Medicare Program; Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 2010 Rates; and Changes to the Long-Term Care Hospital Prospective Payment System and Rate Years 2010 and 2009 Rates, 43754-44236 [E9-18663]
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43754
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Parts 412, 413, 415, 485, and
489
[CMS–1406–F and IFC; CMS–1493–F; CMS–
1337–F]
RIN 0938–AP33; RIN 0938–AP39; RIN 0938–
AP76
Medicare Program; Changes to the
Hospital Inpatient Prospective
Payment Systems for Acute Care
Hospitals and Fiscal Year 2010 Rates;
and Changes to the Long-Term Care
Hospital Prospective Payment System
and Rate Years 2010 and 2009 Rates
sroberts on DSKD5P82C1PROD with RULES
AGENCY: Centers for Medicare and
Medicaid Services (CMS), HHS.
ACTION: Final rules and interim final
rule with comment period.
SUMMARY: We are revising the Medicare
hospital inpatient prospective payment
systems (IPPS) for operating and capitalrelated costs of acute care hospitals to
implement changes arising from our
continuing experience with these
systems, and to implement certain
provisions made by the TMA,
Abstinence Education, and QI Program
Extension Act of 2007, the Medicare
Improvements for Patients and
Providers Act of 2008, and the
American Recovery and Reinvestment
Act of 2009. In addition, in the
Addendum to this final rule, we
describe the changes to the amounts and
factors used to determine the rates for
Medicare acute care hospital inpatient
services for operating costs and capitalrelated costs. These changes are
applicable to discharges occurring on or
after October 1, 2009. We also are
setting forth the update to the rate-ofincrease limits for certain hospitals
excluded from the IPPS that are paid on
a reasonable cost basis subject to these
limits. The updated rate-of-increase
limits are effective for cost reporting
periods beginning on or after October 1,
2009.
Second, we are updating the payment
policy and the annual payment rates for
the Medicare prospective payment
system (PPS) for inpatient hospital
services provided by long-term care
hospitals (LTCHs) for rate year (RY)
2010, including responding to public
comments received on a June 3, 2009
supplemental proposed rule relating to
the proposed RY 2010 Medicare
Severity Long-Term Care DiagnosisRelated Groups (MS–LTC–DRG) relative
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weights and the proposed RY 2010 highcost outlier (HCO) fixed-loss amount. In
the Addendum to this final rule, we also
set forth the changes to the payment
rates, factors, and other payment rate
policies under the LTCH PPS for RY
2010. These changes are applicable to
discharges occurring on or after October
1, 2009. In addition, we are responding
to public comments received on and
finalizing a June 3, 2009 interim final
rule with comment period that revised
the MS–LTC–DRG relative weights for
payments under the LTCH PPS for the
remainder of FY 2009 (that is, from June
3, 2009, through September 30, 2009).
Third, in this final rule, we are
responding to public comments we
received on, and finalizing, two May
2008 interim final rules with comment
period that implemented certain
provisions of section 114 of the
Medicare, Medicaid, and SCHIP
Extension Act of 2007 (MMSEA, Pub. L.
110–173) relating to payments to LTCHs
and LTCH satellite facilities, the
establishment of LTCHs and LTCH
satellite facilities, and increases in beds
in existing LTCHs and LTCH satellite
facilities under the LTCH PPS.
Fourth, through an interim final rule
with comment period as part of this
document, we are implementing those
provisions of the ARRA that amended
certain provisions of section 114 of the
MMSEA relating to payments to LTCHs
and LTCH satellite facilities and
increases in beds in existing LTCHs and
LTCH satellite facilities under the LTCH
PPS.
DATES: Effective Dates: These final rules
are effective on October 1, 2009, with
the following exceptions:
The provisions of §§ 412.534(c)
through (e) and (h) and 412.536(a)(2) are
effective for cost reporting periods
beginning on or after July 1, 2007, or
October 1, 2007, as applicable. In
accordance with sections
1871(e)(1)(A)(i) and (ii) of the Social
Security Act, the Secretary has
determined that retroactive application
of the provisions of §§ 412.534(c)
through (e) and (h) and 412.5536(a)(2) is
necessary to comply with the statute
and that failure to apply the changes
retroactively would be contrary to
public interest.
Comment Period: To be assured
consideration, comments on the interim
final rule with comment period (CMS–
1406–IFC) that appears as section XI. of
the preamble of this document must be
received at one of the addresses
provided below, no later than 5 p.m.
E.S.T. on October 26, 2009.
ADDRESSES: When commenting on
issues presented in the interim final rule
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with comment period, please refer to
file code CMS–1406–IFC. Because of
staff and resource limitations, we cannot
accept comments by facsimile (FAX)
transmission.
You may submit comments in one of
four ways (please choose only one of the
ways listed):
1. Electronically. You may submit
electronic comments on this regulation
at https://www.regulations.gov. Follow
the instructions for ‘‘Comment or
Submission’’ and enter the file code
CMS–1406–IFC to submit comments on
this interim final rule.
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–1406–
IFC, 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–1406–IFC, 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 either of the
following addresses: a. Room 445–G,
Hubert H. Humphrey Building, 200
Independence Avenue, SW.,
Washington, DC 20201.
(Because access to the interior of the
HHH Building is not readily available to
persons without Federal Government
identification, commenters are
encouraged to leave their comments in
the CMS drop slots located in the main
lobby of the building. A stamp-in clock
is available for persons wishing to retain
a proof of filing by stamping in and
retaining an extra copy of the comments
being filed.) b. 7500 Security Boulevard,
Baltimore, MD 21244–1850.
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.
Comments mailed to the addresses
indicated as appropriate for hand or
courier delivery may be delayed and
received after the comment period.
For information on viewing public
comments, see the beginning of the
SUPPLEMENTARY INFORMATION section.
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FOR FURTHER INFORMATION, CONTACT:
Tzvi Hefter, (410) 786–4487, and Ing-Jye
Cheng, (410) 786–4548, Operating
Prospective Payment, MS–DRGs, Wage
Index, New Medical Service and
Technology Add-On Payments, Hospital
Geographic Reclassifications, Capital
Prospective Payment, Excluded
Hospitals, Direct and Indirect Graduate
Medical Education Payments,
Disproportionate Share Hospital (DSH),
Critical Access Hospital (CAH),
EMTALA Hospital Emergency Services,
and Hospital-within-Hospital Issues.
Michele Hudson, (410) 786–4487, and
Judith Richter, (410) 786–2590, LongTerm Care Hospital Prospective
Payment System and MS–LTC–DRG
Relative Weights for FYs 2009 and 2010
Issues.
Siddhartha Mazumdar, (410) 786–
6673, Rural Community Hospital
Demonstration Program Issues.
James Poyer, (410) 786–2261, Quality
Data for Annual Payment Update Issues.
Lisa Grabert, (410) 786–6827,
Hospital-Acquired Conditions.
SUPPLEMENTARY INFORMATION:
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.regulations.gov. Follow the search
instructions at that Web site to view
public comments.
Comments received timely will also
be available for public inspection,
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.
Electronic Access
This Federal Register document is
also available from the Federal Register
online database through GPO Access, a
service of the U.S. Government Printing
Office. Free public access is available on
a Wide Area Information Server (WAIS)
through the Internet and via
asynchronous dial-in. Internet users can
access the database by using the World
Wide Web, (the Superintendent of
Documents’ home Web page address is
https://www.gpoaccess.gov/), by using
local WAIS client software, or by telnet
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to swais.access.gpo.gov, then login as
guest (no password required). Dial-in
users should use communications
software and modem to call (202) 512–
1661; type swais, then login as guest (no
password required).
Acronyms
3M 3M Health Information System
AAHKS American Association of Hip and
Knee Surgeons
AAMC Association of American Medical
Colleges
ACGME Accreditation Council for Graduate
Medical Education
AHA American Hospital Association
AHIC American Health Information
Community
AHIMA American Health Information
Management Association
AHRQ Agency for Healthcare Research and
Quality
ALOS Average length of stay
ALTHA Acute Long Term Hospital
Association
AMA American Medical Association
AMGA American Medical Group
Association
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis
Related Group System
ARRA American Recovery and
Reinvestment Act of 2009, Public Law
111–5
ASC Ambulatory surgical center
ASCA Administrative Simplification
Compliance Act of 2002, Public Law 107–
105
ASITN American Society of Interventional
and Therapeutic Neuroradiology
BBA Balanced Budget Act of 1997, Public
Law 105–33
BBRA Medicare, Medicaid, and SCHIP
[State Children’s Health Insurance
Program] Balanced Budget Refinement
Act of 1999, Public Law 106–113
BIPA Medicare, Medicaid, and SCHIP [State
Children’s Health Insurance Program]
Benefits Improvement and Protection Act
of 2000, Public Law 106–554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment
Record & Evaluation [Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction
Center
CDAD Clostridium difficile-associated
disease
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid
Services
CMSA Consolidated Metropolitan
Statistical Area
COBRA Consolidated Omnibus
Reconciliation Act of 1985, Public Law 99–
272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CY Calendar year
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DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public
Law 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, Public Law 99–272
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FHA Federal Health Architecture
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
HACs Hospital-acquired conditions
HCAHPS Hospital Consumer Assessment of
Healthcare Providers and Systems
HCFA Health Care Financing
Administration
HCO High-cost outlier
HCRIS Hospital Cost Report Information
System
HHA Home health agency
HHS Department of Health and Human
Services
HIPAA Health Insurance Portability and
Accountability Act of 1996, Public Law
104–191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring
Program
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
HwH Hospital-within-a-hospital
ICD–9–CM International Classification of
Diseases, Ninth Revision, Clinical
Modification
ICD–10–CM International Classification of
Diseases, Tenth Revision, Clinical
Modification
ICD–10–PCS International Classification of
Diseases, Tenth Revision, Procedure
Coding System
ICR Information collection requirement
IHS Indian Health Service
IME Indirect medical education
I–O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient
prospective payment system
IRF Inpatient rehabilitation facility
LAMCs Large area metropolitan counties
LOS Length of stay
LTC–DRG Long-term care diagnosis-related
group
LTCH Long-term care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor
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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, Public Law
109–432
MIPPA Medicare Improvements for Patients
and Providers Act of 2008, Public Law
110–275
MMA Medicare Prescription Drug,
Improvement, and Modernization Act of
2003, Public Law 108–173
MMSEA Medicare, Medicaid, and SCHIP
Extension Act of 2007, Public Law 110–173
MPN Medicare provider number
MRHFP Medicare Rural Hospital Flexibility
Program
MRSA Methicillin-resistant Staphylococcus
aureus
MSA Metropolitan Statistical Area
MS–DRG Medicare severity diagnosisrelated group
MS–LTC–DRG Medicare severity long-term
care diagnosis-related group
NAICS North American Industrial
Classification System
NALTH National Association of Long Term
Hospitals
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
NTTAA National Technology Transfer and
Advancement Act of 1991 (Pub. L. 104–
113)
NVHRI National Voluntary Hospital
Reporting Initiative
OACT [CMS’] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation
Act of 1996, Public Law 99–509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and
Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and
Reporting [System]
PIP Periodic interim payment
PLI Professional liability insurance
PMSAs Primary metropolitan statistical
areas
POA Present on admission
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment
Commission
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PRRB Provider Reimbursement Review
Board
PSF Provider-Specific File
PS&R Provider Statistical and
Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data
for annual payment update
RNHCI Religious nonmedical health care
institution
RPL Rehabilitation psychiatric long-term
care (hospital)
RRC Rural referral center
RTI Research Triangle Institute,
International
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
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal
Responsibility Act of 1982, Public Law 97–
248
TEP Technical expert panel
TMA TMA [Transitional Medical
Assistance], Abstinence Education, and QI
[Qualifying Individuals] Programs
Extension Act of 2007, Public Law 110–90
TJA Total joint arthroplasty
UHDDS Uniform hospital discharge data set
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
3. Long-Term Care Hospital Prospective
Payment System (LTCH PPS)
4. Critical Access Hospitals (CAHs)
5. Payments for Graduate Medical
Education (GME)
B. Provisions of the Medicare
Improvements for Patients and Providers
Act of 2008 (MIPPA)
C. Provisions of the American Recovery
and Reinvestment Act of 2009 (ARRA)
D. Issuance of a Notice of Proposed
Rulemaking
1. Proposed Changes to MS–DRG
Classifications and Recalibrations of
Relative Weights
2. Proposed Changes to the Hospital Wage
Index for Acute Care Hospitals
3. Proposed Rebasing and Revision of the
Hospital Market Baskets for Acute Care
Hospitals
4. Other Decisions and Proposed Changes
to the IPPS for Operating Costs and GME
Costs
5. FY 2010 Policy Governing the IPPS for
Capital-Related Costs
6. Proposed Changes to the Payment Rates
for Certain Excluded Hospitals: Rate-ofIncrease Percentages
7. Proposed Changes to the LTCH PPS
8. Determining Proposed Prospective
Payment Operating and Capital Rates
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and Rate-of-Increase Limits for Acute
Care Hospitals
9. Determining Proposed Prospective
Payments Rates for LTCHs
10. Impact Analysis
11. Recommendation of Update Factors for
Operating Cost Rates of Payment for
Hospital Inpatient Services
12. Discussion of Medicare Payment
Advisory Commission Recommendations
E. Finalization of an Interim Final Rule
With Comment Period That Revised the
MS–LTC–DRG Relative Weights for FY
2009 (for June 3, 2009 Through
September 30, 2009)
F. Finalization of Two LTCH PPS Interim
Final Rules With Comment Period Issued
in May 2008
G. Interim Final Rule With Comment
Period That Implements Certain
Provisions of the ARRA Relating to
Payments to LTCHs and LTCH Satellite
Facilities
II. Changes to Medicare Severity DiagnosisRelated Group (MS–DRG) Classifications
and Relative Weights
A. Background
B. MS–DRG Reclassifications
1. General
2. Yearly Review for Making MS–DRG
Changes
C. Adoption of the MS–DRGs in FY 2008
D. FY 2010 MS–DRG Documentation and
Coding Adjustment, Including the
Applicability to the Hospital-Specific
Rates and the Puerto Rico-Specific
Standardized Amount
1. Background on the Prospective MS–DRG
Documentation and Coding Adjustments
for FY 2008 and FY 2009 Authorized by
Public Law 110–90
2. Prospective Adjustment to the Average
Standardized Amounts Required by
Section 7(b)(1)(A) of Public Law 110–90
3. Recoupment or Repayment Adjustments
in FYs 2010 Through 2012 Required by
Public Law 110–90
4. Retrospective Evaluation of FY 2008
Claims Data
5. Adjustments for FY 2010 and
Subsequent Years Authorized by Section
7(b)(1)(A) of Public Law 110–90 and
Section 1886(d)(3)(vi) of the Act
6. Additional Adjustment for FY 2010
Authorized by Section 7(b)(1)(B) of
Public Law 110–90
7. Background on the Application of the
Documentation and Coding Adjustment
to the Hospital-Specific Rates
8. Documentation and Coding Adjustment
to the Hospital-Specific Rates for FY
2010 and Subsequent Years
9. Background on the Application of the
Documentation and Coding Adjustment
to the Puerto Rico-Specific Standardized
Amount
10. Documentation and Coding Adjustment
to the Puerto Rico-Specific Standardized
Amount
E. Refinement of the MS–DRG Relative
Weight Calculation
1. Background
a. Summary of the RTI Study of Charge
Compression and CCR Refinement
b. Summary of the Rand Corporation Study
of Alternative Relative Weight
Methodologies
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2. Summary of FY 2009 Changes and
Discussion for FY 2010
3. Timeline for Revising the Medicare Cost
Report
F. Preventable Hospital-Acquired
Conditions (HACs), Including Infections
1. Statutory Authority
2. HAC Selection Process
3. Collaborative Process
4. Selected HAC Categories
5. Public Input Regarding Selected and
Potential Candidate HACs
6. POA Indicator Reporting
7. Additional Considerations Addressing
the HAC and POA Payment Provision
G. Changes to Specific MS–DRG
Classifications
1. MDC 5 (Diseases and Disorders of the
Circulatory System): Intraoperative
Fluorescence Vascular Angiography
(IFVA)
2. MDC 8 (Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue): Infected Hip and Knee
Replacements
3. Medicare Code Editor (MCE) Changes
a. Diagnoses Allowed for Males Only Edit
b. Manifestation Codes as Principal
Diagnosis Edit
c. Invalid Diagnosis or Procedure Code
d. Unacceptable Principal Diagnosis
e. Creation of New Edit Titled ‘‘Wrong
Procedure Performed’’
f. Procedures Allowed for Females Only
Edit
4. Surgical Hierarchies
5. Complication or Comorbidity (CC)
Exclusions List
a. Background
b. CC Exclusions List for FY 2010
6. Review of Procedure Codes in MS–DRGs
981 Through 983, 984 Through 986, and
987 Through 989
a. Moving Procedure Codes From MS–
DRGs 981 Through 983 or MS–DRGs 987
Through 989 to MDCs
b. Reassignment of Procedures Among MS–
DRGs 981 Through 983, 984 Through
986, and 987 Through 989
c. Adding Diagnosis or Procedure Codes to
MDCs
7. Changes to the ICD–9–CM Coding
System
8. Other Issues Not Addressed in the
Proposed Rule
a. Administration of Tissue Plasminogen
Activator (tPA) (rtPA)
b. Coronary Artery Bypass Graft (CABG)
With Intraoperative Angiography
c. Insertion of Gastrointestinal Stent
H. Recalibration of MS–DRG Weights
I. 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 2010 Status of Technologies
Approved for FY 2009 Add-On Payments
4. FY 2010 Applications for New
Technology Add-On Payments
a. The AutoLITT TM System
b. CLOLAR® (clofarabine) Injection
c. LipiScanTM Coronary Imaging System
d. Spiration® IBV® Valve System
e. TherOx Downstream® System
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5. Technical Correction
III. Changes to the Hospital Wage Index for
Acute Care Hospitals
A. Background
B. Requirements of Section 106 of the
MIEA–TRHCA
1. Wage Index Study Required Under the
MIEA–TRHCA
a. Legislative Requirement
b. Interim and Final Reports on Results of
Acumen’s Study
2. FY 2009 Policy Changes in Response to
Requirements Under Section 106(b) of
the MIEA–TRHCA
a. Reclassification Average Hourly Wage
Comparison Criteria
b. Within-State Budget Neutrality
Adjustment for the Rural and Imputed
Floors
C. Core-Based Statistical Areas for the
Hospital Wage Index
D. Occupational Mix Adjustment to the FY
2010 Wage Index
1. Development of Data for the FY 2010
Occupational Mix Adjustment Based on
the 2007–2008 Occupational Mix Survey
2. Calculation of the Occupational Mix
Adjustment for FY 2010
E. Worksheet S–3 Wage Data for the FY
2010 Wage Index
1. Included Categories of Costs
2. Excluded Categories of Costs
3. Use of Wage Index Data by Providers
Other Than Acute Care Hospitals Under
the IPPS
F. Verification of Worksheet S–3 Wage
Data
G. Method for Computing the FY 2010
Unadjusted Wage Index
H. Analysis and Implementation of the
Occupational Mix Adjustment and the
FY 2010 Occupational Mix Adjusted
Wage Index
I. Revisions to the Wage Index Based on
Hospital Redesignations
1. General
2. Effects of Reclassification/Redesignation
3. FY 2010 MGCRB Reclassifications
4. Redesignations of Hospitals Under
Section 1886(d)(8)(B) of the Act
5. Reclassifications Under Section
1886(d)(8)(B) of the Act
6. Reclassifications Under Section 508 of
Public Law 108–173
J. FY 2010 Wage Index Adjustment Based
on Commuting Patterns of Hospital
Employees
K. Process for Requests for Wage Index
Data Corrections
IV. Rebasing and Revision of the Hospital
Market Baskets for Acute Care Hospitals
A. Background
B. Rebasing and Revising the IPPS Market
Basket
1. Development of Cost Categories and
Weights
a. Medicare Cost Reports
b. Other Data Sources
2. Final Cost Category Computation
3. Selection of Price Proxies
a. Wages and Salaries
b. Employment Benefits
c. Fuel, Oil, and Gasoline
d. Electricity
e. Water and Sewage
f. Professional Liability Insurance
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g. Pharmaceuticals
h. Food: Direct Purchase
i. Food: Contract Services
j. Chemicals
k. Blood and Blood Products
l. Medical Instruments
m. Photographic Supplies
n. Rubber and Plastics
o. Paper and Printing Products
p. Apparel
q. Machinery and Equipment
r. Miscellaneous Products
s. Professional Fees: Labor-Related
t. Administrative and Business Support
Services
u. All Other: Labor-Related Services
v. Professional Fees: Nonlabor-Related
w. Financial Services
x. Telephone Services
y. Postage
z. All Other: Nonlabor-Related Services
4. Labor-Related Share
C. Separate Market Basket for Certain
Hospitals Presently Excluded From the
IPPS
D. Rebasing and Revising the Capital Input
Price Index (CIPI)
V. Other Decisions and Changes to the IPPS
for Operating Costs and GME Costs
A. Reporting of Hospital Quality Data for
Annual Hospital Payment Update
1. Background
a. Overview
b. Hospital Quality Data Reporting Under
Section 501(b) of Public Law 108–173
c. Hospital Quality Data Reporting Under
Section 5001(a) of Public Law 109–171
2. Retirement of RHQDAPU Program
Measures
3. Quality Measures for the FY 2011
Payment Determination and Subsequent
Years
a. Considerations in Expanding and
Updating Quality Measures Under the
RHQDAPU Program
b. RHQDAPU Program Quality Measures
for the FY 2011 Payment Determination
4. Possible New Quality Measures for the
FY 2012 Payment Determination and
Subsequent Years
5. Form, Manner, and Timing of Quality
Data Submission
a. RHQDAPU Program Procedures for the
FY 2011 Payment Determination
b. RHQDAPU Program Disaster Extensions
and Waivers
c. HACHPS Requirements for the FY 2011
Payment Determination
6. Chart Validation Requirements
a. Chart Validation Requirements and
Methods for the FY 2011 Payment
Determination
b. Chart Validation Requirements and
Methods for the FY 2012 Payment
Determination and Subsequent Years
c. Possible Supplements to the Chart
Validation Process for the FY 2013
Payment Determination and Subsequent
Years
7. Data Accuracy and Completeness
Acknowledgement Requirements for the
FY 2011 Payment Determination and
Subsequent Years
8. Public Display Requirements for the FY
2011 Payment Determination and
Subsequent Years
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9. Reconsideration and Appeal Procedures
for the FY 2010 Payment Determination
10. RHQDAPU Program Withdrawal
Deadlines
11. Electronic Health Records
a. Background
b. EHR Testing of Quality Measures
Submission
c. HITECH Act EHR Provisions
B. Medicare-Dependent, Small Rural
Hospitals (MDHs): Budget Neutrality
Adjustment Factors for FY 2002-Based
Hospital-Specific Rate
1. Background
2. FY 2002-Based Hospital-Specific Rate
C. Rural Referral Centers (RRCs)
1. Case-Mix Index
2. Discharges
D. Indirect Medical Education (IME)
Adjustment
1. Background
2. IME Adjustment Factor for FY 2010
3. IME-Related Changes in Other Sections
of this Final Rule
E. Payment Adjustment for Medicare
Disproportionate Share Hospitals (DSHs)
1. Background
2. Policy Change Relating to the Inclusion
of Labor and Delivery Patient Days in the
Medicare DSH Calculation
a. Background
b. Proposed and Final Policy Change
3. Policy Change Relating to Calculation of
Inpatient Days in the Medicaid Fraction
in the Medicare DSH Calculation
a. Background
b. Proposed and Final Policy Change
4. Policy Change Relating to the Exclusion
of Observation Beds and Patient Days
from the Medicare DSH Calculation
a. Background
b. Proposed and Final Policy Change
5. Public Comments Received Out of the
Scope of the Proposed Rule
F. Technical Correction to Regulations on
Payments for Anesthesia Services
Furnished by Hospital or CAH Employed
Nonphysician Anesthetists or Obtained
Under Arrangements
G. Payments for Direct Graduate Medical
Education (GME) Costs
1. Background
2. Clarification of Definition of New
Medical Residency Training Program
3. Participation of New Teaching Hospitals
in Medicare GME Affiliated Groups
4. Technical Corrections to Regulations
H. Hospital Emergency Services Under
EMTALA
1. Background
2. Changes Relating to Applicability of
Sanctions Under EMTALA
I. Rural Community Hospital
Demonstration Program
J. Technical Correction to Regulations
Relating to Calculation of the Federal
Rate Under the IPPS
VI. Changes to the IPPS for Capital-Related
Costs
A. Overview
B. Exception Payments
C. New Hospitals
D. Hospitals Located in Puerto Rico
E. Proposed and Final Changes
1. FY 2010 MS–DRG Documentation and
Coding Adjustment
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a. Background on the Prospective MS–DRG
Documentation and Coding Adjustments
for FY 2008 and FY 2009
b. Prospective MS–DRG Documentation
and Coding Adjustment to the National
Capital Federal Rate for FY 2010 and
Subsequent Years
c. Documentation and Coding Adjustment
to the Puerto Rico-Specific Capital Rate
2. Revision to the FY 2009 IME Adjustment
Factor
3. Other Changes for FY 2010
VII. Changes for Hospitals Excluded From the
IPPS
A. Excluded Hospitals
B. Criteria for Satellite Facilities of
Hospitals
C. Critical Access Hospitals (CAHs)
1. Background
2. Payment for Clinical Diagnostic
Laboratory Tests Furnished by CAHs
3. CAH Optional Method of Payment for
Outpatient Services
4. Continued Participation by CAHs in
Counties Redesignated as Urban
D. Provider-Based Status of Facilities and
Organizations: Policy Changes
1. Background
2. Changes to the Scope of the ProviderBased Status Regulations for CAHs
a. CAH-Based Clinical Diagnostic
Laboratory Facilities
b. CAH-Based Ambulance Services
3. Technical Correction to Regulations
E. Report of Adjustment (Exceptions)
Payments
VIII. Changes to the Long-Term Care Hospital
Prospective Payment System (LTCH PPS)
for RY 2010
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
b. Hospitals Excluded From the LTCH PPS
3. Limitation on Charges to Beneficiaries
4. Administrative Simplification
Compliance Act (ASCA) and Health
Insurance Portability and Accountability
Act (HIPAA) Compliance
B. Medicare Severity Long-Term Care
Diagnosis-Related Group (MS–LTC–
DRG) Classifications and Relative
Weights
1. Background
2. Patient Classifications Into MS–LTC–
DRGs
a. Background
b. Changes to the MS–LTC–DRGs for RY
2010
3. Development of the RY 2010 MS–LTC–
DRG Relative Weights
a. General Overview of the Development of
the MS–LTC–DRG Relative Weights
b. Data
c. Hospital-Specific Relative Value (HSRV)
Methodology
d. Treatment of Severity Levels in
Developing the MS–LTC–DRG Relative
Weights
e. Low-Volume MS–LTC–DRGs
f. Steps for Determining the RY 2010 MS–
LTC–DRG Relative Weights
C. Changes to the LTCH Payment Rates and
Other Changes to the RY 2010 LTCH PPS
1. Overview of Development of the LTCH
Payment Rates
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2. Market Basket for LTCHs Reimbursed
Under the LTCH PPS
a. Overview
b. Market Basket Under the LTCH PPS for
RY 2010
c. Market Basket Update for LTCHs for RY
2010
d. Labor-Related Share Under the LTCH
PPS for RY 2010
3. Adjustment for Changes in LTCHs’ CaseMix Due to Changes in Documentation
and Coding Practices That Occurred in a
Prior Period
a. Background
b. Evaluation of FY 2007 Claims Data
c. Evaluation of FY 2008 Claims Data
d. RY 2010 Documentation and Coding
Adjustment
D. Technical Corrections of LTCH PPS
Regulations
IX. Revisions to the FY 2009 Medicare
Severity Long-Term Care DiagnosisRelated Group (MS–LTC–DRG) Relative
Weights: Finalization of an Interim Final
Rule With Comment Period
A. Overview
B. Changes to the FY 2009 MS–LTC–DRG
Relative Weights
C. Summary of Public Comments Received
on the June 3, 2009 Interim Final Rule
With Comment Period and Our
Responses
D. Finalization of the June 3, 2009 Interim
Final Rule With Comment Period
E. Regulatory Impact Analysis for the June
3, 2009 Interim Final Rule With
Comment Period
X. Finalization of Two Interim Final Rules
With Comment Period That
Implemented Certain Provisions of
Section 114 of the Medicare, Medicaid,
and SCHIP Extension Act of 2007 (Pub.
L. 110–173) Relating to Payments to
LTCHs and LTCH Satellite Facilities
A. Background
B. May 6, 2008 Interim Final Rule With
Comment Period Provisions
Implementing Section 114(c)(3) of the
MMSEA Regarding Certain Short-Stay
Outlier Cases
1. Background
2. Public Comments Received on the May
6, 2008 Interim Final Rule With
Comment Period Provisions
Implementing Section 114(c)(3) of the
MMSEA
C. May 6, 2008 Interim Final Rule With
Comment Period Provisions
Implementing Sections 114(e)(1) and
(e)(2) of the MMSEA Regarding the
Standard Federal Rate for the 2008 LTCH
PPS Rate Year
1. Background
2. Public Comments Received on the May
6, 2008 Interim Final Rule With
Comment Period Provisions
Implementing Sections 114(e)(1) and
(e)(2) of the MMSEA
D. May 22, 2008 Interim Final Rule With
Comment Period Provision
Implementing Sections 114(c)(1) and
(c)(2) of the MMSEA Regarding Payment
Adjustment to LTCHs and LTCH
Satellite Facilities
1. Background
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2. Payment Adjustment to LTCHs and
LTCH Satellite Facilities Specified by
Section 114(c) of the MMSEA
3. Public Comments Received on the May
22, 2008 Interim Final Rule With
Comment Period Implementing Section
114(c)(1) and (c)(2) of the MMSEA
Regarding Payment Adjustment to
LTCHs and LTCH Satellite Facilities
E. May 22, 2008 Interim Final Rule With
Comment Period Provisions
Implementing Section 114(b) of the
MMSEA Regarding Moratorium on the
Establishment of LTCHs, LTCH Satellite
Facilities and on the Increase in Number
of Beds in Existing LTCHs or LTCH
Satellite Facilities
1. Background
2. Provisions of the May 22, 2008 Interim
Final Rule With Comment Period
Implementing Section 114(d) of the
MMSEA That Established Moratoria on
New LTCHs and LTCH Satellite
Facilities and on Bed Increases in
Existing LTCHs and LTCH Satellite
Facilities
3. Public Comments Received on the on the
May 22, 2008 Interim Final Rule With
Comment Period Provisions
Implementing the Exception to the
Moratorium on the Increase in Number
of LTCHs Beds in Existing LTCHs and
LTCH Satellite Facilities
XI. Interim Final Rule with Comment Period
Implementing Section 4302 of the
American Recovery and Reinvestment
Act of 2009 (Pub. L. 111–5) Relating to
Payments to LTCHs and LTCH Satellite
Facilities
A. Background
B. Amendments Relating to Payment
Adjustment to LTCHs and LTCH
Satellite Facilities Made by Section 4302
of the ARRA
C. Amendments to the Moratorium on the
Increase in Number of Beds in Existing
LTCHs or LTCH Satellite Facilities Made
by Section 4302 of the ARRA
D. Response to Comments
E. Waiver of Proposed Rulemaking
F. Collection of Information Requirements
G. Regulatory Impact Analysis
XII. MedPAC Recommendations
XIII. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
C. Additional Information Collection
Requirements
1. Present on Admission (POA) Indicator
Reporting
2. Add-On Payments for New Services and
Technologies
3. Reporting of Hospital Quality Data for
Annual Hospital Payment Update
4. Occupational Mix Adjustment to the FY
2010 Index (Hospital Wage Index
Occupational Mix Survey)
5. Hospital Applications for Geographic
Reclassifications by the MGCRB
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Regulation Text
Addendum—Schedule of Standardized
Amounts, Update Factors, and Rate-ofIncrease Percentages Effective With Cost
Reporting Periods Beginning on or after
October 1, 2009
I. Summary and Background
II. Changes to the Prospective Payment Rates
for Hospital Inpatient Operating Costs for
Acute Care Hospitals for FY 2010
A. Calculation of the Adjusted
Standardized Amount
B. Adjustments for Area Wage Levels and
Cost-of-Living
C. MS–DRG Relative Weights
D. Calculation of the Prospective Payment
Rates
III. Changes to Payment Rates for Acute Care
Hospital Inpatient Capital-Related Costs
for FY 2010
A. Determination of Federal Hospital
Inpatient Capital-Related Prospective
Payment Rate Update
B. Calculation of the Inpatient CapitalRelated Prospective Payments for FY
2010
C. Capital Input Price Index
IV. Changes to Payment Rates for Certain
Excluded Hospitals: Rate-of-Increase
Percentages
V. Changes to the Payment Rates for the
LTCH PPS for RY 2010
A. LTCH PPS Standard Federal Rate for RY
2010
B. Adjustment for Area Wage Levels Under
the LTCH PPS for RY 2010
C. Adjustment for LTCH PPS High-Cost
Outlier (HCO) Cases
D. Computing the Adjusted LTCH PPS
Federal Prospective Payments for RY
2010
VI. Tables
Table 1A.—National Adjusted Operating
Standardized Amounts, Labor/Nonlabor
(68.8 Percent Labor Share/31.2 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 1E.—LTCH Standard Federal
Prospective Payment Rate
Table 2.—Acute Care Hospitals Case-Mix
Indexes for Discharges Occurring in
Federal Fiscal Year 2008; Hospital Wage
Indexes for Federal Fiscal Year 2010;
Hospital Average Hourly Wages for
Federal Fiscal Years 2008 (2004 Wage
Data), 2009 (2005 Wage Data), and 2010
(2006 Wage Data); and 3-Year Average of
Hospital Average Hourly Wages
Table 3A.—FY 2010 and 3-Year Average
Hourly Wage for Acute Care Hospitals in
Urban Areas by CBSA
Table 3B.—FY 2010 and 3-Year Average
Hourly Wage for Acute Care Hospitals in
Rural Areas by CBSA
Table 4A.—Wage Index and Capital
Geographic Adjustment Factor (GAF) for
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Acute Care Hospitals in Urban Areas by
CBSA and by State—FY 2010
Table 4B.—Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals in Rural Areas by
CBSA and by State—FY 2010
Table 4C.—Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals That Are
Reclassified by CBSA and by State—FY
2010
Table 4D–1.—Rural Floor Budget
Neutrality Factors for Acute Care
Hospitals—FY 2010
Table 4D–2.—Urban Areas With Acute
Care Hospitals Receiving the Statewide
Rural Floor or Imputed Floor Wage
Index—FY 2010
Table 4E.—Urban CBSAs and Constituent
Counties for Acute Care Hospitals—FY
2010
Table 4F.—Puerto Rico Wage Index and
Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals by
CBSA—FY 2010
Table 4J.—Out-Migration Adjustment for
Acute Care Hospitals—FY 2010
Table 5.—List of Medicare Severity
Diagnosis-Related Groups (MS–DRGs),
Relative Weighting Factors, and
Geometric and Arithmetic Mean Length
of Stay—FY 2010
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 Exclusions
List (Available Through the Internet on
the CMS Web site at: https://
www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6H.—Deletions from the CC
Exclusions List (Available 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:
http:/www.cms.hhs.gov/
AcuteInpatientPPS/)
Table 6J.—Major Complication and
Comorbidity (MCC) List (Available
through the Internet on the CMS Web
site at: https://www.cms.hhs.gov/
AcuteInpatientPPS/)
Table 6K.—Complication and Comorbidity
(CC) List (Available through the Internet
on the CMS Web site at: https://
www.cms.hhs.gov/AcuteInpatientPPS/)
Table 7A.—Medicare Prospective Payment
System Selected Percentile Lengths of
Stay: FY 2008 MedPAR Update—March
2009 GROUPER V26.0 MS–DRGs
Table 7B.—Medicare Prospective Payment
System Selected Percentile Lengths of
Stay: FY 2008 MedPAR Update—March
2009 GROUPER V27.0 MS–DRGs
Table 8A.—Statewide Average Operating
Cost-to-Charge Ratios (CCRs) for Acute
Care Hospitals—July 2009
Table 8B.—Statewide Average Capital
Cost-to-Charge Ratios (CCRs) for Acute
Care Hospitals—July 2009
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Table 8C.—Statewide Average Total Costto-Charge Ratios (CCRs) for LTCHs—July
2009
Table 9A.—Hospital Reclassifications and
Redesignations—FY 2010
Table 9C.—Hospitals Redesignated as
Rural Under Section 1886(d)(8)(E) of the
Act—FY 2010
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 Medicare Severity Diagnosis-Related
Groups (MS–DRGs)—July 2009
Table 11.—MS–LTC–DRGs, Relative
Weights, Geometric Average Length of
Stay, and Short-Stay Outlier Threshold
for Discharges Occurring From October
1, 2009 Through September 30, 2010
under the LTCH PPS
Table 12A.—LTCH PPS Wage Index for
Urban Areas for Discharges Occurring
From October 1, 2009 Through
September 30, 2010
Table 12B.—LTCH PPS Wage Index for
Rural Ares for Discharges Occurring
From October 1, 2009 Through
September 30, 2010
Appendix A—Regulatory Impact Analysis
I. Overall Impact
II. Objectives of the IPPS
III. Limitations of Our Analysis
IV. Hospitals Included in and Excluded From
the IPPS
V. Effects on Hospitals Excluded From the
IPPS
VI. Quantitative Effects of the Policy Changes
Under the IPPS for Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects of the Changes to the MS–DRG
Reclassifications and Relative Cost-Based
Weights (Column 1)
D. Effects of the Application of
Recalibration Budget Neutrality (Column
2)
E. Effects of Wage Index Changes (Column
3)
F. Application of the Wage Budget
Neutrality Factor (Column 4)
G. Combined Effects of MS–DRG and Wage
Index Changes (Column 5)
H. Effects of MGCRB Reclassifications
(Column 6)
I. Effects of the Rural Floor and Imputed
Floor, Including the Transition to Apply
Budget Neutrality at the State Level
(Column 7)
J. Effects of the Wage Index Adjustment for
Out-Migration (Column 8)
K. Effects of All Changes (Column 9)
L. Effects of Policy on Payment
Adjustments for Low-Volume Hospitals
M. Impact Analysis of Table II
VII. Effects of Other Policy Changes
A. Effects of Policy on HACs, Including
Infections
B. Effects of Policy Changes Relating to
New Medical Service and Technology
Add-On Payments
C. Effects of Requirements for Hospital
Reporting of Quality Data for Annual
Hospital Payment Update
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D. Effects of Correcting the FY 2002-Based
Hospital-Specific Rates for MDHs
E. Effects of Policy Changes Relating to the
Payment Adjustment to Disproportionate
Share Hospitals
F. Effects of Policy Revisions Related to
Payments to Hospitals for Direct GME
G. Effects of Policy Changes Relating to
Hospital Emergency Services under
EMTALA
H. Effects of Implementation of Rural
Community Hospital Demonstration
Program
I. Effects of Policy Changes Relating to
Payments to Satellite Facilities
J. Effects of Policy Changes Relating to
Payments to CAHs
K. Effects of Policy Changes Relating to
Provider-Based Status of Facilities and
Organizations
VIII. Effects of Changes in the Capital IPPS
A. General Considerations
B. Results
IX. Effects of Payment Rate Changes and
Policy Changes Under the LTCH PPS
A. Introduction and General
Considerations
B. Impact on Rural Hospitals
C. Anticipated Effects of LTCH PPS
Payment Rate Change and Policy
Changes
D. Effect on the Medicare Program
E. Effect on Medicare Beneficiaries
X. Alternatives Considered
XI. Overall Conclusion
A. Acute Care Hospitals
B. LTCHs
XII. Accounting Statements
A. Acute Care Hospitals
B. LTCHs
XIII. 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 2010
III. Secretary’s Final 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
predetermined, specific rates for each
hospital discharge. Discharges are
classified according to a list of
diagnosis-related groups (DRGs).
