensuring provider
participation with the requirements for
quality data reporting. However, for a
new hospital that receives a provider
number on or after October 1st of each
year (beginning with October 1, 2007),
we are proposing that the hospital
would be required to report RHQDAPU
data beginning with the first day of the
quarter following the date the hospital
registers to participate in the RHQDAPU
program. For example, a hospital that
receives its MPN on October 2, 2007 and
signs up to participate in RHQDAPU on
November 1, 2007 will be expected to
meet all data submission requirements
for discharges on or after January 1,
2008.
B. Development of the Medicare
Hospital Value-Based Purchasing Plan
(If you choose to comment on issues
in this section, please include the
caption ‘‘Value-Based Purchasing Plan’’
at the beginning of your comment.)
Section 5001(b) of the DRA specifies
that CMS develop a plan to implement
a Value-Based Purchasing (VBP)
Program for payments under the
Medicare program for subsection (d)
hospitals beginning with FY 2009.
Congress specified that the ‘‘plan’’
include consideration of the following
issues:
<bullet≤ The ongoing development,
selection, and modification process for
measures of quality and efficiency in
hospital inpatient settings.
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<bullet≤ The reporting, collection,
and validation of quality data.
<bullet≤ The structure of value-based
payment adjustments, including the
determination of thresholds or
improvements in quality that would
substantiate a payment adjustment, the
size of such payments, and the sources
of funding for the value-based
payments.
<bullet≤ The disclosure of
information on hospital performance.
In developing the plan, we must
consult with relevant affected parties
and consider experience with
demonstrations that are relevant to the
value-based purchasing program.
We have created an internal Hospital
Pay-for-Performance Workgroup that is
charged with developing the VBP Plan
for Medicare hospital services. The
workgroup is organized into four
subgroups to address each of the
required planning issues: (1) measures;
(2) data collection and validation; (3)
incentive structure; and (4) public
reporting. The workgroup has been
charged with preparing a set of design
options, narrowing the set of design
options to prepare a draft plan, and
preparing the final plan for
implementing VBP for Medicare
hospital services that will be provided
to Congress.
CMS is hosting two public ‘‘Listening
Sessions’’ in early 2007 to solicit
comments from relevant affected parties
on outstanding design questions
associated with development of the final
plan. The first listening session was
held on January 17, 2007, to consider
design questions posed in an issues
paper that has been posted since
December 22, 2006, on the Medicare
Web site, Hospital Center, under
Spotlights at: https://www.cms.hhs.gov/
center/ hospital.asp. An audio
download of the listening session and
the PowerPoint slides used during the
session are also posted on this Web site.
The second listening session will be
held on April 12, 2007, to consider the
draft plan, which will be posted on the
Medicare Web site, Hospital Center, on
March 22, 2007. A notice announcing
this listening session was published in
the Federal Register on February 23,
2007 (71 FR 8179). It is hoped that
hospitals, hospital associations, and
other interested parties will attend and
make comments on the draft plan in
person. It will also be possible to
participate by teleconference, and
limited time will be allocated for verbal
comments by telephone participants.
Registration to participate in person or
by telephone is open until April 5, 2007.
The agenda and PowerPoint slides for
the session will be posted by April 9,
2007. An audio download of the second
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listening session will be posted by April
17, 2007. Written comments are
welcomed and will be accepted until 5
PM EDT on April 19, 2007. The
perspectives expressed during this
session and in writing will assist CMS
in making revisions to the draft plan to
create the final Medicare Hospital
Value-Based Purchasing Plan expected
to be completed by June 2007.
While section 5001(b) of the DRA
authorized development of this plan,
additional legislation will be required to
establish and implement the Medicare
Hospital Value-Based Purchasing
Program. As described in the draft plan,
we proposed that the current RHQDAPU
Program will provide the foundation for
and be incorporated into the new
Medicare Hospital Value-Based
Purchasing Program.
C. Rural Referral Centers (RRCs) (§
412.96)
(If you choose to comment on issues
in this section, please include the
caption ‘‘RRCs’’ at the beginning of your
comment.)
Under the authority of section
1886(d)(5)(C)(i) of the Act, the
regulations at § 412.96 set forth the
criteria that a hospital must meet in
order to qualify under the IPPS as an
RRC. For discharges occurring before
October 1, 1994, RRCs received the
benefit of payment based on the other
urban standardized amount rather than
the rural standardized amount.
Although the other urban and rural
standardized amounts are the same for
discharges occurring on or after October
1, 1994, RRCs continue to receive
special treatment under both the DSH
payment adjustment and the criteria for
geographic reclassification.
Section 402 of Pub. L. 108–173 raised
the DSH adjustment for other rural
hospitals with less than 500 beds and
RRCs. Other rural hospitals with less
than 500 beds are subject to a 12-percent
cap on DSH payments. RRCs are not
subject to the 12-percent cap on DSH
payments that is applicable to other
rural hospitals (with the exception of
rural hospitals with 500 or more beds).
RRCs are not subject to the proximity
criteria when applying for geographic
reclassification, and they do not have to
meet the requirement that a hospital’s
average hourly wage must exceed 106
percent of the average hourly wage of
the labor market area where the hospital
is located.
Section 4202(b) of Pub. L. 105–33
states, in part, ‘‘[a]ny hospital classified
as an RRC by the Secretary * * * for
fiscal year 1991 shall be classified as
such an RRC for fiscal year 1998 and
each subsequent year.’’ In the August
29, 1997 final rule with comment period
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(62 FR 45999), we also reinstated RRC
status for all hospitals that lost the
status due to triennial review or MGCRB
reclassification, but not to hospitals that
lost RRC status because they were now
urban for all purposes because of the
OMB designation of their geographic
area as urban. However, subsequently,
in the August 1, 2000 final rule (65 FR
47089), we indicated that we were
revisiting that decision. Specifically, we
stated that we would permit hospitals
that previously qualified as an RRC and
lost their status due to OMB
redesignation of the county in which
they are located from rural to urban to
be reinstated as an RRC. Otherwise, a
hospital seeking RRC status must satisfy
the applicable criteria. We used the
definitions of ‘‘urban’’ and ‘‘rural’’
specified in Subpart D of 42 CFR Part
412.
1. Proposed Annual Update of RRC
Status Criteria
One of the criteria under which a
hospital may qualify as a RRC is to have
275 or more beds available for use (§
412.96(b)(1)(ii)). A rural hospital that
does not meet the bed size requirement
can qualify as an RRC if the hospital
meets two mandatory prerequisites (a
minimum CMI and a minimum number
of discharges) and at least one of three
optional criteria (relating to specialty
composition of medical staff, source of
inpatients, or referral volume) (§
412.96(c)(1) through (c)(5)). (See also the
September 30, 1988 Federal Register (53
FR 38513).) With respect to the two
mandatory prerequisites, a hospital may
be classified as an RRC if—
<bullet≤ The hospital’s CMI is at least
equal to the lower of the median CMI for
urban hospitals in its census region,
excluding hospitals with approved
teaching programs, or the median CMI
for all urban hospitals nationally; and
<bullet≤ The hospital’s number of
discharges is at least 5,000 per year, or,
if fewer, the median number of
discharges for urban hospitals in the
census region in which the hospital is
located. (The number of discharges
criterion for an osteopathic hospital is at
least 3,000 discharges per year, as
specified in section 1886(d)(5)(C)(i) of
the Act.)
a. Case-Mix Index
Section 412.96(c)(1) provides that
CMS will establish updated national
and regional CMI values in each year’s
annual notice of prospective payment
rates for purposes of determining RRC
status. The methodology we use to
determine the national and regional CMI
values is set forth in regulations at §
412.96(c)(1)(ii). The proposed national
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median CMI value for FY 2008 includes
all urban hospitals nationwide, and the
regional values for FY 2008 are the
median CMI values of urban hospitals
within each census region, excluding
those hospitals with approved teaching
programs (that is, those hospitals
receiving indirect medical education
payments as provided in § 412.105(f)).
These values are based on discharges
occurring during FY 2006 (October 1,
2005 through September 30, 2006) and
include bills posted to CMS’ records
through December 2006.
We are proposing that, in addition to
meeting other criteria, if they are to
qualify for initial RRC status for cost
reporting periods beginning on or after
October 1, 2007, rural hospitals with
fewer than 275 beds must have a CMI
value for FY 2006 that is at least—
<bullet≤ 1.2258; or
<bullet≤ The median CMI value (not
transfer-adjusted) for urban hospitals
(excluding hospitals with approved
teaching programs as identified in §
412.105(f)) calculated by CMS for the
census region in which the hospital is
located.
The proposed median CMI values by
region are set forth in the following
table:
Case-mix index
value
Region
1.
2.
3.
4.
5.
6.
7.
8.
9.
New England (CT, ME, MA, NH, RI, VT) ....................................................................................................................................
Middle Atlantic (PA, NJ, NY) .......................................................................................................................................................
South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) ...........................................................................................................
East North Central (IL, IN, MI, OH, WI) ......................................................................................................................................
East South Central (AL, KY, MS, TN) .........................................................................................................................................
West North Central (IA, KS, MN, MO, NE, ND, SD) ..................................................................................................................
West South Central (AR, LA, OK, TX) ........................................................................................................................................
Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) ...........................................................................................................................
Pacific (AK, CA, HI, OR, WA) .....................................................................................................................................................
The preceding numbers will be
revised in the final rule to the extent
required to reflect the updated FY 2006
MEDPAR file, which will contain data
from additional bills received through
March 2007.
Hospitals seeking to qualify as RRCs
or those wishing to know how their CMI
value compares to the criteria should
obtain hospital-specific CMI values (not
transfer-adjusted) from their fiscal
intermediaries. Data are available on the
Provider Statistical and Reimbursement
(PS&R) System. In keeping with our
policy on discharges, these CMI values
are computed based on all Medicare
patient discharges subject to the IPPS
DRG-based payment.
b. Discharges
Section 412.96(c)(2)(i) provides that
CMS will set forth the national and
regional numbers of discharges in each
year’s annual notice of prospective
payment rates for purposes of
determining RRC status. As specified in
section 1886(d)(5)(C)(ii) of the Act, the
national standard is set at 5,000
discharges. We are proposing to update
the regional standards based on
discharges for urban hospitals’ cost
reporting periods that began during FY
2004 (that is, October 1, 2003 through
September 30, 2004), which is the latest
Number of discharges
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New England (CT, ME, MA, NH, RI, VT) ....................................................................................................................................
Middle Atlantic (PA, NJ, NY) .......................................................................................................................................................
South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) ...........................................................................................................
East North Central (IL, IN, MI, OH, WI) ......................................................................................................................................
East South Central (AL, KY, MS, TN) .........................................................................................................................................
West North Central (IA, KS, MN, MO, NE, ND, SD) ..................................................................................................................
West South Central (AR, LA, OK, TX) ........................................................................................................................................
Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) ...........................................................................................................................
Pacific (AK, CA, HI, OR, WA) .....................................................................................................................................................
These numbers will be revised in the
FY 2008 IPPS final rule based on the
latest available cost report data.
We note that the median number of
discharges for hospitals in each census
region is greater than the national
standard of 5,000 discharges. Therefore,
5,000 discharges is the minimum
criterion for all hospitals.
We reiterate that if an osteopathic
hospital is to qualify for RRC status for
cost reporting periods beginning on or
after October 1, 2007, the hospital
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would be required to have at least 3,000
discharges for its cost reporting period
that began during FY 2004.
2. Acquired Rural Status and RRCs (§
412.103(g))
With the following exceptions, a
hospital must be rural to qualify as an
RRC:
<bullet≤ Consistent with section
4202(b) of Pub. L. 105–33, any hospital
designated as an RRC in FY 1991 retains
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1.2389
1.2675
1.3524
1.3499
1.2909
1.2780
1.4013
1.4260
1.3722
available cost report data we have at this
time.
Therefore, we are proposing that, in
addition to meeting other criteria, a
hospital, if it is to qualify for initial RRC
status for cost reporting periods
beginning on or after October 1, 2007,
must have as the number of discharges
for its cost reporting period that began
during FY 2004 a figure that is at least—
<bullet≤ 5,000 (3,000 for an
osteopathic hospital); or
<bullet≤ The median number of
discharges for urban hospitals in the
census region in which the hospital is
located, as indicated in the following
table:
Region
1.
2.
3.
4.
5.
6.
7.
8.
9.
24811
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7,749
10,603
10,562
9,209
7,596
7,963
7,167
9,116
8,420
that status for FY 1998 and each
subsequent year.
<bullet≤ Hospitals located in a rural
county that would have lost their RRC
status as a result of an OMB
redesignation of the area from rural to
urban were permitted to remain as RRCs
(69 FR 49056).
<bullet≤ Hospitals located in urban
areas that apply for reclassification as
rural under § 412.103 (that is, the
hospital is located in an urban area but
it
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‘‘acquires’’ rural status under the
regulations) also may qualify as RRCs.
Under § 412.103(g), a hospital may
cancel its rural reclassification by
submitting a written request to the CMS
Regional Office no less than 120 days
prior to the end of its current cost
reporting period. A hospital may choose
to cancel its acquired rural status if it
determines it may be more financially
beneficial to return to urban status and
the associated IPPS payments rather
than remain rural and receive the
special treatments of certain rural
providers such as RRCs, SCHs and
CAHs. The hospital’s acquired rural
status is canceled beginning with its
next cost reporting period. We have
received inquiries asking whether a
hospital retains its RRC status once it
voluntarily cancels its acquired rural
status.
As indicated above, a hospital
generally must be rural to be classified
as an RRC. However, a hospital may
retain its RRC status only in the special
circumstances where it would have lost
status due to OMB redesignation of its
area from rural to urban, or where it was
already designated as an RRC in 1991.
In these situations, there were either
special statutory provisions that require
the hospital to retain its RRC status or
the hospital’s geographic status changed
from rural to urban through no action of
its own. We do not believe that an urban
hospital that acquires rural status under
§ 412.103 and subsequently is approved
as an RRC should be able to retain the
benefits of being an RRC when it
voluntarily cancels that acquired rural
status. For this reason, Medicare’s
policy has been that a hospital cannot
continue to be an RRC once it cancels
acquired rural status under § 412.103.
It follows from the requirement that an
RRC must be located in a rural area that
cancellation of acquired rural status
negates a hospital’s RRC designation.
In this proposed rule, we are
clarifying our current policy that a
hospital that cancels its acquired rural
status, received under § 412.103, would
also lose its RRC designation under §
412.96. In this situation, the hospital
would lose its RRC designation under §
412.96 as of the date the cancellation of
its acquired rural status takes effect. As
indicated above, RRCs are not subject to
a maximum DSH adjustment of 12
percent that applies to other rural
hospitals with less than 500 beds.
Further, RRCs are not subject to the
proximity criteria when applying for
geographic reclassification (§
412.230(a)(3)), and they do not have to
meet certain wage comparison tests for
reclassification (§ 412.230(d)(1)(iii)). A
hospital located in an urban area that
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cancels its acquired rural status under §
412.103 loses its RRC status and would
become subject to a 12-percent cap on
the DSH adjustment applicable to urban
hospitals with less than 100 beds (if the
hospital has 100 beds or more, it would
not be subject to the cap on the DSH
adjustment). Further, the hospital would
also have to meet the proximity
requirement for geographic
reclassification at § 412.230(a)(3).
We note that the hospital would
maintain the benefit of being exempt
from the average hourly wage criterion
for geographic reclassification requiring
the comparison of the hospital’s wages
to the wages of the area in which it is
located, as stated in section
1886(d)(10)(D)(iii) of the Act.
We are also proposing to revise the
regulations at § 412.103(g) with respect
to when cancellation of acquired rural
status becomes effective. Currently, §
412.103(g)(2) states ‘‘The hospital’s
cancellation of the classification is
effective beginning with the hospital’s
next full cost reporting period following
the date of its request for cancellation.’’
While this policy is appropriate for
hospitals paid under reasonable costs,
such as CAHs, it is inconsistent with the
IPPS that makes changes prospectively
on the basis of a Federal fiscal year. In
addition, to address concerns that some
IPPS hospitals are acquiring rural status
solely to benefit from reclassification
rules applying to hospitals that were
once RRCs and then canceling that rural
status within a short period of time,
such as a few months, we are proposing
to require IPPS hospitals to retain
acquired rural status for at least one 12month cost reporting period. If the
hospital chooses to cancel its rural
reclassification, the effective date of that
cancellation would occur both after at
least one 12-month cost reporting period
and at the start of the next Federal fiscal
year. Thus, for example, if a hospital
with a cost reporting period from July 1,
2008, to June 30, 2009, becomes rural on
May 30, 2008, its acquired rural status
under § 412.103 would remain in effect
from May 30, 2008, through at least
September 30, 2009 (that is, the date it
acquired rural status through the end of
the fiscal year containing a full cost
reporting period). We believe this policy
is reasonable, given that acquired rural
status for IPPS hospitals should be a
considered decision for hospitals that
truly wish to be considered as rural, and
not purely as a mechanism for
reclassifying. We are not proposing a
duration requirement for hospitals paid
under cost reimbursement because we
are not aware of similar manipulations
of rural status in these cases. Therefore,
we are proposing to change our current
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policy by revising § 412.103(g) to
specify that a hospital’s cancellation of
its acquired rural status under §
412.103 is effective for hospitals under
reasonable cost reimbursement (such as
CAHs) with the hospital’s next cost
reporting period and for hospitals under
the IPPS after at least one 12-month cost
reporting period as rural and not until
the beginning of a Federal fiscal year
following both the request for
cancellation and the 12-month cost
reporting period. Under the proposed
revised regulations, an IPPS hospital
(such as an RRC or SCH) that cancels its
acquired rural status would continue to
be paid as rural until the beginning of
the next fiscal year after at least one 12month cost reporting period as rural. In
addition, for these IPPS hospitals, the
deadline for seeking cancellation of the
acquired rural status would be not less
than 120 days before the end of the
fiscal year.