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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. 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 eligible outlier payment 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 in whole
or in part based on their hospitalspecific rate based on their costs in a
base year. For example, sole community
hospitals (SCHs) receive the higher of a
hospital-specific rate based on their
costs in a base year (the highest of FY
1982, FY 1987, FY 1996, or FY 2006) or
the IPPS Federal rate based on the
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standardized amount. Through and
including FY 2006, a Medicaredependent, small rural hospital (MDH)
received the higher of the Federal rate
or the Federal rate plus 50 percent of the
amount by which the Federal rate is
exceeded by the higher of its FY 1982
or FY 1987 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 higher of the Federal rate or
the Federal rate plus 75 percent of the
amount by which the Federal rate is
exceeded by the highest of its FY 1982,
FY 1987, or FY 2002 hospital-specific
rate. SCHs are the sole source of care in
their areas, and MDHs are a major
source of care for Medicare beneficiaries
in their areas. Specifically, section
1886(d)(5)(D)(iii) of the Act defines an
SCH as a hospital that is located more
than 35 road miles from another
hospital or that, by reason of factors
such as isolated location, weather
conditions, travel conditions, or absence
of other like hospitals (as determined by
the Secretary), is the sole source of
hospital inpatient services reasonably
available to Medicare beneficiaries. In
addition, certain rural hospitals
previously designated by the Secretary
as essential access community hospitals
are considered SCHs. Section
1886(d)(5)(G)(iv) of the Act defines an
MDH as a hospital that is located in a
rural area, has not more than 100 beds,
is not an SCH, and has a high
percentage of Medicare discharges (not
less than 60 percent of its inpatient days
or discharges in its cost reporting year
beginning in FY 1987 or in two of its
three most recently settled Medicare
cost reporting years). Both of these
categories of hospitals are afforded this
special payment protection in order to
maintain access to services for
beneficiaries.
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
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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 hospitals and
hospital units are excluded from the
IPPS. These hospitals and units are:
Rehabilitation hospitals and units; longterm 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 (BBA, Pub. L. 105–
33), the Medicare, Medicaid and SCHIP
[State Children’s Health Insurance
Program] Balanced Budget Refinement
Act of 1999 (BBRA, Pub. L. 106–113),
and the Medicare, Medicaid, and SCHIP
Benefits Improvement and Protection
Act of 2000 (BIPA, Pub. L. 106–554)
provide for 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)).
(We note that the annual updates to the
LTCH PPS are now included as part of
the IPPS annual update document (for
RY 2010, in this final rule). Updates to
the IRF PPS and IPF PPS are issued as
separate documents.) Children’s
hospitals, cancer hospitals, and RNHCIs
continue to be paid solely under a
reasonable cost-based system subject to
a rate-of-increase ceiling on inpatient
operating costs per discharge.
The existing regulations governing
payments to excluded hospitals and
hospital units are located in 42 CFR
parts 412 and 413.
3. Long-Term Care Hospital Prospective
Payment System (LTCH PPS)
The Medicare prospective payment
system (PPS) for LTCHs applies to
hospitals described in section
1886(d)(1)(B)(iv) effective for cost
reporting periods beginning on or after
October 1, 2002. The LTCH PPS was
established under the authority of
sections 123(a) and (c) of Public Law
106–113 and section 307(b)(1) of Public
Law 106–554. During the 5-year
(optional) transition period, a LTCH’s
payment under the PPS was based on an
increasing proportion of the LTCH
Federal rate with a corresponding
decreasing proportion based on
reasonable cost principles. Effective 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
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43761
CFR part 412, subpart O. Beginning with
RY 2010, we are issuing the annual
updates to the LTCH PPS in the same
documents that update the IPPS (73 FR
26797 through 26798).
4. Critical Access Hospitals (CAHs)
Under sections 1814(l), 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 are
generally 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.
5. 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 Medicare
Improvements for Patients and
Providers Act of 2008 (MIPPA)
Section 148 of the MIPPA (Pub. L.
110–275) changes the payment rules
regarding outpatient clinical diagnostic
laboratory tests furnished by a CAH.
The statutory change applies to services
furnished on or after July 1, 2009. In
section VII.C.2. of the preamble of the
proposed rule, we discussed our
proposal to codify policies in the
Medicare regulations to implement this
provision. In section VII.C.2. of this
final rule, we finalize our policies in the
Medicare regulations to implement this
provision.
C. Provisions of the American Recovery
and Reinvestment Act of 2009 (ARRA)
Section 4301(b) of the American
Recovery and Reinvestment Act of 2009
(AARA), Pub. Law 111–5, enacted on
February 17, 2009, requires that the
phase-out of the capital IPPS teaching
adjustment at § 412.322(c) (that is, the
50-percent reduction for FY 2009) shall
be applied, as if such paragraph had not
been in effect. That is, discharges
occurring on or after October 1, 2008,
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through September 30, 2009, receive the
full capital IPPS teaching adjustment as
determined under § 412.322(b) of the
regulations. We note that, in this final
rule, in response to public comments on
our proposed implementation of section
4301(b) of the ARRA, we are deleting
§ 412.322(d) of the existing regulations
which currently eliminates the teaching
adjustment beginning in FY 2010. We
discuss the implementation of these
provisions in sections VI.A. and E.2. of
the preamble of this final rule.
Section 4302 of the ARRA included
several amendments to provisions of
section 114 of the MMSEA relating to:
(1) The 3-year delay in the application
of certain provisions of the payment
adjustments for short-stay outliers and
revision to the RY 2008 standard
Federal rate for LTCHs; and (2) the 3year moratorium on the establishment of
new LTCHs and LTCH satellite facilities
and on increases in beds in existing
LTCHs and LTCH satellite facilities. We
discuss the final implementation of
these provisions in sections I.E., VIII.,
and XI. of the preamble of this final
rule.
D. Issuance of a Notice of Proposed
Rulemaking
On May 22, 2009, we published in the
Federal Register (74 FR 24080) a
proposed rule that set forth proposed
changes to the Medicare IPPS for
operating costs and for capital-related
costs of acute care hospitals in FY 2010.
We also set 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. In addition, we set forth proposed
changes to the payment rates, factors,
and other payment rate policies under
the LTCH PPS for RY 2010. On June 3,
2009, we published in the Federal
Register (74 FR 26600) a supplemental
proposed rule (hereafter referred to as
the ‘‘RY 2010 LTCH PPS supplemental
proposed rule’’) that presented both
proposed RY 2010 MS–LTC–DRG
relative weights and a proposed RY
2010 high-cost outlier (HCO) fixed-loss
amount based on the revised FY 2009
MS–LTC–DRG relative weights
presented in an interim final rule with
comment period published also on June
3, 2009 in the Federal Register (74 FR
26546).
Below is a summary of the major
changes that we proposed to make:
1. Proposed Changes to MS–DRG
Classifications and Recalibrations of
Relative Weights
In section II. of the preamble of this
final rule, we included—
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• Proposed changes to MS–DRG
classifications based on our yearly
review.
• Proposed application of the
documentation and coding adjustment
to hospital-specific rates for FY 2010
resulting from implementation of the
MS–DRG system.
• A discussion of the Research
Triangle International, Inc. (RTI) and
RAND Corporation reports and
recommendations relating to charge
compression, including a solicitation of
public comments on the ‘‘over’’
standardization of hospital charges.
• Proposed recalibrations of the MS–
DRG relative weights.
We also presented a listing and
discussion of hospital-acquired
conditions (HACs), including infections,
that are subject to the statutorily
required quality adjustment in MS–DRG
payments for FY 2010.
We presented our evaluation and
analysis of the FY 2010 applicants for
add-on payments for high-cost new
medical services and technologies
(including public input, as directed by
Pub. L. 108–173, obtained in a town hall
meeting).
2. Proposed Changes to the Hospital
Wage Index for Acute Care Hospitals
In section III. of the preamble to the
proposed rule, we proposed revisions to
the wage index for acute care hospitals
and the annual update of the wage data.
Specific issues addressed include the
following:
• Second year of the 3-year transition
from national to within-State budget
neutrality for the rural floor and
imputed floor.
• Final year of the 2-year transition
for changes in the average hourly wage
criterion for geographic
reclassifications.
• Changes to the CBSA designations.
• The proposed FY 2010 wage index
update using wage data from cost
reporting periods that began during FY
2007.
• Analysis and implementation of the
proposed FY 2010 occupational mix
adjustment to the wage index for acute
care hospitals, including the use of data
from the 2007–2008 occupational mix
survey.
• Proposed revisions to the wage
index for acute care hospitals based on
hospital redesignations and
reclassifications.
• The proposed adjustment to the
wage index for acute care hospitals for
FY 2010 based on commuting patterns
of hospital employees who reside in a
county and work in a different area with
a higher wage index.
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• The timetable for reviewing and
verifying the wage data used to compute
the proposed FY 2010 wage index for
acute care hospitals.
3. Proposed Rebasing and Revision of
the Hospital Market Baskets for Acute
Care Hospitals
In section IV. of the preamble of the
proposed rule, we proposed to rebase
and revise the acute care hospital
operating and capital market baskets to
be used in developing the FY 2010
update factor for the operating and
capital prospective payment rates and
the FY 2010 update factor for the
excluded hospital rate-of-increase
limits. We also set forth the data sources
used to determine the proposed revised
market basket relative weights.
4. Other Decisions and Proposed
Changes to the IPPS for Operating Costs
and GME Costs
In section V. of the preamble of the
proposed rule, we discussed a number
of the provisions of the regulations in 42
CFR parts 412, 413, and 489, including
the following:
• The reporting of hospital quality
data as a condition for receiving the full
annual payment update increase.
• Discussion of applying the correct
budget neutrality adjustment for the FY
2002-based hospital-specific rates for
MDHs.
• The proposed updated national and
regional case-mix values and discharges
for purposes of determining RRC status.
• The statutorily-required IME
adjustment factor for FY 2010.
• Proposed changes to the policies
governing payments to Medicare
disproportionate share hospitals,
including proposed policies relating to
the inclusion of labor and delivery
patient days in the calculation of the
DSH payment adjustment, calculation of
inpatient days in the Medicaid fraction
for the Medicare DSH calculation, and
exclusion of observation beds and
patient days from the Medicare DSH
calculation and from the bed count for
the IME adjustment.
• Proposed changes to the policies
governing payment for direct GME.
• Proposed changes to policies on
hospital emergency services under
EMTALA relating to the applicability of
sanctions under EMTALA.
• Discussion of the implementation of
the Rural Community Hospital
Demonstration Program in FY 2010.
• Proposed technical correction to the
regulations governing the calculation of
the Federal rate under the IPPS.
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5. FY 2010 Policy Governing the IPPS
for Capital-Related Costs
In section VI. of the preamble to the
proposed rule, we discussed the
payment policy requirements for
capital-related costs and capital
payments to hospitals for FY 2010. We
also proposed to remove a section of the
regulations relating to the phase-out of
the capital IME adjustment for FY 2009
to implement the provisions of section
4301(b) of the ARRA.
6. Proposed Changes to the Payment
Rates for Certain Excluded Hospitals:
Rate-of-Increase Percentages
In section VII. of the preamble of the
proposed rule, we discussed—
• Proposed changes to payments to
excluded hospitals.
• Proposed changes to the regulations
governing satellite facilities of hospitals.
• Proposed changes relating to
payments to CAHs, including payment
for clinical laboratory tests furnished by
CAHs and payment for outpatient
facility services when a CAH elects the
optional payment method.
• Proposed changes to the rules
governing provider-based status of
facilities and a proposed technical
correction to the regulations governing
provider-based entities.
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7. Proposed Changes to the LTCH PPS
In section VIII.A. through C. and F. of
the preamble of the proposed rule, we
set forth proposed changes to the
payment rates, factors, and other
payment rate policies under the LTCH
PPS for RY 2010, including the annual
update of the MS–LTC–DRG
classifications and relative weights for
use under the LTCH PPS for RY 2010,
the proposed use of the FY 2002-based
RPL market basket for LTCHs, and
proposed technical corrections to the
LTCH PPS regulations.
In section VIII.D. of the preamble of
the proposed rule, we discussed our
ongoing monitoring protocols under the
LTCH PPS. In section VIII.E. of the
preamble of the proposed rule, we
discussed the Research Triangle
Institute, International (RTI) Phase III
Report on its evaluation of the
feasibility of establishing facility and
patient criteria for LTCHs, as
recommended by MedPAC in its June
2004 Report to Congress.
We note that, because we did not
propose any policy changes relating to
our present activities in monitoring and
updates on the RTI contract, we are not
republishing these section discussions
in this final rule. We did receive several
public comments on specific aspects of
the summary of RTI’s most recent work.
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These commenters urged CMS not to
finalize any proposals based on RTI’s
Phase III report until the public has had
the opportunity to review the report and
comment on its findings. We regret that
RTI’s Phase III report was not posted on
the CMS Web site, as we had indicated
in our proposed rule. The report will be
available in the near future at https://
www.cms.hhs.gov/LongTerm
CareHopitalPPS/02a_
RTIReports.asp#TopOfPage. Although
we did not propose any policies based
on that report, we can assure the readers
that any policies that we believe are
appropriate for implementation would
be subject to the notice-and-comment
rulemaking process.
8. Determining Proposed Prospective
Payment Operating and Capital Rates
and Rate-of-Increase Limits for Acute
Care Hospitals
In the Addendum to the proposed
rule, we set forth proposed changes to
the amounts and factors for determining
the proposed FY 2010 prospective
payment rates for operating costs and
capital-related costs for acute care
hospitals. We also established the
proposed threshold amounts for outlier
cases. In addition, we addressed the
proposed update factors for determining
the rate-of-increase limits for cost
reporting periods beginning in FY 2010
for hospitals excluded from the IPPS.
9. Determining Proposed Prospective
Payment Rates for LTCHs
In the Addendum to the proposed
rule, we set forth proposed changes to
the amounts and factors for determining
the proposed RY 2010 prospective
standard Federal rate. We also
established the proposed adjustments
for wage levels, the labor-related share,
the cost-of-living adjustment, and highcost outliers, including the fixed-loss
amount, and the LTCH cost-to-charge
ratios (CCRs) under the LTCH PPS.
10. Impact Analysis
In Appendix A of the proposed rule,
we set forth an analysis of the impact
that the proposed changes would have
on affected acute care hospitals and
LTCHs.
11. Recommendation of Update Factors
for Operating Cost Rates of Payment for
Hospital Inpatient Services
In Appendix B of the 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 2010 for the
following:
• A single average standardized
amount for all areas for hospital
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43763
inpatient services paid under the IPPS
for operating costs of acute care
hospitals (and hospital-specific rates
applicable to SCHs and MDHs).
• Target rate-of-increase limits to the
allowable operating costs of hospital
inpatient services furnished by certain
hospitals excluded from the IPPS.
• The standard Federal rate for
hospital inpatient services furnished by
LTCHs.
12. 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 2008 recommendations
concerning hospital inpatient payment
policies address the update factor for
hospital inpatient operating costs and
capital-related costs under the IPPS, for
hospitals and distinct part hospital units
excluded from the IPPS, and for LTCHs.
We addressed these recommendations
in Appendix B of the proposed rule. For
further information relating specifically
to the MedPAC March 2008 report or to
obtain a copy of the report, contact
MedPAC at (202) 220–3700 or visit
MedPAC’s Web site at: https://
www.medpac.gov.
We received approximately 525
timely pieces of correspondence from
the public in response to the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
and the supplemental proposed rule.
We summarize these public comments
and present our responses under the
specific subject areas of this final rule.
E. Finalization of Interim Final Rule
With Comment Period That Revised the
FY 2009 MS–LTC–DRG Relative Weights
On June 3, 2009, we issued in the
Federal Register an interim final rule
with comment period that revised the
MS–LTC–DRG relative weights for
payments under the LTCH PPS. We
revised the MS–LTC–DRG relative
weights for FY 2009 due to the
misapplication of our established
methodology in the calculation of the
budget neutrality factor. The revised
relative weights are effective for the
remainder of FY 2009 (that is, from June
3, 2009 through September 30, 2009).
We received 11 timely pieces of
correspondence from the public in
response to this interim final rule with
comment period. In section IX. of the
preamble of this final rule, we
summarize these public comments,
present our responses, and finalize the
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provisions of the interim final rule with
comment period.
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F. Finalization of Two LTCH PPS
Interim Final Rules With Comment
Period Issued in May 2008
On May 6, 2008 and May 22, 2008, we
issued in the Federal Register two
interim final rules with comment period
relating to the LTCH PPS (73 FR 24871
and 73 FR 29699, respectively), which
implement section 114 of Public Law
110–173 (MMSEA). The May 6, 2008
interim final rule with comment period
implemented provisions of section 114
of Public Law 110–173 relating to a 3year delay in the application of certain
provisions of the payment adjustment
for short-stay outliers and revisions to
the RY 2008 standard Federal rate for
LTCHs. The May 22, 2008 interim final
rule with comment period implemented
certain provisions of section 114 of
Public Law 110–173 relating to a 3-year
moratorium on the establishment of new
LTCHs and LTCH satellite facilities and
on increases in beds in existing LTCHs
and LTCH satellite facilities. The May
22, 2008 interim final rule with
comment period also implemented a 3year delay in the application of certain
payment policies that apply to payment
adjustments for discharges from LTCHs
and LTCH satellite facilities that were
admitted from certain referring hospitals
in excess of various percentage
thresholds.
We received six timely pieces of
correspondence from the public in
response to the May 6, 2008 interim
final rule with comment period. We
received 30 timely pieces of
correspondence from the public in
response to the May 22, 2008 interim
final rule with comment period. In
section X. of the preamble of this final
rule, we summarize these public
comments, present our responses, and
finalize the provisions of both interim
final rules with comment period, as
appropriate.
G. Interim Final Rule With Comment
Period That Implements Certain
Provisions of the ARRA Relating to
Payments to LTCHs and LTCH Satellite
Facilities
Section 4302 of the American
Recovery and Reinvestment Act of 2009
(ARRA, Pub. L. 111–5) included several
amendments to section 114 of Public
Law 110–173 (MMSEA) relating to
payments to LTCHs and LTCH satellite
facilities that are discussed under
section X. of the preamble of this final
rule. These amendments are effective as
if they were enacted as part of section
114 of Public Law 110–173 (MMSEA).
We issued instructions to the fiscal
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Jkt 217001
intermediaries and Medicare
administrative contractors (MACs) to
interpret these amendments (Change
Request 6444). In section XI. of this
document, we implement the provisions
of section 4302 of Public Law 111–5
through an interim final rule with
comment period. Comments on this
interim final rule with comment period
may be submitted as specified in the
DATES and Comment Period sections of
this document.
II. Changes to Medicare Severity
Diagnosis-Related Group (MS–DRG)
Classifications and Relative Weights
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
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. MS–DRG Reclassifications
1. General
As discussed in the preamble to the
FY 2008 IPPS final rule with comment
period (72 FR 47138), we focused 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 severity of illness into account
and applying hospital-specific relative
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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 other
DRGs across 13 different clinical areas
involving nearly 1.7 million cases. As
described in more detail below, these
refinements were intermediate steps
towards comprehensive reform of both
the relative weights and the DRG system
as we undertook further study. For FY
2008, we adopted 745 new Medicare
Severity DRGs (MS–DRGs) to replace
the CMS DRGs. We refer readers to
section II.D. of the FY 2008 IPPS final
rule with comment period for a full
detailed discussion of how the MS–DRG
system, based on severity levels of
illness, was established (72 FR 47141).
Currently, cases are classified into
MS–DRGs for payment under the IPPS
based on the following information
reported by the hospital: the principal
diagnosis, up to eight additional
diagnoses, and up to six procedures
performed during the stay. In a small
number of MS–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 developing the MS–
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
formulated by physician panels to
ensure 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 MS–DRG could contain patients in
different MDCs. 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 2009,
cases are assigned to one of 746 MS–
DRGs in 25 MDCs. The table below lists
the 25 MDCs.
1 Medicare Payment Advisory Commission:
Report to the Congress, Physician-Owned Specialty
Hospitals, March 2005, page viii.
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MAJOR DIAGNOSTIC CATEGORIES
(MDCS)
1 ......
2 ......
3 ......
4 ......
5 ......
6 ......
7 ......
8 ......
9 ......
10 ......
11 ......
12 ......
MAJOR DIAGNOSTIC CATEGORIES
(MDCS)—Continued
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.
13 ......
14 ......
15 ......
16 ......
17 ......
18 ......
19 ......
20 ......
21 ......
22 ......
23 ......
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.
43765
MAJOR DIAGNOSTIC CATEGORIES
(MDCS)—Continued
24 ......
25 ......
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 an MS–
DRG. However, under the most recent
version of the Medicare GROUPER
(Version 26.0), there are 13 MS–DRGs to
which cases are directly assigned on the
basis of ICD–9–CM procedure codes.
These MS–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
tracheostomies. Cases are assigned to
these MS–DRGs before they are
classified to an MDC. The table below
lists the 13 current pre-MDCs.
PRE-MAJOR DIAGNOSTIC CATEGORIES (PRE-MDCS)
MS–DRG 001 ............
MS–DRG 002 ............
MS–DRG 003 ............
MS–DRG 004 ............
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MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
005
006
007
008
009
010
011
012
013
............
............
............
............
............
............
............
............
............
Heart Transplant or Implant of Heart Assist System with MCC.
Heart Transplant or Implant of Heart Assist System without MCC.
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 with Major O.R.
Liver Transplant with MCC or Intestinal Transplant.
Liver Transplant without MCC.
Lung Transplant.
Simultaneous Pancreas/Kidney Transplant.
Bone Marrow Transplant.
Pancreas Transplant.
Tracheostomy for Face, Mouth, and Neck Diagnoses with MCC.
Tracheostomy for Face, Mouth, and Neck Diagnoses with CC.
Tracheostomy for Face, Mouth, and Neck Diagnoses without CC/MCC.
Once the MDCs were defined, each
MDC was evaluated to identify those
additional patient characteristics that
would have a consistent effect on
hospital resource consumption. 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) or a
major complication or comorbidity
(MCC).
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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 MS–DRG
assignment for certain principal
diagnoses. An example is extracorporeal
shock wave lithotripsy for patients with
a principal diagnosis of urinary stones.
Lithotripsy procedures are not routinely
performed in an operating room.
Therefore, lithotripsy codes are not
classified as O.R. procedures. However,
our clinical advisors believe that
patients with urinary stones who
undergo extracorporeal shock wave
lithotripsy should be considered similar
to other patients who undergo O.R.
procedures. Therefore, we treat this
group of patients similar to patients
undergoing O.R. procedures.
Once the medical and surgical classes
for an MDC were formed, each diagnosis
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class was evaluated to determine if
complications or comorbidities would
consistently affect hospital resource
consumption. Each diagnosis was
categorized into one of three severity
levels. These three levels include a
major complication or comorbidity
(MCC), a complication or comorbidity
(CC), or a non-CC. Physician panels
classified each diagnosis code based on
a highly iterative process involving a
combination of statistical results from
test data as well as clinical judgment. As
stated earlier, we refer readers to section
II.D. of the FY 2008 IPPS final rule with
comment period for a full detailed
discussion of how the MS–DRG system
was established based on severity levels
of illness (72 FR 47141).
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
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the Medicare Code Editor (MCE). The
MCE screens are designed to identify
cases that require further review before
classification into an MS–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 MS–DRG by the Medicare
GROUPER software program. The
GROUPER program was developed as a
means of classifying each case into an
MS–DRG on the basis of the diagnosis
and procedure codes and, for a limited
number of MS–DRGs, demographic
information (that is, sex, age, and
discharge status).
After cases are screened through the
MCE and assigned to an MS–DRG by the
GROUPER, the PRICER software
calculates a base MS–DRG payment.
The PRICER calculates the payment for
each case covered by the IPPS based on
the MS–DRG relative weight and
additional factors associated with each
hospital, such as IME and DSH payment
adjustments. These additional factors
increase the payment amount to
hospitals above the base MS–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 MS–
DRG classification changes and to
recalibrate the MS–DRG weights.
However, in the FY 2000 IPPS final rule
(64 FR 41500), we discussed a process
for considering non-MedPAR 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 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.
As we indicated above, for FY 2008,
we made significant improvements in
the DRG system to recognize severity of
illness and resource usage by adopting
MS–DRGs that were reflected in the FY
2008 GROUPER, Version 25.0, and were
effective for discharges occurring on or
after October 1, 2007. Our MS–DRG
analysis for the FY 2009 final rule was
based on data from the March 2008
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update of the FY 2007 MedPAR file,
which contained hospital bills received
through March 31, 2008, for discharges
occurring through September 30, 2007.
For this final rule, for FY 2010, our MS–
DRG analysis is based on data from the
March 2009 update of the FY 2008
MedPAR file, which contains hospital
bills received through September 30,
2008, for discharges occurring through
September 30, 2008.
2. Yearly Review for Making MS–DRG
Changes
Many of the changes to the MS–DRG
classifications we make annually are the
result of specific issues brought to our
attention by interested parties. We
encourage individuals with comments
about MS–DRG classifications to submit
these comments no later than early
December of each year 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 the MS–DRG
recalibration process, comments about
MS–DRG classification issues should be
submitted 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
MS–DRGs was, and will likely continue
to be, highly iterative, involving a
combination of statistical results from
test data combined with clinical
judgment. In the FY 2008 IPPS final rule
(72 FR 47140 through 47189), we
described in detail the process we used
to develop the MS–DRGs that we
adopted for FY 2008. In addition, in
deciding whether to make further
modification to the MS–DRGs for
particular circumstances brought to our
attention, we considered 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 MS–DRG. We evaluated patient care
costs using average charges and lengths
of stay as proxies for costs and relied on
the judgment of our medical advisors to
decide whether patients are clinically
distinct or similar to other patients in
the MS–DRG. In evaluating resource
costs, we considered both the absolute
and percentage differences in average
charges between the cases we selected
for review and the remainder of cases in
the MS–DRG. We also considered
variation in charges within these
groups; that is, whether observed
average differences were consistent
across patients or attributable to cases
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that were extreme in terms of charges or
length of stay, or both. Further, we
considered the number of patients who
will have a given set of characteristics
and generally preferred not to create a
new MS–DRG unless it would include
a substantial number of cases.
C. Adoption of the MS–DRGs in FY 2008
In the FY 2006, FY 2007, and FY 2008
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; 71 FR 47881 through
47939; and 72 FR 47140 through 47189).
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). Based on public comments
received on the FY 2007 IPPS proposed
rule, we decided not to adopt the CS
DRGs. In the FY 2007 IPPS final rule (71
FR 47906 through 47912), we discussed
several concerns raised by commenters
regarding the proposal to adopt CS
DRGs. We acknowledged the many
comments suggesting the logic of
Medicare’s DRG system should continue
to remain in the public domain as it has
since the inception of the PPS. We also
acknowledged concerns about the
impact on hospitals and software
vendors of moving to a proprietary
system. Several commenters suggested
that CMS refine the existing DRG
classification system to preserve the
many policy decisions that were made
over the last 20 years and were already
incorporated into the DRG system, such
as complexity of services and new
device technologies. Consistent with the
concerns expressed in the public
comments, this option had the
advantage of using the existing DRGs as
a starting point (which was already
familiar to the public) and retained the
benefit of many DRG decisions that
were made in recent years. We stated
our belief that the suggested approach of
incorporating severity measures into the
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existing DRG system was a viable option
that would be evaluated.
Therefore, 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 contained 1,666,476 cases and
represented a number of body systems.
In creating these 20 new DRGs, we
deleted 8 existing DRGs 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 (71 FR
47898), 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
CMS 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 in connection with
adopting severity DRGs. We describe
below the progress we have made on
these two initiatives and our actions for
FYs 2008, 2009, and 2010 based on our
continued analysis of reform of the DRG
system. We note that the adoption of the
MS–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
DSH payment adjustments. We discuss
these implications for FY 2010 in other
sections of this preamble and in the
Addendum to this final rule.
In the FY 2007 IPPS proposed rule,
we discussed MedPAC’s
recommendations to move to a costbased HSRV weighting methodology
using HSRVs beginning with the FY
2007 IPPS proposed rule for
determining the DRG relative weights.
Although we proposed to adopt the
HSRV weighting methodology for FY
2007, we decided not to adopt the
proposed methodology in the final rule
after considering the public comments
we received on the proposal. Instead, in
the FY 2007 IPPS final rule, we adopted
a cost-based weighting methodology
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without the HSRV portion of the
proposed methodology. The cost-based
weights were 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 HSRV-based methodology as well as
other issues brought to our attention
related to the cost-based weighting
methodology adopted in the FY 2007
final rule. There was significant concern
in the public comments that our costbased weighting methodology does not
adequately account for charge
compression—the practice of applying a
higher percentage charge markup over
costs to lower cost items and services
and a lower percentage charge markup
over costs to higher cost items and
services. 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) which we then applied to
charges on the Medicare claims to
determine the cost-based weights. The
commenters were concerned about
potential distortions to the cost-based
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 (RTI) 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
reports and how hospitals report
charges on individual claims. Further,
as part of its study of alternative DRG
systems, the RAND Corporation
analyzed the HSRV cost-weighting
methodology. We refer readers to
section II.E. of the preamble of this final
rule for discussion of the issue of charge
compression and the cost-weighting
methodology for FY 2010.
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 prospective
payment system based on grouping
cases will always present some
opportunities for providers to specialize
in cases they believe have higher
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margins, we believe that the changes we
have adopted and the continuing
reforms we are adoptimg in this final
rule for FY 2010 will improve payment
accuracy and reduce financial
incentives to create specialty hospitals.
We refer readers to section II.D. of the
FY 2008 IPPS final rule with comment
period for a full discussion of how the
MS–DRG system was established based
on severity levels of illness (72 FR
47141).
D. FY 2010 MS–DRG Documentation
and Coding Adjustment, Including the
Applicability to the Hospital-Specific
Rates and the Puerto Rico-Specific
Standardized Amount
1. Background on the Prospective MS–
DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009
Authorized by Public Law 110–90
As we discussed earlier in this
preamble, we adopted the MS–DRG
patient classification system for the
IPPS, effective October 1, 2007, to better
recognize severity of illness in Medicare
payment rates for acute care hospitals.
The adoption of the MS–DRG system
resulted in the expansion of the number
of DRGs from 538 in FY 2007 to 745 in
FY 2008 (currently, 746 DRGs, which
include 1 additional MS–DRG created in
FY 2009). By increasing the number of
DRGs and more fully taking into
account patients’ severity of illness in
Medicare payment rates for acute care
hospitals, the use of MS–DRGs
encourage hospitals to improve their
documentation and coding of patient
diagnoses. In the FY 2008 IPPS final
rule with comment period (72 FR 47175
through 47186), we indicated that we
believe the adoption of the MS–DRGs
had the potential to lead to increases in
aggregate payments without a
corresponding increase in actual patient
severity of illness due to the incentives
for additional documentation and
coding. In that final rule with comment
period, we exercised our authority
under section 1886(d)(3)(A)(vi) of the
Act, which authorizes us to maintain
budget neutrality by adjusting the
national standardized amount to
eliminate the estimated effect of changes
in coding or classification that do not
reflect real changes in case-mix. Our
actuaries estimated that maintaining
budget neutrality required an
adjustment of ¥4.8 percent to the
national standardized amount. We
phased in this ¥4.8 percent adjustment
over 3 years. Specifically, we
established prospective documentation
and coding adjustments of ¥1.2 percent
for FY 2008, ¥1.8 percent for FY 2009,
and ¥1.8 percent for FY 2010.
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On September 29, 2007, Congress
enacted the TMA [Transitional Medical
Assistance], Abstinence Education, and
QI [Qualifying Individuals] Programs
Extension Act of 2007, Public Law 110–
90. Section 7(a) of Public Law 110–90
reduced the documentation and coding
adjustment made as a result of the MS–
DRG system that we adopted in the FY
2008 IPPS final rule with comment
period to ¥0.6 percent for FY 2008 and
¥0.9 percent for FY 2009. Section 7(a)
of Public Law 110–90 did not adjust the
FY 2010 ¥1.8 percent documentation
and coding adjustment promulgated in
the FY 2008 IPPS final rule with
comment period. To comply with
section 7(a) of Public Law 110–90, we
promulgated a final rule on November
27, 2007 (72 FR 66886) that modified
the IPPS documentation and coding
adjustment for FY 2008 to ¥0.6 percent,
and revised the FY 2008 payment rates,
factors, and thresholds accordingly.
These revisions were effective on
October 1, 2007.
For FY 2009, section 7(a) of Public
Law 110–90 required a documentation
and coding adjustment of ¥0.9 percent
instead of the ¥1.8 percent adjustment
established in the FY 2008 IPPS final
rule with comment period. As discussed
in the FY 2009 IPPS final rule (73 FR
48447) and required by statute, we
applied a documentation and coding
adjustment of ¥0.9 percent to the FY
2009 IPPS national standardized
amount. The documentation and coding
adjustments established in the FY 2008
IPPS final rule with comment period, as
amended by Public Law 110–90, are
cumulative. As a result, the ¥0.9
percent documentation and coding
adjustment for FY 2009 was in addition
to the ¥0.6 percent adjustment for FY
2008, yielding a combined effect of
¥1.5 percent.
2. Prospective Adjustment to the
Average Standardized Amounts
Required by Section 7(b)(1)(A) of Public
Law 110–90
Section 7(b)(1)(A) of Public Law 110–
90 requires that if the Secretary
determines that implementation of the
MS–DRG system resulted in changes in
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008 or
FY 2009 that are different than the
prospective documentation and coding
adjustments applied under section 7(a)
of Public Law 110–90, the Secretary
shall make an appropriate adjustment
under section 1886(d)(3)(A)(vi) of the
Act. Section 1886(d)(3)(A)(vi) of the Act
authorizes adjustments to the average
standardized amounts for subsequent
fiscal years in order to eliminate the
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effect of such coding or classification
changes. These adjustments are
intended to ensure that future annual
aggregate IPPS payments are the same as
the payments that otherwise would have
been made had the prospective
adjustments for documentation and
coding applied in FY 2008 and FY 2009
reflected the change that occurred in
those years.
3. Recoupment or Repayment
Adjustments in FYs 2010 Through 2012
Required by Public Law 110–90
If, based on a retroactive evaluation of
claims data, the Secretary determines
that implementation of the MS–DRG
system resulted in changes in
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008 or
FY 2009 that are different from the
prospective documentation and coding
adjustments applied under section 7(a)
of Public Law 110–90, section 7(b)(1)(B)
of Public Law 110–90 requires the
Secretary to make an additional
adjustment to the standardized amounts
under section 1886(d) of the Act. This
adjustment must offset the estimated
increase or decrease in aggregate
payments for FYs 2008 and 2009
(including interest) resulting from the
difference between the estimated actual
documentation and coding effect and
the documentation and coding
adjustment applied under section 7(a) of
Public Law 110–90. This adjustment is
in addition to making an appropriate
adjustment to the standardized amounts
under section 1886(d)(3)(A)(vi) of the
Act as required by section 7(b)(1)(A) of
Public Law 110–90. That is, these
adjustments are intended to recoup (or
repay) spending in excess of (or less
than) spending that would have
occurred had the prospective
adjustments for changes in
documentation and coding applied in
FY 2008 and FY 2009 precisely matched
the changes that occurred in those years.
Public Law 110–90 requires that the
Secretary make these recoupment or
repayment adjustments for discharges
occurring during FYs 2010, 2011, and
2012.
4. Retrospective Evaluation of FY 2008
Claims Data
In order to implement the
requirements of section 7 of Public Law
110–90, we indicated in the FY 2009
IPPS final rule (73 FR 48450) that we
planned a thorough retrospective
evaluation of our claims data. We stated
that the results of this evaluation would
be used by our actuaries to determine
any necessary payment adjustments to
the standardized amounts under section
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1886(d) of the Act beginning in FY 2010
to ensure the budget neutrality of the
MS–DRGs implementation for FY 2008
and FY 2009, as required by law. In the
FY 2009 IPPS proposed rule (73 FR
23541 through 23542), we described our
preliminary plan for a retrospective
analysis of inpatient hospital claims
data and invited public input on our
proposed methodology.
In that proposed rule, we indicated
that we intended to measure and
corroborate the extent of the overall
national average changes in case-mix for
FY 2008 and FY 2009. We expected that
the two largest parts of this overall
national average change would be
attributable to underlying changes in
actual patient severity and to
documentation and coding
improvements under the MS–DRG
system. In order to separate the two
effects, we planned to isolate the effect
of shifts in cases among base DRGs from
the effect of shifts in the types of cases
within base DRGs.
The MS–DRGs divide the base DRGs
into three severity levels (with MCC,
with CC and without CC); the
previously used CMS DRGs had only
two severity levels (with CC and
without CC). Under the CMS DRG
system, the majority of hospital
discharges had a secondary diagnosis
which was on the CC list, which led to
the higher severity level. The MS–DRGs
significantly changed the code lists of
what was classified as an MCC or a CC.
Many codes that were previously
classified as a CC are no longer included
on the MS–DRG CC list because the data
and clinical review showed these
conditions did not lead to a significant
increase in resource use. The addition of
a new level of high severity conditions,
the MCC list, also provided a new
incentive to code more precisely in
order to increase the severity level. We
anticipated that hospitals would
examine the MS–DRG MCC and CC
code lists and then work with
physicians and coders on
documentation and coding practices so
that coders could appropriately assign
codes from the highest possible severity
level. We note that there have been
numerous seminars and training
sessions on this particular coding issue.
The topic of improving documentation
practices in order to code conditions on
the MCC list was also discussed
extensively by participants at the March
11–12, 2009 ICD–9–CM Coordination
and Maintenance Committee meeting.
Participants discussed their hospitals’
efforts to encourage physicians to
provide more precise documentation so
that coders could appropriately assign
codes that would lead to a higher
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severity level. Because we expected
most of the documentation and coding
changes under the MS–DRG system
would occur in the secondary
diagnoses, we believed that the shifts
among base DRGs were less likely to be
the result of the MS–DRG system and
the shifts within base DRGs were more
likely to be the result of the MS–DRG
system. We also anticipated evaluating
data to identify the specific MS–DRGs
and diagnoses that contributed
significantly to the documentation and
coding payment effect and to quantify
their impact. This step entailed analysis
of the secondary diagnoses driving the
shifts in severity within specific base
DRGs.
In that same proposed rule, we also
stated that, while we believe that the
data analysis plan described previously
will produce an appropriate estimate of
the extent of case-mix changes resulting
from documentation and coding
changes, we might decide, if feasible, to
use historical data from our Hospital
Payment Monitoring Program (HPMP) to
corroborate the within-base DRG shift
analysis. The HPMP is supported by the
Medicare Clinical Data Abstraction
Center (CDAC).
In the FY 2009 IPPS proposed rule,
we solicited public comments on the
analysis plans described above, as well
as suggestions on other possible
approaches for performing a
retrospective analysis to identify the
amount of case-mix changes that
occurred in FY 2008 and FY 2009 that
did not reflect real increases in patients’
severity of illness.
A few commenters, including
MedPAC, expressed support for the
analytic approach described in the FY
2009 IPPS proposed rule. A number of
other commenters expressed concerns
about certain aspects of the approach
and/or suggested alternate analyses or
study designs. In addition, one
commenter recommended that any
determination or retrospective
evaluation by the actuaries of the impact
of the MS–DRGs on case-mix be open to
public scrutiny prior to the
implementation of the payment
adjustments beginning in FY 2010.
We took these comments into
consideration as we developed our
proposed analysis plan (described in
greater detail below) and in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
(74 FR 24092 through 24101) solicited
public comment on our methodology
and analysis. For the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule, we
performed a retrospective evaluation of
the FY 2008 data for claims paid
through December 2008. Based on this
evaluation, our actuaries determined
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that implementation of the MS–DRG
system resulted in a 2.5 percent change
due to documentation and coding that
did not reflect real changes in case-mix
for discharges occurring during FY
2008. In the FY 2010 IPPS/RY 2010
LTCH proposed rule, we also stated that
we would update the results from the
proposed analysis plan with data
extracted from FY 2008 Medicare claims
that were paid through March 2008 [sic]
for the FY 2010 IPPS final rule. (We
note that the March 2008 date for the
updated data that appeared in the
proposed rule should have been March
2009.)
In performing the analysis for the
proposed rule, we first divided the casemix index (CMI) obtained by grouping
the FY 2008 claims data through the FY
2008 GROUPER (Version 25.0) by the
CMI obtained by grouping these same
FY 2008 claims through the FY 2007
GROUPER (Version 24.0). This resulted
in a value of 1.028. Because these cases
are the same FY 2008 cases grouped
using Versions 24.0 and 25.0 of the
GROUPER, we attribute this increase
primarily to two factors: (1) The effect
of changes in documentation and coding
under the MS–DRG system; and (2) the
measurement effect from the calibration
of the GROUPER. We estimated the
measurement effect from the calibration
of the GROUPER by dividing the CMI
obtained by grouping cases in the FY
2007 claims data through the FY 2008
GROUPER by the CMI obtained by
grouping cases in these same claims
through the FY 2007 GROUPER. This
resulted in a value of 1.003. In order to
isolate the documentation and coding
effect, we then divided the combined
effect of the changes in documentation
and coding and measurement (1.028) by
the measurement effect (1.003) to yield
1.025. Therefore, our estimate of the
documentation and coding increase was
2.5 percent.
We then sought to corroborate this 2.5
percent estimate by examining the
increases in the within-base DRGs as
compared to the increases in the across
base DRGs as described earlier in our
analysis plan. In other words, we looked
for improvements in code selection that
would lead to a secondary diagnosis
increasing the severity level to either a
CC or an MCC level.
In the analysis of data for the
proposed rule, we found that the
within-base DRG increases were almost
entirely responsible for the case-mix
change, supporting our conclusion that
the 2.5 percent estimate was an accurate
reflection of the FY 2008 effect of
changes in documentation and coding
under the MS–DRG system. In fact,
almost every base DRG that was split
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into different severity levels under the
MS–DRG system experienced increases
in the within-base DRGs.
We then further analyzed the changes
in the within-base DRGs to determine
which MS–DRGs had the highest
contributions to this increase.
Consistent with the expectations of our
medical coding experts concerning areas
with potential for documentation and
coding improvements, the top
contributors were heart failure, chronic
obstructive pulmonary disease, and
simple pneumonia and pleurisy. In fact,
the coding of heart failure was
discussed extensively at the March 11–
12, 2009 ICD–9–CM Coordination and
Maintenance Committee meeting. Heart
failure is a very common secondary
diagnosis among Medicare hospital
admissions. The heart failure codes are
assigned to all three severity levels.
Some codes are classified as non-CCs,
while other codes are on the CC and
MCC lists. By changing physician
documentation to more precisely
identify the type of heart failure, coders
are able to appropriately change the
severity level of cases from the lowest
level (non-CC) to a higher severity level
(CC or MCC). This point was stressed
repeatedly at the March 11–12, 2009
ICD–9–CM Coordination and
Maintenance Committee meeting as
coders discussed their work with
physicians on this coding issue. Many
of the participants indicated that
additional work was still needed with
their physicians in order to document
conditions in the medical record more
precisely.
The results of the analysis for the
proposed rule provided additional
support for our conclusion that the
proposed 2.5 percent estimate
accurately reflected the FY 2008
increases in documentation and coding
under the MS–DRG system.
While we attempted to use the CDAC
data to distinguish real increase in casemix growth from documentation and
coding in the overall case-mix number,
we found aberrant data and significant
variation across the FY 1999–FY 2007
analysis period. It was not possible to
distinguish changes in documentation
and coding from changes in real casemix in the CDAC data. Therefore, we
concluded that the CDAC data would
not support analysis of real case-mix
growth that could be used in our
retrospective evaluation of the FY 2008
claims data.
Although we could not use the CDAC
data, we did examine the overall growth
in case-mix using the FY 2007 claims
data in which we grouped cases using
the FY 2007 GROUPER and the FY 2008
data in which we grouped cases using
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the FY 2008 GROUPER. We found the
overall growth in case-mix was 1.9
percent. The implication of overall FY
2008 case-mix growth of 1.9 percent
relative to our estimate of the FY 2008
documentation and coding effect and
the GROUPER measurement effect is
that real case-mix declined between FY
2007 and FY 2008. After additional data
analysis, our actuaries determined that
the 1.9 percent growth in overall casemix was consistent with our 2.5 percent
estimate of the FY 2008 documentation
and coding effect for reasons that
included: (1) Our mathematical model
for determining the 2.5 percent
documentation and coding effect was
corroborated by the amount of case-mix
growth attributed to within-DRG
improvements in secondary coding of
MCCs and CCs; (2) our data analysis
confirmed the substitution of specified
diagnosis for unspecified diagnoses for
such common conditions as heart
failure and chronic obstructive
pulmonary disease; and (3) there was a
relative decline in above average cost
short-stay surgical cases that can be
performed on an outpatient basis, such
as certain high volume pacemaker
procedures.
We also examined the differences in
case-mix between the FY 2008 claims
data in which cases were grouped
through the FY 2008 GROUPER
(Version 25.0) and the FY 2009
GROUPER (Version 26.0). This was to
help inform analysis of the potential for
increase in the documentation and
coding effect in FY 2009. In FY 2008,
we were transitioning to the fully
implemented MS–DRG relative weights
and the fully implemented cost-based
weights. We found that the use of the
transition weights mitigated the FY
2008 documentation and coding effect
on expenditures. Using the FY 2009
relative weights, the documentation and
coding effect would have been an
estimated 3.2 percent in FY 2008
instead of our estimated 2.5 percent.
Even assuming no continued
improvement in documentation and
coding in FY 2009, we estimated that
the use of the FY 2009 relative weights
would result in an additional 0.7
percent documentation and coding
effect in FY 2009. After taking into
account the results of our FY 2008
analysis and the expertise of our coding
staff, our actuaries continue to estimate
that the cumulative overall effect of
documentation and coding
improvements under the MS–DRG
system will be 4.8 percent. However,
our actuaries estimate that these
improvements will be substantially
complete by the end of FY 2009.
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Therefore, our estimate of the FY 2009
MS–DRG documentation and coding
effect for the proposed rule was 2.3
percent.
As in prior years, the FY 2008
MedPAR files were available to the
public to allow independent analysis of
the FY 2008 documentation and coding
effect. Interested individuals may still
order these files by going to the Web site
at https://www.cms.hhs.gov/
LimitedDataSets/ and clicking on
MedPAR Limited Data Set (LDS)Hospital (National). This Web page
describes the file and provides
directions and further detailed
instructions for how to order.
Persons placing an order must send
the following: a Letter of Request, the
LDS Data Use Agreement and Research
Protocol (refer to the Web site for further
instructions), the LDS Form, and a
check for $3,655 to:
Mailing address if using the U.S. Postal
Service: Centers for Medicare &
Medicaid Services, RDDC Account,
Accounting Division, P.O. Box 7520,
Baltimore, MD 21207–0520.
Mailing address if using express mail:
Centers for Medicare & Medicaid
Services, OFM/Division of
Accounting—RDDC, 7500 Security
Boulevard, C3–07–11, Baltimore, MD
21244–1850.
Comment: MedPAC commented that
its analysis of 2008 claims confirmed
the CMS finding that documentation
and coding improvements increased
case-mix by 2.5 percent in 2008, which
resulted in overpayments of 1.9 percent.
With regard to CMS’ projection that by
the end of 2009, hospitals’
documentation and coding
improvements will have increased casemix by a cumulative total of 4.8 percent,
MedPAC stated that, while all
documentation and coding
improvement projections are subject to
uncertainty, 4.8 percent appears to be a
reasonable estimate, given MedPAC’s
own examination of recent experience
in Maryland.
Response: We agree with MedPAC’s
comment that changes in
documentation and coding increased
case-mix by 2.5 percent in FY 2008.
Using more recent FY 2008 claims data
updated through March 2009, our
actuaries’ estimate of the effect of
changes in documentation and coding
continues to be 2.5 percent. Our
actuaries also continue to estimate that
by the end of FY 2009, changes in
documentation and coding will have
increased case-mix by 4.8 percent,
consistent with MedPAC’s comment.
Comment: Most commenters
questioned CMS’ methodology for the
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retrospective evaluation of FY 2008
claims data and CMS’ finding that real
case-mix growth in FY 2008 was
negative. These comments were
generally similar to the comments from
the AHA, which read:
‘‘In its analysis of documentation and
coding changes, CMS concludes that
from FY 2007 to FY 2008, there was a
decline in real case mix; in contrast, our
analysis found that there is a historical
pattern of steady annual increases of 1.2
to 1.3 percent in real case mix and we
are concerned that CMS’ conclusion is
incorrect. Further, because CMS’
conclusion that real case-mix declined
is an inference based on its analysis of
documentation and coding-related
increases, we are concerned that the 1.9
percent proposed cut also is inaccurate
and overstated.’’
The commenters also raised concerns
that CMS’ estimate did not fully
consider other potential causes of
increased case-mix, such as patients
requiring less complex services
receiving care in other settings and
‘‘healthier’’ patients enrolling in
Medicare Advantage plans in increasing
numbers. Other commenters indicated
that factors such as the changes in the
CC/MCC definitions, limitations on the
number of codes used by CMS for
payment and ratesetting, resequencing
of secondary diagnoses, the transition to
the cost-based weights, less use of ‘‘not
otherwise specified’’ codes, and
increases in real case-mix due to health
reform efforts also resulted in an
inaccurate documentation and coding
analysis. One commenter indicated that,
of the overall case-mix increase, 1.0
percent to 1.5 percent is ‘‘real’’ case-mix
increase, while 1.0 percent to 1.5
percent is due to documentation and
coding or other increases.
Response: The assertion that there is
a historical pattern of steady annual
increases of 1.2 to 1.3 percent in real
case-mix is predicated on the
assumption that there was little
documentation and coding effect in
those historical years. In considering
these comments concerning historical
real case-mix, we calculated overall
increases in case-mix for the period
from FY 2000 to FY 2007 using the
cases from each year and the GROUPER
and relative weights applicable for each
year. The results are shown in the
following chart:
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OVERALL CASE-MIX INCREASES FOR
FY 2000 TO FY 2007
Year
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FY
FY
FY
FY
FY
FY
FY
FY
2000
2001
2002
2003
2004
2005
2006
2007
................................
................................
................................
................................
................................
................................
................................
................................
Overall casemix change
from prior year
(in percent)
¥0.7
¥0.4
1.0
1.4
1.0
0.9
1.2
¥0.2
Overall case-mix growth is
predominately comprised of three
factors: real case-mix growth; a
documentation and coding effect; and a
measurement effect. Under the
reasonable assumption that there has
been a relatively small measurement
effect in those years, the assertion that
there is a historical pattern of steady
annual increases of 1.2 to 1.3 percent in
real case-mix implies that the
documentation and coding effect in
many of those years was negative. For
example, as described earlier, we
estimated a recent measurement effect
of +0.3 percent. The overall case-mix
growth of ¥0.2 percent in FY 2007 net
of a measurement effect of +0.3 percent
results in growth of +0.1 percent. A real
case-mix growth of +1.2 percent in FY
2007, therefore, implies a negative
documentation and coding effect of
approximately ¥1.1 percent. It is not
obvious why documentation and coding
would have had such a large negative
effect in FY 2007, or in any other year
where the overall case-mix change is
significantly less than the commenter’s
claimed average annual trend, calling
into question the assertion that real
case-mix growth is a steady 1.2 to 1.3
percent per year.
Our current estimate of the overall
case-mix growth for FY 2008 based on
more recent data than the data used in
the proposed rule is 2.0 percent, still
less than our actuaries’ estimate of a 2.5
percent documentation and coding
increase. With respect to the concerns
raised by commenters about our finding
of negative real case-mix growth in FY
2008, a finding of negative real case-mix
growth is consistent with the fact that,
in some years, overall case-mix growth
has been negative, as shown in the chart
presented above in this response. Some
commenters were particularly focused
on our statement in the proposed rule
regarding a relative decline in above
average cost short-stay surgical cases.
We did not state that the decline in real
case-mix was entirely attributable to the
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relative decline in above average cost
short-stay outliers. We stated that—
‘‘After additional data analysis, our
actuaries determined that the 1.9
percent growth in overall case-mix was
consistent with our 2.5 percent estimate
of the FY 2008 documentation and
coding effect for reasons that included:
(1) Our mathematical model for
determining the 2.5 percent
documentation and coding effect was
corroborated by the amount of case-mix
growth attributed to within-DRG
improvements in secondary coding of
MCCs and CCs; (2) our data analysis
confirmed the substitution of specified
diagnosis for unspecified diagnoses for
such common conditions as heart
failure and chronic obstructive
pulmonary disease; and (3) there was a
relative decline in above average cost
short-stay surgical cases that can be
performed on an outpatient basis, such
as certain high-volume pacemaker
procedures.’’
The decline in above average cost
short-stay surgical cases was one factor
in our actuaries’ determination that the
1.9 percent growth in overall case-mix
was consistent with our 2.5 percent
documentation and coding estimate. It
was not the only factor. Our current
estimate of the overall case-mix growth
between FY 2007 and FY 2008 based on
more recent data than the data used in
the proposed rule is 2.0 percent. We
observed numerous small changes for a
number of base DRGs that drive the
difference between this overall case mix
growth estimate of 2.0 percent and our
documentation and coding estimate of
2.5 percent, including the relative
decline in above average cost surgical
stay cases that can be performed on an
outpatient basis that we cited in the
proposed rule. These other base DRGs
include MS–DRGs 193, 194, and 195
(Simple Pneumonia and Pleurisy with
MCC, with CC, and without CC or MCC,
respectively); MS–DRGs 246 and 247
(Percutaneous Cardiovascular Procedure
with Drug-Eluting Stent with MCC or
Four or More (4+) Vessels/Stents and
without MCC, respectively); MS–DRGs
233 and 234 (Coronary Bypass with
Cardiac Catheterization with MCC and
without MCC, respectively); MS–DRGs
235 and 236 (Coronary Bypass without
Cardiac Catheterization with MCC and
without MCC, respectively); MS–DRGs
252, 253, and 254 (Other Vascular
Procedures with MCC, with CC, and
without CC or MCC, respectively); MS–
DRGs 291, 292, and 293 (Heart Failure
and Shock with MCC, with CC, and
without CC or MCC, respectively); MS–
DRG 313 (Chest Pain); and MS–DRGs
391 and 392 (Esophagitis,
Gastroenteritis and Miscellaneous
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43771
Digestive Disorders with MCC and
without MCC, respectively). It is
reasonable that the cumulative impact
of small changes across a number of
base DRGs could result in a difference
of 0.5 percentage points between the
overall growth in case-mix and our
documentation and coding estimate.
With respect to the commenters who
raised concerns that our estimate did
not fully consider other potential causes
of increased real case-mix, such as
patients requiring less-complex services
receiving care in other settings,
‘‘healthier’’ patients enrolling in MA
plans in increasing numbers, and health
reform efforts, we note that our
methodology for estimating
documentation and coding does not, by
definition, include real case-mix,
regardless of the actual real case-mix
level. As MedPAC stated in its
comment:
‘‘Our analysis of hospital claims for
fiscal year 2008 confirms CMS’s
findings. To see how much the aggregate
CMI and payments increased in 2008
due solely to hospitals’ DCI, we used
fiscal year 2008 claims—from the
December 2008 update of the 2008
MedPAR file—to calculate the national
aggregate CMI based on the 2008 MS–
DRGs and weights. Using the same
claims, we also calculated the aggregate
CMI based on the 2007 DRGs and
weights. The difference between the two
CMIs is 2.8 percent. By definition, this
change in reported case mix is not real
because the cases are the same.’’
The question is how much of the 2.8
percent increase is due to a
documentation and coding effect and
how much is due to a measurement
effect. Both MedPAC and our actuaries,
based on prior year data, estimate the
measurement effect to be 0.3 percent,
yielding our 2.5 percent FY 2008
documentation and coding effect.
With respect to the commenter who
indicated that real case-mix growth was
1.0 percent to 1.5 percent, the primary
reason cited was the interaction of the
resequencing of secondary diagnoses,
changes in MS–DRG definitions, and
limitations on the number of codes used
by CMS for payment and ratesetting.
There is a yearly review for making MS–
DRG changes. As we note in section
II.B.2. of this preamble, the actual
process of forming MS–DRGs is highly
iterative and involves statistical results
from test data and clinical judgment. In
addition, while hospitals may submit up
to 25 diagnosis codes and 25 procedure
codes on the claim, our payment system
uses only the first 9 diagnosis code
positions and the first 6 procedure code
positions for payment purposes. The
commenter observed that the
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combination of this system limitation
with the yearly review of MS–DRGs has
a sequencing effect. The commenter did
not believe that the resequencing of
secondary diagnoses was a
documentation and coding effect. We
disagree. Resequencing is merely a
change in the hospital’s ordering of the
codes that will be used for payment
purposes. It causes a payment change
unrelated to any change in the
underlying condition of a patient. As we
have stated on numerous occasions, we
do not believe that these types of
documentation and coding changes are
the result of inappropriate behavior on
the part of hospitals. However, to the
extent resequencing occurs, it is
appropriately included in our
documentation and coding increase.
Comment: Multiple commenters were
disappointed that CMS was unable to
obtain relevant findings based on CDAC
data to quantify real case-mix change.
Response: As we stated in the
proposed rule, when we attempted to
use the CDAC data to distinguish
increase in real case-mix growth from
increases due to documentation and
coding in the overall case-mix number,
we found aberrant data and significant
inconsistency across the FY 1999–FY
2007 analysis period. It was not possible
to distinguish changes in
documentation and coding from
changes in real case-mix in the CDAC
data. Therefore, we concluded that the
CDAC data would not support analysis
of real case-mix growth that could be
used in our retrospective evaluation of
the FY 2008 claims data. While we
acknowledge the disappointment of the
commenters, we note that we did not
receive any alternative analysis directly
measuring real case-mix growth that did
not rely on assumptions with respect to
the other factors that influence overall
case-mix growth.
Comment: Some commenters
suggested that rural providers are
typically presented with less complex
cases and have fewer opportunities to
benefit from improved coding
opportunities.
Response: As MedPAC stated in its
comment, ‘‘In addition, we estimated
the 2008 DCI effect using the same
methods for various subgroups of
hospitals. Although the DCI estimates
varied somewhat among the groups, the
variation was generally small. Thus, the
DCI response appears to be widely
consistent among all types of hospitals.’’
Our own analyses confirm MedPAC’s
finding that the documentation and
coding response appears to be generally
consistent among different types of
hospitals, including urban and rural
hospitals. Using the same methodology
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described earlier, the difference in the
DCI response between urban and rural
hospitals was not significant, similar to
our findings discussed elsewhere that
the differences for MDHs and SCHs
were not significant.
We also note that we discussed the
issue of a uniform adjustment for DCI
response in the FY 2008 IPPS final rule
(72 FR 47184), published prior to the
TMA, Abstinence Education, and QI
Programs Extension Act of 2007. In that
discussion, we noted that ‘‘While
improvements in documentation and
coding that increase case mix may be
variable, section 1886(d)(3)(A)(vi) of the
Act only allows us to apply the
adjustments that are a result of changes
in the coding or classification of
discharges that do not reflect real
changes in case mix to the standardized
amounts.’’
Section 7 of the TMA, Abstinence
Education, and QI Programs Extension
Act of 2007 specifically references
section 1886(d)(3)(A)(vi), stating that the
Secretary shall ‘‘make an appropriate
adjustment under paragraph (3)(A)(vi) of
such section 1886(d).’’ Section
1886(d)(3)(A)(iv)(II) of the Act directed
CMS to eliminate separate standardized
amounts for large urban areas and other
areas beginning in FY 2004, creating the
current uniform standardized amount
that is applicable to all hospitals.
Therefore, even if the data did indicate
a different DCI response for urban and
rural hospitals, the law continues to
only allow us to apply the prospective
adjustments that are a result of changes
in the coding or classification of
discharges that do not reflect real
changes in case-mix to the standardized
amount.
5. Adjustments for FY 2010 and
Subsequent Years Authorized by
Section 7(b)(1)(A) of Public Law 110–90
and Section 1886(d)(3)(vi) of the Act
Based on our most current evaluation
of FY 2008 Medicare claims data, the
estimated 2.5 percent change in FY 2008
case-mix due to changes in
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008
exceeds the ¥0.6 percent prospective
documentation and coding adjustment
applied under section 7(a) of Public Law
110–90 by 1.9 percentage points. Under
section 7(b)(1)(A) of Public Law 119–90,
the Secretary is required to make an
appropriate adjustment under section
1886(d)(3)(A)(vi) of the Act to the
average standardized amounts for
subsequent fiscal years in order to
eliminate the full effect of the
documentation and coding changes on
future payments. In addition, we note
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that the Secretary has the authority to
make this prospective adjustment in FY
2010 under section 1886(d)(3)(A)(vi) of
the Act. As we have consistently stated
since the initial implementation of the
MS–DRG system, we do not believe it is
appropriate for expenditures to increase
due to MS–DRG-related changes in
documentation and coding that do not
reflect real changes in case-mix.
We also estimate that the additional
change in case-mix due to changes in
documentation and coding that do not
reflect real changes in case-mix for
discharges occurring during FY 2009
will be 2.3 percent, which would exceed
by 1.4 percentage points the ¥0.9
percent prospective documentation and
coding adjustment for FY 2009 applied
under section 7(a) of Public Law 100–
90. We have the statutory authority to
adjust the FY 2010 rates for this
estimated 1.4 percentage point increase.
However, given that Public Law 100–90
requires a retrospective claims
evaluation for the additional
adjustments described in section II.D.6.
of this preamble, we stated in the
proposed rule that we believed our
evaluation of the extent of the overall
national average changes in case-mix for
FY 2009 should also be based on a
retrospective evaluation of all FY 2009
claims data. Because we do not receive
all FY 2009 claims data prior to
publication of this final rule, we
indicated we would address any
difference between the additional
increase in FY 2009 case-mix due to
changes in documentation and coding
that did not reflect real changes in casemix for discharges occurring during FY
2009 and the ¥0.9 percent prospective
documentation and coding adjustment
applied under section 7(a) of Public Law
110–90 in the FY 2011 rulemaking
cycle.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24096), we
solicited public comment on the
proposed ¥1.9 percent prospective
adjustment to the standardized amounts
under section 1886(d) of the Act to
address the effects of documentation
and coding changes unrelated to
changes in real case-mix in FY 2008. In
addition, we solicited public comments
on addressing in the FY 2011
rulemaking cycle any differences
between the increase in FY 2009 casemix due to changes in documentation
and coding changes that do not reflect
real changes in case-mix for discharges
occurring during FY 2009 and the ¥0.9
percent prospective documentation and
coding adjustment applied under
section 7(a) of Public Law 110–90. We
present below a summation of the
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public comments we received on these
issues and our responses.
Comment: MedPAC summarized its
comments on when CMS should reduce
payment rates to prevent further
overpayments and to recover
overpayments occurring in 2008 and
2009 as follows: ‘‘We support CMS’s
proposal to reduce IPPS payments in
2010 by 1.9 percent to prevent further
overpayments. While we and the CMS
actuaries believe that a 1.9 percent
reduction will not fully prevent
overpayments from continuing in 2010,
this is a reasonable first step toward
reducing overpayments.’’
Response: While we agree with
MedPAC’s comment that our proposed
¥1.9 percent adjustment would be a
reasonable first step with respect to the
documentation and coding increases
associated with the implementation of
the MS–DRGs, nevertheless, as
discussed below, we believe that it
would be more prudent to delay
implementation of the documentation
and coding adjustment to allow for a
more complete analysis of FY 2009
claims data. If the estimated
documentation and coding effect
determined based on a full analysis of
FY 2009 claims data is more or less than
our current estimates, it would change,
possibly lessen, the anticipated
cumulative adjustments that we
currently estimate we would have to
make for FY 2008 and FY 2009
combined adjustment.
Comment: Most commenters opposed
the proposed ¥1.9 percent prospective
FY 2010 adjustment for FY 2008
documentation and coding increases,
but supported the proposal not to apply
a FY 2010 prospective adjustment for
estimated FY 2009 documentation and
coding increases. The commenters
expressed concern over the financial
impact of the proposed ¥1.9 percent
adjustment and the methodology for
calculating the adjustment. The
comments on the financial impact were
generally similar to those contained in
the comment from the AHA, which
stated that ‘‘The proposed rule includes
a 1.9 percent cut to both operating and
capital payments in FY 2010 and
beyond—$23 billion over 10 years—to
correct the base rate for payments made
in FY 2008 that CMS claims are the
effect of documentation and coding
changes that do not reflect real changes
in case mix. In combination with other
policy changes, this cut results in
hospitals being paid $1 billion less in
FY 2010 than in FY 2009 * * * We
recognize that CMS could have taken
action to reduce payments more than
proposed in this rule. We appreciate
that CMS did not propose cuts for
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documentation and coding changes in
FY 2009 or cuts to recoup the estimated
documentation and coding
overpayments in FY 2008. However,
given the severity of the 1.9 percent
proposed cut, and in light of the fact
that our analysis shows real increases in
patient severity, we ask that the agency
significantly mitigate its proposed
documentation and coding cut.’’
Other commenters recommended that
CMS seek to extend the timeframe
beyond 2 years to phase in the estimated
¥6.6 percent adjustment to the
standardized amount.
Response: Our actuaries have
determined, and MedPAC has
confirmed, that the implementation of
the MS–DRG system resulted in changes
in documentation and coding that did
not reflect real changes in case-mix for
discharges occurring during FY 2008.
The impact of these changes exceeds the
¥0.6 percent prospective
documentation and coding adjustments
applied under section 7(a) of Public Law
110–90. As described earlier, analysis of
more recent claims data confirms that
the difference is ¥1.9 percent. We
addressed the comments on our
methodology in the section II.D.4. of
this preamble.
We fully understand that our
proposed adjustment of ¥1.9 percent
would reduce the increase in payments
that affected hospitals would have
received in FY 2009 in the absence of
the adjustment. Although we are
required to make a prospective
adjustment to eliminate the full effect of
coding or classification changes that did
not reflect real changes in case-mix for
discharges occurring during FY 2008,
we believe we have some discretion
regarding when to implement this
adjustment. Section 7(b)(1)(A) of Public
Law 110–90 requires that if the
Secretary determines that
implementation of the MS–DRG system
resulted in changes in documentation
and coding that did not reflect real
changes in case-mix for discharges
occurring during FY 2008 or FY 2009
that are different than the prospective
documentation and coding adjustments
applied under section 7(a) of Public Law
110–90, the Secretary shall make an
‘‘appropriate’’ adjustment under section
1886(d)(3)(A)(vi) of the Act.
After consideration of the public
comments we received on these issues,
we have determined that it would be
appropriate to postpone adopting
documentation and coding adjustments
as authorized under section 7(a) of
Public Law 110–90 and section
1886(d)(3)(A)(vi) of the Act until a full
analysis of case-mix changes can be
completed. While we have the statutory
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43773
authority to make this 1.9 percent
prospective adjustment entirely in FY
2010, we believe it would be prudent to
wait until we have complete data on the
magnitude of the documentation and
coding effect in FY 2009. If the
documentation and coding effect were
less in FY 2009 than our current
estimates, it could lessen the anticipated
adjustment that we currently estimate
we would have to make for FY 2008 and
FY 2009 combined. In future
rulemaking, we will consider applying a
prospective adjustment based upon a
complete analysis of FY 2008 and FY
2009 claims data over an extended time
period, such as 5 years, beginning in FY
2011. During this phase-in period, we
intend to address any difference
between the increase in FY 2009 casemix due to changes in documentation
and coding that did not reflect real
changes in case-mix for discharges
occurring during FY 2009 and the ¥0.9
percent prospective documentation and
coding adjustment applied under
section 7(a) of Public Law 110–90 in the
FY 2011 rulemaking cycle.
We appreciate the commenters’
support of our decision not to apply a
FY 2010 prospective adjustment for
estimated FY 2009 documentation and
coding increases until we have
performed a retrospective evaluation of
the FY 2009 claims data.
6. Additional Adjustment for FY 2010
Authorized by Section 7(b)(1)(B) of
Public Law 110–90
As indicated above, the estimated 2.5
percent change (estimated from analysis
of more recent data than the data used
for the proposed rule) due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008
exceeds the ¥0.6 percent prospective
documentation and coding adjustment
applied under section 7(a) of Public Law
110–90 by 1.9 percentage points. Our
actuaries currently estimate that this 1.9
percentage point increase resulted in an
increase in aggregate payments of
approximately $2.2 billion. As
described earlier, section 7(b)(1)(B) of
Public Law 110–90 requires an
additional adjustment for discharges
occurring in FYs 2010, 2011, and/or
2012 to offset the estimated amount of
this increase in aggregate payments
(including interest).