D. Indirect Medical Education (IME)
Adjustment (§ 412.105)
(If you choose to comment on issues
in this section, please include the
caption ‘‘IME Adjustment’’ at the
beginning of your comment.)
1. Background
Section 1886(d)(5)(B) of the Act
provides that prospective payment
hospitals that have residents in an
approved graduate medical education
(GME) program receive an additional
payment to reflect the higher indirect
patient care costs of teaching hospitals
relative to nonteaching hospitals. The
regulations regarding the calculation of
this additional payment, known as the
indirect medical education (IME)
adjustment, are located at § 412.105.
The Balanced Budget Act of 1997
(Pub. L. 105–33) established a limit on
the number of allopathic and
osteopathic residents that a hospital
may include in its full-time equivalent
(FTE) resident count for direct GME and
IME payment purposes. Under section
1886(h)(4)(F) of the Act, a hospital’s
unweighted FTE count of residents may
not exceed the hospital’s unweighted
FTE count for its most recent cost
reporting period ending on or before
December 31, 1996. Under section
1886(d)(5)(B)(v) of the Act, the limit on
the FTE resident count for IME purposes
is effective for discharges occurring on
or after October 1, 1997. A similar limit
is effective for direct GME purposes for
cost reporting periods beginning on or
after October 1, 1997.
2. IME Adjustment Factor for FY 2008
The IME adjustment to the DRG
payment is based in part on the
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applicable IME adjustment factor. The
IME adjustment factor is calculated
using a hospital’s ratio of residents to
beds, which is represented as r, and a
formula multiplier, which is
represented as c, in the following
equation: c x [●1 + rb .405–1]. The
formula is traditionally described in
terms of a certain percentage increase in
payment for every 10-percent increase
in the resident-to-bed ratio.
Section 502(a) of Pub. L. 108–173
modified the formula multiplier (c) to be
used in the calculation of the IME
adjustment. Prior to the enactment of
Pub. L. 108–173, the formula multiplier
was fixed at 1.35 for discharges
occurring during FY 2003 and
thereafter. Section 502(a) modified the
formula multiplier beginning midway
through FY 2004 and provided for a
new schedule of formula multipliers for
FY 2005 and thereafter. In the FY 2005
IPPS rule, we announced the schedule
of formula multipliers to be used in the
calculation of the IME adjustment and
incorporated the schedule in our
regulations at § 412.105(d)(3)(viii)
through (d)(3)(xii). In this proposed
rule, we are specifying that, for any
discharges occurring during FY 2008,
the statutorily mandated formula
multiplier is 1.35. Previously, for
discharges occurring during FY 2007,
the mandated formula multiplier was
1.32. We estimate that application of the
mandated formula multiplier for FY
2008 will result in an increase of 5.5
percent in IME payment for every
approximately 10-percent increase in
the resident-to-bed ratio.
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3. Time Spent by Residents on Vacation
or Sick Leave and in Orientation
a. Background
In the FY 2007 IPPS final rule (71 FR
48080), we clarified our policy with
respect to the time that residents spend
in nonpatient care activities (such as
conferences and seminars) as part of
approved residency programs. We
amended our regulations concerning the
FTE resident count at 42 CFR
412.105(f)(1)(iii)(C) to state, ‘‘In order to
be counted, a resident must be spending
time in patient care activities, as defined
in § 413.75(b) * * *’’ The regulations at
§ 413.75(b) define patient care activities
as ‘‘the care and treatment of particular
patients, including services for which a
physician or other practitioner may
bill.’’ In light of this clarification, during
the past year, we have received
questions from the teaching hospital
community as to whether the time that
residents spend on vacation or sick
leave, and in orientation activities that
typically occur at the beginning of a
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residency training program, is counted
for IME payment purposes.
Historically, time spent by residents
on vacation or sick leave and in initial
orientation activities has been included
in the FTE resident count for IME and
direct GME. (The sick leave we are
referring to throughout this discussion
is sick leave that does not require the
resident to make up for his or her
absence by adding additional training
time at the end of the program.) The
practice of allowing vacation and sick
leave to be included in the IME count
appears to be based on a provision in
the Provider Reimbursement Manual,
Part I, at section 2405.3.H.2. This
manual provision discusses the
treatment of residents who are on
vacation or sick leave in the context of
our prior ‘‘one day count’’ policy for
counting residents for IME payment.
Generally, effective with cost reporting
periods beginning on or after October 1,
1984, and before July 1, 1991, residents
were counted for IME purposes on a
uniform reporting date of September 1.
A hospital’s FTE residents were counted
based on their assignment to that
hospital’s IPPS or outpatient areas on
September 1 of an academic year.
Because it was possible that a resident
might not actually be present in the
hospital on September 1 because he or
she was on approved vacation or sick
leave, to ensure that the hospital’s IME
FTE count would not be understated for
the entire year, section 2405.3.H.2 of the
PRM–I states that ‘‘interns and residents
using vacation and sick leave on the day
of the count may be included in the
count.’’ Although the regulations were
changed effective for cost reporting
periods beginning on or after July 1,
1991 (55 FR 36059) to reflect the current
resident-counting methodology (that is,
to count the number of FTE residents
based on the amount of time required to
fill a residency slot as specified at §
412.105(f)(1)(iii)(A)), the fiscal
intermediary (or MAC) have continued
to include time spent by residents on
vacation and sick leave in the FTE
resident counts for purposes of both
IME and direct GME payments.
Orientation time is time spent by
residents in activities that typically take
place at the beginning of a resident’s
training program, and include
orientation regarding hospital
employment, the hospital’s policies and
procedures in general, as well as
policies and procedures specific to the
residency training program. As is the
case for vacation and sick leave, time
spent by residents in orientation has
continued to be included by
intermediaries/MACs in the FTE
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24813
resident counts for purposes of both
IME and direct GME.
We understand why we have received
numerous questions regarding whether
FTE resident time spent on vacation or
sick leave, or in orientation activities,
should be counted for purposes of IME
payment. The time a resident spends on
vacation or sick leave is not addressed
within the current definition of ‘‘patient
care activities’’ at § 413.75(b). In fact,
time spent on vacation or sick leave
would not be spent at the hospital
location at all, so no patient care
activities would occur during this time.
Time spent in orientation might be
spent in the hospital complex (or at a
nonhospital setting), but would not
involve the care and treatment of
particular patients. Thus, although time
spent by residents on vacation or sick
leave or in orientation has historically
been included in the IME and direct
GME FTE counts, it seems apparent that
this time should be carefully considered
in light of our clarified policy and
current regulations. We believe these
types of activities (vacation time, sick
leave, and orientation) are inherently
different from the types of ‘‘patient care
activities’’ and ‘‘nonpatient care
activities’’ we have discussed in depth
in previous rules, and most recently in
the FY 2007 IPPS final rule. We believe
the aforementioned activities should be
distinguished from other activities,
patient care or otherwise, in which the
resident participates as part of the
approved program.
b. Vacation and Sick Leave Time
We believe that approved vacation
time and sick leave are not
appropriately categorized as patient care
activities, or as didactic, research, or
other nonpatient care activities. In
addition, although the Accreditation
Council for Graduate Medical Education
(ACGME) has some rules regarding
resident duty hours and work
environment, the ACGME is not explicit
regarding resident vacation and sick
leave policies. Rather, vacation and sick
leave policies are determined by the
resident’s employer and can vary by
residency training program.
Consequently, although vacation and
sick leave are fringe benefits to which
every employee, hospital or otherwise,
is typically entitled, vacation and sick
leave are not, in fact, part of the training
time spent by residents in an approved
program. Therefore, we believe vacation
and sick leave are not properly
considered as either patient care time or
nonpatient care time, but are within a
distinct third category of time. As we
noted above, it has been our policy to
include the time spent by residents on
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vacation or sick leave in the FTE
resident count for IME and direct GME.
However, we do not believe the
continuation of this policy is
appropriate in light of our current
policy as clarified in the FY 2007 IPPS
final rule and expressed in revised
regulations that permit only time spent
by residents in patient care activities to
be counted for purposes of IME. We
initially considered proposing a policy
to no longer count the time spent by
residents on vacation or sick leave for
purposes of IME on the ground that this
time is not spent in patient care
activities in accordance with our
regulations. However, we do not believe
such a policy would have recognized
the unique character of vacation and
sick time as time that is not spent in any
aspect of residency training—patient
care or nonpatient care. Because we
believe time spent by residents on
vacation and sick leave is not properly
considered patient care time or
nonpatient care time, but fit within a
distinct third category of time that is
neither patient care nor nonpatient care,
we believe it would be more appropriate
to remove the time altogether from the
FTE calculation for each resident for
both IME and direct GME payment
purposes. Accordingly, we are
proposing to remove vacation and sick
leave from the total time considered to
constitute an FTE resident for purposes
of IME payment effective for cost
reporting periods beginning on or after
October 1, 2007. Further, in order to
have a consistent conception of an FTE
resident for purposes of IME and direct
GME payment, we are proposing to
remove vacation and sick leave from the
total FTE resident time for purposes of
direct GME payment as well effective
for cost reporting periods beginning on
or after October 1, 2007. We
acknowledge that removing vacation
and sick leave time from the
denominator of the FTE count for both
IME and direct GME could have some
impact on the FTE count, but the impact
is fact-specific. In some cases, it would
result in a lower FTE count, and in
some cases, it would result in a higher
FTE count. In addition, we note that
under our current policy, residents who
are on maternity leave or other
approved sick leave of extended
duration that prolongs the total time a
resident is participating in the approved
program beyond the normal duration of
the program are not counted while they
are out on extended sick or maternity
leave. This is because the FTE time
spent by such residents is counted in
accordance with our FTE counting
policies during the training time they
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spend to make up for their absence. For
example, a resident in an internal
medicine program who takes 3 months
of approved maternity leave and,
therefore, must stay an additional 3
months beyond the normal 3 years to
complete her training, would not be
counted while she is on maternity leave
for IME and direct GME payment
purposes. Rather, time spent during the
additional 3 months of training in
which she must participate to make up
for her 3 month absence will be counted
in accordance with our FTE-counting
policies for IME and direct GME. We are
not proposing to change our policy with
respect to time spent by residents on
maternity leave or other approved sick
leave of extended duration.
c. Orientation Activities
As discussed above, we believe that
orientation activities in which residents
participate, often prior to the start of
their residency training program, are
also distinct from the typical ‘‘patient
care’’ and ‘‘nonpatient care’’ activities in
which residents participate as part of
their training program. For example,
before residents begin training in an
approved residency program, the
hospital (or in many cases, the medical
school as the employer of the residents)
is required to provide orientation for
their residents. Most of these orientation
activities involve neither patient care
nor the typical didactic or research
activities that comprise the residency
training program. Instead, such
orientation consists of basic
informational sessions in which all new
employees, residents and other staff,
must participate at the beginning of
employment. There could also be other
orientation activities designed
specifically to prepare residents to
furnish patient care in a particular
setting or to participate in a particular
approved residency training program.
We recognize that certain portions of
orientation activities are specific to
residents in particular approved
programs and are required by the
accrediting organizations. Other
components of orientation relate to
employment and are common to all
employees. Still other components of
orientation may involve training
regarding particular hospital policies
and procedures, some of which would
relate to patient care and safety. In many
ways, these orientation activities
resemble ‘‘didactic’’ activities. However,
we believe there are important
differences between the ‘‘didactic’’
activities that are part of orientation and
the other conferences and seminars in
which the residents engage throughout
the course of their training. That is, we
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do not envision orientation activities as
including scholarly didactic activities
such as conferences or seminars that
may occur throughout a residency
training program. Rather, we believe
orientation activities would occur either
at the beginning of a particular specialty
program, or when a resident goes to
another facility for training. In
orientation sessions, much of the
information being imparted to the
residents is essential knowledge for the
residents in order to furnish patient care
services in a particular hospital facility
or approved program. Thus, the
information furnished during
orientation is not information that
merely enhances the resident’s patient
care delivery knowledge and skills
during the residency program, but it is
a necessary prerequisite for the
residents as they commence (or
continue) their training program and is
often required as a term of employment.
Because we recognize the distinct
character of orientation activities as
essential to the provision of patient care
by residents, and the fundamental
differences between orientation and the
typical didactic activities in which a
resident may participate throughout a
residency training program, we are
proposing to continue to count the time
spent by residents in orientation
activities, whether they occur in the
hospital or nonhospital setting, and are
proposing to amend our regulations
accordingly. (We note that orientation
activities in the hospital setting have
historically been counted for direct
GME payment purposes in accordance
with the regulations at § 413.78(a)
which state ‘‘Residents in an approved
program working in all areas of the
hospital complex may be counted.’’) We
are proposing to amend § 413.75(b) to
add a definition of the term ‘‘orientation
activities,’’ to mean ‘‘activities that are
principally designed to prepare an
individual for employment as a resident
in a particular setting, or for
participation in a particular specialty
program and patient care activities
associated with that particular specialty
program.’’ We understand that
orientation activities typically occur at
the beginning of a resident’s first
program year. However, we are
interested in hearing from commenters
on whether orientation activities
typically occur during other times
during an approved residency training
program. We are proposing to amend
the definition of ‘‘patient care activities’’
at § 413.75(b) as follows: ‘‘the care and
treatment of particular patients,
including services for which a physician
or other practitioner may bill, and
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orientation activities as defined at §
413.75(b).’’ In addition, we are
proposing to amend the regulations at
§ § 412.105(f)(1)(iii)(A) and 413.78(b) to
specify that ‘‘Vacation and sick leave are
not included in the determination of
full-time equivalency.’’
d. Proposed Regulation Changes
In summary, we are proposing, for
cost reporting periods beginning on or
after October, 1, 2007, for direct GME
and IME, that time spent by residents on
vacation or sick leave would not be
included in the determination of what
constitutes an FTE resident (or would be
removed from both the numerator and
denominator of the FTE count) for both
IME and direct GME payment purposes.
In addition, we are proposing to
continue to count time spent by
residents in orientation activities for
both IME and direct GME payment
purposes. We are proposing to amend
the regulations at § §
412.105(f)(1)(iii)(A) and 413.78(b).
Lastly, we are proposing to amend §
413.75(b) to include the definition of the
term ‘‘orientation activities’’ and to
amend the definition of ‘‘patient care
activities’’ to add ‘‘orientation
activities.’’
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E. Hospital Emergency Services Under
EMTALA (§ 489.24)
(If you choose to comment on issues
in this section, please include the
caption ‘‘EMTALA’’ at the beginning of
your comments.)
1. Background
Sections 1866(a)(1)(I), 1866(a)(1)(N),
and 1867 of the Act impose specific
obligations on certain Medicareparticipating hospitals and CAHs.
(Throughout this section of this
proposed rule, when we reference the
obligation of a ‘‘hospital’’ under these
sections of the Act and in our
regulations, we mean to include CAHs
as well.) These obligations concern
individuals who come to a hospital
emergency department and request
examination or treatment for medical
conditions, and apply to all of these
individuals, regardless of whether they
are beneficiaries of any program under
the Act.
The statutory provisions cited above
are frequently referred to as the
Emergency Medical Treatment and
Labor Act (EMTALA), also known as the
patient antidumping statute. EMTALA
was passed in 1986 as part of the
Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA),
Pub. L. 99–272. Congress enacted these
antidumping provisions in the Social
Security Act to ensure that individuals
with emergency medical conditions are
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not denied essential lifesaving services
because of a perceived inability to pay.
Under section 1866(a)(1)(I)(i) of the
Act, a hospital that fails to fulfill its
EMTALA obligations under these
provisions may be liable for termination
of its Medicare provider agreement,
which would result in loss of all
Medicare and Medicaid payments.
Section 1867 of the Act sets forth
requirements for medical screening
examinations for individuals who come
to the hospital and request examination
or treatment for a medical condition.
The section further provides that if a
hospital finds that such an individual
has an emergency condition, it is
obligated to provide that individual
with either necessary stabilizing
treatment or an appropriate transfer to
another medical facility where
stabilization can occur.