Although section 7(b)(1)(B) of Public
Law 110–90 requires us to make this
adjustment in FYs 2010, 2011, and/or
2012, we have discretion as to when
during this 3 year period we will apply
the adjustment. For example, we could
make adjustments to the standardized
amounts under section 1886(d) of the
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Act in FY 2010, 2011, and 2012.
Alternatively, we could delay offsetting
the increase in FY 2008 aggregate
payments by applying the adjustment
required under section 7(b)(1)(B) of
Public Law 110–90 only to FYs 2011
and 2012.
We did not propose to make an
adjustment to the FY 2010 average
standardized amounts to offset, in
whole or in part, the estimated increase
in aggregate payments for discharges
occurring in FY 2008, but stated in the
proposed rule that we intended to
address this issue in future rulemaking
for FYs 2011 and 2012. That is, we
stated we would address recouping the
additional expenditures that occurred in
FY 2008 as a result of the 1.9 percentage
point difference between the actual
changes in documentation and coding
that do not reflect real changes in casemix, or 2.5 percent, and the ¥0.6
percent adjustment applied under
Public Law 110–90 in FY 2011 and/or
FY 2012, as required by law. We
indicated that, while we have the
statutory authority to make this ¥1.9
percent recoupment adjustment entirely
in FY 2010, we are delaying the
adjustment until FY 2011 and FY 2012
because we do not have any data yet on
the magnitude of the documentation
and coding effect in FY 2009. If the
documentation and coding effect were
less in FY 2009 than our current
estimates, it could lessen the anticipated
recoupment adjustment that we
currently estimate we would have to
make for FY 2008 and FY 2009
combined. As we have the authority to
recoup the aggregate effect of this 1.9
percentage point difference in FY 2008
IPPS payments in FY 2011 or FY 2012
(with interest), delaying this adjustment
would have no effect on Federal budget
outlays. In the proposed rule, we
indicated that we intended to wait until
we have a complete year of data on the
FY 2009 documentation and coding
effect before applying a recoupment
adjustment for IPPS spending that
occurred in FY 2008 or we estimate will
occur in FY 2009.
As discussed above, section 7(b)(1)(B)
of Public Law 110–90 requires the
Secretary to make an additional
adjustment to the standardized amounts
under section 1886(d) of the Act to
offset the estimated increase or decrease
in aggregate payments for FY 2009
(including interest) resulting from the
difference between the estimated actual
documentation and coding effect and
the documentation and coding
adjustments applied under section 7(a)
of Public Law 110–90. This
determination must be based on a
retrospective evaluation of claims data.
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Because we will not receive all FY 2009
claims data prior to publication of this
final rule, as we indicate in the
proposed rule, we intend to address any
increase or decrease in FY 2009
payments in future rulemaking for FY
2011 and 2012 after we perform a
retrospective evaluation of the FY 2009
claims data. Our actuaries currently
estimate that this adjustment will be
approximately ¥3.3 percent. This
reflects the difference between the
estimated 4.8 percent cumulative actual
documentation and coding changes for
FY 2009 (2.5 percent for FY 2008 and
an additional 2.3 percent for FY 2009)
and the cumulative ¥1.5 percent
documentation and coding adjustments
applied under section 7(a) of Public Law
110–90 (¥0.6 percent in FY 2008 and
¥0.9 percent in FY 2009). We note that
the actual adjustments are
multiplicative and not additive. This
more recent estimated 4.8 percent
cumulative actual documentation and
coding changes for FY 2009 includes the
impact of the changes in documentation
and coding first occurring in FY 2008
because we believe hospitals will
continue these changes in
documentation and coding in
subsequent fiscal years. Consequently,
these documentation and coding
changes will continue to impact
payments under the IPPS absent a
prospective adjustment to account for
the effect of these changes.
We note that, unlike the ¥1.9
adjustment to the standardized amounts
under section 7(b)(1)(A) of Public Law
110–90 described earlier, any
adjustment to the standardized amounts
under section 7(b)(1)(B) of Public Law
110–90 would not be cumulative, but
would be removed for subsequent fiscal
years once we have offset the increase
in aggregate payments for discharges for
FY 2008 expenditures and FY 2009
expenditures, if any.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24096), we
solicited public comment on our
proposal not to offset the 1.9 percent
increase in aggregate payments
(including interest) for discharges
occurring in FY 2008 resulting from the
adoption of the MS–DRGs, but to
instead address this issue in future
rulemaking for FYs 2011 and 2012.
Comment: MedPAC stated in its
comments on the adjustment to the
standardized amounts under section
7(b)(1)(B) of Public Law 110–90: ‘‘In
addition, it would be desirable for CMS
to minimize year-to-year changes in
payment adjustments it must make to
recover overpayments that were made in
2008 and 2009. To achieve this goal,
CMS should consider spreading the
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recovery of 2008 overpayments over 3
years, beginning in 2010.’’
Response: We appreciate MedPAC’s
comment that it would be desirable to
minimize year-to-year changes in
payment adjustments due to the
recoupment adjustments. However, as
we stated in the proposed rule, we
continue to believe it would be more
appropriate to examine the FY 2009
claims data fully before making a
determination as to the appropriate
timing of the FY 2008 recoupment
adjustment. Postponing this adjustment
until a retrospective evaluation of the
claims data from both FY 2008 and FY
2009 are available would allow us to
make annual adjustments more
appropriately in FY 2011 and FY 2012.
Comment: As noted above, some
commenters recommended that CMS
seek to extend the timeframe beyond 2
years to phase in the estimated ¥6.6
percent adjustment to the standardized
amount. The commenters asked CMS to
seek necessary legislative action to
accommodate such a policy.
Response: As discussed in the
proposed rule, we are required under
section 7(b)(1)(B) of Public Law 110–90
to recapture the difference of actual
documentation and coding effect in FY
2008 and FY 2009 that is greater than
the prior adjustments. This retrospective
recoupment process must be completed
by the end of FY 2012. The large
majority of the remaining adjustment to
the standardized amount reflects
retrospective adjustment. At this time,
we have no plans to seek legislative
action to change the time period for this
adjustment.
Comment: Most commenters
expressed concern with the significant
negative financial impacts that would be
incurred by providers if CMS adopted
that proposed ¥1.9 percent
documentation and coding adjustment
in FY 2010. The commenters cited
providers’ already small or negative
margins for Medicare payments, and
requested that CMS not further reduce
payments during the current period of
economic instability and reduced State
funding. Other commenters indicated
that it would be appropriate to delay
any adjustment to the standardized
amounts under section 7(b)(1)(B) of
Public Law 110–90 until after CMS has
the opportunity to fully examine the FY
2009 claims data.
Response: We recognize that any
adjustment to account for the
documentation and coding effect
observed in the FY 2008 and FY 2009
claims data may result in significant
future payment reduction for providers.
However, as discussed in the proposed
rule, we are required under section
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7(b)(1)(B) of Public Law 110–90 to
recapture the difference of actual
documentation and coding effect in FY
2008 and FY 2009 that is greater than
the prior adjustments. We agree with the
commenters who requested that CMS
delay any adjustment and, for the
reasons stated above, expect to address
this issue through the FY 2011
rulemaking.
7. Background on the Application of the
Documentation and Coding Adjustment
to the Hospital-Specific Rates
Under section 1886(d)(5)(D)(i) of the
Act, SCHs are paid based on whichever
of the following rates yields the greatest
aggregate payment: The Federal rate; the
updated hospital-specific rate based on
FY 1982 costs per discharge; the
updated hospital-specific rate based on
FY 1987 costs per discharge; the
updated hospital-specific rate based on
FY 1996 costs per discharge; or the
updated hospital-specific rate based on
FY 2006 costs per discharge. Under
section 1886(d)(5)(G) of the Act, MDHs
are paid based on the Federal national
rate or, if higher, the Federal national
rate plus 75 percent of the difference
between the Federal national rate and
the updated hospital-specific rate based
on the greatest of the FY 1982, FY 1987,
or FY 2002 costs per discharge. In the
FY 2008 IPPS final rule with comment
period (72 FR 47152 through 47188), we
established a policy of applying the
documentation and coding adjustment
to the hospital-specific rates. In that
final rule with comment period, we
indicated that because SCHs and MDHs
use the same DRG system as all other
hospitals, we believe they should be
equally subject to the budget neutrality
adjustment that we are applying for
adoption of the MS–DRGs to all other
hospitals. In establishing this policy, we
relied on section 1886(d)(3)(A)(vi) of the
Act, which provides us with the
authority to adjust ‘‘the standardized
amount’’ to eliminate the effect of
changes in coding or classification that
do not reflect real change in case-mix.
However, in the final rule that
appeared in the Federal Register on
November 27, 2007 (72 FR 66886), we
rescinded the application of the
documentation and coding adjustment
to the hospital-specific rates retroactive
to October 1, 2007. In that final rule, we
indicated that, while we still believe it
would be appropriate to apply the
documentation and coding adjustment
to the hospital-specific rates, upon
further review, we decided that the
application of the documentation and
coding adjustment to the hospitalspecific rates is not consistent with the
plain meaning of section
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1886(d)(3)(A)(vi) of the Act, which only
mentions adjusting ‘‘the standardized
amount’’ under section 1886(d) of the
Act and does not mention adjusting the
hospital-specific rates.
In the FY 2009 IPPS proposed rule (73
FR 23540), we indicated that we
continued to have concerns about this
issue. Because hospitals paid based on
the hospital-specific rate use the same
MS–DRG system as other hospitals, we
believe they have the potential to realize
increased payments from
documentation and coding changes that
do not reflect real increases in patients’
severity of illness. In section
1886(d)(3)(A)(vi) of the Act, Congress
stipulated that hospitals paid based on
the standardized amount should not
receive additional payments based on
the effect of documentation and coding
changes that do not reflect real changes
in case-mix. Similarly, we believe that
hospitals paid based on the hospitalspecific rates should not have the
potential to realize increased payments
due to documentation and coding
changes that do not reflect real increases
in patients’ severity of illness. While we
continue to believe that section
1886(d)(3)(A)(vi) of the Act does not
provide explicit authority for
application of the documentation and
coding adjustment to the hospitalspecific rates, we believe that we have
the authority to apply the
documentation and coding adjustment
to the hospital-specific rates using our
special exceptions and adjustment
authority under section 1886(d)(5)(I)(i)
of the Act. The special exceptions and
adjustment provision authorizes us to
provide ‘‘for such other exceptions and
adjustments to [IPPS] payment amounts
* * * as the Secretary deems
appropriate.’’ In the FY 2009 IPPS final
rule (73 FR 48448 through 48449), we
indicated that, for the FY 2010
rulemaking, we planned to examine our
FY 2008 claims data for hospitals paid
based on the hospital-specific rate. We
further indicated that if we found
evidence of significant increases in casemix for patients treated in these
hospitals that do not reflect real changes
in case-mix, we would consider
proposing application of the
documentation and coding adjustments
to the FY 2010 hospital-specific rates
under our authority in section
1886(d)(5)(I)(i) of the Act.
In response to public comments
received on the FY 2009 IPPS proposed
rule, we stated in the FY 2009 IPPS final
rule that we would consider whether
such a proposal is warranted for FY
2010. To gather information to evaluate
these considerations, we indicated that
we planned to perform analyses on FY
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43775
2008 claims data to examine whether
there has been a significant increase in
case-mix for hospitals paid based on the
hospital-specific rate. If we found that
application of the documentation and
coding adjustment to the hospitalspecific rates for FY 2010 is warranted,
we indicated that we would include a
proposal to do so in the FY 2010 IPPS
proposed rule.
8. Documentation and Coding
Adjustment to the Hospital-Specific
Rates for FY 2010 and Subsequent
Fiscal Years
In the FY 2010 IPPS/RY 2010 LTCH
proposed rule (74 FR 24098 through
24100), we discussed our performance
of a retrospective evaluation of the FY
2008 claims data for SCHs and MDHs
using the same methodology described
earlier for other IPPS hospitals. We
found that, independently for both
SCHs and MDHs, the change due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008
slightly exceeded the proposed 2.5
percent result discussed earlier, but did
not significantly differ from that result.
Again, for the proposed rule, we
found that the within-base DRG
increases were almost entirely
responsible for the case-mix change. In
the proposed rule, we presented two
Figures to display our results.
Therefore, consistent with our
statements in prior IPPS rules, we
proposed to use our authority under
section 1886(d)(5)(I)(i) of the Act to
prospectively adjust the hospitalspecific rates by the proposed ¥2.5
percent in FY 2010 to account for our
estimated documentation and coding
effect in FY 2008 that does not reflect
real changes in case-mix. We proposed
to leave this adjustment in place for
subsequent fiscal years in order to
ensure that changes in documentation
and coding resulting from the adoption
of the MS–DRGs do not lead to an
increase in aggregate payments for SCHs
and MDHs not reflective of an increase
in real case-mix. The proposed ¥2.5
percent adjustment to the hospitalspecific rates exceeded the ¥1.9 percent
adjustment to the national standardized
amount under section 7(b)(1)(A) of
Public Law 110–90 because, unlike the
national standardized rates, the FY 2008
hospital-specific rates were not
previously reduced in order to account
for anticipated changes in
documentation and coding that do not
reflect real changes in case-mix
resulting from the adoption of the MS–
DRGs.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24100), we
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solicited public comment on the
proposed ¥2.5 percent prospective
adjustment to the hospital-specific rates
under section 1886(d)(5)(I)(i) of the Act
and our proposal to address in the FY
2011 rulemaking cycle any changes in
FY 2009 case-mix due to changes in
documentation and coding that do not
reflect real changes in case-mix for
discharges occurring during FY 2009.
We also indicated that we intended to
update our analysis with FY 2008 data
on claims paid through March 2008 [sic]
for the FY 2010 IPPS final rule. (We
note that the March 2008 update claims
paid data date in the proposed rule
should have been March 2009.)
Consistent with our approach for IPPS
hospitals discussed earlier, we are also
delaying adoption of a documentation
and coding adjustment to the hospitalspecific rate until FY 2011. Similar to
our approach for IPPS hospitals, we will
consider, through future rulemaking,
phasing in the documentation and
coding adjustment over an appropriate
period. As we indicated earlier, we also
will address, through future rulemaking,
any changes in documentation and
coding that do not reflect real changes
in case-mix for discharges occurring
during FY 2009. We noted that, unlike
the national standardized rates, the FY
2009 hospital-specific rates were not
previously reduced in order to account
for anticipated changes in
documentation and coding that do not
reflect real changes in case-mix
resulting from the adoption of the MS–
DRGs. However, as we note earlier with
regard to IPPS hospitals, if the estimated
documentation and coding effect
determined based on a full analysis of
FY 2009 claims data is more or less than
our current estimates, it would change,
possibly lessen, the anticipated
cumulative adjustments that we
currently estimate we would have to
make for the FY 2008 and FY 2009
combined adjustment. Therefore, we
believe that it would be more prudent
to delay implementation of the
documentation and coding adjustment
to allow for a more complete analysis of
FY 2009 claims data for hospitals
receiving hospital-specific rates.
Comment: One commenter request
that CMS rescind the documentation
and coding adjustment for SCHs and
MDHs. The commenter contended that,
due to the special recognition and
protection afforded to these provider
types by the Medicare program, CMS
should more closely reexamine any
negative payment adjustment that may
threaten the viability of these providers.
Commenters also questioned the
statutory authority to apply this
adjustment to SCHs and MDHs. The
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commenters argued that because
Congress included specific statutory
authority to adjust the standardized
amount in section 1886(d)(3)(A)(vi) of
the Act, CMS is precluded from using
the broader ‘‘adjustments’’ language in
section 1886(d)(5)(I)(i) of the Act to
apply those same adjustments to the
hospital-specific rate.
Response: We disagree with the
commenter that the Secretary’s broad
authority to make exceptions and
adjustment to payment amounts under
section 1886(d)(3)(A)(vi) of the Act
cannot be applied in this instance. We
have discussed the basis for applying
such an adjustment in prior rules (in the
FY 2009 proposed rule (73 FR 23540),
the FY 2009 final rule (73 FR 48448),
and the FY 2010 proposed rule (74 FR
24098)) and do not agree that the
language in section 1886(d)(3)(A)(vi) of
the Act limits our authority under
section 1886(d)(5)(I)(i) of the Act to
make such an adjustment. We recognize
that SCHs and MDHs are entitled
through legislation to receive the
hospital-specific rate in order to
compensate for their unique service
requirements in the provider
community. Similar to our approach
with IPPS hospitals, through future
rulemaking, we will consider a phase-in
of the documentation and coding
adjustment over an appropriate period,
beginning in FY 2011, and will continue
to separately analyze SCH and MDH
claims data to assure that any future
adjustment is appropriate for these
provider types.
9. Background on the Application of the
Documentation and Coding Adjustment
to the Puerto Rico-Specific Standardized
Amount
Puerto Rico hospitals are paid based
on 75 percent of the national
standardized amount and 25 percent of
the Puerto Rico-specific standardized
amount. As noted previously, the
documentation and coding adjustment
we adopted in the FY 2008 IPPS final
rule with comment period relied upon
our authority under section
1886(d)(3)(A)(vi) of the Act, which
provides the Secretary the authority to
adjust ‘‘the standardized amounts
computed under this paragraph’’ to
eliminate the effect of changes in coding
or classification that do not reflect real
changes in case-mix. Section
1886(d)(3)(A)(vi) of the Act applies to
the national standardized amounts
computed under section 1886(d)(3) of
the Act, but does not apply to the Puerto
Rico-specific standardized amount
computed under section 1886(d)(9)(C) of
the Act. In calculating the FY 2008
payment rates, we made an inadvertent
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error and applied the FY 2008 ¥0.6
percent documentation and coding
adjustment to the Puerto Rico-specific
standardized amount, relying on our
authority under section
1886(d)(3)(A)(vi) of the Act. However,
section 1886(d)(3)(A)(vi) of the Act
authorizes application of a
documentation and coding adjustment
to the national standardized amount and
does not apply to the Puerto Rico
specific standardized amount. In the FY
2009 IPPS final rule (73 FR 48449), we
corrected this inadvertent error by
removing the ¥0.6 percent
documentation and coding adjustment
from the FY 2008 Puerto Rico-specific
rates.
While section 1886(d)(3)(A)(vi) of the
Act is not applicable to the Puerto Ricospecific standardized amount, we
believe that we have the authority to
apply the documentation and coding
adjustment to the Puerto Rico-specific
standardized amount using our special
exceptions and adjustment authority
under section 1886(d)(5)(I)(i) of the Act.
Similar to SCHs and MDHs that are paid
based on the hospital-specific rate, we
believe that Puerto Rico hospitals that
are paid based on the Puerto Ricospecific standardized amount should
not have the potential to realize
increased payments due to
documentation and coding changes that
do not reflect real increases in patients’
severity of illness. Consistent with the
approach described for SCHs and
MDHs, in the FY 2009 IPPS final rule
(73 FR 48449), we indicated that we
planned to examine our FY 2008 claims
data for hospitals in Puerto Rico. We
indicated in the FY 2009 IPPS proposed
rule (73 FR 23541) that if we found
evidence of significant increases in casemix for patients treated in these
hospitals, we would consider proposing
application of the documentation and
coding adjustments to the FY 2010
Puerto Rico-specific standardized
amount under our authority in section
1886(d)(5)(I)(i) of the Act.
10. Documentation and Coding
Adjustment to the Puerto Rico-Specific
Standardized Amount
For the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, we performed a
retrospective evaluation of the FY 2008
claims data for Puerto Rico hospitals
using the same methodology described
earlier for IPPS hospitals paid under the
national standardized amounts under
section 1886(d) of the Act. We found
that, for Puerto Rico hospitals, the
increase in payments for discharges
occurring during FY 2008 due to
documentation and coding that did not
reflect real changes in case-mix for
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discharges occurring during FY 2008
was approximately 1.1 percent. When
we calculated the within-base DRG
changes and the across-base DRG
changes for Puerto Rico hospitals, we
found that responsibility for the casemix change between FY 2007 and FY
2008 is much more evenly shared.
Across-base DRG shifts accounted for 44
percent of the changes, and within-base
DRG shifts accounted for 56 percent.
Thus, the change in the percentage of
discharges with an MCC was not as
large as that for other IPPS hospitals. In
Figure 4 in the proposed rule, we
showed that, for Puerto Rico hospitals,
there was a 3 percentage point increase
in the discharges with an MCC from 22
percent to 25 percent and a
corresponding decrease of 3 percentage
points from 58 percent to 55 percent in
discharges without a CC or an MCC.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24101), we
solicited public comment on the
proposed ¥1.1 percent prospective
adjustment to the hospital-specific rates
under section 1886(d)(5)(I)(i) of the Act
and our intent to address in the FY 2011
rulemaking cycle any changes in FY
2009 case-mix due to changes in
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2009.
We also stated that we intended to
update our analysis with FY 2008 data
on claims paid through March 2009 for
the FY 2010 IPPS final rule.
Given these documentation and
coding increases, consistent with our
statements in prior IPPS rules, we will
use our authority under section
1886(d)(5)(I)(i) of the Act to adjust the
Puerto Rico-specific rate. However, in
parallel to our decision to postpone
adjustments to the Federal standardized
amount, we are adopting a similar
policy for the Puerto Rico-specific rate
and will consider the phase-in of this
adjustment over an appropriate time
period through future rulemaking. The
adjustment would be applied to the
Puerto Rico-specific rate that accounts
for 25 percent of payments to Puerto
Rico hospitals, with the remaining 75
percent based on the national
standardized amount. Consequently, the
overall reduction to the payment rates
for Puerto Rico hospitals to account for
documentation and coding changes will
be slightly less than the reduction for
IPPS hospitals paid based on 100
percent of the national standardized
amount. We note that, as with the
hospital-specific rates, the Puerto Ricospecific standardized amount had not
previously been reduced based on
estimated changes in documentation
and coding associated with the adoption
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of the MS–DRGs. However, as we note
earlier for IPPS hospitals and hospitals
receiving hospital-specific rates, if the
estimated documentation and coding
effect determined based on a full
analysis of FY 2009 claims data is more
or less than our current estimates, it
would change, possibly lessen, the
anticipated cumulative adjustments that
we currently estimate we would have to
make for the FY 2008 and FY 2009
combined adjustment. Therefore, we
believe that it would be more prudent
to delay implementation of the
documentation and coding adjustment
to allow for a more complete analysis of
FY 2009 claims data for Puerto Rico
hospitals.
Consistent with our approach for IPPS
hospitals discussed above, we will
address in the FY 2011 rulemaking
cycle any change in FY 2009 case-mix
due to documentation and coding that
did not reflect real changes in case-mix
for discharges occurring during FY
2009. We note that, unlike the national
standardized rates, the FY 2009
hospital-specific rates were not
previously reduced in order to account
for anticipated changes in
documentation and coding that do not
reflect real changes in case-mix
resulting from the adoption of the MS–
DRGs.
IPPS final rule for details on the
HSRVcc methodology and the 3-year
transition blend from charge-based
relative weights to cost-based relative
weights (71 FR 47882 through 47898).)
In FY 2008, we adopted severitybased MS–DRGs, which increased the
number of DRGs from 538 to 745. Many
commenters raised concerns as to how
the transition from charge-based weights
to cost-based weights would continue
with the introduction of new MS–DRGs.
We decided to implement a 2-year
transition for the MS–DRGs to coincide
with the remainder of the transition to
cost-based relative weights. In FY 2008,
50 percent of the relative weight for
each DRG was based on the CMS DRG
relative weight and 50 percent was
based on the MS–DRG relative weight.
In FY 2009, the third and final year
of the transition from charge-based
weights to cost-based weights, we
calculated the MS–DRG relative weights
based on 100 percent of hospital costs.
We refer readers to the FY 2007 IPPS
final rule (71 FR 47882) for a more
detailed discussion of our final policy
for calculating the cost-based DRG
relative weights and to the FY 2008
IPPS final rule with comment period (72
FR 47199) for information on how we
blended relative weights based on the
CMS DRGs and MS–DRGs.
E. Refinement of the MS–DRG Relative
Weight Calculation
a. Summary of the RTI Study of Charge
Compression and CCR Refinement
1. Background
In the FY 2009 IPPS final rule (73 FR
48450), we continued to implement
significant revisions to Medicare’s
inpatient hospital rates by completing
our 3-year transition from charge-based
relative weights to cost-based relative
weights. Beginning in FY 2007, we
implemented relative weights based on
cost report data instead of based on
charge information. We had initially
proposed to develop cost-based relative
weights using the hospital-specific
relative value cost center (HSRVcc)
methodology as recommended by
MedPAC. However, after considering
concerns expressed in the public
comments we received on the proposal,
we modified MedPAC’s methodology to
exclude the hospital-specific relative
weight feature. Instead, we developed
national CCRs based on distinct hospital
departments and engaged a contractor to
evaluate the HSRVcc methodology for
future consideration. To mitigate
payment instability due to the adoption
of cost-based relative weights, we
decided to transition cost-based weights
over 3 years by blending them with
charge-based weights beginning in FY
2007. (We refer readers to the FY 2007
As we transitioned to cost-based
relative weights, some commenters
raised concerns about potential bias in
the weights due to ‘‘charge
compression,’’ which is the practice of
applying a higher percentage charge
markup over costs to lower cost items
and services, and a lower percentage
charge markup over costs to higher cost
items and services. As a result, the costbased weights would undervalue highcost items and overvalue low-cost items
if a single CCR is applied to items of
widely varying costs in the same cost
center. To address this concern, in
August 2006, we awarded a contract to
RTI to study the effects of charge
compression in calculating the relative
weights and to consider methods to
reduce the variation in the CCRs across
services within cost centers. RTI issued
an interim draft report in January 2007
with its findings on charge compression
(which was posted on the CMS Web site
at: https://www.cms.hhs.gov/reports/
downloads/Dalton.pdf). In that report,
RTI found that a number of factors
contribute to charge compression and
affect the accuracy of the relative
weights. RTI’s findings demonstrated
that charge compression exists in
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several CCRs, most notably in the
Medical Supplies and Equipment CCR.
In its interim draft report, RTI offered
a number of recommendations to
mitigate the effects of charge
compression, including estimating
regression-based CCRs to disaggregate
the Medical Supplies Charged to
Patients, Drugs Charged to Patients, and
Radiology cost centers, and adding new
cost centers to the Medicare cost report,
such as adding a ‘‘Devices, Implants and
Prosthetics’’ line under ‘‘Medical
Supplies Charged to Patients’’ and a
‘‘CT Scanning and MRI’’ subscripted
line under ‘‘Radiology-Diagnostics’’.
(For more details on RTI’s findings and
recommendations, we refer readers to
the FY 2009 IPPS final rule (73 FR
48452).) Despite receiving public
comments in support of the regressionbased CCRs as a means to immediately
resolve the problem of charge
compression, particularly within the
Medical Supplies and Equipment CCR,
we did not adopt RTI’s recommendation
to create additional regression-based
CCRs for several reasons. We were
concerned that RTI’s analysis was
limited to charges on hospital inpatient
claims, while typically hospital cost
report CCRs combine both inpatient and
outpatient services. Further, because
both the IPPS and the OPPS rely on
cost-based weights, we preferred to
introduce any methodological
adjustments to both payment systems at
the same time. RTI’s analysis of charge
compression has since been expanded
to incorporate outpatient services. RTI
evaluated the cost estimation process for
the OPPS cost-based relative weights,
including a reassessment of the
regression-based CCR models using both
outpatient and inpatient charge data.
This interim report was made available
in April 2008 during the public
comment period on the FY 2009 IPPS
proposed rule and can be found on
RTI’s Web site at: https://www.rti.org/
reports/cms/HHSM–500–2005–0029I/
PDF/Refining_Cost_to_Charge_Ratios
_200804.pdf. The IPPS-specific
chapters, which were separately
displayed in the April 2008 interim
report, as well as the more recent OPPS
chapters, were included in the July 3,
2008 RTI final report entitled, ‘‘Refining
Cost-to-Charge Ratios for Calculating
APC [Ambulatory Payment
Classification] and DRG Relative
Payment Weights,’’ that became
available at the time of the development
of the FY 2009 IPPS final rule. The RTI
final report can be found on RTI’s Web
site at: https://www.rti.org/reports/cms/
HHSM–500–2005–0029I/PDF/Refining_
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Cost_to_Charge_Ratios_200807_
Final.pdf.
RTI’s final report distinguished
between two types of research findings
and recommendations: those pertaining
to the accounting or cost report data and
those related to statistical regression
analysis. Importantly, RTI found that,
under the IPPS and the OPPS,
accounting improvements to the cost
reporting data reduce some of the
sources of aggregation bias without
having to use regression-based
adjustments. In general, with respect to
the regression-based adjustments, RTI
confirmed the findings of its March
2007 report that regression models are a
valid approach for diagnosing potential
aggregation bias within selected services
for the IPPS and found that regression
models are equally valid for setting
payments under the OPPS. RTI also
suggested that regression-based CCRs
could provide a short-term correction
until accounting data could be
sufficiently refined to support more
accurate CCR estimates under both the
IPPS and the OPPS.
RTI also noted that cost-based weights
are only one component of a final
prospective payment rate. There are
other rate adjustments (wage index,
IME, and DSH) to payments derived
from the revised cost-based weights and
the cumulative effect of these
components may not improve the ability
of final payment to reflect resource cost.
With regard to APCs and MS–DRGs that
contain substantial device costs, RTI
cautioned that the other rate
adjustments largely offset the effects of
charge compression among hospitals
that receive these adjustments. RTI
endorsed short-term regression-based
adjustments, but also concluded that
more refined and accurate accounting
data are the preferred long-term solution
to mitigate charge compression and
related bias in hospital cost-based
weights.
As a result of this research, RTI made
11 recommendations. For a more
detailed summary of RTI’s findings,
recommendations, and public
comments we received on the report, we
refer readers to the FY 2009 IPPS final
rule (73 FR 48452 through 48453).
b. Summary of the RAND Corporation
Study of Alternative Relative Weight
Methodologies
One of the reasons that we did not
implement regression-based CCRs at the
time of the FY 2008 IPPS final rule with
comment period was our inability to
investigate how regression-based CCRs
would interact with the implementation
of MS–DRGs. In the FY 2008 final rule
with comment period (72 FR 47197), we
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stated that we engaged the RAND
Corporation as the contractor to evaluate
the HSRV methodology in conjunction
with regression-based CCRs, and that we
would consider its analysis as we
prepared for the FY 2009 IPPS
rulemaking process. In the FY 2009
IPPS final rule (73 FR 48453 through
48457), we provided a summary of the
RAND report and the public comments
we received in response to the FY 2009
IPPS proposed rule. The report may be
found on RAND’s Web site at: https://
www.rand.org/pubs/working_papers/
WR560/.
RAND evaluated six different
methods that could be used to establish
relative weights, CMS’ current relative
weight methodology of 15 national
CCRs and 5 alternatives, including a
method in which the 15 national CCRs
are disaggregated using the regressionbased methodology, and a method using
hospital-specific CCRs for the 15 cost
center groupings. In addition, RAND
analyzed our standardization
methodologies that account for
systematic cost differences across
hospitals. The purpose of
standardization is to eliminate
systematic facility-specific differences
in cost so that these cost differences do
not influence the relative weights. The
three standardization methodologies
analyzed by RAND include: The
‘‘hospital payment factor’’ methodology
currently used by CMS, under which a
hospital’s wage index factor, and IME
and/or DSH factor, are divided out of its
estimated DRG cost; the HSRV
methodology, which standardizes the
cost for a given discharge by the
hospital’s own costliness rather than by
the effect of the systematic cost
differences across groups of hospitals;
and the HSRVcc methodology, which
removes hospital-level cost variation by
calculating hospital-specific chargebased relative values for each DRG at
the cost center level and standardizing
them for differences in case-mix. Under
the HSRVcc methodology, a national
average charge-based relative weight is
calculated for each cost center.
Overall, RAND found that none of the
alternative methods of calculating the
relative weights represented a marked
improvement in payment accuracy over
the current method, and there was little
difference across methods in their
ability to predict cost at either the
discharge-level or the hospital-level. In
their regression analysis, RAND found
that after controlling for hospital
payment factors, the relative weights are
compressed (that is, understated).
However, RAND also found that the
hospital payment factors are overstated
and increase more rapidly than cost.
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Therefore, while the relative weights are
compressed, these payment factors
offset the compression such that total
payments to hospitals increase more
rapidly than hospitals’ costs.
RAND found that relative weights
using the 19 national disaggregated
regression-based CCRs result in
significant redistributions in payments
among hospital groupings. However,
RAND did not believe the regressionbased charge compression adjustments
significantly improve payment
accuracy. With regard to standardization
methodologies, while RAND found that
there is no clear advantage to the HSRV
method or the HSRVcc method of
standardizing cost compared to the
current hospital payment factor
standardization method, its analysis did
reveal significant limitations of CMS’
current hospital payment factor
standardization method. The current
standardization method has a larger
impact on the relative weights and
payment accuracy than any of the other
alternatives that RAND analyzed
because the method ‘‘over-standardizes’’
by removing more variability for
hospitals receiving a payment factor
than can be empirically supported as
being cost-related (particularly for IME
and DSH). RAND found that instead of
increasing proportionately with cost, the
payment factors CMS currently uses
(some of which are statutory), increase
more rapidly than cost, thereby
reducing payment accuracy. RAND
concluded that further analysis is
needed to isolate the cost-related
component of the IPPS payment
adjustments (some of which has already
been done by MedPAC), use them to
standardize cost, and revise the analysis
of payment accuracy to reflect only the
cost-related component.
2. Summary of FY 2009 Changes and
Discussion for FY 2010
In the FY 2009 IPPS final rule (73 FR
48458 through 48467), in response to
the RTI’s recommendations concerning
cost report refinements, and because of
RAND’s finding that regression-based
adjustments to the CCRs do not
significantly improve payment
accuracy, we discussed our decision to
pursue changes to the cost report to split
the cost center for Medical Supplies
Charged to Patients into one line for
‘‘Medical Supplies Charged to Patients’’
and another line for ‘‘Implantable
Devices Charged to Patients.’’ We
acknowledged, as RTI had found, that
charge compression occurs in several
cost centers that exist on the Medicare
cost report. However, as we stated in the
final rule, we focused on the CCR for
Medical Supplies and Equipment
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because RTI found that the largest
impact on the MS–DRG relative weights
could result from correcting charge
compression for devices and implants.
In determining what should be reported
in these respective cost centers, we
adopted the commenters’
recommendation that hospitals should
use revenue codes established by AHA’s
National Uniform Billing Committee to
determine what should be reported in
the ‘‘Medical Supplies Charged to
Patients’’ and the ‘‘Implantable Devices
Charged to Patients’’ cost centers.
When we developed the FY 2009 IPPS
final rule, we considered all of the
public comments we received both for
and against adopting regression-based
CCRs. Also noteworthy is RAND’s belief
that regression-based CCRs may not
significantly improve payment
accuracy, and that it is equally, if not
more, important to consider revisions to
the current IPPS hospital payment factor
standardization method in order to
improve payment accuracy. We
continue to believe that, ultimately,
improved and more precise cost
reporting is the best way to minimize
charge compression and improve the
accuracy of the cost weights.
Accordingly, we did not propose to
adopt regression-based CCRs for the
calculation of the FY 2010 IPPS relative
weights.
However, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
24103), we expressed our concern about
RAND’s finding that there are
significant limitations of CMS’ current
hospital payment factor standardization
method. As summarized above, RAND
found that the current standardization
method ‘‘over-standardizes’’ by
removing more variability for hospitals
receiving a payment factor than can be
empirically supported as being costrelated (particularly for IME and DSH).