The EMTALA statute also outlines the
obligation of hospitals to receive
appropriate transfers from other
hospitals. Section 1867(g) of the Act
states that a participating hospital that
has specialized capabilities or facilities
(such as burn units, shock-trauma units,
neonatal intensive care units or (with
respect to rural areas) regional referral
centers as identified by the Secretary in
regulation) shall not refuse to accept an
appropriate transfer of an individual
who requires these specialized
capabilities or facilities if the hospital
has the capacity to treat the individual.
The regulations implementing section
1867 of the Act are found at 42 CFR
489.24.
2. Recent Legislation Affecting
EMTALA Implementation
a. Secretary’s Authority To Waive
Requirements During National
Emergencies
Section 1135 of the Act authorizes the
Secretary to temporarily waive or
modify the application of several
requirements of titles XVIII, XIX, or XXI
of the Act (the Medicare, Medicaid, and
State Children’s Health Insurance
Program provisions) and their
implementing regulations in an
emergency area during an emergency
period. Section 1135(g)(1) of the Act
defines an ‘‘emergency area’’ as the
geographical area in which there exists
an emergency or disaster declared by
the President pursuant to the National
Emergencies Act or the Robert T.
Stafford Disaster Relief and Emergency
Assistance Act (subsection A) and a
public health emergency declared by the
Secretary pursuant to section 247d of
Title 42 of the United States Code.
Section 1135(g)(1) of the Act also
defines an ‘‘emergency period’’ as the
period during which such a disaster
exists.
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Section 1135(b) of the Act lists the
actions for which the otherwise
applicable statutory provisions and
implementing regulations may be
waived. Included among these actions
are, in subparagraph (b)(3)(A), a transfer
of an individual who has not been
stabilized in violation of the EMTALA
requirements restricting transfer until an
individual has been stabilized (section
1867(c) of the Act) and, in subparagraph
(b)(3)(B), the direction or relocation of
an individual to receive medical
screening in an alternate location, in
accordance with an appropriate State
emergency preparedness plan.
Section 1135(b) of the Act further
states that a waiver or modification
provided for under section 1135(b)(3) of
the Act shall be limited to a 72-hour
period beginning upon implementation
of a hospital disaster protocol. All other
waivers arising out of section 1135(b) of
the Act (except for section 1135(b)(7))
ordinarily may continue in effect for the
duration of the declaration of emergency
or disaster, or the declaration of a public
health emergency, or for 60-day periods
as described in section 1135(e)(1) of the
Act.
To take into account the effect of
section 1135 waivers on the EMTALA
requirements, § 489.24(a)(2) of our
regulations specifies that sanctions
under the EMTALA regulations for
inappropriate transfer during a national
emergency do not apply to a hospital
with a dedicated emergency department
located in an emergency area, as
specified in section 1135(g)(1) of the
Act.
For further information about section
1135 of the Act and its applicability, we
refer readers to the CMS Web site:
https://www.cms.hhs.gov/Emergency/
02—Hurricanes.asp.
b. Provisions of the Pandemic and AllHazards Preparedness Act
On December 19, 2006, Congress
enacted the Pandemic and All-Hazards
Preparedness Act, Pub. L. 109–417.
Section 302(b) of Pub. L. 109–417 makes
two specific changes that affect
EMTALA implementation in emergency
areas during an emergency period.
As noted above, section 1135(b)(3) of
the Act authorizes the Secretary to
waive sanctions for either the transfer of
an unstabilized individual in violation
of the requirements of section 1867(c) of
the Act where such transfer is
necessitated by the circumstances of the
declared emergency in the emergency
area during the emergency period or the
direction or relocation of an individual
to receive medical screening in an
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alternate location in accordance with an
appropriate State emergency
preparedness plan. Section 302(b)(1)(A)
of Pub. L. 109–417 amended section
1135(b)(3)(B) of the Act to state that
sanctions for the direction or relocation
of an individual for screening may be
waived where, in the case of a public
health emergency that involves a
pandemic infectious disease, that
direction or relocation occurs pursuant
to a State pandemic preparedness plan
or to an appropriate State emergency
preparedness plan. In addition, sections
302(b)(1)(B) and (b)(1)(C) of Pub. L. 109–
417 amended section 1135(b) of the Act
to state that, if a public health
emergency involves a pandemic
infectious disease (such as pandemic
influenza), the duration of a waiver or
modification for such emergency shall
be determined in accordance with
section 1135(e) of the Act as that
subsection applies to public health
emergencies. The amendments to
section 1135(b) of the Act made by
section 302(b) of Pub. L. 109–417 are
effective as of the date of enactment of
that legislation (December 19, 2006) and
apply to public health emergencies
declared pursuant to section 247(d) of
Title 42 of the United States Code.
c. Proposed Revisions to the EMTALA
Regulations
Currently, the EMTALA regulation at
42 CFR 489.24(a)(2) specifies that
sanctions under this section (§ 489.24)
for inappropriate transfer during a
national emergency do not apply to a
hospital with a dedicated emergency
department located in an emergency
area, as specified in section 1135(g)(1) of
the Act. To implement the changes
made by section 302(b) of Pub. L. 109–
417 and to ensure that our regulations
accurately reflect section 1135 of the
Act, we are proposing to make two
changes to paragraph (a)(2) of § 489.24.
First, we would specify that the
sanctions that do not apply are those for
either the inappropriate transfer of an
individual who has not been stabilized
or those for the direction or relocation
of an individual to receive medical
screening at an alternate location. We
also are proposing to revise § 489.24 by
adding a second sentence to paragraph
(a)(2) to state that a waiver of these
sanctions for EMTALA violations is
limited to a 72-hour period beginning
upon the implementation of a hospital
disaster protocol, except that if a public
health emergency involves a pandemic
infectious disease (such as pandemic
influenza), the duration of the waiver
will be determined in accordance with
subsection (e) of section 1135 of the Act
as that subsection applies to public
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health emergencies. This proposed
change would clarify that, in the case of
public health emergencies involving
pandemic infectious diseases, the
waiver of EMTALA sanctions is not
limited to 72 hours, but will remain in
effect until the termination of the
applicable declaration of a public health
emergency as described in section
1135(e)(1)(B) of the Act.
F. Disclosure of Physician Ownership in
Hospitals and Patient Safety Measures
1. Disclosure of Physician Ownership in
Hospitals
(If you choose to comment on issues
in this section, please include the
caption ‘‘Physician Ownership in
Hospitals’’ at the beginning of your
comment.)
Section 1866 of the Act states that any
provider of services (except a fund
designated for purposes of section
1814(g) and section 1835(e) of the Act)
shall be qualified to participate in the
Medicare program and shall be eligible
for Medicare payments if it files a
Medicare provider agreement and
abides by the requirements applicable to
Medicare provider agreements. These
requirements are incorporated into our
regulations in 42 CFR part 489, subparts
A and B (Provider Agreements and
Supplier Approval). Section 1861(e) of
the Act defines the term ‘‘hospital.’’
Section 1861(e)(9) of the Act defines a
hospital and authorizes the Secretary to
establish requirements as he finds
necessary in the interest of patient
health and safety. Section 1820(e)(3) of
the Act authorizes the Secretary to
establish criteria necessary for an
institution to be certified as a critical
access hospital.
Section 5006 of Pub. L. 109–171
(DRA) required the Secretary to develop
a ‘‘strategic and implementing plan’’ to
address certain issues related to
physician investment in ‘‘specialty
hospitals.’’ In the strategic and
implementing plan included in our
‘‘Final Report to the Congress and
Strategic and Implementing Plan
Required under Section 5006 of the
Deficit Reduction Act of 2005’’ issued
on August 8, 2006 (page 69), available
on our Web site at: https://www.cms.
hhs.gov/PhysicianSelfReferral/06a—
DRA—Reports.asp (hereinafter referred
to as the ‘‘DRA Report to Congress’’), we
stated that our plan for addressing
issues related to physician investment
in specialty hospitals involved
promoting transparency of investment.
Consistent with that approach, we
stated that we would adopt a disclosure
requirement that would require
hospitals to disclose to patients whether
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they are physician-owned, and if so,
disclose the names of the physician
owners. Accordingly, we are proposing
changes to regulations governing
Medicare provider agreements to
effectuate this change, under our
authority at sections 1861(e)(9), 1820(e)
and 1866 of the Act and under our
rulemaking authority at sections 1871
and 1102 of the Act. We are seeking
comment as to whether these changes
best effectuated through changes to the
Medicare provider agreement
regulations or whether it would be more
appropriate to include these changes in
the conditions of participation
requirements applicable to hospitals
and critical access hospitals.
Specifically, we are proposing to
amend § 489.3 to define a ‘‘physicianowned hospital’’ as any participating
hospital (as defined in § 489.24) in
which a physician or physicians have
an ownership or investment interest. We
solicit comments on whether, for
purposes of the ownership disclosure
requirements only, the definition of
‘‘physician-owned hospital’’ should
exclude certain physician ownership or
investment interests based on the nature
of the interest or the relative size of the
interest or the entity’s assets (for
example, whether the interest would
satisfy the exception at § 4111.356(a)
for physician ownership or investment
interest in public-traded securities and
mutual funds).
We are proposing to add a new
provision at § 489.20(u)(1) to require
that patients be given written notice that
a hospital is physician-owned and that
the list of physician owners is available
upon request. We are proposing to
require that the notice, in a manner
reasonably designed to be understood
by all patients, disclose the fact that the
hospital meets the Federal definition of
a ‘‘physician-owned hospital’’ and that
patients will be provided the list of the
hospital’s physician owners upon
request. In addition, we are proposing to
add a new provision at § 489.20(u)(2)
which will require hospitals to require
that all physician owners who are also
members of the hospital’s medical staff
disclose, in writing, their ownership
interest in the hospital to all patients
they refer to the hospital, as a condition
of continued medical staff membership.
Patient disclosure would be required at
the time a physician makes a referral.
We believe that these provisions are in
the interest of the health and safety of
individuals who are furnished services
in these institutions. This notice
requirement will permit individuals to
make more informed decisions
regarding their treatment and to
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evaluate whether the existence of a
financial relationship, in the form of an
ownership interest, suggests a conflict of
interest that is not in their best interest.
In order to enforce these proposed
requirements, we are proposing to
amend § 489.12 to deny a provider
agreement to a hospital that does not
have procedures in place to notify
patients of physician ownership in the
hospital. In addition, we are proposing
to amend § 489.53 to permit CMS to
terminate a provider agreement with a
physician-owned hospital if the hospital
fails to comply with the requirements of
§ 489.20(u).
2. Patient Safety Measures
(If you choose to comment on issues
in this section, please include the
caption ‘‘Patient Safety Measures’’ at the
beginning of your comment.)
In the DRA Report to Congress (page
67), we stated that it was appropriate to
issue further guidance on what we
expect of all hospitals with respect to
the appraisal, initial treatment, and
referral, when appropriate, of patients
with medical emergencies. The
Medicare hospital conditions of
participation regulations at 42 CFR part
482 impose requirements on hospitals
that have emergency departments, as
well as requirements on hospitals
without emergency departments. We
believe that hospitals should be
required to disclose to patients at the
time of inpatient admission or
registration for an outpatient service
information concerning whether a
physician is available on the premises
24 hours a days, 7 days a week. Under
the authority at sections 1861(e)(9),
1820(e)(3), 1866, 1871, and 1102 of the
Act (described previously), we are
proposing to add a new provision at §
489.20(v)(1) to require that hospitals
furnish all patients notice at the
beginning of their hospital stay or
outpatient service if a doctor of
medicine or a doctor of osteopathy is
not present in the hospital 24 hours per
day, 7 days a week, and to describe how
the hospital will meet the medical needs
of any patient who develops an
emergency medical condition, at a time
when no physician is present in the
hospital. We are seeking comment as to
whether this change best effectuated
through changes to the Medicare
provider agreement regulations or
whether it would be more appropriate to
include this change in the conditions of
participation requirements applicable to
hospitals and critical access hospitals.
It has also come to our attention that
some hospitals have called 9–1–1 when
a patient has gone into respiratory
arrest, a physician has not been on the
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premises, and the onsite clinical
personnel have lacked the requisite
equipment or training to provide the
required assessment, initial treatment,
and referral that are required of all
hospitals. In some cases, required
interventions to initiate emergency
treatment may be outside the scope of
practice of the clinical personnel onsite.
This has occurred even in hospitals that
operate emergency departments.
Therefore, in this proposed rule, we are
soliciting comments on whether current
requirements for emergency service
capability in hospitals with or without
emergency departments should be
strengthened in certain areas.
Specifically, we are seeking feedback on
whether present regulatory provisions
should be expanded with respect to the
type of clinical personnel that must be
present at all times in hospitals with
and without emergency departments;
the competencies that such personnel
must demonstrate, such as training in
Advanced Cardiac Life Support, or
successful completion of specified
professional training programs; the type
of emergency response equipment that
must be available and the manner in
which it must be available, such as in
each emergency department, or
inpatient unit, among others; and
whether emergency departments must
be operated 24 hours/day, 7 days a
week. After evaluating the comments we
receive, we will consider whether we
should amend the Medicare hospital
conditions of participation related to
provision of emergency services in
hospitals with and without emergency
departments.
G. Rural Community Hospital
Demonstration Program
(If you choose to comment on issues
in this section, please include the
caption ‘‘Rural Community Hospital
Demonstration’’ at the beginning of your
comments.)
In accordance with the requirements
of section 410A(a) of Pub. L. 108–173,
the Secretary has established a 5-year
demonstration program (beginning with
selected hospitals’ first cost reporting
period beginning on or after October 1,
2004) to test the feasibility and
advisability of establishing ‘‘rural
community hospitals’’ for Medicare
payment purposes for covered inpatient
hospital services furnished to Medicare
beneficiaries. A rural community
hospital, as defined in section
410A(f)(1), is a hospital that—
<bullet≤ Is located in a rural area (as
defined in section 1886(d)(2)(D) of the
Act) or is treated as being located in a
rural area under section 1886(d)(8)(E) of
the Act;
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24817
<bullet≤ Has fewer than 51 beds
(excluding beds in a distinct part
psychiatric or rehabilitation unit) as
reported in its most recent cost report;
<bullet≤ Provides 24-hour emergency
care services; and
<bullet≤ Is not designated or eligible
for designation as a CAH.
As we indicated in the FY 2005 IPPS
final rule (69 FR 49078), in accordance
with sections 410A(a)(2) and (a)(4) of
Pub. L. 108–173 and using 2002 data
from the U.S. Census Bureau, we
identified 10 States with the lowest
population density from which to select
hospitals: Alaska, Idaho, Montana,
Nebraska, Nevada, New Mexico, North
Dakota, South Dakota, Utah, and
Wyoming (Source: U.S. Census Bureau
Statistical Abstract of the United States:
2003). Nine rural community hospitals
located within these States are currently
participating in the demonstration
program for FY 2008. (Of the 13
hospitals that participated in the first 2
years of the demonstration program, 4
hospitals located in Nebraska have
withdrawn from the program; they have
become CAHs.)
Under the demonstration program,
participating hospitals are paid the
reasonable costs of providing covered
inpatient hospital services (other than
services furnished by a psychiatric or
rehabilitation unit of a hospital that is
a distinct part), applicable for
discharges occurring in the first cost
reporting period beginning on or after
the October 1, 2004, implementation
date of the demonstration program.
Payments to the participating hospitals
will be the lesser amount of the
reasonable cost or a target amount in
subsequent cost reporting periods. The
target amount in the second cost
reporting period is defined as the
reasonable costs of providing covered
inpatient hospital services in the first
cost reporting period, increased by the
inpatient prospective payment update
factor (as defined in section
1886(b)(3)(B) of the Act) for that
particular cost reporting period. The
target amount in subsequent cost
reporting periods is defined as the
preceding cost reporting period’s target
amount, increased by the inpatient
prospective payment update factor (as
defined in section 1886(b)(3)(B) of the
Act) for that particular cost reporting
period.
Covered inpatient hospital services
are inpatient hospital services (defined
in section 1861(b) of the Act), and
include extended care services
furnished under an agreement under
section 1883 of the Act.
Section 410A of Pub. L. 108–173
requires that ‘‘in conducting the
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demonstration program under this
section, the Secretary shall ensure that
the aggregate payments made by the
Secretary do not exceed the amount
which the Secretary would have paid if
the demonstration program under this
section was not implemented.’’
Generally, when CMS implements a
demonstration program on a budget
neutral basis, the demonstration
program is budget neutral in its own
terms; in other words, the aggregate
payments to the participating providers
do not exceed the amount that would be
paid to those same providers in the
absence of the demonstration program.
This form of budget neutrality is viable
when, by changing payments or aligning
incentives to improve overall efficiency,
or both, a demonstration program may
reduce the use of some services or
eliminate the need for others, resulting
in reduced expenditures for the
demonstration program’s participants.