RAND found that instead of increasing
proportionately with cost, the payment
factors CMS currently uses (some of
which are statutory), increase more
rapidly than cost, thereby reducing
payment accuracy. Further analysis is
needed to isolate the cost-related
component of the IPPS payment
adjustments, use them to standardize
cost, and revise the analysis of payment
accuracy to reflect only the cost-related
component. However, RAND cautioned
that ‘‘re-estimating’’ these payment
factors ‘‘raises important policy issues
that warrant additional analyses’’ (page
49 of RAND’s report, which is available
on the Web site at: https://www.rand.org/
pubs/working_papers/WR560/),
particularly to ‘‘determine the
analytically justified levels using the
MS–DRGs’’ (page 86 of the RAND
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43779
report). In addition, we noted that RTI,
in its July 2008 final report, also
observed that the adjustment factors
under the IPPS (the wage index, IME,
and DSH adjustments) complicate the
determination of cost and these factors
‘‘within the rate calculation may offset
the effects of understated weights due to
charge compression’’ (page 109 of RTI’s
final report, which is available at the
Web site at: https://www.rti.org/reports/
cms/HHSM-500-2005-0029I/PDF/
Refining_Cost_to_Charge_Ratios_
200807_Final.pdf). While it may be
more accurate to standardize using the
empirically justified levels of the IME
and DSH adjustments, consideration
needs to be given to the extent to which
these payment factors offset the
compression of the relative weights.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24103 and
24104), we stated that we understood
that MedPAC performed an analysis to
identify empirically justifiable formulas
for determining appropriate IME and
DSH adjustments. For example, in its
March 2007 report (and reiterated in its
March 2009 report), MedPAC asserts
that the current level of the IME
adjustment factor, 5.5 percent for every
10 percent increase in resident-to-bed
ratio, overstates IME payments by more
than twice the empirically justified
level, resulting in approximately $3
billion in overpayments. The empirical
level of the IME adjustment is estimated
to be 2.2 percent for every 10 percent
increase in the resident-to-bed ratio. We
stated that we cannot propose to change
the IME and DSH factors used for actual
payment under the IPPS because these
factors are mandated by law. However,
under section 1886(d)(4) of the Act, we
have the authority to determine the
appropriate weighting factor for each
MS–DRG (including which factors or
method we will employ in making
annual adjustments to the MS–DRGs so
as to reflect changes in the relative use
of hospital resources). In addition,
section 1886(d)(7)(B) of the Act
precludes judicial review of our
methodology for determining the
appropriate weighting factors.
Therefore, we do have some flexibility
in what factors may be used for
standardization purposes. For purposes
of standardization only, we stated that
one option may be for CMS to use the
empirically justified IME adjustment of
2.2 percent, such that only the costrelated component of teaching hospitals
is removed from the claim charges prior
to calculating the relative weights.
Similarly, for the DSH adjustment, in its
March 2007 report, MedPAC found that
costs per case increase about 0.4 percent
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for each 10 percent increase in the lowincome patient percentage. This is
significantly less than the percentage
increase expressed by the current factors
used in the DSH payment formulas.
(According to MedPAC, in FY 2004,
about $5.5 billion in DSH payments
were made above the empirically
justified level.) In looking only at urban
hospitals with greater than 100 beds,
which manifest the strongest positive
correlation between cost and low
income patient share, MedPAC found
that costs increase about 1.4 percent for
every 10 percent increment of the lowincome patient percentage. MedPAC did
not find a positive cost relationship
between low-income patient percentage
and costs per case for urban hospitals
with less than 100 beds and/or for rural
hospitals. Therefore, for purposes of
standardizing for the DSH adjustment,
we stated that an option we may
consider is to incorporate an adjustment
factor of 1.4 percent for urban hospitals
with greater than 100 beds, and to
remove the DSH payment adjustment
altogether for other hospitals that
otherwise currently qualify for DSH
payment. We also noted that while we
cannot predict the effect of using the
empirical factors for IME and DSH in
the standardized methodology on the
relative weights without further
analysis, dividing out (that is,
excluding) reduced IME and DSH
payment factors from a hospital’s total
payment would result in a greater share
of teaching and DSH hospitals’ costs
used in calculating the relative weights.
With respect to the wage index, because
there are multiple wage index factors,
one for each geographic area,
determining the true cost associated
with geographic location and
standardizing for those costs is much
more challenging. While we did not
propose changes for FY 2010, in light of
the previous discussion of the current
IME and DSH adjustments in the
standardization process, we solicited
public comments as to how the
standardization process can be
improved to more precisely remove cost
differences across hospitals, thereby
improving the accuracy of the relative
weights in subsequent fiscal years.
Charge Compression
Comment: Commenters continue to
oppose the regression-based CCR
approach to calculate the relative
weights. The commenters cited the
results of the RAND report on
alternative relative weight
methodologies in which RAND found
that ‘‘none of the alternative weight
methodologies represent a marked
improvement over the current system.’’
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In addition, the commenters noted the
RTI study, which concluded that more
refined and accurate accounting data
would be the preferred long-term
solution to mitigate charge compression.
Some commenters also continue to
support our policy finalized in the FY
2009 IPPS final rule to address charge
compression (that is, the creation of
separate cost centers for Implantable
Devices Charged to Patients and
Medical Supplies Charged to Patients).
Response: We appreciate the
comments with respect to regressionbased CCRs and the use of refined cost
report data. However, we note that we
have not proposed any changes to the
existing cost-based relative weight
methodology for FY 2010.
Comment: Some commenters sought
clarification on which revenue codes
should be used to report various
implantable devices. Some commenters
disagreed with the definition of a highcost device that only applied to
implantables because the commenters
believed that there are other high-cost
devices that are not implantable, but
should be included in the device cost
center.
Response: We did not propose any
policy changes with respect to the use
of revenue codes or alternative ways for
identifying high-cost devices. Therefore,
we are not responding to these
comments at this time. We refer readers
to the discussion in the FY 2009 IPPS
final rule concerning our current policy
on these matters (73 FR 48462 and
48462).
Comment: Commenters responded to
our solicitation for options on possibly
revising the current standardization
methodology. MedPAC supported the
option of standardizing hospitals’
service charges using the empirical
estimates of DSH and IME rather than
their actual payment amounts. MedPAC
also expressed support for the use of the
HSRV methodology for calculating
relative weights because it would
obviate the need to standardize
hospitals’ charges and it would allow
for costs to be comparable across
hospitals. Other commenters continue
to oppose the HSRV methods of
standardization. These commenters
believe that the HSRV methodology is
inappropriate for a cost-based
methodology and only applicable in
charge-based systems that account for
mark-up practices. Some of these
commenters expressed general concern
about revising the current
standardization methodology because
CMS has implemented numerous
changes to the relative weights and
DRGs in recent years, including moving
to cost-based relative weights and to
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MS–DRGs, making it difficult for
hospitals to predict their payments.
Commenters suggested that, because
hospitals have been dealing with other
Medicare payment changes, such as
quality reporting, and in light of health
reform legislation, CMS wait before
modifying the relative weight
methodology to allow payments under
the cost-based relative weights to
stabilize and to allow hospitals to better
predict their payments.
Response: In the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule, we
expressed our concerns regarding
RAND’s finding that there are
significant limitations of CMS’ current
hospital payment factor standardization
method. As summarized above, RAND
found that the current standardization
method ‘‘over-standardizes’’ by
removing more variability for hospitals
receiving a payment factor than can be
empirically supported as being costrelated (particularly for IME and DSH).
We further stated that given MedPAC’s
analysis that identifies empirically
justifiable formulas for determining
appropriate IME and DSH adjustments,
perhaps one option for improving the
accuracy of the standardization process
is to use the empirically justified IME
and DSH factors. We did not propose
any changes for FY 2010, although we
solicited public comments as to how the
standardization process can be changed
to improve the accuracy of the relative
weights in subsequent fiscal years.
Therefore, the commenters need not be
concerned that we are introducing yet
another significant change to the
calculation of the relative weights or the
MS–DRGs for FY 2010. We appreciate
the public comments received, and we
will consider the commenters’ concerns
as we continue to study the issue.
Comment: One commenter expressed
concern regarding the effects of
standardizing the relative weights by
only removing the empirical costs of
DSH and IME, rather than removing the
entire effects of DSH and IME. The
commenter was concerned that, by
removing the empirical costs of DSH
and IME in setting the relative weights,
the non-DSH and nonteaching hospitals
would be adversely affected by lower
relative weights and a lower
standardized amount. The commenter
requested that thorough analysis be
done and shared with the industry
before CMS proposed any changes to the
standardization method.
Response: As we stated in the
proposed rule, we cannot predict the
effect of using the empirical factors for
IME and DSH in the standardized
methodology on the relative weights
without further analysis. We
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acknowledge that dividing out (that is,
excluding) reduced IME and DSH
payment factors from a hospital’s total
payment would result in a greater share
of teaching and DSH hospitals’
payments being characterized as costs
that would then be used in calculating
the relative weights. We also are unsure
as to whether a change in the relative
weights would affect the standardized
amount. In any case, should we propose
changes to the current standardization
process, we will make our analysis and
impacts available to the public for
comment, in accordance with our
general practice.
3. Timeline for Revising the Medicare
Cost Report
As mentioned in the FY 2009 IPPS
final rule (73 FR 48467), we are
currently in the process of
comprehensively reviewing the
Medicare hospital cost report, and the
finalized policy from the FY 2009 IPPS
final rule to split the current cost center
for Medical Supplies Charged to
Patients into one line for ‘‘Medical
Supplies Charged to Patients’’ and
another line for ‘‘Implantable Devices
Charged to Patients,’’ as part of our
initiative to update and revise the
hospital cost report. Under an effort
initiated by CMS to update the Medicare
hospital cost report to eliminate
outdated requirements in conjunction
with provisions of the Paperwork
Reduction Act (PRA), we stated that we
have been planning to propose the
actual changes to the cost reporting
form, the attending cost reporting
software, and the cost reporting
instructions in Chapter 40 of the
Medicare Provider Reimbursement
Manual (PRM), Part II. Under the effort
to update the cost report and eliminate
outdated requirements in conjunction
with the provisions of the PRA, we
stated that changes to the cost reporting
form and cost reporting instructions
would be made available to the public
for comment. Thus, the public would
have an opportunity to suggest
comprehensive reforms (which they had
advocated in the FY 2009 IPPS final rule
in response to our proposals), and
would similarly be able to make
suggestions for ensuring that these
reforms are made in a manner that is not
disruptive to hospitals’ billing and
accounting systems, and are first and
foremost within the guidelines of
GAAP, which are consistent with the
Medicare principles of reimbursement,
and sound accounting practices.
In the FY 2009 IPPS final rule (73 FR
48468), we stated that we expect the
revised cost reporting forms that reflect
one cost center for ‘‘Medical Supplies
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Charged to Patients’’ and one cost center
for ‘‘Implantable Devices Charged to
Patients’’ would not be available until
cost reporting periods beginning after
the Spring of 2009. At the time the
proposed rule was issued, we
anticipated that the transmittal to create
this new cost center would be issued in
June 2009. Because there is
approximately a 3-year lag between the
availability of cost report data for IPPS
and OPPS ratesetting purposes in a
given fiscal year or calendar year, we
stated that we may be able to derive two
distinct CCRs, one for medical supplies
and one for devices, for use in
calculating the FY 2013 IPPS relative
weights and the CY 2013 OPPS relative
weights. Until the revised cost reporting
forms are published, we stated that
hospitals must include costs and
charges of separately chargeable medical
supplies and implantable medical
devices in the cost center for ‘‘Medical
Supplies Charged to Patients’’ (section
2202.8 of the PRM–I), and effective for
cost reporting periods specified in the
revised cost reporting forms, hospitals
must include costs and charges of
separately chargeable medical supplies
in the cost center for ‘‘Medical Supplies
Charged to Patients’’ and of separately
chargeable implantable medical devices
in the new ‘‘Implantable Devices
Charged to Patients’’ cost center.
Comment: A number of commenters
addressed the new cost reporting forms
in which implantable device costs that
had been reported on Medical Supplies
Charged to Patients under the current
cost reporting forms will now be
reported on a new line for ‘‘Implantable
Devices Charged to Patients’’. The
commenters recommended that CMS
specifically mandate in the cost
reporting instructions that hospitals
report their medical supplies and
implantable devices separately to ensure
that hospitals will report their costs in
both cost centers.
Response: In the revised Form CMS–
2552–96 and the new Form CMS–2552–
10 cost reporting instructions, we will
clearly indicate that low cost medical
supplies should be reported on the line
for Medical Supplies Charged to
Patients, and that high cost medical
devices should be reported on the
Implantable Devices Charged to Patients
line. The cost reporting instructions will
provide further guidance on
differentiating between high cost items
and low cost items.
Comment: Several commenters urged
CMS to work with the hospital industry
as CMS revises the Medicare hospital
cost report. The commenters expressed
disappointment that CMS has not
worked with the hospital industry at the
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outset of revising the Medicare hospital
cost report. The commenters urged CMS
not to make piecemeal changes to the
Medicare hospital cost report; rather,
CMS should make changes that align
with hospitals’ protocols and payment
methodologies to improve the accuracy
of the cost-based MS–DRG relative
weights. The commenters requested that
the public have the opportunity to
comment on cost reporting forms and
instructions before they are
implemented. In addition, the
commenters urged that CMS work with
the National Uniform Billing Committee
(NUBC) to develop standards for the use
of revenue codes and to mandate
standardized cost centers.
Response: In the FY 2009 IPPS
proposed and final rules (73 FR 23546
and 73 FR 48461), we stated that we
began a comprehensive review of the
Medicare hospital cost report, and
splitting the current cost center for
Medical Supplies Charged to Patients
into one line for ‘‘Medical Supplies
Charged to Patients’’ and another line
for ‘‘Implantable Devices Charged to
Patients’’ is part of that initiative to
update and revise the cost report. We
also stated that under the effort to
update the cost report and eliminate
outdated requirements in conjunction
with the PRA, changes to the cost report
form and cost report instructions would
be made available to the public for
comment. Thus, the public would have
an opportunity to suggest the more
comprehensive reforms that they are
advocating, and would similarly be able
to make suggestions for ensuring that
these reforms are made in a manner that
is not disruptive to hospitals’ billing
and accounting systems, and are within
the guidelines of GAAP, which are
consistent with the Medicare principles
of reimbursement, and sound
accounting practices. In fact, the new
draft hospital cost report Form CMS–
2552–10 went on public display through
the Federal Register on July 2, 2009, for
a 60-day review and comment period,
which ends August 31, 2009. Those
wishing to review and comment on the
document can do so at https://
www.cms.hhs.gov/
PaperworkReductionActof1995. We are
willing to work with and consider
comments from finance and cost report
experts from the hospital community as
we work to improve and modify the
hospital cost report and standardize the
use of revenue codes. The cost center for
Implantable Devices Charged to Patients
will be available for use for cost
reporting periods beginning on or after
May 1, 2009. The revised hospital cost
report Form CMS–2552–10 will be
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available for cost reporting periods
beginning on or after February 1, 2010.
Comment: Some comments that
expressed concerns with the delay of
the cost reporting changes which would,
in turn, delay the ability to use supply
and device CCRs in the ratesetting
process. The commenters stated that, in
the FY 2009 IPPS final rule, CMS had
anticipated using the revised CCR for
the FY 2012 rule. However, due to
delays in the issuance of instructions on
cost reporting, CMS now believes that
new CCRs for Medical Supplies Charged
to Patients and Implantable Devices
Charged to Patients may be used in the
FY 2013 IPPS proposed and final rules.
The commenters urged CMS to issue
instructions to hospitals on a timely
basis so that the new cost centers may
be implemented as quickly as possible
for FY 2013 ratesetting purposes. The
commenters also suggested that, if CMS
anticipates further delays in
implementing the new cost centers,
CMS implement regression-based CCRs
as a short-term solution to address
charge compression until data from the
new cost centers become available. The
commenters were also concerned that
the new cost center may not be
implemented consistently across
hospitals and urged CMS to use
analytical methods to test and
supplement hospital cost center data in
rate setting. For example, the
commenters suggested that CMS use
regression-based CCRs to measure the
accuracy of the device cost center for
the FY 2013 relative weights.
Response: We are sympathetic to the
commenters’ concerns and regret the
delay in the issuance of the revised cost
reporting forms. However, we are
making progress on this front. As we
stated in response to a previous
comment, the new draft hospital cost
report Form CMS–2552–10 went on
display at the Federal Register on July
2, 2009, for a 60-day review and
comment period, which ends August 31,
2009. Those wishing to review and
comment on the document can do so at
https://www.cms.hhs.gov/
PaperworkReductionActof1995. After
the revised cost report is available for
use by all hospitals, and we begin to use
the data to create CCRs for use in the
calculation of the relative weights, we
will analyze and monitor how hospitals
are reporting their data and what effect
the data are having on the separate CCRs
for medical supplies and implantable
devices. Comparison of the CCRs
derived from the revised cost report to
regression-based CCRs might be one
method of gauging the accuracy and
effectiveness of the separate cost centers
for Medical Supplies Charged to
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Patients and Implantable Devices
Charged to Patients.
Comment: Several commenters asked
for clarification on the new
‘‘Implantable Devices Charged to
Patients’’ cost center that was finalized
in the FY 2009 IPPS final rule and will
be part of the new Medicare Hospital
Cost Report form. The commenters
asked that CMS clarify the statement in
the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule that ‘‘hospitals must
include costs and charges of separately
chargeable medical supplies and
implantable medical devices in the cost
center for ‘Medical Supplies Charged to
Patients’ ’’ as referenced in PRM–I
Section 2202.8. The commenters were
confused by the reference to PRM–I
Section 2202.8 because that section
defines ancillary services, with no
mention of medical supplies. In
addition, one commenter noted the
hospitals are currently testing their
systems to report costs and charges for
implantable devices and asked whether
it would be acceptable for hospitals to
establish a cost center for ‘‘Implantable
Devices Charged to Patients’’ at line
55.01 of the current cost report until the
revised cost report is available. The
commenter understood that the
subscripted cost center would be rolled
up into Line 55 for the purposes of
calculating the relative weights until the
new cost report is available.
Response: We included the reference
to Section 2202.8 of the PRM–I, which
defines ancillary services, to remind
hospitals that any items reported in the
Medical Supplies Charged to Patients
cost center are items (high cost or low
cost) that are separately chargeable
ancillary services. In accordance with
Section 2202.8 of the PRM–I, ancillary
services are those services for which a
separate charge is customarily made in
addition to the routine service charge.
With respect to subscripting Line 55 to
establish a cost center for Implantable
Devices Charged to Patients, we have
provided Line 55.30 to report
Implantable Devices Charged to Patients
on Form CMS–2552–96 and Line 69 on
the proposed new Form CMS–2552–10.
Comment: Some commenters
suggested that CMS engage in outreach
and educational activities to hospitals
on the changes to the cost report and
reporting of charges with respect to the
medical device and medical supply cost
centers so that hospitals can
appropriately report data. The
commenters recommended that the
outreach activities go beyond the
‘‘distribution of bulletins that are used
to inform providers about changes to the
Medicare program.’’
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Response: Although it is a bit early to
plan specific outreach activities at this
point, given that the proposed rule for
the revised cost reporting forms has
only been released on July 2, 2009, we
agree that such educational activities are
important, and we have been
considering some options for educating
the provider community involving the
fiscal intermediaries and MACs and the
cost report vendors. We look forward to
working with the provider community
in these initiatives.
Accordingly, we are not
implementing any changes to the
relative weight calculation for FY 2010.
We will continue to focus on possible
ways to improve the weights through
cost reporting and look forward to
reviewing the comments received on the
draft revised cost reporting forms. In
addition, we will continue to think
about possible ways to refine the
standardization process as a means to
improve the accuracy of the relative
weights. As stated above, any further
changes we decide to make to any
portion of the relative weights
calculation will be promulgated first
through notice and comment
rulemaking, which will allow the public
sufficient opportunity to review relevant
analyses and impacts of such potential
changes.
F. Preventable Hospital-Acquired
Conditions (HACs), Including Infections
1. Statutory Authority
Section 1886(d)(4)(D) of the Act
addresses certain hospital-acquired
conditions (HACs), including infections.
By October 1, 2007, the Secretary was
required to select, in consultation with
the Centers for Disease Control (CDC), at
least two conditions that: (a) are high
cost, high volume, or both; (b) are
assigned to a higher paying MS–DRG
when present as a secondary diagnosis
(that is, conditions under the MS–DRG
system that are CCs or MCCs); and (c)
could reasonably have been prevented
through the application of evidencebased guidelines. The list of conditions
can be revised, again in consultation
with CDC, from time to time as long as
the list contains at least two conditions.
Medicare continues to assign a
discharge to a higher paying MS–DRG if
a selected HAC is present on admission
(POA). However, since October 1, 2008,
Medicare no longer assigns an inpatient
hospital discharge to a higher paying
MS–DRG if a selected condition is not
POA. Thus, if a selected HAC that was
not present on admission manifests
during the hospital stay, the case is paid
as though the secondary diagnosis was
not present. However, if any
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nonselected CC/MCC appears on the
claim, the claim will be paid at the
higher MS–DRG rate; to cause a lower
MS–DRG payment, all CCs/MCCs on the
claim must be selected conditions for
the HAC payment provision.
Since October 1, 2007, hospitals have
been required to submit information on
Medicare claims specifying whether
diagnoses were POA. The POA indicator
reporting requirement and the HAC
payment provision apply to IPPS
hospitals only. Non-IPPS hospitals,
including CAHs, LTCHs, IRFs, IPFs,
cancer hospitals, children’s hospitals,
hospitals in Maryland operating under
waivers, rural health clinics, federally
qualified health centers, RNHCIs, and
Department of Veterans Affairs/
Department of Defense hospitals, are
exempt from POA reporting and the
HAC payment provision. Throughout
this section, the term ‘‘hospital’’ refers
to an IPPS hospital.
2. HAC Selection Process
In the FY 2007 IPPS proposed rule (71
FR 24100), we sought public input
regarding conditions with evidencebased prevention guidelines that should
be selected in implementing section
1886(d)(4)(D) of the Act. The public
comments we received were
summarized in the FY 2007 IPPS final
rule (71 FR 48051 through 48053).
In the FY 2008 IPPS proposed rule (72
FR 24716 through 24726), we sought
public comment on conditions that we
proposed to select. In the FY 2008 IPPS
final rule with comment period (72 FR
47200 through 47218), we selected 8
categories to which the HAC payment
provisions would apply.
In the FY 2009 IPPS proposed rule (73
FR 23547), we proposed several
additional candidate HACs as well as
refinements to the previously selected
HACs. In the FY 2009 IPPS final rule (73
FR 48471), we expanded and refined
several of the previously selected HACs,
and we selected 2 additional categories
of HACs. A complete list of the 10
current categories of HACs is included
in section II.F.4. of this preamble.
3. Collaborative Process
CMS experts have worked closely
with public health and infectious
disease professionals from across the
Department of Health and Human
Services, including CDC, AHRQ, and
the Office of Public Health and Science,
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to identify the candidate preventable
HACs, review comments, and select
HACs. CMS and CDC have also
collaborated on the process for hospitals
to submit a POA indicator for each
diagnosis listed on IPPS hospital
Medicare claims and on the payment
implications of the various POA
reporting options.
On December 17, 2007, CMS and CDC
hosted a jointly-sponsored HAC and
POA Listening Session to receive input
from interested organizations and
individuals. On December 18, 2008,
CMS, CDC, and AHRQ hosted a second
jointly-sponsored HAC and POA
Listening Session to receive input from
interested organizations and
individuals. The agenda, presentations,
audio file, and written transcript of the
December 18, 2008 Listening Session
are available on the CMS Web site at:
https://www.cms.hhs.gov/Hospital
AcqCond/07_EducationalResources.asp
#TopOfPage.
4. Selected HAC Categories
The following table lists the current
HACs.
HAC
CC/MCC (ICD–9–CM code)
Foreign Object Retained After Surgery ....................................................
Air Embolism ............................................................................................
Blood Incompatibility .................................................................................
Pressure Ulcer Stages III & IV .................................................................
Falls and Trauma:
—Fracture ..........................................................................................
—Dislocation .....................................................................................
—Intracranial Injury ...........................................................................
—Crushing Injury ...............................................................................
—Burn ...............................................................................................
—Electric Shock ................................................................................
Catheter-Associated Urinary Tract Infection (UTI) ...................................
998.4 (CC), 998.7 (CC).
999.1 (MCC).
999.6 (CC).
707.23 (MCC), 707.24 (MCC).
Codes within these ranges on the CC/MCC list:
800–829.
830–839.
850–854.
925–929.
940–949.
991–994.
996.64 (CC).
Also excludes the following from acting as a CC/MCC: 112.2 (CC),
590.10 (CC), 590.11 (MCC), 590.2 (MCC), 590.3 (CC), 590.80 (CC),
590.81 (CC), 595.0 (CC), 597.0 (CC), 599.0 (CC).
999.31 (CC).
250.10–250.13 (MCC), 250.20–250.23 (MCC), 251.0 (CC), 249.10–
249.11 (MCC), 249.20–249.21 (MCC).
Vascular Catheter-Associated Infection ...................................................
Manifestations of Poor Glycemic Control .................................................
Surgical Site Infections
Surgical Site Infection, Mediastinitis, Following Coronary Artery Bypass
Graft (CABG).
Surgical Site Infection Following Certain Orthopedic Procedures ...........
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Surgical Site Infection Following Bariatric Surgery for Obesity ...............
Deep Vein Thrombosis and Pulmonary Embolism Following Certain Orthopedic Procedures.
We refer readers to section II.F.6. of
the FY 2008 IPPS final rule with
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519.2 (MCC).
And one of the following procedure codes: 36.10–36.19.
996.67 (CC), 998.59 (CC).
And one of the following procedure codes: 81.01–81.08, 81.23–81.24,
81.31–81.38, 81.83, 81.85.
Principal Diagnosis—278.01, 998.59 (CC)
And one of the following procedure codes: 44.38, 44.39, or 44.95.
415.11 (MCC), 415.19 (MCC), 453.40–453.42 (CC).
And one of the following procedure codes: 00.85–00.87, 81.51–81.52,
or 81.54.
comment period (72 FR 47202 through
47218) and to section II.F.7. of the FY
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2009 IPPS final rule (73 FR 48474
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supporting the selection of each of these
HACs.
The list of selected HAC categories is
dependent upon CMS’ list of diagnoses
designated as CC/MCCs. As changes
and/or new diagnosis codes are
proposed and finalized to the list of CC/
MCCs, these changes need to be
reflected in the list of selected HAC
categories. In the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule (74 FR 24106),
we proposed the addition of ICD–9–CM
codes 813.46 (Torus fracture of ulna)
and 813.47 (Torus fracture of radius and
ulna) to more precisely define the
previously selected HAC category of
falls and trauma. We refer readers to
Table 6A in the Addendum to this final
rule for the adoption of ICD–9–CM
codes 813.46 and 813.47 as CCs.
Comment: Commenters supported the
addition of ICD–9–CM codes 813.46 and
813.47 to more precisely define the falls
and trauma HAC category.
Response: We appreciate the
commenters’ support of a more precise
definition of the falls and trauma
category. We are finalizing the addition
of ICD–9–CM codes 813.46 and 813.47
to more precisely define the falls and
trauma HAC category.
5. Public Input Regarding Selected and
Potential Candidate HACs
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24104
through 24106), we did not propose to
add or remove categories of HACs.
However, we indicated that we continue
to encourage public dialogue about
refinements to the HAC list. During and
after the December 18, 2008 Listening
Session, we received many oral and
written stakeholder comments about
both previously selected and potential
candidate HACs. In response to the
Listening Session, commenters strongly
supported using information gathered
from early experience with the HAC
payment provision to inform
maintenance of the HAC list and
consideration of future potential
candidate HACs. Further, commenters
emphasized the need for a robust
program evaluation prior to modifying
the HAC list. Strong support was also
expressed for a program evaluation in
response to the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule (74 FR 24106).
Comment: Commenters
overwhelmingly expressed strong
support for a robust program evaluation
before modifying the HAC list. Many
commenters stated that CMS’ approach
to employ a studied program analysis
during FY 2010 allows hospitals
additional time to develop processes for
improving performance on previously
selected HACs.
Response: We appreciate the support
we have received for our decision to
undertake a program evaluation. The
Medicare HAC policy aims to ensure
patients are receiving high quality care,
and the program evaluation will enable
us to understand the impact of the
program.
Comment: Several commenters made
specific suggestions for the program
evaluation. A number of commenters
suggested that the program evaluation
should consider assessing the policy’s
impact on patient treatment and
potential unintended consequences.
Some commenters indicated that CMS
should validate POA indicator data and
explore how information learned from
POA coding could be used to better
understand and prevent certain HACs.
Commenters encouraged CMS to
examine the extent to which the
program is increasing adherence to
evidence-based guidelines. Commenters
also encouraged CMS to ensure
transparency in the development of its
program evaluation and to allow for
public comment at various stages of the
evaluation. Some commenters requested
that the final program evaluation results
be shared publicly.
Response: We appreciate the specific
suggestions provided regarding the
program evaluation. These
recommendations will be taken into
consideration as the program evaluation
is developed. We agree with
commenters that monitoring unintended
consequences and assessing adherence
to evidence-based guidelines should be
a priority for the program evaluation.
We also agree that validation of POA
coding, as well as examining each POA
indicator, are areas of critical
importance for the program evaluation.
We appreciate the public’s interest in
the program evaluation and plan to
include updates and findings from the
evaluation on CMS’ Hospital-Acquired
Conditions and Present on Admission
Indicator Web site available at: https://
www.cms.hhs.gov/HospitalAcqCond/.
6. POA Indicator Reporting
Collection of POA indicator data is
necessary to identify which conditions
were acquired during hospitalization for
the HAC payment provision as well as
for broader public health uses of
Medicare data. Through Change Request
No. 5679 (released on June 20, 2007),
CMS issued instructions requiring IPPS
hospitals to submit POA indicator data
for all diagnosis codes on Medicare
claims. CMS also issued Change Request
No. 6086 (released on June 13, 2008)
regarding instructions for processing
non-IPPS claims. Specific instructions
on how to select the correct POA
indicator for each diagnosis code are
included in the ICD–9–CM Official
Guidelines for Coding and Reporting,
available on the CDC Web site at: https://
www.cdc.gov/nchs/datawh/ftpserv/
ftpicd9/icdguide07.pdf (the POA
reporting guidelines begin on page 92).
Additional information regarding POA
indicator reporting and application of
the POA reporting options is available
on the CMS Web site at: https://
www.cms.hhs.gov/HospitalAcqCond.
CMS has historically not provided
coding advice. Rather, CMS collaborates
with the American Hospital Association
(AHA) through the Coding Clinic for
ICD–9–CM. CMS has been collaborating
with the AHA to promote the Coding
Clinic for ICD–9–CM as the source for
coding advice about the POA indicator.
There are five POA indicator
reporting options, as defined by the
ICD–9–CM Official Guidelines for
Coding and Reporting:
Descriptor
Y ...............
W ..............
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Indicator
Indicates that the condition was present on admission.
Affirms that the hospital has determined based on data and clinical judgment that it is not possible to document when the onset of
the condition occurred.
Indicates that the condition was not present on admission.
Indicates that the documentation is insufficient to determine if the condition was present at the time of admission.
Signifies exemption from POA reporting. CMS established this code as a workaround to blank reporting on the electronic 4010A1.
A list of exempt ICD–9–CM diagnosis codes is available in the ICD–9–CM Official Guidelines for Coding and Reporting.
N ...............
U ...............
1 ...............
In the FY 2009 IPPS final rule (73 FR
48486 through 48487), we adopted as
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MCC MS–DRGs for those HACs coded
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HACs coded with ‘‘N’’ and ‘‘U’’
indicators. Though we did not make any
proposals regarding the HAC POA
payment determinations in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule,
commenters addressed this aspect of the
HAC payment provision.
Comment: Commenters suggested that
CMS should consider paying for HACs
coded with the ‘‘U’’ indicator.
Response: We adopted a policy of not
paying for the ‘‘U’’ option because we
believe that this approach encourages
documentation and will ensure more
accurate public health data. We refer
readers to the FY 2009 IPPS final rule
(73 FR 48486 through 48487) for further
discussion of our coding policy. In
addition, as part of CMS’ program
evaluation of the HAC payment
provision, we intend to analyze the ‘‘U’’
POA reporting options (section II.F.4. of
this preamble).
In addition to providing specific
suggestions on what CMS should
consider for the program evaluation,
commenters also offered suggestions on
how to address POA data beyond the
program evaluation.
Comment: A few commenters
recommended that AHRQ continue to
develop strategies to improve the
accuracy of documenting POA.
Response: Through the collaborative
partnership that CMS has developed
with AHRQ around the program
evaluation, we will continue to work
with AHRQ to identify strategies to
improve the accuracy of documenting
POA reporting.
Comment: Some comments suggested
that CMS consider publicly releasing
aggregate POA data to decrease the
incidence of preventable HACs. The
commenters indicated that one effective
approach for decreasing the incidence of
preventable HACs would be to provide
each hospital with aggregate POA rates
based on peer comparisons.
Response: We agree with the
suggestion that the public release of
aggregate POA data should be
considered as one prong in a multipronged strategy to decrease the
incidence of preventable HACs. We
refer readers to the FY 2009 IPPS final
rule (73 FR 48488) for a detailed
discussion regarding public reporting of
POA indicator data.
7. Additional Considerations
Addressing the HAC and POA Payment
Provision
In addition to receiving comments on
the program evaluation (II.F.5) and uses
of POA indicator data (II.F.6), we also
received comments addressing many
other topics related to HAC and POA.
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This section summarizes those topics
and provides responses.
Comment: Commenters suggested that
CMS consider the evaluation of new
technologies that detect, prevent, and
treat HACs as a research priority.
Response: We agree with commenters
that evaluating all methods to reduce
preventable HACs, including new
technologies, is a top priority for CMS.
We refer readers to section II.I. of this
preamble for additional information on
CMS’ new technology add-on payment
policy.
Comment: Some commenters
addressed expansion of the principles
behind the HAC payment provision to
other settings of care and other
entitlement benefits, beyond fee-forservice Medicare. One commenter
specifically expressed concern that the
Medicare HAC policy may have
unintended consequences for the
pediatric population, as similar policies
are being adopted by State Medicaid
agencies. The commenter suggested that
these Medicaid policies may discourage
physicians from treating complicated
pediatric patients for whom the risk of
certain HACs cannot be eliminated
using evidence-based guidelines.
Response: The Medicare HAC policy
applies only to hospitals that are subject
to the IPPS. While CMS does not
develop or implement individual State
Medicaid policies, we do endorse
alignment of incentives across all
systems of care and between the
Medicare and Medicaid programs.
Comment: Commenters recommended
that CMS clarify how hospitals may
appeal a HAC payment determination
for a particular patient who is not
eligible for higher payment through
assignment to the higher CC/MCC level
of the MS–DRG.
Response: We thank the commenters
for seeking clarification regarding
appeals and the HAC payment
provision. We refer readers to the FY
2008 IPPS final rule with comment
period (72 FR 47216) for further
information on existing procedures for
review of HAC payment adjustments.
Comment: Several commenters
believed that some of CMS’ selected
HACs may not be fully preventable and
recommended that CMS’ payment
methodology include risk adjustment.
Response: We agree with the
commenters that a risk adjustment
methodology may lead to greater
precision of HAC payment
determinations and refer readers to the
FY 2009 IPPS final rule (73 FR 48487
through 48488) for a detailed discussion
of HACs and risk adjustment at both the
individual and population levels.
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Comment: A few commenters urged
CMS to focus on more global hospitalwide assessments of harm, such as ratebased measurement of HACs, rather
than targeting individual HAC events.
Response: We agree with the
commenters that capturing rates of
HACs may more accurately assess the
level of harm within a given institution
and refer readers to the FY 2009 IPPS
final rule (73 FR 48488) for a detailed
discussion of the advantages and
disadvantages of rate-based
measurement of HACs.
Comment: Commenters expressed
support for expansion of the HAC list to
include categories such as ventilatorassociated pneumonia, failure to rescue,
surgical site infection following
implantation of devices, Clostridium
difficile-associated disease, and
malnutrition.
Response: We thank the commenters
for their continued engagement and
monitoring of candidate HACs. We will
continue to monitor these conditions as
an aspect of the program evaluation and
may consider discussion of these
candidate HACs in future rulemaking.
Comment: A few commenters
encouraged CMS to adopt a pay-forperformance initiative that is
complementary to the current HAC
program and incorporates specific
initiatives outlined in the HHS Action
Plan to Prevent Healthcare-Associated
Infections. One commenter suggested
that mandatory reporting of case rates
should be incorporated into pay-forperformance initiatives.