These reduced expenditures offset
increased payments elsewhere under
the demonstration program, thus
ensuring that the demonstration
program as a whole is budget neutral or
yields savings. However, the small scale
of this demonstration program, in
conjunction with the payment
methodology, makes it extremely
unlikely that this demonstration
program could be viable under the usual
form of budget neutrality. Specifically,
cost-based payments to the nine
participating small rural hospitals are
likely to increase Medicare outlays
without producing any offsetting
reduction in Medicare expenditures
elsewhere. Therefore, a rural
community hospital’s participation in
this demonstration program is unlikely
to yield benefits to the participant if
budget neutrality were to be
implemented by reducing other
payments for these providers.
In order to achieve budget neutrality
for this demonstration program for FY
2008, we are proposing to adjust the
national inpatient PPS rates by an
amount sufficient to account for the
added costs of this demonstration
program. We are proposing to apply
budget neutrality across the payment
system as a whole rather than merely
across the participants in this
demonstration program. As we
discussed in the FY 2005, FY 2006, and
FY 2007 IPPS final rules (69 FR 49183;
70 FR 47462; and 71 FR 48100), we
believe that the language of the statutory
budget neutrality requirements permits
the agency to implement the budget
neutrality provision in this manner. For
FY 2008, using cost report data for FY
2003, adjusted to account for the
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increased estimated costs for the
remaining nine participating hospitals,
we estimate that the adjusted amount
would be $9,681,893. This proposed
estimated adjusted amount reflects the
estimated difference between the
participating hospitals’ costs and the
IPPS payment based on data from the
hospitals’ cost reports. We discuss the
proposed payment rate adjustment that
would be required to ensure the budget
neutrality of the demonstration program
for FY 2008 in section II.A.4. of the
Addendum to this proposed rule.
V. Proposed Changes to the IPPS for
Capital-Related Costs
(If you choose to comment on issues
in this section, please include the
caption ‘‘Capital IPPS’’ at the beginning
of your comment.)
A. Background
Section 1886(g) of the Act requires the
Secretary to pay for the capital-related
costs of inpatient acute hospital services
‘‘in accordance with a prospective
payment system established by the
Secretary.’’ Under the statute, the
Secretary has broad authority in
establishing and implementing the IPPS
for acute care hospital inpatient capitalrelated costs. We initially implemented
the IPPS for capital-related costs in the
August 30, 1991 IPPS final rule (56 FR
43358), in which we established a 10year transition period to change the
payment methodology for Medicare
hospital inpatient capital-related costs
from a reasonable cost-based
methodology to a prospective
methodology (based fully on the Federal
rate).
Federal fiscal year (FFY) 2001 was the
last year of the 10-year transition period
established to phase in the IPPS for
hospital inpatient capital-related costs.
For cost reporting periods beginning in
FY 2002, capital IPPS payments are
based solely on the Federal rate for most
acute care hospitals (other than certain
new hospitals and hospitals receiving
certain exception payments). The basic
methodology for determining capital
prospective payments using the Federal
rate is set forth in § 412.312. For the
purpose of calculating payments for
each discharge, the standard Federal
rate is adjusted as follows:
(Standard Federal Rate) x (DRG
Weight) x (Geographic Adjustment
Factor (GAF)) x (Large Urban Add-on, if
applicable) x (COLA for hospitals
located in Alaska and Hawaii) x (1 +
Capital DSH Adjustment Factor +
Capital IME Adjustment Factor, if
applicable).
Hospitals also may receive outlier
payments for those cases that qualify
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Sfmt 4702
under the threshold established for each
fiscal year as specified in § 412.312(c)
of the regulations.
The regulations at § 412.348(f)
provide that a hospital may request an
additional payment if the hospital
incurs unanticipated capital
expenditures in excess of $5 million due
to extraordinary circumstances beyond
the hospital’s control. This policy was
originally established for hospitals
during the 10-year transition period, but
as we discussed in the August 1, 2002
IPPS final rule (67 FR 50102), we
revised the regulations at § 412.312 to
specify that payments for extraordinary
circumstances are also made for cost
reporting periods after the transition
period (that is, cost reporting periods
beginning on or after October 1, 2001).
Additional information on the exception
payment for extraordinary
circumstances in § 412.348(f) can be
found in the FY 2005 IPPS final rule (69
FR 49185 and 49186).
During the transition period, under
§ § 412.348(b) through (e), eligible
hospitals could receive regular
exception payments. These exception
payments guaranteed a hospital a
minimum payment percentage of its
Medicare allowable capital-related costs
depending on the class of hospital (§
412.348(c)), but were available only
during the 10-year transition period.
After the end of the transition period,
eligible hospitals can no longer receive
this exception payment. However, even
after the transition period, eligible
hospitals receive additional payments
under the special exceptions provisions
at § 412.348(g), which guarantees all
eligible hospitals a minimum payment
of 70 percent of its Medicare allowable
capital-related costs provided that
special exceptions payments do not
exceed 10 percent of total capital IPPS
payments. Special exceptions payments
may be made only for the 10 years from
the cost reporting year in which the
hospital completes its qualifying
project, and the hospital must have
completed the project no later than the
hospital’s cost reporting period
beginning before October 1, 2001. Thus,
an eligible hospital may receive special
exceptions payments for up to 10 years
beyond the end of the capital IPPS
transition period. Hospitals eligible for
special exceptions payments were
required to submit documentation to the
intermediary indicating the completion
date of their project. (For more detailed
information regarding the special
exceptions policy under § 412.348(g),
refer to the August 1, 2001 IPPS final
rule (66 FR 39911 through 39914) and
the August 1, 2002 IPPS final rule (67
FR 50102).)
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Under the IPPS for capital-related
costs, § 412.300(b) of the regulations
defines a new hospital as a hospital that
has operated (under current or previous
ownership) for less than 2 years. (For
more detailed information, we refer
readers to the August 30, 1991 final rule
(56 FR 43418).) During the 10-year
transition period, a new hospital was
exempt from the capital IPPS for its first
2 years of operation and was paid 85
percent of its reasonable costs during
that period. Originally, this provision
was effective only through the transition
period and, therefore, ended with cost
reporting periods beginning in FY 2002.
Because we believe that special
protection to new hospitals is also
appropriate even after the transition
period, as discussed in the August 1,
2002 IPPS final rule (67 FR 50101), we
revised the regulations at §
412.304(c)(2) to provide that, for cost
reporting periods beginning on or after
October 1, 2002, a new hospital (defined
under § 412.300(b)) is paid 85 percent
of its Medicare allowable capital-related
costs through its first 2 years of
operation, unless the new hospital
elects to receive fully prospective
payment based on 100 percent of the
Federal rate. (We refer readers to the
August 1, 2001 IPPS final rule (66 FR
39910) for a detailed discussion of the
statutory basis for the system, the
development and evolution of the
system, the methodology used to
determine capital-related payments to
hospitals both during and after the
transition period, and the policy for
providing exception payments.)
Section 412.374 provides for the use
of a blended payment amount for
prospective payments for capital-related
costs to hospitals located in Puerto Rico.
Accordingly, under the capital IPPS, we
compute a separate payment rate
specific to Puerto Rico hospitals using
the same methodology used to compute
the national Federal rate for capitalrelated costs. In general, hospitals
located in Puerto Rico are paid a blend
of the applicable capital IPPS Puerto
Rico rate and the applicable capital IPPS
Federal rate.
Prior to FY 1998, hospitals in Puerto
Rico were paid a blended capital IPPS
rate that consisted of 75 percent of the
capital IPPS Puerto Rico specific rate
and 25 percent of the capital IPPS
Federal rate. However, effective October
1, 1997 (FY 1998), in conjunction with
the change to the operating IPPS blend
percentage for Puerto Rico hospitals
required by section 4406 of Pub. L. 105–
33, we revised the methodology for
computing capital IPPS payments to
hospitals in Puerto Rico to be based on
a blend of 50 percent of the capital IPPS
Puerto Rico rate and 50 percent of the
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capital IPPS Federal rate. Similarly, in
conjunction with the change in
operating IPPS payments to hospitals in
Puerto Rico for FY 2005 required by
section 504 of Pub. L. 108–173, we again
revised the methodology for computing
capital IPPS payments to hospitals in
Puerto Rico to be based on a blend of
25 percent of the capital IPPS Puerto
Rico rate and 75 percent of the capital
IPPS Federal rate effective for
discharges occurring on or after October
1, 2004.
B. Proposed Policy Change
As we have noted above, the Secretary
has broad authority under the statute in
establishing and implementing the IPPS
for hospital inpatient capital-related
costs. We initially exercised that
authority in the August 30, 1991 IPPS
final rule (56 FR 43358). Among other
provisions of that rule, we established
the 10-year transition period to change
the payment methodology for Medicare
hospital inpatient capital-related costs
from a reasonable cost-based
methodology to a prospective
methodology (based fully on the Federal
rate). The purpose of that lengthy
transition was to allow hospitals
sufficient time to adjust to payment
under a fully prospective system based
on a uniform national rate. In that rule,
we also established the initial standard
Federal payment rate for capital-related
costs, as well as the mechanism for
updating that rate in subsequent years.
For FY 1992, we computed the standard
Federal payment rate for capital-related
costs under the IPPS by updating the FY
1989 Medicare inpatient capital cost per
case by an actuarial estimate of the
increase in Medicare inpatient capital
costs per case. Each year after FY 1992,
we update the capital standard Federal
rate, as provided at § 412.308(c)(1), to
account for capital input price increases
and other factors. The regulations at §
412.308(c)(2) provide that the capital
Federal rate is adjusted annually by a
factor equal to the estimated proportion
of outlier payments under the capital
Federal rate to total capital payments
under the capital Federal rate. In
addition, § 412.308(c)(3) requires that
the capital Federal rate be reduced by an
adjustment factor equal to the estimated
proportion of payments for (regular and
special) exceptions under § 412.348.
Section 412.308(c)(4)(ii) requires that
the capital standard Federal rate be
adjusted so that the effects of the annual
DRG reclassification and the
recalibration of DRG weights and
changes in the geographic adjustment
factor are budget neutral.
Since the implementation of the IPPS
for hospital inpatient capital-related
costs, we have carefully monitored the
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24819
adequacy of the standard Federal
payment rate for capital-related costs
and the updates provided under the
existing regulations. On several
occasions, the standard Federal
payment rate has been adjusted. Section
1886(g)(1)(A) of the Act required a 7.4
percent reduction to the capital rate for
discharges occurring after September 30,
1993. (We implemented that reduction
to the rate in § 412.308(b)(2) of our
regulations, effective in FY 1994.)
Section 412.308(b)(3) of the regulations
describes the 0.28 percent reduction to
the capital rate made in FY 1996 as a
result of the revised policy of paying for
transfers. In FY 1998, we implemented
section 4402 of Pub. L. 105–33, which
required that, for discharges occurring
on or after October 1, 1997, and before
October 1, 2002, the unadjusted capital
standard Federal rate be reduced by
17.78 percent (above the previous
statutory reduction of 7.4 percent). (As
a result of that reduction, the FY 1998
standard Federal payment rate for
capital-related costs was $371.51,
compared to $438.92 in FY 1997.) As we
discussed in the FY 2003 IPPS final rule
(67 FR 50102) and implemented in §
412.308(b)(6), a small part of that
reduction was restored effective October
1, 2002.
In general, under a PPS, standard
payment rates should reflect the costs
that an average, efficient provider would
bear to provide the services required for
quality patient care. Payment rate
updates should also account for the
changes necessary to continue providing
such services. Updates should reflect,
for example, the increased costs that are
necessary to provide for the
introduction of new technology that
improves patient care. Updates should
also take into account the productivity
gains that, over time, allow providers to
realize the same, or even improved,
quality outcomes with reduced inputs
and lower costs. Hospital margins, the
difference between the costs of actually
providing services and the payments
received under a particular system, thus
provide some evidence concerning
whether payment rates have been
established and updated at an
appropriate level over time for efficient
providers to provide necessary services.
All other factors being equal, sustained
substantial positive margins may
suggest that payment rates and updates
have exceeded what is required to
provide those services. It is to be
expected, under a PPS, that highly
efficient providers might regularly
realize positive margins, while less
efficient providers might regularly
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realize negative margins. However, a
PPS that is correctly calibrated should
not necessarily experience sustained
periods in which providers generally
realize substantial positive Medicare
margins.
Under the capital IPPS in particular,
it seems especially appropriate that
there should not be sustained significant
positive margins across the system as a
whole. Prior to the implementation of
the capital IPPS, Congress mandated
that the Medicare program pay only 85
percent of hospitals’ inpatient Medicare
capital costs. During the first 5 years of
the capital IPPS, Congress also
mandated a budget neutrality
adjustment, under which the standard
Federal capital rate was set each year so
that payments under the system as a
whole equaled 90 percent of estimated
hospitals’ inpatient Medicare capital
costs for the year. Finally, as we
discussed above, Congress has twice
adjusted the standard Federal capital
rate (a 7.4 percent reduction beginning
in FY 1994, followed by a 17.78 percent
reduction beginning in FY 1998). On the
second occasion in particular, the
specific congressional mandate was ‘‘to
apply the budget neutrality factor used
to determine the Federal capital
payment rate in effect on September 30,
1995 * * * to the unadjusted standard
Federal capital payment rate’’ for FY
1998 and beyond. (The designated
budget neutrality factor constituted a
17.78 percent reduction.) This statutory
language indicates that Congress
considered the payment levels in effect
during FYs 1992 through 1995,
established under the budget neutrality
provision to pay 90 percent of hospitals’
inpatient Medicare capital costs in the
aggregate, appropriate for the capital
IPPS. The statutory history of the capital
IPPS thus suggests that the system in the
aggregate should not provide for
continuous, large positive margins.
In analyzing the adequacy of the
existing capital IPPS rates, we recently
conducted a comprehensive review of
hospital experience under the IPPS for
hospital inpatient capital-related costs,
with particular attention to the
relationship between acute care hospital
capital Medicare costs and payments
under the capital IPPS. Specifically, we
examined the relationship between the
Medicare inpatient capital costs of
hospitals that are paid under the IPPS
for hospital inpatient capital-related
costs and their payments under that
system over a number of years. We
derived both cost and revenue data from
the Medicare cost report. Specifically,
cost data were derived from Worksheet
D, Part I, columns 10 and 12 and Part
II, columns 6 and 8, and revenue data
from Worksheet E, Part A, Lines 9 and
10. We began our analysis with FY
1996, the year in which the statutory
budget neutrality provision expired. (As
we have discussed, for FYs 1992
through 1995, section 1886(g)(1)(A) of
the Act required that the capital Federal
rate also be adjusted by a budget
neutrality factor so that aggregate
payments for inpatient hospital capital
costs were projected to equal 90 percent
of the payments that would have been
made for capital-related costs on a
reasonable cost basis during the fiscal
year. As discussed in section III. of the
Addendum to this proposed rule, we
employed an actuarial capital cost
model (described in Appendix B of the
FY 2002 IPPS final rule (66 FR 40099))
to estimate the aggregate payments that
would have been made on the basis of
reasonable cost in order to determine
the required budget neutrality
adjustment. As a result of the expiration
of the budget neutrality provision, the
standard Federal payment rate for
capital-related costs increased to
$461.96 in FY 1996 from $376.83 in FY
1995.) Our analysis extended through
FY 2004, the most recent year for which
we have relatively complete cost report
information. We examined data across
all hospitals subject to the capital IPPS
and across the categories of hospitals
(for example, urban and rural, and
teaching and nonteaching) that we
normally employ in conducting impact
analyses. Specifically, we looked at the
difference between aggregate hospital
revenues from the capital IPPS and
hospitals’ aggregate Medicare inpatient
capital costs. We determined the
inpatient hospital Medicare capital
margins for each year of the period from
FY 1996 through FY 2004. (A margin is
calculated as the difference between
payments and costs, divided by
payments.) We similarly calculated the
aggregate margins for the period (the
aggregate difference between payments
and costs over the period, divided by
total payments over the period). We also
calculated aggregate margins for the
period FY 1998 through FY 2004
(excluding FY 1996 and 1997). As a
result of the expiration of the statutory
budget neutrality provision, the capital
standard Federal rate increased to
$461.96 in FY 1996 from $376.83 in FY
1995. The capital standard Federal rate
was $438.92 in FY 1997, before it was
reduced to $371.51 in FY 1998 under
section 4402 of Pub. L. 105–33, which
required that the unadjusted capital
standard Federal rate be reduced by
17.78 percent. The capital standard
Federal rates for FYs 1996 and 1997
were thus substantially higher than the
rates for the periods immediately
preceding those years, and in the
subsequent years (FY 1998 and beyond).
The margins for those years are
correspondingly higher than the
margins for the other years in the
period, and thus it could be argued that
the margins for FYs 1996 and 1997 are
unrepresentative. The table below
summarizes the findings of this
analysis.
HOSPITAL INPATIENT MEDICARE CAPITAL MARGINS
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1996
U.S. ....................................................
URBAN ........................................
RURAL ........................................
No DSH Payments .............................
Has DSH Payments ...........................
$1–$249,999 ...............................
$250,000–$999,999 ....................
$1,000,000–$2,999,999 ..............
$3,000,000 or more ....................
TEACHING .........................................
NON-TEACHING ................................
Census Division:
New England (1) .........................
Middle Atlantic (2) .......................
South Atlantic (3) ........................
East North Central (4) .................
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1997
1998
1999
2000
2001
2002
2003
2004
1996–2004
1998–2004*
17.5
17.6
17.2
16.2
18.3
14.5
15.5
16.8
20.1
19.4
15.3
13.4
13.8
11.1
11.8
14.4
12.9
9.3
12.8
16.6
15.7
10.5
7.0
7.8
2.0
4.4
8.5
-0.4
2.2
8.5
10.4
9.8
3.3
6.8
7.4
2.7
4.4
8.1
3.1
1.5
9.2
9.1
9.7
2.9
7.3
8.3
1.3
5.6
8.2
1.6
3.0
8.6
9.7
11.1
2.2
7.9
8.9
1.5
5.6
8.7
4.2
2.5
7.2
11.6
11.7
2.8
8.7
10.3
-1.7
5.0
9.9
2.5
-1.2
9.0
13.4
13.9
1.6
7.7
9.1
-1.2
4.8
8.6
0.6
0.2
4.6
12.5
13.2
0.2
5.1
6.3
-2.9
-0.9
6.7
-3.5
-3.8
3.0
10.1
11.3
-3.2
9.0
9.9
3.4
6.9
9.9
3.3
2.9
8.7
12.4
12.9
3.9
7.2
8.3
0.26
4.2
8.4
1.8
0.5
7.1
11.1
11.6
1.3
26.9
19.1
17.9
18.2
25.8
15.5
13.9
12.7
17.0
11.0
5.8
6.2
15.1
11.5
3.9
7.2
18.2
13.8
5.9
8.8
20.5
16.3
5.2
8.6
21.3
18.4
6.3
6.3
21.2
17.9
7.5
8.1
20.5
15.0
4.9
7.1
20.9
15.5
7.9
9.2
19.3
15.0
5.7
7.5
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HOSPITAL INPATIENT MEDICARE CAPITAL MARGINS—Continued
%
1996
East South Central (5) ................
West North Central (6) ................
West South Central (7) ...............
Mountain (8) ................................
Pacific (9) ....................................
Code 99 ......................................
Bed Size:
< 100 beds ..................................
100–249 beds .............................
250–499 beds .............................
500–999 beds .............................
≤= 1000 beds ..............................
1997
1998
1999
2000
2001
2002
2003
2004
1996–2004
1998–2004*
14.8
14.2
13.3
17.3
20.5
24.1
11.1
6.9
8.3
14.8
16.1
26.1
3.3
0.0
3.4
8.4
12.4
14.9
4.1
-0.4
3.1
7.6
11.3
16.7
3.4
-1.6
0.6
7.4
11.5
20.0
2.9
1.9
0.1
6.4
12.8
20.9
3.0
2.6
1.4
3.2
15.5
20.6
-1.8
3.3
-1.2
3.1
12.8
25.2
-4.2
1.1
-4.2
0.7
9.2
22.3
3.9
3.2
2.5
7.2
13.5
21.4
1.4
1.1
0.3
4.9
12.2
20.3
17.7
15.1
18.9
19.7
8.2
13.0
10.6
14.0
17.5
13.8
4.7
3.5
8.7
11.1
2.1
3.5
4.5
8.3
10.3
0.2
2.8
4.7
10.4
10.7
-6.6
2.5
6.0
10.5
10.4
-3.5
-1.7
6.1
11.7
12.5
8.7
-1.3
4.5
11.6
10.3
6.3
-5.6
1.1
10.6
6.8
1.4
3.5
6.2
11.7
12.0
3.1
0.5
4.4
10.4
10.2
1.8
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Notes:
* Excluding 1996 and 1997.
Based on Medicare Cost Report hospital data updated as of the 4th quarter of 2006.
Revenue are from Worksheet E, Part A, Lines 9 and 10.
Expenses are from Worksheet D, Part I, columns 10 and 12 and Part II, columns 6 and 8.
We apply the outlier trimming methodology developed by MedPAC.
As the table shows, hospital inpatient
Medicare capital margins have been
very high across all hospitals during the
period from FY 1996 through FY 2004.
The margin for the entire period was 9.0
percent (7.2 percent, excluding FYs
1996 and 1997). For particular years,
margins across all hospitals ranged from
a high of 17.5 percent in FY 1996 to a
low 5.1 percent in FY 2004. While the
margins fell after a high in FY 1996 of
17.5 to 6.8 percent in FY 1999, they rose
again to 8.7 percent in FY 2002 before
declining modestly to 5.1 percent in FY
2004.
There are similar results among most
types of hospitals and groupings of
hospitals by geographic region. For
example, teaching hospitals have
realized margins of 12.9 percent (11.6
percent, excluding FYs 1996 and 1997)
during the period from FY 1996 through
FY 2004, with a high margin of 19.4
percent in FY 1996 and a low margin of
9.7 percent in FY 1999. Urban hospitals
realized margins of 9.9 percent during
the period from FY 1996 through FY
2004 (8.3 percent, excluding FYs 1996
and 1997). DSH hospitals realized
margins of 9.9 percent over the period
(8.4 percent, excluding FYs 1996 and
1997), while non-DSH had aggregate
margins of 6.9 percent (4.2 percent,
excluding FYs 1996 and 1997).
During the period from FY 1996
through FY 2004, every type of hospital
and geographic grouping of hospitals
has realized a positive aggregate margin
from their capital IPPS payments. Of
course, the aggregate capital margins for
some types of hospitals have been lower
than the margins for others. In
particular, inpatient hospital Medicare
capital margins for rural hospitals have
lagged considerably behind the margins
for urban hospitals. The aggregate
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margin for rural hospitals during the
period from FY 1996 through FY 2004
was 3.4 percent (0.2 percent, excluding
FYs 1996 and 1997), compared to 9.9
percent for urban hospitals and 9.0
percent for all hospitals. Rural hospitals
have even experienced negative margins
during several years of the period (-1.7
percent in FY 2002, -1.2 percent in FY
2003, and -2.9 percent in FY 2004).
Similarly, nonteaching hospitals have
experienced lower margins than
teaching hospitals. Teaching hospitals
have experienced an aggregate margin of
12.9 percent during the period from FY
1996 through FY 2004 (11.6 percent,
excluding FYs 1996 and 1997).
However, nonteaching hospitals have
experienced an aggregate margin of 3.9
percent during that period (1.3 percent,
excluding FYs 1996 and 1997).
There may be various factors reflected
in these margins. For example, one
factor in the lower margins experienced
by rural hospitals may be the transition
of many rural hospitals to CAHs that are
paid outside the IPPS. The number of
rural hospitals in our analysis fell from
2,243 in FY 1996 to 1,211 in FY 2004,
as the inpatient Medicare capital
margins realized by rural hospitals fell
from 17.2 percent to -2.9 percent. This
suggests that more rural hospitals with
relatively higher inpatient Medicare
capital margins have made the
transition to CAH status. However, it
remains to be seen whether this trend in
inpatient Medicare capital margins will
continue as the relative numbers of
CAHs and rural hospitals subject to the
IPPS stabilize. The low aggregate for
nonteaching hospitals is largely a
function of the effect of the low, and for
some years even negative, margin of the
rural hospitals, as discussed earlier.
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We believe that there could be a
number of reasons for the relatively high
margins that most IPPS hospitals have
realized under the capital IPPS. One
possibility is that the updates to the
capital IPPS rates have been higher than
the actual increases in Medicare
inpatient capital costs that hospitals
have experienced in recent years. As we
discuss in section III. of the Addendum
to this proposed rule, we update the
capital standard Federal rate on the
basis of an analytical framework that
takes into account changes in a capital
input price index (CIPI) and several
other policy adjustment factors.
Specifically, we have adjusted the
projected CIPI rate-of-increase as
appropriate each year for case-mix
index-related changes, for intensity, and
for errors in previous CIPI forecasts.
Under the framework that we have been
using, the update factor for FY 2008
would be 0.8 percent, based on the best
data available at this time. That update
factor is derived from a projected 1.2
percent increase in the CIPI, a 0.0
percent adjustment for intensity, a 0.0
percent adjustment for case-mix, a -0.4
percent adjustment for the FY 2005 DRG
reclassification and recalibration, and a
forecast error correction of 0.0 percent.
We discuss this update framework, and
the computation of the policy
adjustment factors, in section III. of the
Addendum to this proposed rule.
We believe that the CIPI is the most
appropriate input price index for capital
costs to measure capital price changes
in a given year. We also believe that the
update framework successfully captures
several factors that should be taken into
account in determining appropriate
updates for hospitals subject to the
capital IPPS. However, there may be
factors affecting the rate-of-increase in
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capital costs that are not yet captured in
our analytical framework. For example,
hospitals may be experiencing
productivity gains in their use of capital
equipment. As productivity increases,
hospitals would be able to reduce the
number of inputs required to produce a
unit of service. MedPAC has taken the
position that payment ‘‘rate for health
care providers should be set so that the
Federal Government benefits from
providers’ productivity gains, just as
private purchasers of goods in
competitive markets benefit from the
productivity gains of their suppliers.’’
MedPAC has, therefore, included a
productivity improvement target in its
framework for updating Medicare
hospital payments on the grounds that
‘‘as a prudent purchaser, Medicare
should also require some productivity
gains each year from its providers.’’
(MedPAC, Report to Congress, March
2006, p. 66) While we have not as yet
included a specific productivity factor,
such as MedPAC’s productivity
improvement target, in our analytical
frameworks for updating the IPPS
payment rates, we will continue to
study the appropriateness of adopting
such a measure.
Another possible reason for the
relatively high margins of most capital
IPPS hospitals may be that the payment
adjustments provided under the system
are too high, or perhaps even
unnecessary. Specifically, the
adjustments for teaching hospitals,
disproportionate share hospitals, and
large urban hospitals appear to be
contributing to excessive payment levels
for these classes of hospitals. Since the
inception of the capital IPPS in FY
1992, the system has provided
adjustments for teaching hospitals (the
IME adjustment factor, under § 412.322
of the regulations), disproportionate
share hospitals (the DHS adjustment
factor, under § 412.320), and large
urban hospitals (the large urban location
adjustment factor, under § 412.316((b)).
The classes of hospitals eligible for
these adjustments have been realizing
much higher margins than other
hospitals under the system. Specifically,
teaching hospitals (11.6 percent for FYs
1998 through 2004), urban hospitals (8.3
percent), and disproportionate share
hospitals (8.4 percent) have significant
positive margins. Other classes of
hospitals have experienced much lower
margins, especially rural hospitals (0.2
percent for FYs 1998 through 2004) and
nonteaching hospitals (1.3 percent). The
three groups of hospitals that have been
realizing especially high margins under
the capital IPPS are, therefore, classes of
hospitals that are eligible to receive one
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or more specific payment adjustments
under the system. We believe that the
evidence indicates that these
adjustments have been contributing to
the significantly large positive margins
experienced by the classes of hospitals
eligible for these adjustments.
We believe that the data on inpatient
hospital Medicare capital margins, as
discussed above, provide sufficient
evidence that some adjustment of the
updates under the capital IPPS is
warranted at this time. In light of the
significant disparities in the margin
performances of different classes of
hospitals, we do not believe that an
adjustment to the updates for FYs 2008
and 2009 should apply equally to all
hospitals that are paid under the capital
IPPS. In particular, an adjustment to the
updates should take into account the
much lower margins of rural hospitals
(0.2 percent for the period from FY 1998
through FY 2004) compared to urban
hospitals (8.3 percent during that
period). We also believe that any initial
adjustment to the rate should be
relatively modest. One reason is that
any adjustment should avoid
unwarranted disruption to hospital
finances: because of the nature of capital
spending, long periods of time can be
necessary for hospitals to adjust
adequately to significant changes in
payment. Therefore, for FYs 2008 and
2009, we are proposing that the update
to the capital standard Federal rate for
urban hospitals will be 0.0 percent, in
place of the 0.8 percent update that
would otherwise be provided in FY
2008 under the update framework that
we have been employing. (We have not
yet determined the update that would
be provided for FY 2009 under the
framework.) However, in light of the
margin analysis, we are also proposing
to give rural hospitals the full 0.8
percent update determined by the
update framework in FY 2008. We
anticipate that we will provide the full
update to rural hospitals in FY 2009 as
well, once we have determined what the
update would be under the update
framework. We are proposing to revise
§ 412.308(c)(1) of the regulations
accordingly. For purposes of the update
in FYs 2008 and 2009, an urban hospital
is any hospital located in an area that
meets the definitions under §
412.64(b)(1)(ii)(A) or (b)(1)(ii)(B), or §
412.64(b)(3). A rural hospital is any
hospital that does not meet those
definitions, or that is reclassified as
rural under § 412.103. For subsequent
years, we will continue to analyze the
data concerning the adequacy of
payments under the capital IPPS, and
we may propose additional adjustments,
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positive or negative, as they are
warranted. We will also continue to
study our update framework and will
consider whether adoption of additional
or revised adjustments to account for
other factors affecting capital cost
changes may be warranted.
In addition, we are also proposing to
eliminate, for FYs 2008 and beyond, one
of the payment adjustments that has
been provided under the capital IPPS.
Specifically, we are proposing to
discontinue the 3.0 percent additional
payment that has been provided to
hospitals located in large urban areas.
The consistent and significant positive
margin of hospitals located in urban
areas is strong evidence that it is not
necessary to continue this adjustment.
Therefore, we are proposing to amend §
412.316(b) of the regulations to provide
that, effective for discharges on or after
October 1, 2007, there will no longer be
any additional payment for hospitals
located in large urban areas, as currently
provided under that section. When the
payment adjustments were instituted at
the inception of the program, the initial
standard Federal payment rate was
adjusted in a budget-neutral fashion to
account for the expenditures that would
be required by these adjustments.
However, in light of the strong overall
positive margins across the system, we
are proposing not to increase the
standard capital rate to account for
expenditures otherwise payable due to
this adjustment (approximately $147
million). Rather, in light of the excessive
capital IPPS payments over the period
of FYs 1996 through 2004, we believe
that it is appropriate for the program to
realize savings from this proposal.
We will also continue to study the
adequacy of payments under the capital
IPPS, and will consider whether it is
appropriate to make further adjustments
to the standard Federal capital rate and
updates of the rate. While we are
formally proposing an update of 0.0
percent for urban hospitals, an update of
0.8 percent for rural hospitals in FY
2008, and elimination of the large urban
add-on, we are also soliciting comment
on additional adjustments to the capital
payment structure. As we have noted
above, the margin analysis indicates that
several classes of hospitals have
continuous, significant positive
margins. The analysis indicates that the
existing payment adjustments for
teaching hospitals and disproportionate
share hospitals are contributing to
excessive payment levels for these
classes of hospitals. Therefore, it may be
appropriate to reduce these adjustments
significantly, or even to eliminate them
altogether, within the capital IPPS.
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These payment adjustments, unlike the
parallel adjustments under the operating
IPPS, were not mandated by the Act.
Rather, they were included within the
original design of the capital IPPS under
the Secretary’s broad authority under
sections 1886(g)(1)(A) and (g)(1)(B) of
the Act to include appropriate
adjustments and exceptions within a
capital IPPS. Therefore, we are
considering whether it may be
appropriate to develop a proposal to
reduce or to terminate these payment
adjustments in the near future. It is
difficult to justify indefinite
continuation of these adjustments in the
light of the continuous, substantial
positive margins realized by the classes
of hospitals that qualify for them. When
the payment adjustments were
instituted at the inception of the
program, the initial standard Federal
payment rate was adjusted in a budgetneutral fashion to account for the
expenditures that would be required by
these adjustments. Therefore, if we
decide to propose to reduce or eliminate
these adjustments, we will also consider
whether we should similarly adjust the
Federal capital payment rate to account
for all or a portion of these adjustments,
effectively increasing the base payment
rate for all hospitals (including rural,
nonteaching, and non-DSH hospitals
that do not benefit from these
adjustments), while removing these
special adjustments for the hospitals
that have been eligible to receive them.
We are also considering whether, in
light of the substantial positive margins
experienced by these teaching and DSH
hospitals, the discontinuation of these
adjustments should not result in a
change to the standard capital rate and
should instead result in savings to the
program. We welcome comments on
these potential proposals and on other
means of appropriately adjusting and
targeting payments under the capital
IPPS, as well as on the proposals that
we are formally making in this proposed
rule.
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VI. Proposed Changes for Hospitals and
Hospital Units Excluded From the IPPS
(If you choose to comment on the
issues in this section, please include the
caption ‘‘Excluded Hospitals and
Hospital Units’’ at the beginning of your
comment.)
A. Payments to Existing and New
Excluded Hospitals and Hospital Units
Historically, hospitals and hospital
units excluded from the prospective
payment system received payment for
inpatient hospital services they
furnished on the basis of reasonable
costs, subject to a rate-of-increase
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ceiling. An annual per discharge limit
(the target amount as defined in §
413.40(a)) was set for each hospital or
hospital unit based on the hospital’s
own cost experience in its base year.