Response: We agree with the
commenters that pay-for-performance
and value-based purchasing (VBP)
programs may be one of several
payment tools for reducing preventable
HACs and refer readers to the FY 2009
IPPS final rule (73 FR 48487 through
48488) for a detailed discussion of how
VBP initiatives such as the Hospital
VBP Plan Report to Congress can
address preventable HACs.
G. Changes to Specific MS–DRG
Classifications
1. MDC 5 (Diseases and Disorders of the
Circulatory System): Intraoperative
Fluorescence Vascular Angiography
(IFVA)
As we discussed in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24106 through 24107) we received a
request to reassign cases reporting the
use of intraoperative fluorescence
vascular angiography (IFVA) with
coronary artery bypass graft (CABG)
procedures from MS–DRGs 235 and 236
(Coronary Bypass without Cardiac
Catheterization with and without MCC,
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respectively) into MS–DRG 233
(Coronary Bypass with Cardiac
Catheterization with MCC) and MS–
DRG 234 (Coronary Bypass with Cardiac
Catheterization without MCC). Effective
October 1, 2007, procedure code 88.59
(Intra-operative fluorescence vascular
angiography (IFVA)) describes this
technology.
IFVA technology consists of a mobile
device imaging system with software.
The technology is used to test cardiac
graft patency and technical adequacy at
the time of coronary artery bypass
grafting (CABG). While this system does
not involve fluoroscopy or cardiac
catheterization, it has been suggested by
the manufacturer and clinical studies
that it yields results that are similar to
those achieved with selective coronary
arteriography and cardiac
catheterization. Intraoperative coronary
angiography provides information about
the quality of the anastomosis, blood
flow through the graft, distal perfusion
and durability. For additional detailed
information regarding IFVA technology,
we refer readers to the September 28–
29, 2006 ICD–9–CM Coordination and
Maintenance Committee meeting
handout at the following Web site:
https://www.cms.hhs.gov/ICD9Provider
DiagnosticCodes/03_meetings.asp#
TopOfPage.
We examined data on cases identified
by procedure code 88.59 in MS–DRGs
233, 234, 235, and 236 in the FY 2008
MedPAR file. As shown in the table
below, for both MS–DRGs 235 and 236,
the cases utilizing IFVA technology
identified by procedure code 88.59 have
a shorter length of stay and lower
average costs compared to all cases in
MS–DRGs 235 and 236. There were a
total of 10,312 cases in MS–DRG 235
with an average length of stay of 11.12
days with average costs of $33,846.
There were 88 cases in MS–DRG 235
identified by procedure code 88.59 with
an average length of stay of 9.82 days
with average costs of $29,258. In MS–
DRG 236, there were a total of 24,799
cases with an average length of stay of
6.52 days and average costs of $22,329.
There were 159 cases in MS–DRG 236
identified by procedure code 88.59 with
an average length of stay of 6.30 days
and average costs of $20,404. The data
clearly demonstrate that the IFVA cases
identified by procedure code 88.59 are
assigned appropriately to MS–DRGs 235
and 236. We also examined data on
cases identified by procedure code
88.59 in MS–DRGs 233 and 234.
Similarly, in MS–DRGs 233 and 234,
cases identified by procedure code
88.59 reflect shorter lengths of stay and
lower average costs compared to all of
the other cases in those MS–DRGs.
There were a total of 17,453 cases in
MS–DRG 233 with an average length of
stay of 13.65 days with average costs of
$41,199. There were 60 cases in MS–
DRG 233 identified by procedure code
88.59 with an average length of stay of
12.82 days and average costs of $38,842.
In MS–DRG 234, there were a total of
27,003 cases with an average length of
stay of 8.70 days and average costs of
$28,327. There were 69 cases in MS–
DRG 234 identified by procedure code
88.59 with an average length of stay of
8.75 days and average costs of $25,308.
As a result of our analysis, the data
demonstrate that the IFVA cases
identified by procedure code 88.59 are
appropriately assigned to MS–DRGs 233
and 234.
Number of
cases
MS–DRG
235—All cases .............................................................................................................................
235—Cases with code 88.59 ......................................................................................................
235—Cases without code 88.59 .................................................................................................
236—All cases .............................................................................................................................
236—Cases with code 88.59 ......................................................................................................
236—Cases without code 88.59 .................................................................................................
10,312
88
10,224
24,799
159
24,640
Number of
cases
MS–DRG
233—All cases .............................................................................................................................
233—Cases with code 88.59 ......................................................................................................
233—Cases without code 88.59 .................................................................................................
234—All cases .............................................................................................................................
234—Cases with code 88.59 ......................................................................................................
234—Cases without code 88.59 .................................................................................................
17,453
60
17,393
27,003
69
26,934
Average
length of stay
Average cost*
11.12
9.82
11.14
6.52
6.30
6.52
$33,846
29,258
33,886
22,329
20,404
22,341
Average
length of stay
Average cost*
13.65
12.82
13.65
8.70
8.75
8.70
41,199
38,842
41,207
28,327
25,308
28,334
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* In the FY 2007 IPPS final rule (71 FR 47882), we adopted a cost-based weighting methodology. The cost-based weights were adopted over
a 3-year transition period in 1⁄3 increments between FY 2007 and FY 2009. The average cost represents the average standardized charges on
the claims reduced to cost using the cost center-specific CCRs for a specific DRG. The standardization process includes adjustments for IME,
DSH, and wage index as applied to individual hospitals. This estimation of cost is the same method used in the computation of the relative
weights. We are using cost-based data instead of our historical charge-based data to evaluate proposed MS–DRG classification changes.
We believe that if the cases identified
by procedure code 88.59 were proposed
to be reassigned from MS–DRGs 235 and
236 to MS–DRGs 233 and 234, they
would be significantly overpaid. In
addition, because the cases in MS–DRGs
235 and 236 did not actually have a
cardiac catheterization performed, a
proposal to reassign cases identified by
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procedure code 88.59 would result in
lowering the relative weights of MS–
DRGs 233 and 234 where a cardiac
catheterization is truly performed.
In summary, the data do not support
moving IFVA cases identified by
procedure code 88.59 from MS–DRGs
235 and 236 into MS–DRGs 233 and
234.
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In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, we invited the
public to submit comments on our
proposal not to make any MS–DRG
modifications for cases reporting
procedure code 88.59 for FY 2010.
Below, we provide a summation of the
public comments we received and our
responses.
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Comment: A number of commenters
believed that the use of IFVA in
conjunction with CABG procedures
leads to positive outcomes. Many of the
commenters stated that they had
performed IFVA and that, by using
IFVA along with the CABG procedure,
they were able to reduce their patients’
lengths of stay and reduce
complications, which in turn reduced
hospitals costs. The commenters stated
that the CMS published data indicated
that patients who undergo a CABG
procedure along with IFVA ‘‘showed
consistently shortened length of stay
and the resulting cost savings.’’ The
commenters stated that, despite cost
savings from the routine treatment of
CABG patients with IFVA, their
facilities were not prepared to purchase
this technology unless there were
additional Medicare payments.
The commenters did not dispute the
fact that the CMS data showed IFVA
cases used considerably less resources
than cases undergoing a cardiac
catheterization. However, the
commenters expressed concern that
CMS did not suggest a mechanism to
encourage hospitals to invest in the
IFVA equipment by providing
additional payment for the utilization of
IFVA.
Some commenters urged CMS to
explore alternative methods of payment
to facilities for utilizing the IFVA
technology.
Another commenter representing a
specialty society indicated that several
of its members, who are cardiothoracic
surgeons, had differing opinions on the
value of IFVA as an adjunctive
procedure to CABG surgery. This
commenter stated that, due to a lack of
information regarding the efficacy of
IFVA within its cardiac surgery
database, the commenter was unable to
appropriately assess the effectiveness of
the technology.
Response: We appreciate and
acknowledge the commenters’ concerns.
We would like to point out that the
costs associated with the IFVA
technology, when utilized with
coronary artery bypass (CABG)
procedures, are already accounted for
within the MS–DRGs for the CABG
procedure. In other words, cases
reporting procedure code 88.59, when
performed with a CABG procedure, are
currently grouped to one of the MS–
DRGs describing a CABG procedure.
Our claims data indicate that IFVA
cases have average costs very similar to
other cases within the MS–DRGs to
which they are currently assigned. Our
data do not support classifying code
88.59 as a cardiac catheterization so that
all cases where IFVA is performed
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would be assigned to the CABG DRGs
with cardiac catheterization (MS–DRGs
233 and 234). The cardiac
catheterization cases have consistently
higher costs than cases that only utilize
IFVA with CABG.
In response to concerns that CMS did
not provide an alternative for facilities
to account for costs associated with
IFVA use in conjunction with CABG
surgery, in our evaluation of data for
possible proposals for modifications to
the MS–DRGs, we did not find data to
support a MS–DRG change for IFVA.
The request we received was to reassign
cases reporting the use of IFVA with
CABG procedures from MS–DRGs 235
and 236 into MS–DRG 233 and MS–
DRG 234. To make this change, we
would have to add the IFVA procedure
to the list of cardiac catheterization
procedures listed under MS–DRGs 233
and 234. As the commenters noted in its
own submitted comments, the data
presented in the FY 2010 proposed rule
(74 FR 24107), for cases where IFVA
(code 88.59) was reported with a CABG
procedure, demonstrated that these
cases resulted in shorter lengths of stay
and lower average costs compared to all
cases within the specified CABG MS–
DRGs. As such, it would be
inappropriate to reassign cases reporting
the use of IFVA to higher weighted MS–
DRGs merely as an incentive for
hospitals to invest in the IFVA
technology.
With regards to the commenter’s
suggestion that CMS give consideration
to the utilization of the cardiac surgery
database to analyze IFVA, we refer the
commenter and readers to section
V.A.1–5 of the FY 2010 proposed rule
(74 FR 24165 through 24176) for a
discussion of CMS’ Hospital ValueBased Purchasing (VBP) Plan, a policy
that strives to align payment incentives
with the quality of care as well as the
resources used to deliver care to
encourage high-value health care.
In conclusion, many commenters
expressed support for the limited MS–
DRG changes proposed for FY 2010,
given the major changes that took place
with the recent implementation of the
MS–DRG system. Our analysis of claims
data indicates that IFVA cases have
average costs very similar to other cases
within the MS–DRGs to which they are
currently assigned, and the data do not
support the request to classify IFVA as
a cardiac catheterization at this time.
Therefore, as final policy for FY 2010,
we are finalizing our proposal to not
make any changes to MS–DRGs 233,
234, 235, or 236 for cases reporting the
use of intraoperative fluorescence
vascular angiography (IFVA), procedure
code 88.59.
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43787
2. MDC 8 (Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue): Infected Hip and Knee
Replacements
As discussed in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
24107 through 24109), we received a
request that we examine the issue of
patients who have undergone hip or
knee replacement procedures that have
subsequently become infected and who
are then admitted for inpatient services
for removal of the prosthesis. The
requestor stated that these patients are
presented with devastating
complications and require extensive
resources to treat. The infection often
results in the need for multiple reoperations, prolonged use of
intravenous and oral antibiotics,
extended rehabilitation, and frequent
followups. Furthermore, the requestor
stated that, even with extensive
treatment, the outcomes can still be
poor for some of these patients. The
requestor stated that patients who are
admitted for inpatient services with an
infected hip or knee prosthesis must
first undergo a procedure to remove the
prosthesis and to insert an antibiotic
spacer to treat the infection and
maintain a space for the new prosthesis.
The new prosthesis cannot be inserted
until after the infection has been treated.
Patients who are admitted for inpatient
services with a hip or knee infection
and then undergo a removal of the
prosthesis are captured by the following
procedure codes:
• 80.05 (Arthrotomy for removal of
prosthesis, hip)
• 80.06 (Arthrotomy for removal of
prosthesis, knee)
In addition, code 84.56 (Insertion or
replacement of (cement) spacer)) would
be used for any insertion of a spacer that
would be reported if an antibiotic spacer
were inserted.
The issue of hip and knee infections
and revisions was discussed in the FY
2009 IPPS final rule (73 FR 48498
through 48507) in response to a more
complicated request that we received
involving the creation and modification
of several joint DRGs. Because data did
not support the requestor’s suggested
changes, we did not make any
modifications to the joint DRGs at that
time.
The current requestor asked that we
move cases involving the removal of hip
and knee prostheses (procedure codes
80.05 and 80.06) from their current
assignment in MS–DRGs 480, 481, and
482 (Hip and Femur Procedures Except
Major Joint with MCC, with CC, without
CC/MCC, respectively) and in MS–DRGs
495, 496, and 497 (Local Excision of
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Internal Fixation Device Except Hip and
Femur with MCC, with CC, and with
CC/MCC, respectively) and assign them
to MS–DRGs 463, 464, and 465 (Wound
Debridement and Skin Graft Except
Hand, for Musculo-Connective Tissue
Disease with MCC, with CC, without
CC/MCC, respectively). MS–DRGs 463,
464, and 465 include cases that are
treated with a debridement for infection.
The requestor stated that these cases are
clinically similar to those captured by
procedure codes 80.05 and 80.06 where
the prosthesis is removed and a new
prosthesis is not inserted because of an
infection.
The requestor specifically asked that
we remove the hip arthrotomy code
80.05 from MS–DRGs 480, 481, and 482,
and assign it to MS–DRGs 463, 464, and
465. The requestor also recommended
that we remove the knee arthrotomy
code 80.06 from MS–DRGs 495, 496,
and 497 and assign it to MS–DRGs 463,
464, and 465.
If we were to accept the requestor’s
suggestion, joint replacement cases in
which the patients were admitted for
inpatient services to remove the
prosthesis because of an infection
would be assigned to the higher paying
debridement MS–DRGs (MS–DRGs 463,
464, and 465). As mentioned earlier,
these MS–DRGs contain other cases
involving treatment for infections.
For the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, we examined hip
replacement cases identified by
procedure code 80.05 in MS–DRGs 480,
481, and 482, and knee replacement
cases identified by procedure code
80.06 in MS–DRGs 495, 496, and 497
using the FY 2008 MedPAR file. Our
data from the FY 2008 MedPAR file
support the requestor’s suggestion that
these cases have similar costs to those
in MS–DRGs 463, 464, and 465, and that
they are significantly more expensive to
treat than those in their current MS–
DRG assignments. The following table
summarizes those findings:
Number of
cases
MS–DRG
463—All Cases ............................................................................................................................
464—All Cases ............................................................................................................................
465—All Cases ............................................................................................................................
480—All Cases ............................................................................................................................
480—Cases with code 80.05 ......................................................................................................
480—Cases without code 80.05 .................................................................................................
481—All Cases ............................................................................................................................
481—Cases with code 80.05 ......................................................................................................
481—Cases without code 80.05 .................................................................................................
482—All Cases ............................................................................................................................
482—Cases with code 80.05 ......................................................................................................
482—Cases without code 80.05 .................................................................................................
495—All Cases ............................................................................................................................
495—Cases with code 80.06 ......................................................................................................
495—Cases without code 80.06 .................................................................................................
496—All Cases ............................................................................................................................
496—Cases with code 80.06 ......................................................................................................
496—Cases without code 80.06 .................................................................................................
497—All Cases ............................................................................................................................
497—Cases with code 80.06 ......................................................................................................
497—Cases without code 80.06 .................................................................................................
4,834
4,934
1,696
31,181
643
30,538
72,406
871
71,535
37,443
282
37,161
2,140
513
1,627
5,518
1,346
4,172
5,856
688
5,168
Average
length of stay
Average cost*
16.59
9.52
5.45
8.89
13.35
8.80
5.68
8.34
5.65
4.65
6.82
4.63
10.40
11.53
10.04
5.73
6.67
5.42
2.84
5.08
2.54
$26,696
15,065
9,041
17,168
26,053
16,981
11,259
17,202
11,187
9,320
13,718
9,287
18,729
23,508
17,432
10,827
14,454
9,657
7,148
12,234
6,470
sroberts on DSKD5P82C1PROD with RULES
* In the FY 2007 IPPS final rule (71 FR 47882), we adopted a cost-based weighting methodology. The cost-based weights were adopted over
a 3-year transition period in 1⁄3 increments between FY 2007 and FY 2009. The average cost represents the average standardized charges on
the claims reduced to cost using the cost center-specific CCRs for a specific DRG. The standardization process includes adjustments for IME,
DSH, and wage index as applied to individual hospitals. This estimation of cost is the same method used in the computation of the relative
weights. We are using cost-based data instead of our historical charge-based data to evaluate proposed MS–DRG classification changes.
The data show that hip replacement
cases with procedure code 80.05 in MS–
DRGs 480, 481, and 482 have average
costs of $26,053, $17,202, and $13,718,
respectively, compared to overall
average costs of $17,168 in MS–DRG
480; $11,259 in MS–DRG 481; and
$9,320 in MS–DRG 482. The data also
show that knee replacement cases with
procedure code 80.06 in MS–DRGs 495,
496, and 497 have average costs of
$23,508, $14,454, and $12,234,
respectively, compared to average costs
of all cases of $18,729 in MS–DRG 495,
$10,827 in MS–DRG 496, and $7,148 in
MS–DRG 497. All cases in MS–DRGs
463, 464, and 465 had average costs of
$26,696, $15,065, and $9,041,
respectively.
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The results of this analysis of data
support the reassignment of procedure
codes 80.05 and 80.06 to MS–DRGs 463,
464, and 465. Therefore, in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
(74 FR 24107 through 24109), we
proposed to move procedure codes
80.05 and 80.06 from their current
assignments in MS–DRGs 480, 481, and
482 and 495, 496, and 497, and assign
them to MS–DRGs 463, 464, and 465.
We also proposed to revise the code title
of procedure code 80.05 to read
‘‘Arthrotomy for removal of prosthesis
without replacement, hip’’ and the title
of procedure code 80.06 to read
‘‘Arthrotomy for removal of prosthesis
without replacement, knee’’, effective
October 1, 2009, as in shown in Table
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6F of the Addendum to the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule.
Comment: A number of commenters
supported our recommendation to move
codes 80.05 and 80.06 from their current
assignments in MS–DRGs 480, 481, and
482 and 495, 496, and 497 and assign
them to MS–DRGs 463, 464, and 465.
The commenters also supported the
proposed changes to the code titles for
both codes 80.05 and 80.06, effective
October 1, 2009.
One commenter supported this MS–
DRG change for the treatment of
infection following hip and knee
arthroplasty patients because, according
to the commenter, considerable
resources are required to care for these
patients whose deep infections are one
of the most devastating complications
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associated with hip and knee
arthroplasty. The commenter further
stated that the current hospital payment
rate provides a disincentive for
hospitals to admit patients with infected
total joint replacements and creates an
economic burden on tertiary care
referral centers treating these patients.
Several other commenters also agreed
that these cases are significantly more
expensive to treat than other cases in
the current MS–DRG assignments. One
commenter stated that this reassignment
will more accurately reflect the costs
associated with treating the removal of
hip and knee prostheses.
Some of the commenters who
supported the proposed changes stated
that, given the recent major changes to
the MS–DRGs, it was appropriate for
CMS to propose a limited number of
MS–DRG classification changes for FY
2010. The commenters had no
objections to the proposal to move codes
80.05 and 80.06 to MS–DRGs 463, 464,
and 465.
Response: We appreciate the support
of the commenters and agree that it is
appropriate to move codes 80.05 and
80.06 to MS–DRGs 463, 464, and 465.
Comment: Several commenters who
supported this proposed MS–DRG
assignment change also recommended
that CMS consider revising the titles for
MS–DRGs 463, 464, and 465 to reflect
the proposed reassignment change. The
commenters suggested the following
MS–DRG titles for MS–DRGs 463, 464,
and 465: ‘‘Wound Debridement, Skin
Graft, and/or Removal of Infected
Prosthesis Except hand for
Musculoskeletal-Connective Tissue
Disease with MCC, with CC, or without
CC/MCC,’’ respectively.
Response: The MS–DRG titles are
general in nature and usually do not
describe all the diagnoses and
procedure codes included in each MS–
DRG. We do not use the full MS–DRG
titles within the IPPS. Rather, we use
abbreviated titles, as is shown in Table
5 of the Addendum to this FY 2010
IPPS/RY 2010 LTCH PPS final rule. Our
abbreviated titles are constrained by the
fact that they must be 68 characters
long. The current abbreviated title for
MS–DRG 465 is already 68 characters
long. The MS–DRG 465 abbreviated title
is as follows: Wnd debrid & skn graft
exc hand, for musculo-conn tiss dis
w/o CC/MM. As a result, we are unable
to accommodate the commenter’s
suggestion by making a clear MS–DRG
abbreviated title that includes all of the
recommended language within our 68
character limitation. We also note that
not all prosthesis removals are being
moved to MS–DRGs 463, 364, and 465.
We are only moving knee and hip
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prosthesis removals to these MS–DRGs.
Therefore, we believe that the suggested
new title may be misleading because it
implies all types of prosthesis removals
are in these MS–DRGs. Therefore, we
are maintaining the current titles for
MS–DRGs 463, 464, and 465.
After consideration of the public
comments we received, we are
finalizing our proposal to move
procedure codes 80.05 and 80.06 to MS–
DRGs 463, 464, and 465. We are also
finalizing our proposal to revise the
titles of procedure codes 80.05 and
80.06. The revised title for procedure
code 80.05 is ‘‘Arthrotomy for removal
of prosthesis without replacement, hip’’.
The revised title for procedure code
80.06 is ‘‘Arthrotomy for removal of
prosthesis without replacement, knee’’.
These modifications and revisions are
effective October 1, 2009, as reflected in
Table 6F of the Addendum to this final
rule.
3. Medicare Code Editor (MCE) Changes
As explained under section II.B.1. of
the preamble of this final rule, 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), and demographic
information are entered 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.
In the FY 2020 IPPS/LTCH PPS
proposed rule (74 FR 24109 through
24110), for FY 2010, we proposed to
make the following changes to the MCE
edits:
a. Diagnoses Allowed for Males Only
Edit
There are four diagnosis codes that
were inadvertently left off of the MCE
edit titled ‘‘Diagnoses Allowed for
Males Only.’’ These codes are located in
the chapter of the ICD–9–CM diagnosis
codes entitled ‘‘Diseases of Male Genital
Organs.’’ In the FY 2009 IPPS final rule,
we indicated that we were adding the
following four codes to this MCE edit:
• 603.0 (Encysted hydrocele)
• 603.1 (Infected hydrocele)
• 603.8 (Other specified types of
hydrocele)
• 603.9 (Hydrocele, unspecified).
We had no reported problems or
confusion with the omission of these
codes from this section of the MCE, but
in order to have an accurate product, we
indicated that we were adding these
codes for FY 2009. However, through an
oversight, we failed to implement the
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indicated FY 2009 changes to the MCE
by adding codes 603.0, 603.1, 603.8, and
603.9 to the MCE edit of diagnosis
allowed for males only. In the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule,
we acknowledged this omission and
again proposed to make the changes.
We did not receive any public
comments on the proposed changes to
the edit for Diagnosis Allowed for Males
Only. Therefore, we are finalizing our
proposal to add diagnosis codes 603.0,
603.1, 603.8, and 603.9 to this MCE edit
for FY 2010.
b. Manifestation Codes as Principal
Diagnosis Edit
Manifestation codes describe the
manifestation of an underlying disease,
not the disease itself. Therefore,
manifestation codes should not be used
as a principal diagnosis. The National
Center for Health Statistics (NCHS) has
removed the advice ‘‘code first
associated disorder’’ from three codes,
thereby making them acceptable
principal diagnosis codes. These codes
are:
• 365.41 (Glaucoma associated with
chamber angle anomalies)
• 365.42 (Glaucoma associated with
anomalies of iris)
• 365.43 (Glaucoma associated with
other anterior segment anomalies)
In order to make conforming changes
to the MCE, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
24109), we proposed to remove codes
365.41, 365.42, and 365.43 from the
Manifestation Code as Principal
Diagnosis Edit.
We did not receive any public
comments on the proposed changes to
the edit for Manifestation Codes as
Principal Diagnosis. Therefore, we are
finalizing our proposal to remove
manifestation codes 365.41, 365.42, and
365.43 from the principal diagnosis edit.
These codes will be acceptable as
principal diagnosis, effective October 1,
2010.
c. Invalid Diagnosis or Procedure Code
The MCE checks each diagnosis,
including the admitting diagnosis, and
each procedure against a table of valid
ICD–9–CM codes. If an entered code
does not agree with any code on the list,
it is assumed to be invalid or that the
4th or 5th digit of the code is invalid or
missing.
An error was discovered in this edit.
ICD–9–CM code 00.01 (Therapeutic
ultrasound of vessels of head and neck)
was inadvertently left out of the MCE
tables. The inclusion of this code in the
MCE tables would have generated an
error message at the Medicare contractor
level, but we had instructed the
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Medicare contractors to override this
edit for discharges on or after October 1,
2008. To make a conforming change to
the MCE, in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule (74 FR 24109),
we proposed to add code 00.01 to the
table of valid codes.
We did not receive any public
comments on our proposed changes to
the edit for Invalid Diagnosis or
Procedure Codes. Therefore, we are
finalizing our proposal to add code
00.01 to the table of valid codes for FY
2010.
d. Unacceptable Principal Diagnosis
There are selected codes that describe
a circumstance that influences an
individual’s health status but not a
current illness or injury and codes that
are not specific manifestations but may
describe illnesses due to an underlying
cause. These codes are considered
unacceptable as a principal diagnosis.
For FY 2008, a series of diagnostic
codes were created at subcategory 209,
Neuroendocrine Tumors. An
instructional note under this
subcategory stated that coders were to
‘‘Code first any associated multiple
endocrine neoplasia syndrome (258.01–
258.03)’’. Medicare contractors had
interpreted this note to mean that none
of the codes in subcategory 209 were
acceptable principal diagnoses and had
entered these codes on the MCE edit for
unacceptable principal diagnoses. We
later deemed this interpretation to be
incorrect. We had not intended that the
series of codes at subcategory 209 were
only acceptable as secondary diagnoses.
To avoid future misinterpretation, in
the FY 2010 IPPS/RY 2919 LTCH PPS
proposed rule (74 FR 24109 through
24110), we proposed to remove the
following codes from the MCE edit for
unacceptable principal diagnoses.
• 209.00 (Malignant carcinoid tumor of
the small intestine, unspecified
portion)
• 209.01 (Malignant carcinoid tumor of
the duodenum)
• 209.02 (Malignant carcinoid tumor of
the jejunum)
• 209.03 (Malignant carcinoid tumor of
the ileum)
• 209.10 (Malignant carcinoid tumor of
the large intestine, unspecified
portion)
• 209.11 (Malignant carcinoid tumor of
the appendix)
• 209.12 (Malignant carcinoid tumor of
the cecum)
• 209.13 (Malignant carcinoid tumor of
the ascending colon)
• 209.14 (Malignant carcinoid tumor of
the transverse colon)
• 209.15 (Malignant carcinoid tumor of
the descending colon)
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• 209.16 (Malignant carcinoid tumor of
the sigmoid colon)
• 209.17 (Malignant carcinoid tumor of
the rectum)
• 209.20 (Malignant carcinoid tumor of
unknown primary site)
• 209.21 (Malignant carcinoid tumor of
the bronchus and lung)
• 209.22 (Malignant carcinoid tumor of
the thymus)
• 209.23 (Malignant carcinoid tumor of
the stomach)
• 209.24 (Malignant carcinoid tumor of
the kidney)
• 209.25 (Malignant carcinoid tumor of
foregut, not otherwise specified)
• 209.26 (Malignant carcinoid tumor of
midgut, not otherwise specified)
• 209.27 (Malignant carcinoid tumor of
hindgut, not otherwise specified)
• 209.29 (Malignant carcinoid tumor of
other sites)
• 209.30 (Malignant poorly
differentiated neuroendocrine
carcinoma, any site)
• 209.40 (Benign carcinoid tumor of the
small intestine, unspecified portion)
• 209.41 (Benign carcinoid tumor of the
duodenum)
• 209.42 (Benign carcinoid tumor of the
jejunum)
• 209.43 (Benign carcinoid tumor of the
ileum)
• 209.50 (Benign carcinoid tumor of the
large intestine, unspecified portion)
• 209.51 (Benign carcinoid tumor of the
appendix)
• 209.52 (Benign carcinoid tumor of the
cecum)
• 209.53 (Benign carcinoid tumor of the
ascending colon)
• 209.54 (Benign carcinoid tumor of the
transverse colon)
• 209.55 (Benign carcinoid tumor of the
descending colon)
• 209.56 (Benign carcinoid tumor of the
sigmoid colon)
• 209.57 (Benign carcinoid tumor of the
rectum)
• 209.60 (Benign carcinoid tumor of
unknown primary site)
• 209.61 (Benign carcinoid tumor of the
bronchus and lung)
• 209.62 (Benign carcinoid tumor of the
thymus)
• 209.63 (Benign carcinoid tumor of the
stomach)
• 209.64 (Benign carcinoid tumor of the
kidney)
• 209.65 (Benign carcinoid tumor of
foregut, not otherwise specified)
• 209.66 (Benign carcinoid tumor of
midgut, not otherwise specified)
• 209.67 (Benign carcinoid tumor of
hindgut, not otherwise specified)
• 209.69 (Benign carcinoid tumor of
other sites)
In the meantime, CMS has issued
instructions in the form of an internal
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working document called a joint
signature memorandum to the Medicare
contractors to override this edit and
process claims containing codes from
the subcategory 209 series as acceptable
principal diagnoses.
We acted quickly to negate the effects
of this edit, as it was an erroneous edit
to the MCE resulting in unintended
consequences. We did not receive any
public comments on the proposed
change to the edit for Unacceptable
Principal Diagnosis. Therefore, we are
finalizing our proposal to remove the
codes listed above (that is, codes 209.00
through 209.69) from the MCE edit for
Unacceptable Principal Diagnosis.
e. Creation of New Edit Titled ‘‘Wrong
Procedure Performed’’
On January 15, 2009, CMS issued
three National Coverage Decision
memoranda on the coverage of
erroneous surgeries on Medicare
patients: Wrong Surgical or Other
Invasive Procedure Performed on a
Patient (CAG–00401N); Surgical or
Other Invasive Procedure Performed on
the Wrong Body Part (CAG–00402N);
and Surgical or Other Invasive
Procedure Performed on the Wrong
Patient (CAG–00403N). We refer readers
to the following CMS Web sites to view
the memoranda in their entirety: For the
decision memorandum on surgery on
the wrong body part: https://
www.cms.hhs.gov/mcd/viewdecision
memo.asp?id=222. For the decision
memorandum on surgery on the wrong
patient: https://www.cms.hhs.gov/mcd/
viewdecisionmemo.asp?id=221. For the
decision memorandum on the wrong
surgery performed on a patient: https://
www.cms.hhs.gov/mcd/
viewdecisionmemo.asp?id=223.
To conform to these new coverage
decisions, in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule (74 FR 24110),
we proposed to create a new edit to
identify cases in which wrong surgeries
occurred. The NCHS has revised the
title of one E-code and created two new
E-codes to identify cases in which
incorrect surgeries have occurred. The
revised E-code title is:
• E876.5 (Performance of wrong
operation (procedure) on correct
patient).
The two new E-codes are as follows:
• E876.6 (Performance of operation
(procedure) on patient not scheduled for
surgery).
• E876.7 (Performance of correct
operation (procedure) on wrong side/
body part).
For the benefit of the reader, we are
providing the following brief
background information on external
causes of injury and poisoning codes (E-
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codes). E-codes are intended to provide
data for injury research and evaluation
of injury prevention strategies. E-codes
capture how the injury or poisoning
happened (cause), the intent
(unintentional or accidental; or
intentional, such as suicide or assault),
and the place where the event occurred.
The use of E-codes is supplemental to
the ICD–9–CM diagnosis codes. The
National Center for Health Statistics
(NCHS)/CDC has created and maintains
the ICD–9–CM Official Guidelines for
Coding and Reporting, including
instructions concerning E-codes, and
has made these guidelines available on
the Web site at: https://www.cdc.gov/
nchs/datawh/ftpserv/ftpicd9/
icdguide08.pdf. The guidelines are a
national HIPAA standard. The
guidelines are being updated effective
October 1, 2009, to recognize the fact
that CMS requires the reporting of Ecodes as part of its wrong procedure
performed national coverage decision.
The fourth quarter issue of Coding
Clinic for ICD–9–CM will also include
information on the new wrong surgery
codes as well as the updated Coding
Guidelines.
A complete list of all of the E-codes
that will be implemented on October 1,
2009, can be found on the CMS Web site
home page at: https://www.cms.hhs.gov/
ICD9ProviderDiagnosticCodes/07_
summarytables.asp#TopOfPage in the
download titled ‘‘New, Deleted, and
Invalid Diagnosis and Procedure
Codes.’’
Currently, an E-code used as a
principal diagnosis will receive the
MCE Edit ‘‘E-code as principal
diagnosis’’. This edit will remain in
effect. However, we proposed a change
to the MCE so that E-codes E876.5
through E876.7, whether they are in the
principal or secondary diagnosis
position, will trigger the ‘‘Wrong
Procedure Performed’’ edit. Any claim
with this edit will be rejected.
Comment: Several commenters
requested that CMS clarify its policy on
reporting of E-codes, stating that CMS
has never required the reporting of these
codes prior to the proposed rule. The
commenters also stated that an edit for
codes E876.5 through E876.7 should not
be applied to claims in which one of
these E-codes was listed as the principal
diagnosis as there is already an MCE
edit that addresses E-codes in this
position. One commenter agreed that
eliminating the ‘‘E-code as Principal
Diagnosis’’ edit that is currently in place
will address many issues for reporting
E-codes as principal diagnosis.
Response: The commenters are correct
that the reporting of E-codes has not
previously been required for reporting
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to CMS. However, as noted above, the
E-codes are used for many purposes and
are often required by institutions in
order to describe a complete patient
encounter with health services. We
believe that any of the three
aforementioned wrong surgery
situations presents such an egregious
scenario that hospitals will capture this
information through the use of the
applicable E-codes.
The commenters are correct that Ecodes in the principal diagnosis
position on the claim will trigger an edit
in which claims will be returned to the
provider. However, we did not propose
to delete this edit; this edit will remain
in place along with the Wrong
Procedure Performed edit. Claims with
E-codes other than codes E876.5
through E876.7 reported in the principal
diagnosis position will be subject to the
longstanding Principal Diagnosis edit.
Claims with codes E876.5 through
E876.7 reported in either the principal
or secondary diagnosis position will be
subject to the Wrong Procedures
Performed edit. These claims will be
rejected.
Comment: Commenters suggested that
the Wrong Procedure Performed edit
should be triggered if the E-code is
reported in either the E-code position on
the claim or in the secondary diagnosis
position.
Response: We agree that the edit
should be triggered no matter in what
position it is reported. However, we
encourage reporting of the E-codes in
the secondary diagnosis position.
Comment: One commenter suggested
that if codes E876.5 through E876.7
were to be reported in the principal
diagnosis position, the ‘‘E-code as
Principal Diagnosis’’ edit should be
invoked and the claim returned to the
provider so that the claim could then be
resubmitted listing the codes in the
correct sequence. The commenter
further suggested that the Wrong
Procedure Performed edit should only
be triggered when the E-codes are
reported in the correct position on the
claim.
Response: We do not believe this
suggestion is in the best interest of the
hospital industry. Performance of the
wrong surgery is not a reasonable and
necessary treatment for the Medicare
beneficiary, and these claims will be
rejected. To cause the Medicare
contractor (the fiscal intermediary or the
A/B MAC) to return the claim to the
provider, have the provider correct the
sequencing of the codes on the claim
and return it to the contractor, only to
ultimately have the claim be rejected,
add steps to a process that results in the
same outcome.
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Comment: One commenter suggested
that updated coding guidance should
address the definition of operation/
procedure, and [define] what constitutes
a wrong procedure for consistent
assignment [of the codes] to coincide
with industry definitions.
Response: We take this opportunity to
point out that the definition of an
operation or procedure is a longstanding
description, dating from the Uniform
Hospital Discharge Data Set
promulgated by the Secretary of the U.S.