The target amount was multiplied by
the Medicare discharges and applied as
an aggregate upper limit (the ceiling as
defined in § 413.40(a)) on total
inpatient operating costs for a hospital’s
cost reporting period. Prior to October 1,
1997, these payment provisions applied
consistently to all categories of excluded
providers (rehabilitation hospitals and
units (now referred to as IRFs),
psychiatric hospitals and units (now
referred to as IPFs), LTCHs, children’s
hospitals, and cancer hospitals).
Payment for children’s hospitals and
cancer hospitals that are excluded from
the IPPS continues to be subject to the
rate-of-increase ceiling based on the
hospital’s own historical cost
experience. (We note that, in accordance
with § 403.752(a) of the regulations,
RNHCIs are also subject to the rate-ofincrease limits established under §
413.40 of the regulations. IRFs, IPFs,
and LTCHs were paid previously under
the reasonable cost methodology.
However, the statute was amended to
provide for the implementation of
prospective payment systems for IRFs,
IPFs, and LTCHs. In general, the
prospective payment systems for IRFs,
IPFs, and LTCHs provide(d) transition
periods of varying lengths during which
time a portion of the prospective
payment is (was) based on cost-based
reimbursement rules under Part 413
(certain providers do not receive a
transition period or may elect to bypass
the transition as applicable under
Subparts N, O, and P). We note that the
various transition periods provided for
under the IRF PPS, IPF PPS, and LTCH
PPS have ended or will soon end.)
For cost reporting periods beginning
on or after October 1, 2002, all IRFs are
paid 100 percent of the adjusted Federal
rate under the IRF PPS. Therefore, for
cost reporting periods beginning on or
after October 1, 2002, no portion of an
IRF PPS payment is subject to Part 413.
Similarly, for cost reporting periods
beginning on or after October 1, 2006,
all LTCHs are paid 100 percent of the
adjusted Federal rate under the LTCH
PPS. Therefore, for cost reporting
periods beginning on or after October 1,
2006, no portion of the LTCH PPS
payment is subject to 42 CFR part 413.
However, except as provided in §
412.426(c), IPFs remain under a blend
methodology for cost reporting periods
beginning on or after January 1, 2005,
and before January 1, 2008.
For IPFs paid under the blend
methodology, the portion of the IPF PPS
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24823
payment that is based on reasonable
cost principles is subject to the rules of
42 CFR part 413. In order to calculate
the portion of the PPS payment that is
based on reasonable cost principles, it is
necessary to determine whether the IPF
would be considered ‘‘existing’’ for
purposes of section 1886(b)(3)(H) of the
Act or ‘‘new’’ for purposes of section
1886(b)(7) of the Act. We note that
readers should not confuse an IPF that
is considered ‘‘new’’ for purposes of
section 1886(b)(7) of the Act and §
413.40(f)(2)(ii) of the regulations with an
IPF that is considered ‘‘new’’ under §
412.426(c) of the reguations. Any IPF
that, under present or previous
ownership or both, has its first cost
reporting period as an IPF beginning on
or after January 1, 2005, is considered
‘‘new’’ for purposes of § 412.426(c). An
IPF that is considered ‘‘new’’ under §
412.426(c) is paid based on 100 percent
of the Federal per diem payment
amount. Consequently, only those IPFs
considered ‘‘new’’ under section
1886(b)(7) of the Act, but not ‘‘new’’
under § 412.426(c) of the regulations
will be paid under a PPS blended
payment methodology. An IPF
considered ‘‘new’’ for purposes of §
413.40(f)(2)(ii) would have its
‘‘reasonable cost-based’’ portion of its
prospective payment subject to §
413.40(f)(2)(ii) and § 413.40(c)(4)(v), as
applicable. An IPF considered ‘‘new’’
for purposes of section 1886(b)(7) of the
Act has the target amount for its third
cost reporting period determined in
accordance with sections
1886(b)(7)(A)(ii) and 1886(b)(3)(A)(ii) of
the Act. For the fourth and subsequent
cost reporting periods, the target amount
is calculated in accordance with section
1886(b)(3)(A)(ii) of the Act. An IPF that
would be considered ‘‘existing’’ for
purposes of section 1886(b)(3)(H) of the
Act has the target amount for the
‘‘reasonable cost-based’’ portion of its
prospective payment determined in
accordance with section
1886(b)(3)(A)(ii) of the Act and the
regulations at § 413.40(c)(4)(ii).
We are proposing that the applicable
percentage increase to update the target
amount for the reasonable cost-based
portion of the PPS payment of an IPF
that is considered existing under section
1886(b)(3)(H) of the Act or new under
section 1886(b)(7) of the Act, but not
new under § 412.426(c), is 3.4 percent.
(However, if more current data become
available prior to publication of the final
rule, we will use those data for updating
the market basket.)
B. Separate PPS for IRFs
Section 1886(j) of the Act, as added by
section 4421(a) of Pub. L. 105–33,
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Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Proposed Rules
provided for a phase-in of a case-mix
adjusted PPS for inpatient hospital
services furnished by IRFs for cost
reporting periods beginning on or after
October 1, 2000, and before October 1,
2002, with payments based entirely on
the adjusted Federal prospective
payment for cost reporting periods
beginning on or after October 1, 2002.
Section 1886(j) of the Act was amended
by section 125 of Pub. L. 106–113 to
require the Secretary to use a discharge
as the payment unit under the PPS for
inpatient hospital services furnished by
IRFs and to establish classes of patient
discharges by functional-related groups.
Section 305 of Pub. L. 106–554 further
amended section 1886(j) of the Act to
allow IRFs, subject to the blend
methodology, to elect to be paid the full
Federal prospective payment rather than
the transitional period payments
specified in the Act.
On August 7, 2001, we issued a final
rule in the Federal Register (66 FR
41316) establishing the PPS for IRFs,
effective for cost reporting periods
beginning on or after January 1, 2002.
There was a transition period for cost
reporting periods beginning on or after
January 1, 2002, and ending before
October 1, 2002. For cost reporting
periods beginning on or after October 1,
2002, payments are based entirely on
the adjusted Federal prospective
payment rate determined under the IRF
PPS.
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C. Separate PPS for LTCHs
On August 30, 2002, we issued a final
rule in the Federal Register (67 FR
55954) establishing the PPS for LTCHs,
effective for cost reporting periods
beginning on or after October 1, 2002.
Except for a LTCH that made an election
under § 412.533(c) or a LTCH that is
defined as new under § 412.23(e)(4),
there was a transition period for cost
reporting periods beginning on or after
October 1, 2002, and ending before
October 1, 2007. For cost reporting
periods beginning on or after October 1,
2006, total LTCH PPS payments are
based on 100 percent of the Federal rate.
D. Separate PPS for IPFs
In accordance with section 124 of
Pub. L. 106–113 and section 405(g)(2) of
Pub. L. 108–173, we established a PPS
for inpatient hospital services furnished
in IPFs. On November 15, 2004, we
issued in the Federal Register a final
rule (69 FR 66922) that established the
IPF PPS, effective for IPF cost reporting
periods beginning on or after January 1,
2005. Under the final rule, we compute
a Federal per diem base rate to be paid
to all IPFs for inpatient psychiatric
services based on the sum of the average
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routine operating, ancillary, and capital
costs for each patient day of psychiatric
care in an IPF, adjusted for budget
neutrality. The Federal per diem base
rate is adjusted to reflect certain patient
characteristics, including age, specified
DRGs, selected high-cost comorbidities,
days of the stay, and certain facility
characteristics, including a wage index
adjustment, rural location, indirect
teaching costs, the presence of a fullservice emergency department, and
COLAs for IPFs located in Alaska and
Hawaii. We have established a 3-year
transition period during which IPFs
whose first cost reporting periods began
before January 1, 2005, will be paid
based on a blend of reasonable costbased payment and IPF PPS payments.
For cost reporting periods beginning on
or after January 1, 2008, all IPFs will be
paid 100 percent of the Federal per
diem payment amount.
E. Determining Proposed LTCH Cost-toCharge Ratios (CCRs) Under the LTCH
PPS
(If you choose to comment on the
issues in this section, please include the
caption ‘‘LTCH PPS CCRs and Outlier
Payments’’ at the beginning of your
comment.)
In determining both high-cost outlier
and short-stay outlier payments under
the LTCH PPS (at § 412.525(a) and §
412.529, respectively), we calculate the
estimated cost of the case by
multiplying the LTCH’s overall CCR by
the Medicare allowable charges for the
case. Under the LTCH PPS, a single
prospective payment per discharge is
made for both inpatient operating and
capital-related costs, and, therefore, we
compute a single ‘‘overall’’ or ‘‘total’’
LTCH-specific CCR based on the sum of
LTCH operating and capital costs (as
described in Chapter 3, section 150.24,
of the Medicare Claims Processing
Manual (CMS Pub. 100–4)) as compared
to total charges. Specifically, a LTCH’s
CCR is calculated by dividing a LTCH’s
total Medicare costs (that is, the sum of
its operating and capital inpatient
routine and ancillary costs) by its total
Medicare charges (that is, the sum of its
operating and capital inpatient routine
and ancillary charges) (72 FR 48117).
In the June 9, 2003 IPPS high-cost
outlier final rule (68 FR 34498), we
made revisions to our policies
concerning the determination of LTCHs’
CCRs and the reconciliation of high-cost
outlier and short-stay outlier payments
under the LTCH PPS. As we stated in
that final rule (68 FR 34507), because
the LTCH PPS high-cost outlier and
short-stay outlier policies are modeled
after the IPPS outlier policy, we believe
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they are susceptible to the same
payment vulnerabilities.
In the FY 2007 IPPS final rule (71 FR
48115 through 48122), we amended our
regulations and, for discharges
occurring on or after October 1, 2006,
refined the methodology for
determining the annual CCR ceiling and
statewide average CCRs. We also
codified, with modifications and
editorial clarifications, our policy for
the reconciliation of high-cost outlier
and short-stay outlier payments under
the LTCH PPS. We indicated that
because, historically, updates to the
LTCH PPS CCR ceiling and statewide
average CCRs have been effective on
October 1, we would make these
updates (and include relevant impact
data) as a part of the IPPS rulemaking
cycle.
Specifically, in the FY 2007 IPPS final
rule (71 FR 48117 through 48121),
under the broad authority of section 123
of Pub. L. 106–113 and section 307(b)(1)
of Pub. L. 106–554, we established
under the LTCH PPS high-cost outlier
policy at § 412.525(a)(4)(iv)(C) and the
LTCH PPS short-stay outlier policy at §
412.529(c)(3)(iv)(C), for discharges
occurring on or after October 1, 2006,
that the fiscal intermediary (or currently
the MAC, if applicable) may use a
statewide average CCR, which is
established annually by CMS, if it is
unable to determine an accurate CCR for
a LTCH in one of the following three
circumstances: (1) new LTCHs that have
not yet submitted their first Medicare
cost report (for this purpose, a new
LTCH is defined as an entity that has
not accepted assignment of an existing
hospital’s provider agreement in
accordance with § 489.18); (2) LTCHs
whose CCR is in excess of the LTCH
CCR ceiling; and (3) other LTCHs for
whom data with which to calculate a
CCR are not available (for example,
missing or faulty data). (Other sources of
data that the fiscal intermediary (or, if
applicable, the MAC) may consider in
determining a LTCH’s CCR include data
from a different cost reporting period for
the LTCH, data from the cost reporting
period preceding the period in which
the hospital began to be paid as a LTCH
(that is, the period of at least 6 months
that it was paid as a short-term acute
care hospital), or data from other
comparable LTCHs, such as LTCHs in
the same chain or in the same region.)
As noted above, a LTCH is assigned
the applicable statewide average CCR if,
among other things, a LTCH’s CCR is
found to be in excess of the applicable
maximum CCR threshold (that is, the
LTCH CCR ceiling). As we explained in
the FY 2007 IPPS final rule (71 FR
48117), CCRs above this threshold are
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most likely due to faulty data reporting
or entry, and, therefore, these CCRs
should not be used to identify and make
payments for outlier cases. Such data
are clearly errors and should not be
relied upon. Thus, under our
established policy, if a LTCH’s
calculated CCR is above the applicable
ceiling, the applicable LTCH PPS
statewide average CCR is assigned to the
LTCH instead of the CCR computed
from its most recent (settled or
tentatively settled) cost report data.
We revised our methodology for
determining the annual CCR ceiling and
statewide average CCRs under the LTCH
PPS effective October 1, 2006, as we
explained in the FY 2007 IPPS final rule
(71 FR 48117 through 48121), because
we believe that those changes are
consistent with the LTCH PPS single
payment rate for inpatient operating and
capital costs. Therefore, under the broad
authority of section 123 of Pub. L. 106–
113 and section 307(b)(1) of Pub. L.
106–554, in that same final rule, we
revised our methodology used to
determine the LTCH CCR ceiling. For
discharges occurring on or after October
1, 2006, we established that the LTCH
CCR ceiling specified under §
412.525(a)(4)(iv)(C)(2) for high-cost
outliers and under §
412.529(c)(3)(iv)(C)(2) for short-stay
outliers is calculated as 3 standard
deviations above the corresponding
national geometric mean total CCR
(established and published annually by
CMS). (The fiscal intermediary (or, if
applicable, the MAC) may use a
statewide average CCR if, among other
things, a LTCH’s CCR is in excess of the
LTCH CCR ceiling.) The LTCH total CCR
ceiling is determined based on IPPS
CCR data, by first calculating the ‘‘total’’
(that is, operating and capital) IPPS CCR
for each hospital and then determining
the average ‘‘total’’ IPPS CCR for all
IPPS hospitals. (Our rationale for using
IPPS hospital data is discussed in the
FY 2007 IPPS final rule (71 FR 48117).)
The LTCH CCR ceiling is then
established at 3 standard deviations
from the corresponding national
geometric mean total CCR. (For further
detail on our methodology for annually
determining the LTCH CCR ceiling, we
refer readers to the FY 2007 IPPS final
rule (71 FR 48117 through 48119).)
We also established that the LTCH
‘‘total’’ CCR ceiling used under the
LTCH PPS will continue to be published
annually in the IPPS proposed and final
rules, and the public should continue to
consult the annual IPPS proposed and
final rules for changes to the LTCH total
CCR ceiling that would be effective for
discharges occurring on or after October
1 of each year. Accordingly, in the FY
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2007 IPPS final rule (71 FR 48119), we
established a FY 2007 LTCH PPS total
CCR ceiling of 1.321, effective for
discharges occurring on or after October
1, 2006.
In this proposed rule, in accordance
with § 412.525(a)(4)(iv)(C)(2) for highcost outliers and §
412.529(c)(3)(iv)(C)(2) for short-stay
outliers, using our established
methodology for determining the LTCH
total CCR ceiling (described above),
based on IPPS total CCR data from the
December 2006 update to the ProviderSpecific File, we are proposing a total
CCR ceiling of 1.273 under the LTCH
PPS that would be effective October 1,
2007. Furthermore, we are proposing
that, if more recent data are available,
we will use such data to determine the
final total CCR ceiling under the LTCH
PPS for FY 2008 using our established
methodology described above.
In addition, under the broad authority
of section 123 of Pub. L. 106–113 and
section 307(b)(1) of Pub. L. 106–554, in
the FY 2007 IPPS final rule (71 FR
48120), we revised our methodology to
determine the statewide average CCRs
under § 412.525(a)(4)(iv)(C) for highcost outliers and under §
412.529(c)(3)(iv)(C) for short-stay
outliers for use under the LTCH PPS in
a manner similar to the way we
compute the ‘‘total’’ CCR ceiling using
IPPS CCR data. Specifically, we first
calculate the total (that is, operating and
capital) CCR for each IPPS hospital. We
then calculate the weighted average
‘‘total’’ CCR for all IPPS hospitals in the
rural areas of the State and the weighted
average ‘‘total’’ CCR for all IPPS
hospitals in the urban areas of the State.
(For further detail on our methodology
for annually determining the LTCH
urban and rural statewide average CCRs,
we refer readers to the FY 2007 IPPS
final rule (71 FR 48119 through 48121).)
We also established that the applicable
statewide average ‘‘total’’ (operating and
capital) CCRs used under the LTCH PPS
will continue to be published annually
in the IPPS proposed and final rules,
and the public should continue to
consult the annual IPPS proposed and
final rules for changes to the applicable
statewide average total CCRs that would
be effective for discharges occurring on
or after October 1 each year.
Accordingly, in the FY 2007 IPPS final
rule (71 FR 48122), the FY 2007 LTCH
PPS statewide average total CCRs for
urban and rural hospitals, effective for
discharges occurring on or after October
1, 2006, were presented in Table 8C of
the Addendum of that final rule (71 FR
48303).
In this proposed rule, in accordance
with § 412.525(a)(4)(iv)(C) for high-cost
outliers and § 412.529(c)(3)(iv)(C) for
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24825
short-stay outliers, using our established
methodology for determining the LTCH
statewide average CCRs (described
above), based on the most recent
complete IPPS total CCR data from the
December 2006 update of the ProviderSpecific File, the proposed LTCH PPS
statewide average total CCRs for urban
and rural hospitals that would be
effective October 1, 2007, are presented
in Table 8C of the Addendum to this
proposed rule. Furthermore, we are
proposing that, if more recent data are
available, we would use such data to
determine the final statewide average
total CCRs for urban and rural hospitals
under the LTCH PPS for FY 2008 using
our established methodology described
above.
We note that, for this proposed rule,
as we established when we revised our
methodology for determining the
applicable LTCH statewide average
CCRs in the FY 2007 IPPS final rule (71
FR 48119 through 48121), and as is the
case under the IPPS, all areas in the
District of Columbia, New Jersey, Puerto
Rico, and Rhode Island are classified as
urban, and therefore there are no
proposed rural statewide average total
CCRs listed for those jurisdictions in
Table 8C of the Addendum to this
proposed rule. In addition, as we
established when we revised our
methodology for determining the
applicable LTCH statewide average
CCRs in that same final rule, and as is
the case under the IPPS, although
Massachusetts has areas that are
designated as rural, there are no shortterm acute care IPPS hospitals or LTCHs
located in those areas as of December
2006. Therefore, there is no proposed
rural statewide average total CCR listed
for rural Massachusetts in Table 8C of
the Addendum of this proposed rule. As
we also established when we revised
our methodology for determining the
applicable LTCH statewide average
CCRs in the FY 2007 IPPS final rule (71
FR 48120 through 48121), in
determining the urban and rural
statewide average total CCRs for
Maryland LTCHs paid under the LTCH
PPS, we used, as a proxy, the national
average total CCR for urban IPPS
hospitals and the national average total
CCR for rural IPPS hospitals,
respectively. We use this proxy because
we believe that the CCR data on the
Provider-Specific File for Maryland
hospitals may not be accurate (as
discussed in greater detail in that same
final rule (71 FR 48120)).
VII. Services Furnished to Beneficiaries
in Custody of Penal Authorities
(If you choose to comment on issues
in this section, please include the
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caption ‘‘Beneficiaries in Custody’’ at
the beginning of your comment.)
Section 1862(a)(2) of the Act prohibits
payment under Medicare Part A or Part
B for any items or services for which the
beneficiary has no legal obligation to
pay, and which no other person or
organization (such as a prepayment plan
of which the beneficiary is a member)
has a legal obligation to provide or pay
for the service. Our current regulations
at § 411.4(b) specify the special
conditions when Medicare payment
may be made for services furnished to
individuals in custody of penal
authorities. These regulatory conditions
include: (1) State or local law requires
those individuals or groups of
individuals to repay the cost of medical
services they receive while in custody;
and (2) the State or local government
entity enforces the requirement to pay
by billing all such individuals, whether
or not covered by Medicare or any other
health insurance, and by pursuing
collection of the amounts they owe in
the same way and with the same vigor
that it pursues the collection of other
debts.
However, § 411.4(b) does not define
‘‘custody’’ and does not clearly state
that CMS will not defer to a particular
State or local government’s definition
(or interpretation) of what constitutes
‘‘custody.’’ In this proposed rule, we are
proposing to specify that, for purposes
of Medicare payment, individuals who
are in ‘‘custody’’ include, but are not
limited to, individuals who are under
arrest, incarcerated, imprisoned,
escaped from confinement, under
supervised release, required to reside in
mental health facilities, required to
reside in halfway houses, required to
live under home detention, or confined
completely or partially in any way
under a penal statute or rule. We believe
that this proposed definition of
‘‘custody’’ is in accordance with how
custody has been defined by Federal
courts for purposes of the habeas corpus
protections of the Constitution. For
example, the term ‘‘custody’’ is not
limited solely to physical confinement.
(Sanders v. Freeman, 221 F.3d 846, 850–
51 (6th Cir. 2000).) Individuals on
parole, probation, bail, or supervised
release may be ‘‘in custody.’’
VIII. MedPAC Recommendations
(If you choose to comment on issues
in this section, please include the
caption ‘‘MedPAC Update
Recommendation’’ at the beginning of
your comment.)
We are required by section
1886(e)(4)(B) of the Act to respond to
MedPAC’s IPPS recommendations in
our annual proposed IPPS rule. We have
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reviewed MedPAC’s March 2007
‘‘Report to the Congress: Medicare
Payment Policy’’ and have given it
careful consideration in conjunction
with the proposed policies set forth in
this document. MedPAC’s
Recommendation 2A–1 states that, ‘‘The
Congress should increase payment rates
for the acute inpatient and outpatient
prospective payment systems in 2008 by
the projected rate of increase in the
hospital market basket index,
concurrent with implementation of a
quality incentive payment program.’’
This recommendation is discussed in
Appendix B to this proposed rule.
Recommendation 2A–2: MedPAC
recommended that, ‘‘Concurrent with
implementation of severity adjustment
to Medicare’s diagnosis related group
payments, the Congress should reduce
the indirect medical education
adjustment in fiscal year 2008 by 1
percentage point to 4.5 percent per 10
percent increment in the resident-to-bed
ratio. The funds obtained from reducing
the indirect medical education
adjustment should be used to fund a
quality incentive payment system.’’
MedPAC further states that the IME
adjustment is ‘‘set above the empirical
level which contributes to the large
differences between teaching and
nonteaching hospitals in financial
performance under Medicare.’’ MedPAC
asserts that since there is no
accountability for how IME funds are
used, and teaching hospitals will benefit
from implementation of the severity
adjusted DRGs the IME adjustment
should be reduced in FY 2008.
Response: We note that, MedPAC
stated in its March 2007 Report that
Congress made a conscious decision to
fund the IME adjustment above the
empirical level due to the concern for
how teaching hospitals would fare
under the PPS. Because the IME
adjustment is set by Congress, as cited
in section 1886(d)(5)(B) of the Act, any
change to the IME adjustment, whether
it is a 1 percentage point reduction or
reduction of the IME adjustment to its
empirical level, would require a
statutory change. Therefore, absent a
change to the IME provision in the
Medicare statute for FY 2008, the IME
adjustment will remain at the current
level required by the statute, as
specified in section IV.D. of this
preamble.
Recommendation 2A–3: MedPAC
recommended that, ‘‘The Secretary
should improve the form and
accompanying instructions for
collecting data on uncompensated care
in the Medicare cost report and require
hospitals to report using the revised
form as soon as possible.’’ MedPAC
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indicated that ‘‘accurate data on
hospitals’’ charity care and bad debts
are crucial to any effort to help develop
a federal payment mechanism to help
hospitals with their uncompensated
care.’’
Response: MedPAC convened an
‘‘Expert Panel on Measuring
Uncompensated Care’’ on May 5, 2005,
to address concerns raised by
stakeholders on the usefulness of the S–
10 Worksheet data. CMS’
representatives participated in the
discussions on this expert panel, and
listened carefully to the concerns of
MedPAC and the stakeholders about the
S–10 Worksheet. MedPAC is
recommending that we adopt the list of
recommended changes to the S–10
Worksheet that resulted from the panel’s
discussion. CMS is currently
undertaking a major update of the
hospital cost report and will be making
changes to the S–10 Worksheet form
and accompanying instructions based
on the panel’s discussions with
MedPAC.
In sections II.C. through E. of the
preamble of this proposed rule, we
further address the recommendations
included in Recommendation 1 and
Recommendation 3 in the March 2005
Report to Congress on Physician-Owned
Specialty Hospitals. Recommendation 1
relates to refining the DRGs used under
the IPPS to more fully capture
differences in severity of illness among
patients; basing the DRG relative
weights on the estimated cost of
providing care rather than on charges;
and basing the weights on the national
average of hospitals’ relative values in
each DRG. Recommendation 3
recommended that the Secretary
implement MedPAC’s recommended
policies over a transition period.
For further information relating
specifically to the MedPAC reports or to
obtain a copy of the reports, contact
MedPAC at (202) 653–7220, or visit
MedPAC’s website at: https://
www.medpac.gov.
IX. Other Required Information
A. Requests for Data from the Public
In order to respond promptly to
public requests for data related to the
prospective payment system, we have
established a process under which
commenters can gain access to raw data
on an expedited basis. Generally, the
data are available in computer tape or
cartridge format; however, some files are
available on diskette as well as on the
Internet at: https://www.cms.hhs.gov/
providers/ hipps. Data files and the cost
for each file, if applicable, are listed
below. Anyone wishing to purchase
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data tapes, cartridges, or diskettes
should submit a written request along
with a company check or money order
(payable to CMS-PUF) to cover the cost
to the following address: Centers for
Medicare & Medicaid Services, Public
Use Files, Accounting Division, P.O.
Box 7520, Baltimore, MD 21207–0520,
(410) 786–3691. Files on the Internet
may be downloaded without charge.
mix adjusted AHW, and the percent
difference between the two.
Media: Internet at https://www.cms.
hhs.gov/AcuteInpatientPPS/ WIFN/
list.asp#TopOfPage.
Periods Available: FY 2008 IPPS
Update.
Media: Internet at https://www.cms.
hhs.gov/AcuteInpatientPPS/ FFD/
list.asp#TopOfPage.
Periods Available: FY 2008 IPPS
Update.
5. FY 2008 Occupational Mix Adjusted
and Unadjusted AHWs and Pre-Reclass
Wage Indexes by CBSA
This file contains a spreadsheet with
two tabs: One for providers that are
geographically located in an area, and
one for providers that are reclassifying.
The first tab includes the pre-reclass
occupational mix adjusted total wages
and AHWs by provider and CBSA, and
the second tab lists the providers that
are reclassifying and their post-reclass
occupational mix adjusted total wages
and AHWs by provider and CBSA. This
file is typically posted after publication
of the IPPS NPRM each year.
Media: Internet at https://www.cms.
hhs.gov/AcuteInpatientPPS/ WIFN/
list.asp#TopOfPage.
Periods Available: FY 2008 IPPS
Proposed Rule Update.
1. CMS Wage Data Public Use File
This file contains the hospital hours
and salaries from Worksheet S–3, Parts
II and Parts III from FY 2004 cost reports
used to create the proposed FY 2008
IPPS wage index. The file is typically
available by the end of February each
year for the NPRM and will be available
by the beginning of May for the final
rule.
Processing year
2007 ..........................
2006 ..........................
2005 ..........................
Wage
data year
2004
2003
2002
This file is available after publication
of each IPPS NPRM and final rule, and
is organized by CBSA, and contains
total CBSA occupational mix wages,
total CBSA hours, CBSA occupational
mix adjusted AHWs, CBSA
occupational mix adjusted pre-reclass
wage indexes, total CBS unadjusted
wages, CBSA unadjusted AHWs, and
unadjusted pre-reclass wage indexes.
Media: Internet at https://www.cms.
PPS fishhs.gov/AcuteInpatientPPS /WIFN/
cal year
list.asp#TopOfPage.
Periods Available: FY 2008 IPPS
2008
Update.
2007
2006
Media: Internet at https://www.cms.
hhs.gov/AcuteInpatientPPS/ WIFN/
list.asp#TopOfPage.
Periods Available: FY 2006 through
2008 IPPS Updates.
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2. CMS Occupational Mix Data Public
Use File
This file contains the occupational
mix survey data to be used to compute
the occupational mix adjusted wage
indexes. The file is typically available
by the end of February each year for the
NPRM and will be available by the
beginning of May for the final rule.
Media: Internet at https://www.cms.
hhs.gov/AcuteInpatientPPS/ WIFN/
list.asp#TopOfPage.
Periods Available: FY 2008 PPS
Update.
3. Final AHWs for FY 2007 and
Proposed AHWs for FY 2008 by CBSA
Public Use File
This file includes CBSAs, and the
AHWs by CBSA for FY 2007 (final data)
and FY 2008 (proposed data). This file
is typically available by the end of
February each year for the NPRM.
Media: Internet at https://www.cms.
hhs.gov/AcuteInpatientPPS/ WIFN/
list.asp#TopOfPage.
Periods Available: FY 2008 IPPS
Proposed Rule Update.
4. FY 2008 Occupational Mix Adjusted
and Unadjusted AHWs by Provider
This file is available after publication
of each IPPS NPRM and final rule, and
includes provider number, CBSA, the
provider’s unadjusted and occupational
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24827
9. FY 2008 Proposed Rule AHW by
Provider Area Listing
6. FY 2008 Occupational Mix Factor by
Provider Public Use File
10. PPS–IV to PPS–XII Minimum Data
Set
This file is available after publication
of each IPPS NPRM and final rule, and
is organized by provider, and includes
occupational mix adjusted and
unadjusted wages, occupational mix
adjusted and unadjusted AHWs, the
nurse occupational mix adjustment
factor, and the CBSA nurse occupational
mix adjustment factor.
Media: Internet at https://www.cms.
hhs.gov/AcuteInpatientPPS/ WIFN/
list.asp#TopOfPage.
Periods Available: FY 2008 IPPS
Update.
The Minimum Data Set contains cost,
statistical, financial, and other
information from Medicare hospital cost
reports. The data set includes only the
most current cost report (as submitted,
final settled, or reopened) submitted for
a Medicare participating hospital by the
Medicare fiscal intermediary to CMS.
This data set is updated at the end of
each calendar quarter and is available
on the last day of the following month.
Media: Compact Disc (CD).
File Cost: $100.00 per year.
7. FY 2008 Average Hourly Wage by
Provider and CBSA Public Use File
This file is available after publication
of each IPPS NPRM and final rule, and
includes occupational mix adjusted
wages, hours, occupational mix adjusted
AHWs, and pre-reclass occupational
mix adjusted wage indexes, by provider
and CBSA.
Media: Internet at https://www.cms.
hhs.gov/AcuteInpatientPPS/ WIFN/
list.asp#TopOfPage.
Periods Available: FY 2008 IPPS
Update.
8. IPPS SSA/FIPS CBSA State and
County Crosswalk
This file contains a crosswalk of State
and county codes used by the Social
Security Administration (SSA) and the
Federal Information Processing
Standards (FIPS), county name, Core
Based Statistical Area (CBSA), and the
historical list of Metropolitan Statistical
Areas (MSAs).
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I
PPS–IV .............
PPS–V ..............
PPS–VI .............
PPS–VII ............
PPS–VIII ...........
PPS–IX .............
PPS–X ..............
PPS–XI .............
PPS–XII ............
Periods
beginning
on or after
10/01/86
10/01/87
10/01/88
10/01/89
10/01/90
10/01/91
10/01/92
10/01/93
10/01/94
and before
10/01/87
10/01/88
10/01/89
10/01/90
10/01/91
10/01/92
10/01/93
10/01/94
10/01/95
(Note: The PPS–XIII, PPS–XIV, PPS–XV,
PPS–XVI, PPS–XVII, PPS–XVIII, PPS–XIX
PPS–XX, PPS–XXI, and PPS–XX–II Minimum
Data Sets are part of the PPS–XIII, PPS–XIV,
PPS–XV, PPS–XVI, PPS–XVII, PPS–XVIII,
PPS–XIX, PPS–XX, PPS–XXI, and PPS–XXII
Hospital Data Set Files (refer to item 10
below).)
11. PPS–XIII to PPS–XXII Hospital Data
Set
The file contains cost, statistical,
financial, and other data from the
Medicare Hospital Cost Report. The data
set includes only the most current cost
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14. DRG Relative Weights (Table 5 DRG)
This file contains a listing of DRGs,
DRG narrative descriptions, relative
weights, and geometric and arithmetic
mean lengths of stay as published in the
Federal Register. There are two versions
of this file as published in the Federal
Register:
<bullet≤ NPRM.
<bullet≤ Final rule.
Media: Internet at https://www.cms.
hhs.gov/AcuteInpatientPPS/ FFD/
and before
list.asp#TopOfPage.
Periods Available: FY 2006 through
10/01/96 FY 2008 PPS Update.
report (as submitted, final settled, or
reopened) submitted for a Medicarecertified hospital by the Medicare fiscal
intermediary to CMS. The data set is
updated at the end of each calendar
quarter and is available on the last day
of the following month.
Media: Compact Disc (CD).
File Cost: $100.00.
Periods
beginning
on or after
I
PPS–XIII ...........
PPS–XIV ...........
PPS–XV ............
PPS–XVI ...........
PPS–XVII ..........
PPS–XVIII .........
PPS–XIX ...........
PPS–XX ............
PPS–XXI ...........
PPS–XXII ..........
10/01/95
10/01/96
10/01/97
10/01/98
10/01/99
10/01/00
10/01/01
10/01/02
10/01/03
10/01/04
10/01/97
10/01/98
10/01/99
10/01/00
10/01/01
10/01/02
10/01/03
10/01/04
10/01/05
12. Provider-Specific File
This file is a component of the
PRICER program used in the fiscal
intermediary’s system to compute DRG
payments for individual bills. The file
contains records for all prospective
payment system eligible hospitals,
including hospitals in waiver States,
and data elements used in the
prospective payment system
recalibration processes and related
activities. Beginning with December
1988, the individual records were
enlarged to include pass-through per
diems and other elements.