Department of Health, Education, and
Welfare in 1974. In addition, with
regard to the suggestion that there need
to be guidelines regarding the
performance of a wrong surgery in any
of the three cases described by these
codes, we believe that any of these three
scenarios are so flagrant that the average
individual could determine that a wrong
surgery had taken place. Therefore, we
do not believe we should wait for a
determination by the industry of what
constitutes the definition of a wrong
surgery.
Comment: One commenter urged
CMS to work closely with the other
Cooperating Parties for ICD–9–CM to
provide guidance for coding, reporting,
and sequencing of codes E876.5 through
E876.7. Several commenters suggested
that CMS begin processing all of the
reported diagnosis and procedure codes.
Response: We acknowledge the
current CMS system limitations that
allow us to process only the first nine
diagnosis codes and six procedure codes
reported on the hospital bills and that
do not allow us to process codes from
the external cause of injury field when
making an MS–DRG assignment. We
have discussed these internal CMS
system limitations in previous rules. In
anticipation of the implementation of
ICD–10 on October 1, 2013, CMS is
undertaking extensive efforts to update
its systems. These system updates
include plans to begin processing up to
25 diagnosis codes and 25 procedure
codes as well as the ability to process
codes reported in the external cause of
injury field. With these system updates,
we believe the concerns expressed by
commenters concerning CMS’ limited
processing of reported codes will be
resolved. In the meantime, hospitals
should continue their current and
longstanding practice of reporting the
ICD–9–CM diagnosis and procedure
codes which affect the MS–DRG
assignment among the first nine
diagnosis and first six procedure coding
fields.
As stated below, CMS will implement
a wrong surgery (Wrong Procedure
Performed) coverage edit in the MCE on
October 1, 2009, that will lead to any
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claim with a wrong surgery E-code
triggering this edit to be rejected.
Should hospitals perform any of the
three wrong surgeries and submit claims
on which the E-code is omitted or is
listed in a field that we do not currently
process for the MS–DRG assignment
(the code is not reported among the first
nine diagnosis codes or the code is
reported in the External Cause of Injury
field), the case may be subject to
retrospective review by the Recovery
Audit Contractor (RAC) and then
subsequently denied. Patterns of
apparent coding abuse may be referred
to the Office of Inspector General for
HHS for additional investigation.
We also have referred this new Wrong
Procedure Performed national coverage
decision to the Cooperating Parties for
ICD–9–CM who update and maintain
the Official ICD–9–CM Coding
Guidelines. These guidelines are a
national HIPAA standard. The
guidelines are being updated effective
October 1, 2009, to recognize the fact
that CMS requires the reporting of Ecodes as part of its wrong procedure
performed national coverage decision.
The fourth quarter issue of Coding
Clinic for ICD–9–CM will also include
information on the new wrong surgery
codes as well as the updated Coding
Guidelines. We believe the clarity
provided by the national coverage
decisions, the MCE edits, the updated
Official ICD–9–CM Coding Guidelines,
and the Fourth Quarter Coding Clinic
article on the new wrong surgery codes
should make clear how the codes are to
be used and reported.
After consideration of the public
comments we received, we are
finalizing our proposal to change the
MCE so the E-codes E876.5 through
E876.7, whether they are in the
principal or secondary diagnosis
position, will trigger the ‘‘Wrong
Procedure Performed’’ edit. Therefore,
any claim with this edit will be rejected,
effective October 1, 2009.
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f. Procedures Allowed for Females Only
Edit
It has come to our attention that code
75.37 (Amnioinfusion) and code 75.38
(Fetal pulse oximetry) were
inadvertently omitted from the MCE
edit ‘‘Procedures Allowed for Females
Only.’’ In order to correct this omission,
in the FY 2010 IPPS/RY 2010 LTCH
proposed rule (74 FR 24110 through
24111), we proposed to add codes 75.37
and 75.38 to the edit for procedures
allowed for females only.
We did not receive any public
comments on our proposal. Therefore,
for FY 2010, we are adding codes 75–
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37 and 75.38 to the Procedures Allowed
for Females Only edit.
4. Surgical Hierarchies
Some inpatient stays entail multiple
surgical procedures, each one of which,
occurring by itself, could result in
assignment of the case to a different
MS–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 MS–DRG. The surgical hierarchy,
an ordering of surgical classes from
most resource-intensive to least
resource-intensive, performs that
function. Application of this hierarchy
ensures that cases involving multiple
surgical procedures are assigned to the
MS–DRG associated with the most
resource-intensive surgical class.
Because the relative resource intensity
of surgical classes can shift as a function
of MS–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 MS–DRGs. For example, in
MDC 11, the surgical class ‘‘kidney
transplant’’ consists of a single MS–DRG
(MS–DRG 652) and the class ‘‘major
bladder procedures’’ consists of three
MS–DRGs (MS–DRGs 653, 654, and
655). Consequently, in many cases, the
surgical hierarchy has an impact on
more than one MS–DRG. The
methodology for determining the most
resource-intensive surgical class
involves weighting the average
resources for each MS–DRG by
frequency to determine the weighted
average resources for each surgical class.
For example, assume surgical class A
includes MS–DRGs 1 and 2 and surgical
class B includes MS–DRGs 3, 4, and 5.
Assume also that the average costs of
MS–DRG 1 is higher than that of MS–
DRG 3, but the average costs of MS–
DRGs 4 and 5 are higher than the
average costs of MS–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 costs of each
MS–DRG in the class by frequency (that
is, by the number of cases in the MS–
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.
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This methodology may occasionally
result in assignment of a case involving
multiple procedures to the lowerweighted MS–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 cost is ordered above a
surgical class with a higher average cost.
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 costs for the
MS–DRG or MS–DRGs in that surgical
class may be higher than those 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 costs 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 costs are
likely to shift such that the higherordered surgical class has a lower
average costs than the class ordered
below it.
For FY 2010, we did not propose any
revisions to the surgical hierarchy.
We did not receive any public
comments on our proposal not to make
any revisions to the surgical hierarchy
and, therefore, are finalizing our
proposed decision in this final rule.
5. Complications or Comorbidity (CC)
Exclusions List
a. Background
As indicated earlier in the preamble
of this final rule, under the IPPS DRG
classification system, we have
developed a standard list of diagnoses
that are considered 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
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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 the FY 2008 IPPS final
rule with comment period for a
discussion of the refinement of CCs in
relation to the MS–DRGs we adopted for
FY 2008 (72 FR 47121 through 47152).
b. CC Exclusions List for FY 2010
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.
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:
• Chronic and acute manifestations of
the same condition should not be
considered CCs for one another.
• Specific and nonspecific (that is,
not otherwise specified (NOS))
diagnosis codes for the same condition
should not be considered CCs for one
another.
• 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.
• Codes for the same condition in
anatomically proximal sites should not
be considered CCs for one another.
• 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
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exclusions and to remove diagnoses
from the master list that have been
shown not to meet the definition of a
CC.2
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24111
through 24112), we proposed to make
limited revisions to the CC Exclusions
List for FY 2010 to take into account the
changes made in the ICD–9–CM
diagnosis coding system effective
October 1, 2009. (We refer readers to
section II.G.7. of the preamble of this
final rule for a discussion of ICD–9–CM
changes.) We proposed to make these
changes in accordance with the
principles established when we created
the CC Exclusions List in 1987. In
addition, we indicated on the CC
Exclusions List some changes as a result
of updates to the ICD–9–CM codes to
reflect the exclusion of codes from being
MCCs under the MS–DRG system that
we adopted in FY 2008.
Comment: One comment asked CMS
if it would be reasonable to consider
modifying future GROUPER logic so
that patients with multiple secondary
diagnoses classified as CCs would be
assigned to the MCC level. In other
words, the commenter stated, multiple
CCs would be considered the same as
having an MCC.
Response: We believe this comment is
outside the scope of the proposed rule
because we did not propose significant
revisions to the MS–DRGs. Moreover, as
discussed earlier, we made significant
refinements to the inpatient payment
2 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; the FY
2007 final rule (71 FR 47870) for the FY 2007
revisions; the FY 2008 final rule (72 FR 47130) for
the FY 2008 revisions, and the FY 2009 final rule
(73 FR 48510). 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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43793
system when we implemented the MS–
DRG system in FY 2008. We refer
readers to section II.D. of the FY 2008
IPPS final rule with comment period for
a full discussion of how the MS–DRG
system was established based on
severity levels of illness (72 FR 47141).
As we noted earlier, we received a
number of comments recognizing the
recent major changes to the MS–DRGs.
The commenters stated that, given these
recent major changes, it is appropriate
for CMS to make only a limited number
of MS–DRG classification changes for
FY 2010. We believe that reclassifying a
case with two or more CCs as an MCC
would have a major impact on the MS–
DRG system because 51 percent of the
cases in the MedPAR file have more
than one CC (5,980,824 of 11,801,371
cases in FY 2008). Therefore, we have
decided not to modify the GROUPER
logic to classify a case with multiple
CCs as an MCC for FY 2010.
Comment: Several commenters
recommended that CMS consider
making further adjustments to the MS–
DRG assignments based on obesity. The
commenters stated that higher Body
Mass Index (BMI) ratings add to the
complexity of care for patients, such as
those patients undergoing orthopedic
procedures. The commenters
recommended the following changes to
the list of MCCs and CCs.
One commenter recommended that
CMS add the following codes to the CC
list. Another commenter recommended
that CMS add these same codes to the
MCC list.
• 731.3 (Major osseous defects)
• V85.35 (Body mass index 35.0–35.9,
adult)
• V85.36 (Body mass index 36.0–36.9,
adult)
• V85.37 (Body mass index 37.0–37.9,
adult)
Both commenters recommended that
CMS add the following codes to the
MCC list:
• V85.38 (Body mass index 38.0–38.9,
adult)
• V85.39 (Body mass index 39.0–39.9,
adult)
• V85.40 (Body mass index 40 and over,
adult)
Response: We believe this comment is
outside the scope of the specific
proposal in the proposed rule because
we did not propose significant revisions
to the MS–DRGs. In the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24091), we stated that we were
encouraging individuals with comments
about MS–DRG classifications to submit
these comments no later than early
December of each year so they can be
carefully considered for possible
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inclusion in the annual proposed rule
and, if included, may be subjected to
public review and comment. Therefore,
we are not adding these codes to the
MCC list or the CC list for FY 2010. We
may consider their appropriateness for
inclusion in next year’s annual IPPS
proposed rule.
After consideration of the public
comments received, we are adopting the
proposed limited revisions to the CC
Exclusion List as final for FY 2010
without change.
Tables 6G and 6H, Additions to and
Deletions from the CC Exclusion List,
respectively, which are effective for
discharges occurring on or after October
1, 2009, are not being published in this
final rule because of the length of the
two tables. Instead, we are making them
available through the Internet on the
CMS Web site at: https://
www.cms.hhs.gov/AcuteInpatientPPS.
Each of these principal diagnoses for
which there is a CC exclusion is shown
in Tables 6G and 6H 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.
A complete updated MCC, CC, and
Non-CC Exclusions List is 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, 2009,
the indented diagnoses will not be
recognized by the GROUPER as valid
CCs for the asterisked principal
diagnosis.
To assist readers in identifying the
changes to the MCC and CC lists that
occurred as a result of updates to the
ICD–9–CM codes, as described in Tables
6A, 6C, and 6E of the Addendum to this
final rule, we are providing the
following summaries of those MCC and
CC changes.
SUMMARY OF ADDITIONS TO THE MS–DRG MCC LIST—TABLE 6I.1
Code
277.88
670.22
670.24
670.32
670.34
670.80
670.82
670.84
756.72
756.73
768.73
779.32
Description
...........................
...........................
...........................
...........................
...........................
...........................
...........................
...........................
...........................
...........................
...........................
...........................
Tumor lysis syndrome.
Puerperal sepsis, delivered, with mention of postpartum complication.
Puerperal sepsis, postpartum condition or complication.
Puerperal septic thrombophlebitis, delivered, with mention of postpartum complication.
Puerperal septic thrombophlebitis, postpartum condition or complication.
Other major puerperal infection, unspecified as to episode of care or not applicable.
Other major puerperal infection, delivered, with mention of postpartum complication.
Other major puerperal infection, postpartum condition or complication.
Omphalocele.
Gastroschisis.
Severe hypoxic-ischemic encephalopathy.
Bilious vomiting in newborn.
SUMMARY OF DELETIONS FROM THE MS–DRG MCC LIST—TABLE 6I.2
Code
Description
768.7 .............................
Hypoxic-ischemic encephalopathy (HIE).
SUMMARY OF ADDITIONS TO THE MS–DRG CC LIST—TABLE 6J.1
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Code
Description
209.71 ...........................
209.72 ...........................
209.73 ...........................
209.74 ...........................
209.79 ...........................
416.2 .............................
453.50 ...........................
453.51 ...........................
453.52 ...........................
453.6 .............................
453.71 ...........................
453.72 ...........................
453.73 ...........................
453.74 ...........................
453.75 ...........................
453.76 ...........................
453.77 ...........................
453.79 ...........................
453.81 ...........................
453.82 ...........................
453.83 ...........................
453.84 ...........................
453.85 ...........................
453.86 ...........................
453.87 ...........................
453.89 ...........................
569.71 ...........................
569.79 ...........................
670.10 ...........................
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Secondary neuroendocrine tumor of distant lymph nodes.
Secondary neuroendocrine tumor of liver.
Secondary neuroendocrine tumor of bone.
Secondary neuroendocrine tumor of peritoneum.
Secondary neuroendocrine tumor of other sites.
Chronic pulmonary embolism.
Chronic venous embolism and thrombosis of unspecified deep vessels of lower extremity.
Chronic venous embolism and thrombosis of deep vessels of proximal lower extremity.
Chronic venous embolism and thrombosis of deep vessels of distal lower extremity.
Venous embolism and thrombosis of superficial vessels of lower extremity.
Chronic venous embolism and thrombosis of superficial veins of upper extremity.
Chronic venous embolism and thrombosis of deep veins of upper extremity.
Chronic venous embolism and thrombosis of upper extremity, unspecified.
Chronic venous embolism and thrombosis of axillary veins.
Chronic venous embolism and thrombosis of subclavian veins.
Chronic venous embolism and thrombosis of internal jugular veins.
Chronic venous embolism and thrombosis of other thoracic veins.
Chronic venous embolism and thrombosis of other specified veins.
Acute venous embolism and thrombosis of superficial veins of upper extremity.
Acute venous embolism and thrombosis of deep veins of upper extremity.
Acute venous embolism and thrombosis of upper extremity, unspecified.
Acute venous embolism and thrombosis of axillary veins.
Acute venous embolism and thrombosis of subclavian veins.
Acute venous embolism and thrombosis of internal jugular veins.
Acute venous embolism and thrombosis of other thoracic veins.
Acute venous embolism and thrombosis of other specified veins.
Pouchitis.
Other complications of intestinal pouch.
Puerperal endometritis, unspecified as to episode of care or not applicable.
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43795
SUMMARY OF ADDITIONS TO THE MS–DRG CC LIST—TABLE 6J.1—Continued
Code
670.12
670.14
670.20
670.30
768.70
768.71
768.72
813.46
813.47
Description
...........................
...........................
...........................
...........................
...........................
...........................
...........................
...........................
...........................
Puerperal endometritis, delivered, with mention of postpartum complication.
Puerperal endometritis, postpartum condition or complication.
Puerperal sepsis, unspecified as to episode of care or not applicable.
Puerperal septic thrombophlebitis, unspecified as to episode of care or not applicable.
Hypoxic-ischemic encephalopathy, unspecified.
Mild hypoxic-ischemic encephalopathy.
Moderate hypoxic-ischemic encephalopathy.
Torus fracture of ulna (alone).
Torus fracture of radius and ulna.
SUMMARY OF DELETIONS FROM THE MS–DRG CC LIST—TABLE 6J.2
Code
Description
453.8 .............................
Other venous embolism and thrombosis of other specified veins.
These summary lists are the same as
those lists included in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
(74 FR 24111 through 24112).
Comment: One commenter supported
the CC designations for new codes
813.46 (Torus fracture of ulna (alone))
and 813.47 (Torus fracture of radius and
ulna).
Response: We appreciate the
commenter’s support.
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 MS–
DRG Definitions Manual, Version 26.0,
is available for $250.00, which includes
shipping and handling. Version 26.0 of
the manual is also available on a CD for
$200.00; a combination hard copy and
CD is available for $400.00. Version 27.0
of this manual, which will include the
final FY 2010 MS–DRG changes, will be
available in CD only for $225.00. 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, or by
obtaining an order form at the Web site:
https://www.3MHIS.com. Please specify
the revision or revisions requested.
sroberts on DSKD5P82C1PROD with RULES
6. Review of Procedure Codes in MS
DRGs 981 Through 983; 984 Through
986; and 987 Through 989
Each year, we review cases assigned
to former CMS DRG 468 (Extensive O.R.
Procedure Unrelated to Principal
Diagnosis), CMS DRG 476 (Prostatic
O.R. Procedure Unrelated to Principal
Diagnosis), and CMS DRG 477
(Nonextensive O.R. Procedure Unrelated
to Principal Diagnosis) to determine
whether it would be appropriate to
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19:22 Aug 26, 2009
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change the procedures assigned among
these CMS DRGs. Under the MS–DRGs
that we adopted for FY 2008, CMS DRG
468 was split three ways and became
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
became 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
became MS–DRGs 987, 988, and 989
(Nonextensive O.R. Procedure Unrelated
to Principal Diagnosis with MCC, with
CC, and without CC/MCC).
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 DRGs are intended to
capture atypical cases, that is, those
cases not occurring with sufficient
frequency to represent a distinct,
recognizable clinical group. 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:
• 60.0, Incision of prostate
• 60.12, Open biopsy of prostate
• 60.15, Biopsy of periprostatic tissue
• 60.18, Other diagnostic procedures
on prostate and periprostatic tissue
• 60.21, Transurethral prostatectomy
• 60.29, Other transurethral
prostatectomy
• 60.61, Local excision of lesion of
prostate
• 60.69, Prostatectomy, not elsewhere
classified
• 60.81, Incision of periprostatic
tissue
• 60.82, Excision of periprostatic
tissue
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• 60.93, Repair of prostate
• 60.94, Control of (postoperative)
hemorrhage of prostate
• 60.95, Transurethral balloon
dilation of the prostatic urethra
• 60.96, Transurethral destruction of
prostate tissue by microwave
thermotherapy
• 60.97, Other transurethral
destruction of prostate tissue by other
thermotherapy
• 60.99, Other operations on prostate
All remaining O.R. procedures are
assigned to MS–DRGs 981 through 983
and 987 through 989, with MS–DRGs
987 through 989 assigned to those
discharges in which the only procedures
performed are nonextensive procedures
that are unrelated to the principal
diagnosis.3
3 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 placed 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. In FYs 2008 and 2009,
no procedures were moved, as noted in the FY 2008
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For FY 2010, we did not propose to
change the procedures assigned among
these MS–DRGs. We did not receive any
public comments on our proposal not to
change the procedures assigned among
the cited MS–DRGs and, therefore, are
adopting it as final for FY 2010 in this
final rule.
sroberts on DSKD5P82C1PROD with RULES
a. Moving Procedure Codes From MS–
DRGs 981 Through 983 or MS–DRGs
987 Through 989 to MDCs
We annually conduct a review of
procedures producing assignment to
MS–DRGs 981 through 983 (formerly
CMS DRG 468) or MS–DRGs 987
through 989 (formerly CMS DRG 477)
on the basis of volume, by procedure, to
see if it would be appropriate to move
procedure codes out of these MS–DRGs
into one of the surgical MS–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. For FY 2010,
we did not propose to remove any
procedures from MS–DRGs 981 through
983 or MS–DRGs 987 through 989. We
did not receive any public comments on
our proposal and, therefore, are
adopting it as final for FY 2010 in this
final rule.
b. Reassignment of Procedures Among
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
MS–DRGs 981 through 983, 984 through
986, and 987 through 989 (formerly,
CMS DRGs 468, 476, and 477,
respectively), to ascertain whether any
of those procedures should be
reassigned from one of these three MS–
DRGs to another of the three MS–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 MS–DRG assignment illogical.
If we find these shifts, we would
propose to move cases to keep the MS–
DRGs clinically similar or to provide
payment for the cases in a similar
final rule with comment period (72 FR 46241), and
in the FY 2009 final rule (73 FR 48513).
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19:22 Aug 26, 2009
Jkt 217001
manner. Generally, we move only those
procedures for which we have an
adequate number of discharges to
analyze the data.
For FY 2010, we did not propose to
move any procedure codes among these
MS–DRGs. We did not receive any
public comments on our proposal and,
therefore, are adopting it as final for FY
2010 in this final rule.
c. Adding Diagnosis or Procedure Codes
to MDCs
Based on our review this year, we did
not propose to add any diagnosis codes
to MDCs for FY 2010. We did not
receive any public comments on this
subject.
7. Changes to the ICD–9–CM Coding
System
As described in section II.B.1. of the
preamble of this final rule, 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 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 $19.00 by calling (202) 512–
1800.) Complete information on
ordering the CD–ROM is also available
at: https://www.cms.hhs.gov/
ICD9ProviderDiagnosticCodes/
05_CDROM.asp#TopOfPage. 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
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Fmt 4701
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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 2010 at a public meeting held on
September 24–25, 2008 and finalized
the coding changes after consideration
of comments received at the meetings
and in writing by December 5, 2008.
Those coding changes are announced in
Tables 6A through 6F in the Addendum
to this final rule. The Committee held
its 2009 meeting on March 11–12, 2009.
New codes for which there was a
consensus of public support and for
which complete tabular and indexing
changes are made by May 2009 will be
included in the October 1, 2009 update
to ICD–9–CM. Code revisions that were
discussed at the March 11–12, 2009
Committee meeting but that could not
be finalized in time to include them in
the Addendum to the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule are
included in Tables 6A through 6F of
this final rule and are marked with an
asterisk (*).
Copies of the minutes of the
procedure codes discussions at the
Committee’s September 24–25, 2008
meeting and March 11–12, 2009 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 24–25, 2008 meeting and
March 11–12, 2009 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
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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, 2009. The new ICD–
9–CM codes are listed, along with their
MS–DRG classifications, in Tables 6A
and 6B (New Diagnosis Codes and New
Procedure Codes, respectively) in the
Addendum to this final 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 the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24114), we
solicited comments on the proposed
classification of these new codes. We
did not receive any public comments on
the proposed MS–DRG assignments for
the new diagnosis and procedure codes.
Therefore, in this final rule, we are
adopting as final without modification
the MS–DRG classifications for the new
codes for FY 2010 that were included in
the proposed rule and the new codes
that were discussed at the spring but
were not finalized in time to be
included in the proposed rule.
For codes that have been replaced by
new or expanded codes, the
corresponding new or expanded
diagnosis codes are included in Table
6A in the Addendum to this final rule.
New procedure codes are shown in
Table 6B in the Addendum to this final
rule. Diagnosis codes that have been
replaced by expanded codes or other
codes or have been deleted are in Table
6C (Invalid Diagnosis Codes) in the
Addendum to this final rule. These
invalid diagnosis codes will not be
recognized by the GROUPER beginning
with discharges occurring on or after
October 1, 2009. Table 6D in the
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19:22 Aug 26, 2009
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Addendum to this final rule contains
invalid procedure codes. These invalid
procedure codes will not be recognized
by the GROUPER beginning with
discharges occurring on or after October
1, 2009. Revisions to diagnosis code
titles are in Table 6E (Revised Diagnosis
Code Titles) in the Addendum to this
final rule, which also includes the MS–
DRG assignments for these revised
codes. Table 6F in the Addendum to
this final rule includes revised
procedure code titles for FY 2010.
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 11–12, 2009
Committee meeting that receive
consensus and that were finalized by
May 2009 are included in Tables 6A
through 6F in the Addendum to this
final rule.
Section 503(a) of Public Law 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
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
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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 published on the
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)
of Public Law 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
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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 approved for an expedited
April 1, 2009 implementation of an
ICD–9–CM code at the September 24–
25, 2008 Committee meeting. Therefore,
there were no new ICD–9–CM codes
implemented on April 1, 2009.
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 Medicare
contractors for 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. 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
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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.
Comment: A number of commenters
addressed concerns regarding the
implementation of ICD–10 and the
processing more than nine diagnosis
and six procedure codes in anticipation
of the implementation of ICD–10.
Several commenters recommended that
CMS begin processing all reported
diagnosis and procedure codes on
claims, even before the planned
implementation of ICD–10–CM and
ICD–10–PCS on October 1, 2013. Other
commenters recommended that CMS be
transparent during all steps of ICD–10
implementation and make provisions
for stakeholder comments and input
during the transition. One commenter
recommended that the final ICD–10
version of MS–DRGs be adopted using
notice and comment rulemaking.
Response: We did not address the
planned implementation of ICD–10 in
the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule and, therefore, consider
these comments beyond the scope of the
proposed rule. Therefore, we will not
address them in this final rule. We refer
readers to the separate CMS final rule
published in the Federal Register that
announced the implementation of
modifications to medical data code set
standards to adopt ICD–10–CM and
ICD–10–PCS (74 FR 3328 through 3362).
CMS is currently undergoing extensive
efforts to update its Medicare payment
systems as part of the move to ICD–10.
Part of these system efforts will involve
the expansion of our ability to process
more diagnosis and procedure codes.
Information on ICD–10 can be found on
the CMS Web site at: https://
www.cms.hhs.gov/ICD10. The final
ICD–10 version of MS–DRGs will be
adopted under the formal rulemaking
process as part of our annual IPPS
updates.
8. Other Issues Not Addressed in the
Proposed Rule
We received a number of public
comments on issues that were not the
subject of proposals in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule.
a. Administration of Tissue
Plasminogen Activator (tPA) (rtPA)
We received a public comment
requesting that CMS conduct an
analysis of diagnosis code V45.88
(Status post administration of tPA (rtPA)
in a different facility within the last 24
hours prior to admission to current
facility) under MDC 1 (Diseases and
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Disorders of the Nervous System). This
code was created for use beginning
October 1, 2008, and the commenter
believes that the use of this code during
FY 2009 and FY 2010 could potentially
result in a new MS–DRG or set of MS–
DRGs in FY 2011. The commenter
believed that an expedited analysis
would help show if the code is being
used.
This comment is outside the scope of
the proposed rule, as we did not
propose any MS–DRG changes based on
data analysis of cases including
diagnosis code V45.88. Therefore, we
will not undertake an evaluation of code
V45.88 at this time for FY 2010. As we
stated in FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24091), we
encourage individuals with comments
about MS–DRG classifications to submit
these comments no later than early
December of each year 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.
b. Coronary Artery Bypass Graft (CABG)
With Intraoperative Angiography
We received a number of comments
that recommended creating new MS–
DRGs to separately identify the use of
intraoperative angiography, by any
method, in CABG surgery under MDC 5
(Diseases and Disorders of the
Circulatory System). Intraoperative
angiography is used to assess bypass
graft patency. The commenters
acknowledged that imaging in the
operating room is a fairly new concept.
However, the commenters stated that
there is a movement to encourage
greater use of this technology in
conjunction with CABG procedures to
identify and correct any technical issues
with the graft(s) at the time of surgery.
According to the commenters,
intraoperative angiography would
reduce graft failure complications and
hospital readmissions while improving
patient care outcomes.
The commenters expressed concern
that the costs related to intraoperative
angiography are not fully realized in the
current structure of the MS–DRGs. One
commenter suggested creating four new
MS–DRGs to identify the use of
intraoperative angiography when
performed with CABG surgery. The
commenter stated that in the current
MS–DRG scheme, there is not a
mechanism to determine when
intraoperative angiography is
performed. Angiography is commonly
performed as a separate procedure in a
catheterization laboratory and the ICD–
9–CM procedure codes do not
distinguish between preoperative,
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intraoperative, and postoperative
angiography. Procedure code 88.59
(Intraoperative fluorescence vascular
angiography (IFVA)), is one
intraoperative angiography technique
that allows visualization of the coronary
vasculature. The commenter proposed
four new MS–DRGs in addition to the
existing MS–DRGs for CABG in an
attempt to differentiate the utilization of
resources between intraoperative
angiography and IFVA when utilized
with CABG.
Another commenter suggested that
CMS should consider completely
separating CABG procedures from
cardiac catheterization. This commenter
indicated that the concept is ‘‘worthy of
serious consideration because of its
relationship to much larger issues in
management of coronary artery
disease.’’ Other commenters
recommended that CMS assign IFVA
cases to the ‘‘Other Cardiovascular MS–
DRGs,’’ MS–DRGs 228, 229, and 230.
We believe the requests to create new
MS–DRGs in FY 2010 for CABG cases
with intraoperative angiography and
IFVA are outside the scope of the issues
addressed in the proposed rule. The
recommendation to move IFVA cases to
Other Cardiovascular MS–DRGs 228,
229, and 230 is also out of scope issues
addressed in the proposed rule.
Therefore, we are not providing
responses to these public comments in
this final rule. We will consider the
requests for new MS–DRGs regarding
this topic during the FY 2011
rulemaking process.
c. Insertion of Gastrointestinal Stent
We received a public comment
requesting that CMS analyze the need to
create new MS–DRGs in FY 2011 to
better capture patients who undergo the
insertion of a gastrointestinal stent
under MDC 6 (Diseases and Disorders of
the Digestive System). The stents are
inserted in the esophagus, duodenum,
biliary tract, or the colon in order to
reestablish or maintain patency of these
vessels to allow swallowing, drainage,
or passage of waste. The commenter
requested that the new MS–DRGs be
subdivided into three severity levels
(with MCC, with CC, and without CC/
MCC). The commenter stated it had data
that showed cases with gastrointestinal
stent insertions have higher costs than
other cases within the same MS–DRGs.
The commenter also stated that there are
a small number of these cases, and
acknowledged that there may be some
concern about the need to establish new
DRGs for such a small number of cases.
This comment relating to a request to
create new MS–DRGs in FY 2011 for
cases with gastrointestinal stents is
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outside the scope of the FY 2010
proposed rule. We will consider this
request alone with other timely received
requests for updates to the FY 2011 MS–
DRGs during the FY 2011 rulemaking
process. As we stated above, we
encourage individuals with comments
about MS–DRG classifications to submit
these comments no later than early
December of each year 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.
H. Recalibration of MS–DRG Weights
In section II.E. of the preamble of this
final rule, we state that we fully
implemented the cost-based DRG
relative weights for FY 2009, which was
the third year in the 3-year transition
period to calculate the relative weights
at 100 percent based on costs. In the FY
2008 IPPS final rule with comment
period (72 FR 47267), as recommended
by RTI, for FY 2008, we added two new
CCRs for a total of 15 CCRs: one for
‘‘Emergency Room’’ and one for ‘‘Blood
and Blood Products,’’ both of which can
be derived directly from the Medicare
cost report.
As we proposed, in developing the FY
2010 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 2008
MedPAR data used in this final rule
include discharges occurring on October
1, 2007, through September 30, 2008,
based on bills received by CMS through
March 31, 2009, 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
2008 MedPAR file used in calculating
the relative weights includes data for
approximately 11,283,982 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-based
relative weighting methodology is the
FY 2007 Medicare cost report data files
from HCRIS (that is, cost reports
beginning on or after October 1, 2006,
and before October 1, 2007), which
represents the most recent full set of
cost report data available. We used the
March 31, 2009 update of the HCRIS
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cost report files for FY 2007 in setting
the relative cost-based weights.
The methodology we used to calculate
the DRG cost-based relative weights
from the FY 2008 MedPAR claims data
and FY 2007 Medicare cost report data
is as follows:
• To the extent possible, all the
claims were regrouped using the FY
2010 MS–DRG classifications discussed
in sections II.B. and G. of the preamble
of this final rule.
• The transplant cases that were used
to establish the relative weights for heart
and heart-lung, liver and/or intestinal,
and lung transplants (MS–DRGs 001,
002, 005, 006, and 007, respectively)
were limited to those Medicareapproved transplant centers that have
cases in the FY 2008 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.)
• 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 MS–DRG and before
eliminating statistical outliers.
• Claims with total charges or total
lengths 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
room charges, cardiology charges,
laboratory charges, radiology charges,
other service charges, labor and delivery
charges, inhalation therapy charges,
emergency room charges, blood charges,
and anesthesia charges were also
deleted.
• At least 95.9 percent of the
providers in the MedPAR file had
charges for 10 of the 15 cost centers.
Claims for providers that did not have
charges greater than zero for at least 10
of the 15 cost centers were deleted.
• 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 MS–DRG.
• Effective October 1, 2008, because
hospital inpatient claims include a POA
indicator field for each diagnosis
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present on the claim, the POA indicator
field was reset to ‘‘Y’’ for ‘‘Yes’’ just for
relative weight-setting purposes for all
claims that otherwise have an ‘‘N’’ (No)
or a ‘‘U’’ (documentation insufficient to
determine if the condition was present
at the time of inpatient admission) in
the POA field.
Under current payment policy, the
presence of specific HAC codes, as
indicated by the POA field values, can
generate a lower payment for the claim.
Specifically, if the particular condition
is present on admission (that is, a ‘‘Y’’
indicator is associated with the
diagnosis on the claim), then it is not a
‘‘HAC,’’ and the hospital is paid with
the higher severity (and, therefore, the
higher weighted MS–DRG). If the
particular condition is not present on
admission (that is, an ‘‘N’’ indicator is
associated with the diagnosis on the
claim) and there are no other
complicating conditions, the DRG
GROUPER assigns the claim to a lower
severity (and, therefore, the lower
weighted MS–DRG) as a penalty for
allowing a Medicare inpatient to
contract a ‘‘HAC.’’ While this meets
policy goals of encouraging quality care
and generates program savings, it
presents an issue for the relative weightsetting process. Because cases identified
as HACs are likely to be more complex
than similar cases that are not identified
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as HACs, the charges associated with
HACs are likely to be higher as well.
Thus, if the higher charges of these HAC
claims are grouped into lower severity
MS–DRGs prior to the relative weightsetting process, the relative weights of
these particular MS–DRGs would
become artificially inflated, potentially
skewing the relative weights. In
addition, we want to protect the
integrity of the budget neutrality process
by ensuring that, in estimating
payments, no increase to the
standardized amount occurs as a result
of lower overall payments in a previous
year that stem from using weights and
case-mix that are based on lower
severity MS–DRG assignments. If this
would occur, the anticipated cost
savings from the HAC policy would be
lost.
To avoid these problems, in the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule (74 FR 24116), we proposed to reset
the POA indicator field to ‘‘Y’’ just for
relative weight-setting purposes for all
claims that otherwise have an ‘‘N’’ or a
‘‘U’’ in the POA field. This ‘‘forces’’ the
more costly HAC claims into the higher
severity MS–DRGs as appropriate, and
the relative weights calculated for each
MS–DRG more closely reflect the true
costs of those cases.
We did not receive any public
comments on our proposal to reset the
POA indicator field to ‘‘Y’’ for relative
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weight-setting purposes for all claims
that otherwise have an ‘‘N’’ or a ‘‘U’’ in
the POA field. We are finalizing this
proposal for FY 2010 accordingly.
Once the MedPAR data were trimmed
and the statistical outliers were
removed, the charges for each of the 15
cost groups for each claim were
standardized to remove the effects of
differences in area wage levels, IME and
DSH payments, and for hospitals in
Alaska and Hawaii, the applicable costof-living adjustment. Because hospital
charges include charges for both
operating and capital costs, we
standardized total charges to remove the
effects of differences in geographic
adjustment factors, cost-of-living
adjustments, and DSH payments under
the capital IPPS as well. Charges were
then summed by MS–DRG for each of
the 15 cost groups so that each MS–DRG
had 15 standardized charge totals. These
charges were then adjusted to cost by
applying the national average CCRs
developed from the FY 2007 cost report
data.
The 15 cost centers that we used in
the relative weight calculation are
shown in the following table. The table
shows the lines on the cost report and
the corresponding revenue codes that
we used to create the 15 national cost
center CCRs.
BILLING CODE 4120–01–P
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We developed the national average
CCRs as follows:
Taking the FY 2007 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
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
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
the Medicare charges for each line item
from Worksheet D–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–4. Once
each hospital’s Medicare-specific 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 MS–DRG in each of the 15 cost
centers by the corresponding national
average CCR, we summed the 15 ‘‘costs’’
across each MS–DRG to produce a total
standardized cost for the MS–DRG. The
average standardized cost for each MS–
DRG was then computed as the total
standardized cost for the MS–DRG
divided by the transfer-adjusted case
count for the MS–DRG. The average cost
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for each MS–DRG was then divided by
the national average standardized cost
per case to determine the relative
weight.