Media: Internet at https://www.cms.
hhs.gov/ProspMedicareFeeSvcPmt Gen/
Downloads/INP—psf0107.zip.
Periods Available: FY 2008 PPS
Update.
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13. CMS Medicare Case-Mix Index File
The Medicare case-mix indexes by
provider number are published in table
2 of each year’s update of the Medicare
hospital inpatient prospective payment
system. The case-mix index is a measure
of the costliness of cases treated by a
hospital relative to the cost of the
national average of all Medicare hospital
cases, using DRG weights as a measure
of relative costliness of cases. Two
versions of this file are created each
year.
They support the following:
<bullet≤ NPRM published in the
Federal Register.
<bullet≤ Final rule published in the
Federal Register.
Media: Internet at https://www.cms.
hhs.gov/AcuteInpatientPPS/ WIFN/
list.asp#TopOfPage.
Periods Available: FY 2006 through
FY 2008.
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15. PPS Payment Impact File
This file contains data used to
estimate payments under Medicare’s
hospital inpatient prospective payment
systems for operating and capital-related
costs. The data are taken from various
sources, including the Provider-Specific
File, Minimum Data Sets, and prior
impact files. The data set is abstracted
from an internal file used for the impact
analysis of the changes to the
prospective payment systems published
in the Federal Register.
Media: Internet at https://www.cms.
hhs.gov/AcuteInpatientPPS/ FFD/
list.asp#TopOfPage and https://
www.cms.hhs.gov/ AcuteInpatientPPS/
HIF/list.asp#TopOfPage.
Periods Available: FY 1994 through
FY 2008 PPS Update
16. AOR/BOR Tables
This file contains data used to
develop the DRG relative weights. It
contains mean, maximum, minimum,
standard deviation, and coefficient of
variation statistics by DRG for length of
stay and standardized charges. The BOR
tables are ‘‘Before Outliers Removed’’
and the AOR is ‘‘After Outliers
Removed.’’ (Outliers refer to statistical
outliers, not payment outliers.)
Two versions of this file are created
each year. They support the following:
<bullet≤ NPRM published in the
Federal Register.
<bullet≤ Final rule published in the
Federal Register.
Media: Internet at https://www.cms.
hhs.gov/AcuteInpatientPPS/ FFD/
list.asp#TopOfPage.
Periods Available: FY 2008 PPS
Update.
17. Prospective Payment System (PPS)
Standardizing File
This file contains information that
standardizes the charges used to
calculate relative weights to determine
payments under the prospective
payment system. Variables include wage
index, cost-of-living adjustment (COLA),
case-mix index, disproportionate share,
and the Metropolitan Statistical Area
(MSA). The file supports the following:
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<bullet≤ NPRM published in the
Federal Register.
<bullet≤ Final rule published in the
Federal Register.
Media: Internet.
Periods Available: FY 2008 PPS
Update.
For further information concerning
these data tapes, contact the CMS Public
Use Files Hotline at (410) 786–3691.
Commenters interested in obtaining or
discussing any other data used in
constructing this proposed rule should
contact Mark Hartstein at (410) 786–
4548.
B. Collection of Information
Requirements
Under the Paperwork Reduction Act
of 1995 (PRA), we are required to
provide 60-day notice in the Federal
Register and solicit public comment
before a collection of information
requirement is submitted to the Office of
Management and Budget (OMB) for
review and approval. In order to fairly
evaluate whether an information
collection should be approved by OMB,
section 3506(c)(2)(A) of the PRA
requires that we solicit comment on the
following issues:
<bullet≤ The need for the information
collection and its usefulness in carrying
out the proper functions of our agency.
<bullet≤ The accuracy of our estimate
of the information collection burden.
<bullet≤ The quality, utility, and
clarity of the information to be
collected.
<bullet≤ Recommendations to
minimize the information collection
burden on the affected public, including
automated collection techniques.
We are soliciting public comment on
each of these issues for the following
sections of this document that contain
information collection requirements.
Section 412.103 Special Treatment:
Hospitals Located in Urban Areas and
That Apply for Reclassifications as
Rural
Section 412.103(g)(1) states that (1) for
a hospital paid on the basis of
reasonable costs, the hospital may
cancel its rural reclassification by
submitting a written request to the CMS
Regional Office not less than 120 days
prior to the end of its current cost
reporting period, and (2) for a hospital
paid under the hospital inpatient
prospective payment system, the
hospital may cancel its rural
reclassification by submitting a written
request to the CMS Regional Office not
less than 120 days prior to the end of
a Federal fiscal year and after being paid
as rural for at least one 12-month cost
reporting period.
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The burden associated with these
requirements is the time and effort
required for a hospital to develop, draft,
and submit its written request for the
cancellation of its rural reclassification.
While these requirements are subject to
the PRA, we believe the burden is
exempt under 5 CFR 1320.3(c)(4). We
believe that the information collection
requirements in § 412.103(g)(1) and §
421.103(g)(2), respectively, will impact
less than 10 entities. The notices will be
submitted by individual hospitals and
will be reviewed on a case-by-case basis.
Section 489.20 Basic Commitments
Proposed § 489.20(u)(1) would
require physician-owned hospitals, as
defined in § 489.3, to furnish notice to
all patients that the hospital is a
physician-owned hospital. The notice
must be furnished at the beginning of
their hospital stay or outpatient visit.
The burden associated with the
aforementioned requirements is the time
and effort associated with a physicianowned hospital developing a generic
notice and providing notice to the
patients. Approximately 175 physicianowned hospitals must comply with this
requirement. We estimate that it will
require a hospital’s general counsel 4
hours to develop a standard notice to be
furnished to all patients upon admission
as an inpatient or an outpatient.
In addition, we estimate that it will
take 30 seconds to provide the notice to
a patient and it will take another 30
seconds to maintain a copy of the
disclosure in the patient’s medical
record. On average, each hospital will
be required to make 1,092 disclosures
per year. The total burden associated
with the requirements in § 489.20(u)(1)
is 3,885 annual burden hours.
Proposed § 489.20(v) would require
all hospitals, as defined in § 489.24(b),
to furnish all patients notice, in
accordance with § 482.13(b)(2), at the
beginning of their hospital stay or
outpatient visit if a doctor of medicine
or a doctor of osteopathy is not present
in the hospital 24 hours per day, 7 days
per week. The notice must indicate how
24829
the hospital will meet the medical needs
of any inpatient who develops an
emergency medical condition, as
defined in § 489.24(b), at a time when
there is no physician present in the
hospital. The burden associated with
this requirement is the time and effort
necessary for each hospital to develop a
standard notice to furnish to its patients.
We believe 2,504 hospitals will be
required to comply with this
requirement. Complying with the
requirement will require a hospital’s
general counsel 4 hours to develop a
standard notice. In addition, we
estimate that it will take 30 seconds to
provide the notice to a patient, and it
will take another 30 seconds to maintain
a copy of the disclosure in the patient’s
medical record. On average, each
hospital will be required to make 1,092
disclosures per year. The total burden
associated with the requirements in §
489.20(v)(1) is 55,588 annual burden
hours.
ESTIMATED ANNUAL REPORTING AND RECORDKEEPING BURDEN
§ 489.20(u)(1) ......................................
§ 489.20(v)(1) .......................................
0938–New ............................................
...............................................................
0938–New ............................................
...............................................................
175
175
2,504
2,504
75
191,100
2,504
2,734,368
4
.016667
4
.016667
700
3,185
10,016
45,572
Total ...............................................
...............................................................
........................
........................
....................
59,473
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Proposed Add-on Payments for New
Services and Technologies
Section II.I.1 of the preamble of this
proposed rule discusses proposed addon payments for new services and
technologies. Specifically, this section
states that applicants for add-on
payments for new medical services or
technologies for FY 2009 must submit a
formal request. A formal request
includes a full description of the
clinical applications of the medical
service or technology and the results of
any clinical evaluations demonstrating
that the new medical service or
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technology represents a substantial
clinical improvement. In addition, the
request must contain a significant
sample of the data to demonstrate that
the medical service or technology meets
the high-cost threshold.
We also detailed the burden
associated with this requirement in a
final rule published in the Federal
Register on September 7, 2001 (66 FR
46902). As stated in that final rule, we
believe the associated burden is exempt
from the PRA as stipulated under 5 CFR
1320.3(h)(6). Collection of the
information for this requirement will be
conducted on individual case-by-case
basis.
Occupational Mix Adjustment to the FY
2008 Index (Hospital Wage Index
Occupational Mix Survey)
Section III. of the preamble of this
proposed rule details the proposed
changes to the hospital wage index.
Specifically, section III.C addresses the
proposed occupational mix adjustment
to the proposed FY 2008 index. While
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Responses
Total annual
burden
(hours)
OMB control number
This proposed rule imposes collection
of information requirements as outlined
in the regulation text and specified
above. However, this proposed rule also
makes reference to several associated
information collections that are not
discussed in the regulation text. The
following is a discussion of these
collections, which have already
received the Office of Management and
Budget’s (OMB) approval.
Respondents
Burden
per response
(hours)
Requirements
the preamble does not contain any new
information collection requirements, it
is important to note that there is an
OMB approved collection associated
with the hospital wage index.
As stated in section III.C. of the
preamble of this proposed rule, section
304(c) of Pub. L. 106–554 amended
section 1886(d)(3)(E) of the Act to
require CMS to collect data at least once
every 3 years on the occupational mix
of employees for each short-term, acute
care hospital participating in the
Medicare program, in order to construct
an occupational mix adjustment to the
wage index. We collect the data via the
occupational mix survey.
The burden associated with this
information collection request is the
time and effort required to collect and
submit the data in the Hospital Wage
Index Occupational Mix Survey to CMS.
While this burden is subject to the PRA,
it is already approved under OMB
control number 0938–0907, with an
expiration date of May 31, 2009.
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Federal Register / Vol. 72, No. 85 / Thursday, May 3, 2007 / Proposed Rules
Revisions to the Wage Index Based on
Hospital Redesignations (Medicare
Geographic Classification Review
Board)
As noted in section III.I of the
preamble of this proposed rule, section
1886(d)(10) of the Act established the
MGCRB, an entity that has the authority
to accept IPPS hospital applications
requesting geographic reclassification
for wage index or standardized payment
amounts and to issue decisions on these
requests. It is important for CMS to
ensure the accuracy of the MGCRB
decisions and remain apprised of
potential payment impacts. Our
regulations at § 412.256 require a
hospital to submit a copy of its MGCRB
application to CMS.
The burden associated with this
requirement is the time and effort
associated with a hospital compiling
and submitting a copy of its MGCRB
application to CMS. While this
requirement is subject to the PRA, the
burden is approved under OMB control
number 0938–0573, with an expiration
date of November 30, 2008.
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Reporting of Hospital Quality Data for
Annual Hospital Payment Update
As noted in section IV.A.1 of the
preamble of this proposed rule, section
5001(a) of the DRA sets out new
requirements for the RHQDAPU
program. The RHQDAPU program was
established to implement section 501(b)
of Pub. L. 108–173, thereby expanding
our Hospital Quality Initiative. The
RHQDAPU program originally consisted
of a ‘‘starter set’’ of 10 quality measures.
Hospitals participating in the hospital
quality initiative submit their quality
data on the 10 measures to receive an
increase in their Medicare Annual
Payment Update. The Office of
Management and Budget approved the
collection of data associated with the
original starter set of quality measures
under OMB control number 0938–0918,
with an expiration date of January 31,
2010.
However, we recently submitted a
new information collection request
containing additional quality measures
to OMB for approval. The new measures
collect data for the Surgical Care
Improvement Project (SCIP) and
mortality measures. We announced and
sought public comment on the
information collection request in both
60-day and 30-day Federal Register
notices that published on October 13,
2006 (71 FR 60532), and December 22,
2006 (71 FR 77026), respectively. The
revised information collection request is
currently under review at OMB.
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Section IV.A.1 of the preamble of this
proposed rule also discusses the use of
the HCAHPS survey to capture quality
data. The survey is designed to produce
comparable data on the patient’s
perspective on care that allows objective
and meaningful comparisons between
hospitals on domains that are important
to consumers. The HCAHPS survey is
currently approved under OMB control
number 0938–0981, with an expiration
date of December 31, 2007.
Section IV.A.2.h of the preamble of
this proposed rule addresses the
reconsideration and appeal procedures
for a hospital that we believe did not
meet the RHQDAPU program
requirements. If a hospital disagrees
with our determination, it may submit
a written request to us requesting that
we reconsider our decision. The
hospital’s letter must explain the
reasons it believes it did meet the
RHQDAPU program requirements.
While this is a reporting requirement,
the burden associated with it is not
subject to the PRA under 5 CFR
1320.4(a)(2). The burden associated
with information collection
requirements imposed subsequent to an
administrative action is not subject to
the PRA.
If you comment on these information
collection and recordkeeping
requirements, please mail copies
directly to the following:
Centers for Medicare & Medicaid
Services, Office of Strategic
Operations and Regulatory Affairs,
Regulations Development Group,
Attn: William N. Parham, III, CMS–
1533–P, Room C4–26–05, 7500
Security Boulevard, Baltimore, MD
21244–1850; and
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10235, New Executive
Office Building, Washington, DC
20503, Attn: Carolyn Lovett, CMS
Desk Officer, CMS–1533–P, carolyn—
lovett@omb.eop.gov. Fax (202) 395–
6974.
C. Response to Comments
Because of the large number of
comments we normally receive on
Federal Register documents, we are not
able to acknowledge or respond to them
individually. We will consider all
comments we receive by the date and
time specified in the DATES section of
this preamble, and, when we proceed
with a subsequent document, we will
respond to the comments in the
preamble to that document.
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List of Subjects
42 CFR Part 411
Kidney diseases, Medicare, Physician
referral, Reporting and recordkeeping
requirements.
42 CFR Part 412
Administrative practice and
procedure, Health facilities, Medicare,
Puerto Rico, Reporting and
recordkeeping requirements.
42 CFR Part 413
Health facilities, Kidney diseases,
Medicare, Puerto Rico, Reporting and
recordkeeping requirements.
42 CFR Part 489
Health facilities, Medicare, Reporting
and recordkeeping requirements.
For the reasons stated in the preamble
of this proposed rule, the Centers for
Medicare & Medicaid Services is
proposing to amend 42 CFR Chapter IV
as follows:
PART 411—EXCLUSIONS FROM
MEDICARE AND LIMITATIONS ON
MEDICARE PAYMENT
1. The authority citation for Part 411
continues to read as follows:
Authority: Secs. 1102, 1860D–4(e)(6), 1871,
and 1877(b)(4) and (5) of the Social Security
Act (42 U.S.C. 1302, 1395w–10(e)(6), 1395hh,
and 1395nn(b)(4) and (5).
2. Section 411.4 is amended by
revising the introductory text of
paragraph (b) to read as follows:
§ 411.4 Services for which neither the
beneficiary nor any other person is legally
obligated to pay.
*
*
*
*
*
(b) Special conditions for services
furnished to individuals in custody of
penal authorities. Individuals who are
in custody include, but are not limited
to, individuals who are under arrest,
incarcerated, imprisoned, escaped from
confinement, under supervised release,
required to reside in mental health
facilities, required to reside in halfway
houses, required to live under home
detention, or confined completely or
partially in any way under a penal
statute or rule. Payment may be made
for services furnished to individuals or
groups of individuals who are in the
custody of police or other penal
authorities or in the custody of a
government agency under a penal
statute only if the following conditions
are met.
*
*
*
*
*
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PART 412—PROSPECTIVE PAYMENT
SYSTEMS FOR INPATIENT HOSPITAL
SERVICES
3. The authority citation for Part 412
is revised to read as follows:
Authority: Secs. 1102 and 1871 of the
Social Security Act (42 U.S.C. 1302 and
1395hh), and sec. 124 of Pub. L. 106–113
(113 Stat. 1501A–332).
4. Section 412.2 is amended by
adding a new paragraph (g) to read as
follows:
§ 412.2
Basis for payment.
*
*
*
*
*
(g) Payment adjustment for certain
replaced devices. CMS makes a payment
adjustment for certain replaced devices,
as provided under § 412.89.
5. Section 412.4 is amended by—
a. Revising paragraphs (d)(3)(ii)(B)
and (d)(3)(ii)(C).
b. Adding a new paragraph
(d)(3)(ii)(D).
c. Revising paragraph (f)(3).
d. Revising the introductory text of
paragraph (f)(5).
e. Revising paragraph (f)(5)(i).
f. Revising paragraph (f)(5)(iv).
g. Adding a new paragraph (f)(6).
The revisions and additions read as
follows:
§ 412.4
Discharges and transfers.
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*
*
*
*
*
(d) * * *
(3) * * *
*
*
*
*
*
(ii) * * *
(B) The proportion of short-stay
discharges to postacute care to total
discharges in the DRG exceeds th