The new cost-based relative weights
were then normalized by an adjustment
factor of 1.54381 so that the average case
weight after recalibration was equal to
the average case weight before
recalibration. 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 15 national average CCRs for FY
2010 are as follows:
weights computed using the Version
26.0 (FY 2009) MS–DRGs.
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. In the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24123), we proposed to use that
same case threshold in recalibrating the
MS–DRG weights for FY 2010. Using the
FY 2008 MedPAR data set, there are 8
MS–DRGs that contain fewer than 10
cases. Under the 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 some DRGs
Group
CCR
based on whether the patient was age 0
Routine Days ....................................
0.553 to 17 years or age 17 years and older.
Intensive Days ..................................
0.480 Other than the age split, cases grouping
Drugs ................................................
0.200 to these DRGs are identical. The DRGs
Supplies & Equipment ......................
0.348 for patients age 0 to 17 years generally
Therapy Services ..............................
0.415 have very low volumes because children
Laboratory .........................................
0.163 are typically ineligible for Medicare. In
Operating Room ...............................
0.282
the past, we have found that the low
Cardiology .........................................
0.181
Radiology ..........................................
0.161 volume of cases for the pediatric DRGs
Emergency Room .............................
0.278 could lead to significant year-to-year
Blood and Blood Products ................
0.424 instability in their relative weights.
Other Services ..................................
0.426 Although we have always encouraged
Labor & Delivery ...............................
0.462 non-Medicare payers to develop weights
Inhalation Therapy ............................
0.201 applicable to their own patient
Anesthesia ........................................
0.136 populations, we have heard frequent
complaints from providers about the use
As we explained in section II.E. of the of the Medicare relative weights in the
preamble of this final rule, we have
pediatric population. We believe that
completed our 2-year transition to the
eliminating this age split in the MS–
MS–DRGs. For FY 2008, the first year of DRGs will provide more stable payment
the transition, 50 percent of the relative
for pediatric cases by determining their
weight for an MS–DRG was based on the payment using adult cases that are
two-thirds cost-based weight/one-third
much higher in total volume. Newborns
charge-based weight calculated using
are unique and require separate MS–
FY 2006 MedPAR data grouped to the
DRGs that are not mirrored in the adult
Version 24.0 (FY 2007) DRGs. The
population. Therefore, it remains
remaining 50 percent of the FY 2008
necessary to retain separate MS–DRGs
relative weight for an MS–DRG was
for newborns. All of the low-volume
based on the two-thirds cost-based
MS–DRGs listed below are for
weight/one-third charge-based weight
newborns. In FY 2010, because we do
calculated using FY 2006 MedPAR
not have sufficient MedPAR data to set
grouped to the Version 25.0 (FY 2008)
accurate and stable cost weights for
MS–DRGs. In FY 2009, the relative
these low-volume MS–DRGs, we
weights were based on 100 percent cost
proposed to compute weights for the
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low-volume MS–DRGs by adjusting
their FY 2009 weights by the percentage
change in the average weight of the
cases in other MS–DRGs. The crosswalk
table is shown below:
Low-volume
MS–DRG
MS–DRG title
768 ...............
Vaginal Delivery with O.R. Procedure Except Sterilization and/
or D&C.
Neonates, Died or Transferred to Another Acute Care Facility ..
789 ...............
791 ...............
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 ...............
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790 ...............
Crosswalk to MS–DRG
Normal Newborn .........................................................................
Comment: Some commenters
questioned whether Medicare
Advantage claims were used to calculate
the MS–DRG relative weights for FY
2010 in the proposed rule. The
commenters noted that CMS’ policy has
been to exclude Medicare Advantage
claims from the relative weights
calculation, but believed that CMS may
have inadvertently included those
claims in the calculation in the
proposed rule. The commenters
believed that if the Medicare Advantage
claims were included, the amount paid
under the IPPS will be overstated. The
commenters recommended that CMS
ensure that Medicare Advantage claims
are excluded from the relative weights
calculation. However, the commenters
requested that CMS continue to include
the Medicare Advantage claims in the
MedPAR dataset for analysis purposes.
Response: Historically, we have
excluded data from Medicare Advantage
claims from the calculation of the
relative weights. As has been stated in
the preamble of previous IPPS rules
and, most recently, in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24115), ‘‘Discharges for Medicare
beneficiaries enrolled in a Medicare
Advantage managed care plan are
excluded from this analysis.’’ Consistent
with this language, in the FY 2010
proposed rule, we intended to exclude
Medicare Advantage claims from the
calculation of the relative weights for
FY 2010 as well. However, the
December 2008 update of the FY 2008
MedPAR data that was used as the
source for calculating the relative
weights contained a significant number
of Medicare Advantage claims. This
inclusion is a result of hospitals being
required to submit informational only
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FY 2009 FR weight (adjusted by percent
weight of the cases in other MS–DRGs).
FY 2009 FR weight (adjusted by percent
weight of the cases in other MS–DRGs).
FY 2009 FR weight (adjusted by percent
weight of the cases in other MS–DRGs).
FY 2009 FR weight (adjusted by percent
weight of the cases in other MS–DRGs).
FY 2009 FR weight (adjusted by percent
weight of the cases in other MS–DRGs).
FY 2009 FR weight (adjusted by percent
weight of the cases in other MS–DRGs).
FY 2009 FR weight (adjusted by percent
weight of the cases in other MS–DRGs).
FY 2009 FR weight (adjusted by percent
weight of the cases in other MS–DRGs).
claims for all Medicare Advantage
patients they treated for discharges
occurring on or after October 1, 2006,
under Change Request 5647, Transmittal
1311. As a result, we inadvertently
included claims from discharges of
patients enrolled in Medicare
Advantage plans in the calculation of
the proposed FY 2010 relative weights.
We have corrected this oversight in the
calculation of the final FY 2010 relative
weights and, therefore, no Medicare
Advantage claims data are included in
the calculations in this final rule.
Specifically, we added an edit to the
relative weight calculation to remove
any claims that have a GHO_Paid
indicator value of ‘‘1,’’ which effectively
removes Medicare Advantage claims
from the relative weights calculations.
We are continuing to include Medicare
Advantage claims in the Expanded
Modified MedPAR file that is available
to researchers for purchase under a data
use agreement with CMS.
We did not receive any public
comments on this section. Therefore, we
are adopting the national average CCRs
as proposed, with the MS–DRG weights
recalibrated based on these CCRs.
I. Add-On Payments for New Services
and Technologies
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
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change in average
change in average
change in average
change in average
change in average
change in average
change in average
change in average
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.’’ We note that
beginning with FY 2008, CMS
transitioned from CMS–DRGs to MS–
DRGs.
The regulations implementing these
provisions specify three criteria for a
new medical service or technology to
receive an additional payment: (1) The
medical service or technology must be
new; (2) the medical service or
technology must be costly such that the
DRG rate otherwise applicable to
discharges involving the medical service
or technology is determined to be
inadequate; and (3) the service or
technology must demonstrate a
substantial clinical improvement over
existing services or technologies. These
three criteria are explained below in the
ensuing paragraphs in further detail.
Under the first criterion, as reflected
in 42 CFR 412.87(b)(2), a specific
medical service or technology will be
considered ‘‘new’’ for purposes of new
medical service or technology add-on
payments until such time as Medicare
data are available to fully reflect the cost
of the technology in the MS–DRG
weights through recalibration.
Typically, there is a lag of 2 to 3 years
from the point a new medical service or
technology is first introduced on the
market (generally on the date that the
technology receives FDA approval/
clearance) and when data reflecting the
use of the medical service or technology
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are used to calculate the MS–DRG
weights. For example, data from
discharges occurring during FY 2008 are
used to calculate the FY 2010 MS–DRG
weights in this final rule. Section
412.87(b)(2) of the regulations therefore
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 on the date on which the medical
service or technology received FDA
approval or clearance. (We note that, for
purposes of this section of the final rule,
we generally refer to both FDA approval
and FDA clearance as FDA ‘‘approval.’’)
However, in some cases, initially there
may be no Medicare data available for
the new service or technology following
FDA approval. For example, the
newness period could extend beyond
the 2-year to 3-year period after FDA
approval is received in cases where the
product initially was generally
unavailable to Medicare patients
following FDA approval, such as in
cases of a national noncoverage
determination or a documented delay in
bringing the product onto the market
after that approval (for instance,
component production or drug
production has been postponed
following FDA approval due to shelf life
concerns or manufacturing issues). After
the MS–DRGs have been recalibrated to
reflect the costs of an otherwise new
medical service or technology, the
medical service or technology is no
longer eligible for special add-on
payment for new medical services or
technologies (as specified under
§ 412.87(b)(2)). For example, an
approved new technology that received
FDA approval in October 2008 and
entered the market at that time may be
eligible to receive add-on payments as a
new technology for discharges occurring
before October 1, 2011 (the start of FY
2012). Because the FY 2012 MS–DRG
weights would be calculated using FY
2010 MedPAR data, the costs of such a
new technology would be fully reflected
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in the FY 2012 MS–DRG weights.
Therefore, the new technology would no
longer be eligible to receive add-on
payments as a new technology for
discharges occurring in FY 2012 and
thereafter.
Under the second criterion,
§ 412.87(b)(3) further provides that, to
be eligible for the add-on payment for
new medical services or technologies,
the MS–DRG prospective payment rate
otherwise applicable to the discharge
involving the new medical services or
technologies must be assessed for
adequacy. Under the cost criterion, to
assess the adequacy of payment for a
new technology paid under the
applicable MS–DRG prospective
payment rate, we evaluate whether the
charges for cases involving the new
technology exceed certain threshold
amounts. 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
MS–DRG plus 75 percent of 1 standard
deviation above the geometric mean
standardized charge (based on the
logarithmic values of the charges and
converted back to charges) for all cases
in the MS–DRG to which the new
medical service or technology is
assigned (or the case-weighted average
of all relevant MS–DRGs, if the new
medical service or technology occurs in
more than one MS–DRG).
However, section 503(b)(1) of Public
Law 108–173 amended section
1886(d)(5)(K)(ii)(I) of the Act to provide
that, beginning in FY 2005, CMS will
apply ‘‘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 one standard deviation for
the diagnosis-related group involved.’’
(We refer readers 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
that was included in the notice
published in the Federal Register on
October 3, 2008, contains the final
thresholds that are being used to
evaluate applications for new
technology add-on payments for FY
2010 (73 FR 57888).
We note that section 124 of Public
Law 110–275 extended, through FY
2009, wage index reclassifications under
section 508 of Public Law 108–173 (the
MMA) and special exceptions contained
in the final rule promulgated in the
Federal Register on August 11, 2004 (69
FR 49105 and 49107) and extended
under section 117 of Public Law 110–
173 (the MMSEA). The wage data affect
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43809
the standardized amounts (as well as the
outlier offset and budget neutrality
factors that are applied to the
standardized amounts), which we use to
compute the cost criterion thresholds.
Therefore, the thresholds reflected in
Table 10 in the Addendum to the FY
2009 IPPS final rule were tentative. As
noted earlier, on October 3, 2008, we
published a Federal Register notice (73
FR 57888) that contained a new Table
10 with revised thresholds that reflect
the wage index rates for FY 2009 as a
result of implementation of section 124
of Public Law 110–275. The revised
thresholds also were published on the
CMS Web site. The revised thresholds
published in Table 10 in the October 3,
2008 Federal Register notice were used
to determine if an applicant for new
technology add-on payments discussed
in this FY 2010 final rule met the cost
criterion threshold for new technology
add-on payments for FY 2010.
In the September 7, 2001 final rule
that established the new technology
add-on payment regulations (66 FR
46917), we discussed 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. Specifically, 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 requirements by
discussing how the HIPAA Privacy Rule
permitted providers to share with health
plans information needed to ensure
correct payment, if they had 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 for 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 protected health
information for treatment, payment, or
health care operations, and expressly
permits such entities to use or to
disclose protected health information
for any of these purposes. (We refer
readers to 45 CFR 164.502(a)(1)(ii), and
164.506(c)(1) and (c)(3), and the
Standards for Privacy of Individually
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Identifiable Health Information
published in the Federal Register on
August 14, 2002, for a full discussion of
changes in consent requirements.)
Under the third criterion,
§ 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. (We
refer readers to the September 7, 2001
final rule for a complete discussion of
this criterion (66 FR 46902).)
The new medical service or
technology add-on payment policy
under the IPPS provides additional
payments for cases with relatively high
costs involving eligible new medical
services or technologies while
preserving some of the incentives
inherent under an average-based
prospective payment system. The
payment mechanism is based on the
cost to hospitals for the new medical
service or technology. Under § 412.88, if
the costs of the discharge (determined
by applying cost to charge ratios
(‘‘CCRs’’) as described in § 412.84(h))
exceed the full DRG payment (including
payments for IME and DSH, but
excluding outlier payments), Medicare
will make an add-on payment equal to
the lesser of: (1) 50 percent of the
estimated costs of the new technology
(if the estimated costs for the case
including the new technology exceed
Medicare’s payment); or (2) 50 percent
of the difference between the full DRG
payment and the hospital’s estimated
cost for the case. Unless the discharge
qualifies for an outlier payment,
Medicare payment is limited to the full
MS–DRG payment plus 50 percent of
the estimated costs of the new
technology.
Section 1886(d)(4)(C)(iii) of the Act
requires that the adjustments to annual
MS–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, while at the
same time estimating the payment effect
of changes to the MS–DRG
classifications and recalibration. The
impact of additional payments under
this provision was then included in the
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budget neutrality factor, which was
applied to the standardized amounts
and the hospital-specific amounts.
However, section 503(d)(2) of Public
Law 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,
following section 503(d)(2) of Public
Law 108–173, add-on payments for new
medical services or technologies for FY
2005 and later years have not been
subjected to budget neutrality.
In the FY 2009 IPPS final rule (73 FR
48561 through 48563), we modified our
regulations at § 412.87 to codify our
current practice of how CMS evaluates
the eligibility criteria for new medical
service or technology add-on payment
applications. We also amended
§ 412.87(c) to specify that all applicants
for new technology add-on payments
must have FDA approval for their new
medical service or technology by July 1
of each year prior to the beginning of the
fiscal year that the application is being
considered.
Applicants for add-on payments for
new medical services or technologies for
FY 2011 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 that the medical service or
technology meets the high-cost
threshold. Complete application
information, along with final deadlines
for submitting a full application, will be
posted as it becomes available on our
Web site 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 2011, the Web
site also will list the tracking forms
completed by each applicant.
The Council on Technology and
Innovation (CTI) at CMS oversees the
agency’s cross-cutting priority on
coordinating coverage, coding and
payment processes for Medicare with
respect to new technologies and
procedures, including new drug
therapies, as well as promoting the
exchange of information on new
technologies between CMS and other
entities. The CTI, composed of senior
CMS staff and clinicians, was
established under section 942(a) of
Public Law 108–173. The Council is cochaired by the Director of the Office of
Clinical Standards and Quality (OCSQ)
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and the Director of the Center for
Medicare Management (CMM), who is
also designated as the CTI’s Executive
Coordinator.
The specific processes for coverage,
coding, and payment are implemented
by CMM, OCSQ, and the local claimspayment contractors (in the case of local
coverage and payment decisions). The
CTI supplements, rather than replaces,
these processes by working to assure
that all of these activities reflect the
agency-wide priority to promote highquality, innovative care. At the same
time, the CTI also works to streamline,
accelerate, and improve coordination of
these processes to ensure that they
remain up to date as new issues arise.
To achieve its goals, the CTI works to
streamline and create a more
transparent coding and payment
process, improve the quality of medical
decisions, and speed patient access to
effective new treatments. It is also
dedicated to supporting better decisions
by patients and doctors in using
Medicare-covered services through the
promotion of better evidence
development, which is critical for
improving the quality of care for
Medicare beneficiaries.
CMS plans to continue its Open Door
forums with stakeholders who are
interested in CTI’s initiatives. In
addition, to improve the understanding
of CMS’ processes for coverage, coding,
and payment and how to access them,
the CTI has developed an ‘‘innovator’s
guide’’ to these processes. The intent is
to consolidate this information, much of
which is already available in a variety
of CMS documents and in various
places on the CMS Web site, in a userfriendly format. This guide was
published in August 2008 and is
available on the CMS Web site at:
https://www.cms.hhs.gov/CouncilonTech
Innov/Downloads/InnovatorsGuide8_
25_08.pdf.
As we indicated in the FY 2009 IPPS
final rule (73 FR 48554), we invite any
product developers or manufacturers of
new medical technologies to contact the
agency early in the process of product
development if they have questions or
concerns about the evidence that would
be needed later in the development
process for the agency’s coverage
decisions for Medicare.
The CTI aims to provide useful
information on its activities and
initiatives to stakeholders, including
Medicare beneficiaries, advocates,
medical product manufacturers,
providers, and health policy experts.
Stakeholders with further questions
about Medicare’s coverage, coding, and
payment processes, or who want further
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guidance about how they can navigate
these processes, can contact the CTI at
CTI@cms.hhs.gov or from the ‘‘Contact
Us’’ section of the CTI home page
(https://www.cms.hhs.gov/
CouncilonTechInnov/).
Comment: One commenter
recommended that CMS deem a device
to be a substantial clinical improvement
‘‘* * * if it has been granted a
humanitarian device exemption or
priority review based on the fact that it
represents breakthrough technologies,
that offer significant advantages over
existing approved alternatives, for
which no alternatives exist, or the
availability of which is in the best
interests of the patients.’’
Response: As stated in the FY 2008
IPPS final rule (72 FR 47302), the FDA
provides a number of different types of
approvals to devices, drugs and other
medical products. At this time, we do
not believe that any particular type of
FDA approval alone would
automatically demonstrate a substantial
clinical improvement for the Medicare
population. However, as noted in
previous final rules, we do take FDA
approval into consideration in our
evaluation of new technology
applications. We note that a
Humanitarian Device Exemption (HDE)
approval only requires that ‘‘the
probable benefit outweighs the risk of
injury or illness’’ as opposed to the
safety and effectiveness standard that
exists for pre-market approval (PMA).
Among other requirements, the labeling
of a humanitarian use device must state
that the effectiveness of the device for
the specific indication has not been
demonstrated. While an HDE approval
certainly does not preclude us from
considering a technology for an add-on
payment, neither does it suggest that the
product automatically meets the
requirement to be judged a substantial
clinical improvement. Under the
substantial clinical improvement
criterion, we will continue to evaluate a
technology with an HDE approval by
measuring it against the specific criteria
we listed for determining substantial
clinical improvement at 66 FR 46914.
Comment: A number of commenters
addressed topics relating to the marginal
cost factor for the new technology addon payment, the potential
implementation of ICD–10–CM, the use
of external data in determining the cost
threshold, paying new technology addon payments for two to three years,
mapping new technologies to the
appropriate MS–DRG and the use of the
date that a ICD–9–CM code is assigned
to a technology or the FDA approval
date (whichever is later) as the start of
the newness period.
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Response: We did not request public
comments nor propose to make any
changes to any of the issues summarized
above. Because these comments are
outside of the scope of the provisions
included in the proposed rule, we are
not providing a complete summary of
the comments or responding to them in
this final rule.
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
Public Law 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—
• 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;
• Make public and periodically
update a list of the services and
technologies for which applications for
add-on payments are pending;
• Accept comments,
recommendations, and data from the
public regarding whether a service or
technology represents a substantial
clinical improvement; and
• 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 2010 prior to
publication of the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule, we
published a notice in the Federal
Register on November 28, 2008 (73 FR
72490), and held a town hall meeting at
the CMS Headquarters Office in
Baltimore, MD, on February 17, 2009. 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
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of the FY 2010 new medical service and
technology add-on payment
applications before the publication of
the FY 2010 IPPS proposed rule.
Approximately 90 individuals
registered to attend the town hall
meeting in person, while additional
individuals listened over an open
telephone line. Each of the five FY 2010
applicants presented information on its
technology, including a discussion of
data reflecting the substantial clinical
improvement aspect of the technology.
We considered each applicant’s
presentation made at the town hall
meeting, as well as written comments
submitted on each applicant’s
application, in our evaluation of the
new technology add-on applications for
FY 2010 in the FY 2010 proposed rule
and in this final rule.
In response to the published notice
and the new technology town hall
meeting, we received two written
comments regarding applications for FY
2010 new technology add-on payments.
We summarized these comments or, if
applicable, indicated that there were no
comments received, at the end of each
discussion of the individual
applications in the FY 2010 IPPS/RY
LTCH PPS proposed rule. We did not
receive any general comments about the
application of the substantial clinical
improvement criterion.
A further discussion of our evaluation
of the applications and the
documentation for new technology addon payments submitted for FY 2010
approval is provided under the
specified areas under this section.
3. FY 2010 Status of Technologies
Approved for FY 2009 Add-On
Payments
We approved one application for new
technology add-on payments for FY
2009: CardioWestTM Temporary Total
Artificial Heart System (CardioWestTM
TAH–t).
SynCardia Systems, Inc. submitted an
application for approval of the
CardioWestTM temporary Total
Artificial Heart system (TAH–t). The
TAH–t is a technology that is used as a
bridge to heart transplant device for
heart transplant-eligible patients with
end-stage biventricular failure. The
TAH–t pumps up to 9.5 liters of blood
per minute. This high level of perfusion
helps improve hemodynamic function
in patients, thus making them better
heart transplant candidates.
The TAH–t was approved by the FDA
on October 15, 2004, for use as a bridge
to transplant device in cardiac
transplant-eligible candidates at risk of
imminent death from biventricular
failure. The TAH–t is intended to be
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used in hospital inpatients. One of the
FDA’s post-approval requirements is
that the manufacturer agrees to provide
a post-approval study demonstrating
success of the device at one center can
be reproduced at other centers. The
study was to include at least 50 patients
who would be followed up to 1 year,
including (but not limited to) the
following endpoints: survival to
transplant; adverse events; and device
malfunction.
In the past, Medicare did not cover
artificial heart devices, including the
TAH–t. However, on May 1, 2008, CMS
issued a final national coverage
determination (NCD) expanding
Medicare coverage of artificial hearts
when they are implanted as part of a
study that is approved by the FDA and
is determined by CMS to meet CMS’
Coverage with Evidence Development
(CED) clinical research criteria. (The
final NCD is available on the CMS Web
site at: https://www.cms.hhs.gov/mcd/
viewdecisionmemo.asp?id=211.)
We indicated in the FY 2009 IPPS
final rule (73 FR 48555) that, because
Medicare’s previous coverage policy
with respect to this device had
precluded payment from Medicare, we
did not expect the costs associated with
this technology to be currently reflected
in the data used to determine the
relative weights of MS–DRGs. As we
have indicated in the past, and as we
discussed in the FY 2009 IPPS final
rule, although we generally believe that
the newness period would begin on the
date that FDA approval was granted, in
cases where the applicant can
demonstrate a documented delay in
market availability subsequent to FDA
approval, we would consider delaying
the start of the newness period. This
technology’s situation represented such
a case. We also noted that section
1886(d)(5)(K)(ii)(II) of the Act requires
that we provide for the collection of cost
data for a new medical service or
technology for a period of at least 2
years and no more than 3 years
‘‘beginning on the date on which an
inpatient hospital code is issued with
respect to the service or technology.’’
Furthermore, the statute specifies that
the term ‘‘inpatient hospital code’’
means any code that is used with
respect to inpatient hospital services for
which payment may be made under the
IPPS and includes ICD–9–CM codes and
any subsequent revisions. Although the
TAH–t has been described by the ICD–
9–CM code(s) since the time of its FDA
approval, because the TAH–t had not
been covered under the Medicare
program (and, therefore, no Medicare
payment had been made for this
technology), this code could not be
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‘‘used with respect to inpatient hospital
services for which payment’’ is made
under the IPPS, and thus we assumed
that none of the costs associated with
this technology would be reflected in
the Medicare claims data used to
recalibrate the MS–DRG relative weights
for FY 2009. For this reason, as
discussed in the FY 2009 IPPS final
rule, despite the FDA approval date of
the technology, we determined that
TAH–t would still be eligible to be
considered ‘‘new’’ for purposes of the
new technology add-on payment
because the TAH–t met the newness
criterion on the date that Medicare
coverage began, consistent with
issuance of the final NCD, effective on
May 1, 2008.
After evaluation of the newness, costs,
and substantial clinical improvement
criteria for new technology add-on
payments for the TAH–t and
consideration of the public comments
we received on the FY 2009 IPPS
proposed rule, we approved the
TAH–t for new technology add-on
payments for FY 2009 (73 FR 48557).
We indicated that we believed the
TAH–t offered a new treatment option
that previously did not exist for patients
with end-stage biventricular failure.
However, we indicated that we
recognized that Medicare coverage of
the TAH–t is limited to approved
clinical trial settings. The new
technology add-on payment status does
not negate the restrictions under the
NCD nor does it obviate the need for
continued monitoring of clinical
evidence for the TAH–t. We remain
interested in seeing whether the clinical
evidence demonstrates that the TAH–t
continues to be effective. If evidence is
found that the TAH–t may no longer
offer a substantial clinical improvement,
we reserve the right to discontinue new
technology add-on payments, even
within the 2 to 3 year period that the
device may still be considered to be
new.
The new technology add-on payment
for the TAH–t for FY 2009 is triggered
by the presence of ICD–9–CM procedure
code 37.52 (Implantation of total heart
replacement system), condition code 30,
and the diagnosis code reflecting
clinical trial—V70.7 (Examination of
participant in clinical trial). For FY
2009, we finalized a maximum add-on
payment of $53,000 (that is, 50 percent
of the estimated operating costs of the
device of $106,000) for cases that
involve this technology. As noted above,
the TAH–t is still eligible to be
considered ‘‘new’’ for purposes of the
new technology add-on payment
because the TAH–t met the newness
criterion on the date that Medicare
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coverage began, consistent with
issuance of the final NCD, effective on
May 1, 2008.
We did not receive any public
comments on our proposal to continue
new technology add-on payments for
the TAH–t for FY 2010. Therefore, as we
proposed, for FY 2010, we are
continuing the new technology add-on
payments for cases involving the
TAH–t in FY 2010 with a maximum
add-on payment of $53,000.
4. FY 2010 Applications for New
Technology Add-On Payments
We received six applications to be
considered for new technology add-on
payment for FY 2010. However, one
applicant, Emphasys Medical, withdrew
its application for the Zephyr®
Endobronchial Valve (Zephyr® EBV)
prior to the publication of the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule.
Since the Zephyr® EBV application was
withdrawn prior to the town hall
meeting and publication of the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule,
we did not discuss the application in
the proposed rule and also will not
discuss it in this final rule.
During the public comment period,
three additional applicants withdrew
their applications from further
consideration for FY 2010 new
technology add-on payments. A
discussion and final determination of
the remaining two applications is
presented below.
a. The AutoLITTTM System
Monteris Medical submitted an
application for new technology add-on
payments for FY 2010 for the
AutoLITTTM. However, the applicant
withdrew its application for new
technology add-on payments during the
public comment period.
Comment: One commenter supported
the AutoLITTTM application. The
commenter stated that AutoLITTTM
represented an advance because it
provides the ability to ‘‘steer and rotate
the beam to the size and shape of the
tumor’’ and that such ability is a
significant advance from the current
non-directional systems. The
commenter noted that it had ‘‘no
longitudinal or systemic studies to
verify precisely the degree of
improvement in patient care,’’ but that
use of the AutoLITTTM had led to a
quicker recovery time and fewer
complications in its experience with the
device. Specifically, the commenter
stated that it was able to discharge
patients within 24 to 48 hours which is
faster than with traditional therapies.
Response: We appreciate the
commenter’s response to the proposed
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rule. We note again that the applicant
withdrew its application from
consideration for new technology addon payments for FY 2010. Accordingly,
we are not providing a response to the
comment.
b. CLOLAR® (Clofarabine) Injection
Genzyme Oncology submitted an
application for new technology add-on
payments for FY 2010 for CLOLAR®
(clofarabine) injection. However, the
applicant withdrew its application for
new technology add-on payments
during the public comment period. In
the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule in section II.I.4.b. of the
preamble, we included a detailed
discussion relating to our policy for
determining whether a new technology
is substantially similar to an existing
technology in our analysis of whether
CLOLAR would meet the newness
criterion. Because the CLOLAR
application has been withdrawn, we
will not make a determination regarding
substantially similarity to determine
newness for that application. Instead,
we have provided our discussion of
substantial similarity below and have
summarized and responded to
comments received on that topic.
Substantial Similarity Discussion
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, we stated that the
newness criterion is intended to apply
to technologies that have been available
to Medicare beneficiaries for no more
than 2 to 3 years. Therefore, a
technology that applies for a
supplemental FDA approval must
demonstrate that the new approval is
not substantially similar to the prior
approval.
As discussed above, the new
technology add-on payment is available
to new medical services or technologies
that satisfy the three criteria set forth in
our regulations at § 412.87(b) (that is,
newness, high-costs, and substantial
clinical improvement). Typically, we
begin our analysis with an evaluation of
whether an applicant’s technology
meets what we refer to as the ‘‘newness
criterion’’ under § 412.87(b)(2) (that is,
whether Medicare data are available to
fully reflect the cost of the technology
in the MS–DRG weights through
recalibration). Generally, we believe that
the costs of a technology begin to be
reflected in the hospital charge data
used to recalibrate the MS–DRG relative
weights when the technology becomes
available on the market, usually on or
soon after the date on which it receives
FDA approval.
Congress provided for the new
technology add-on payment in order to
ensure that Medicare beneficiaries have
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access to new technologies. As
discussed previously, there often is a lag
time of 2 to 3 years before the costs of
new technologies are reflected in the
recalibration of the relevant MS–DRGs.
Because a new technology often has
higher costs than existing technologies,
during this lag time the current MS–
DRG payment may not adequately
reflect the costs of the new technology.
The new technology add-on payment
addresses this concern by ensuring that
hospitals receive an add-on payment
under the IPPS for costly new
technologies that represent a substantial
clinical improvement over existing
technologies until such time when the
cost of the technology is reflected
within the MS–DRG relative weights.
When an existing technology receives
FDA approval for a new indication,
similar concerns may arise. If, prior to
the FDA approval for the new
indication, the technology has not been
used to treat Medicare patients for
purposes consistent with the new
indication, the relevant MS–DRGs may
not reflect the cost of the technology.
Consequently, Medicare beneficiaries
may not have adequate access to the
technology when used for purposes
consistent with the new indication.
Allowing the new technology add-on
payment for the technology when used
for the new indication would address
this concern. For these reasons, we
believe that treating an existing
technology as ‘‘new’’ when approved by
the FDA for a new indication may be
warranted under certain circumstances.
In the September 7, 2001 final rule (66
FR 46915), we stated that a new use of
an existing technology may be eligible
for the new technology add-on payment
under certain conditions. In the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule,
we stated that we believe it is
appropriate to consider an existing
technology for the new technology addon payments when its new use is not
substantially similar to existing uses of
the technology. In the FY 2006 IPPS
final rule (70 FR 47351), we explained
our policy regarding substantial
similarity in detail and its relevance for
assessing if the hospital charge data
used in the development of the relative
weights for the relevant DRGs reflect the
costs of the technology. In that final
rule, we stated that, for determining
substantial similarity, we consider (1)
whether a product uses the same or a
similar mechanism of action to achieve
a therapeutic outcome, and (2) whether
a product is assigned to the same or a
different DRG. We indicated that both of
the above criteria should be met in order
for a technology to be considered
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43813
‘‘substantially similar’’ to an existing
technology. However, in that same final
rule, we also noted that, due to the
complexity of issues regarding the
substantial similarity component of the
newness criterion, it may be necessary
to exercise flexibility when considering
whether technologies are substantially
similar to one another. Specifically, we
stated that we may consider additional
factors depending on the circumstances
specific to each application.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, we stated that we
believe that in determining whether a
new use of an existing technology is
substantially similar to existing uses of
the technology, it may be relevant to
consider not only the two criteria
discussed in the FY 2006 IPPS final
rule, but also certain additional factors.
Specifically, we stated that it may also
be appropriate to analyze whether, as
compared to existing uses of the
technology, the new use involves the
treatment of the same or similar type of
disease and the same or similar patient
population. Accordingly, we proposed
to add a third factor of consideration to
our analysis of whether a new
technology is substantially similar to
one or more existing technologies.
Specifically, we proposed to consider
whether the new use of the technology
involves the treatment of the same or
similar type of disease and the same or
similar patient population (74 FR
24130) in addition to considering the
already established factors described in
the FY 2006 IPPS final rule. We
explained that if all three components
are present and the new use is deemed
substantially similar to one or more of
the existing uses of the technology (that
is beyond the newness period), we
would conclude that the technology is
not new and, therefore, is not eligible
for the new technology add-on payment.
In the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we noted that we
considered, but rejected, the inclusion
of the third factor in the FY 2006 IPPS
final rule on the grounds that we
believed that it was more relevant to
analyze whether the costs of the
technology were already reflected in the
relative weights of the MS–DRGs.
However, in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule, we stated that
upon further consideration, we believe
that both the type of disease and patient
population for which a technology is
used are also relevant in determining
whether one indication of a technology
is ‘‘substantially similar’’ to another.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, we noted that the
discussion of substantial similarity in
the FY 2006 IPPS final rule related to
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comparing two separate technologies
made by different manufacturers.
Nevertheless, we stated that the criteria
discussed in the FY 2006 IPPS final rule
also are relevant when comparing the
similarity between a new use and
existing uses of the same technology (or
a very similar technology manufactured
by the same manufacturer). In other
words, we stated that it is necessary to
establish that the new indication for
which the technology has received FDA
approval is not substantially similar to
that of the prior indication. We
explained that such a distinction is
necessary to determine the appropriate
start date of the newness period in
evaluating whether the technology
would qualify for add-on payments (that
is, the date of the ‘‘new’’ FDA approval
or that of the prior approval), or whether
the technology could qualify for
separate new technology add-on
payments under each indication.
Comment: Several commenters
supported our proposal to add a third
factor of consideration to our analysis of
whether a technology is substantially
similar to another technology or to a
previous version of the same technology
with a new FDA indication. The
commenters commended CMS for
proposing to add the third factor and
encouraged CMS to apply all three
factors to future decisions regarding
proposed new technologies. One
commenter encouraged CMS to consider
codifying all three substantial similarity
factors in the regulations. Another
commenter asked that CMS clarify
whether the proposed criterion applied
both to products that receive a second
or follow-on indication as well as to
separate and distinct products that have
the same or similar mechanism of
action, but are intended to treat a
separate disease or patient population.
The commenter also noted that, in FY
2006, it recommended that CMS include
an additional factor when determining
whether products were substantially
similar, specifically, whether the
products conferred the same level of
substantial clinical improvement. The
commenter asserted that the addition of
this would ‘‘ensure that products found
to represent a true advancement in
clinical care—even if they utilize a
similar mechanism of action, could be
eligible for new technology add-on
payments.’’
Response: We thank the commenters
for their support of our proposal.
In response to the comment asking for
clarification about whether the
proposed additional factor under
substantial similarity would apply
solely to a technology approved for a
new indication or to two separate and
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distinct products, we refer the
commenter to our discussion above in
which we stated, ‘‘the discussion of
substantial similarity in the FY 2006
IPPS final rule related to comparing two
separate technologies made by different
manufacturers. Nevertheless, we believe
the criteria discussed in the FY 2006
IPPS final rule also are relevant when
comparing the similarity between a new
use and existing uses of the same
technology (or a very similar technology
manufactured by the same
manufacturer). In other words, we
believe that it is necessary to establish
that the new indication for which the
technology has received FDA approval
is not substantially similar to that of the
prior indication.’’ Therefore, all three
factors of substantial similarity will
apply in both scenarios.
In response to the comment that
suggested we analyze whether two
products (or one product with two
different indications) confer the same
level of substantial clinical
improvement, we note that substantial
similarity is considered under the
newness criterion (that is, to determine
if a technology may still be considered
‘‘new’’ for purposes of the new
technology add-on payment). As we
stated in FY 2006 final IPPS rule, we
base our decisions about new
technology add-on payments on a
logical sequence of determinations
moving from the newness criterion to
the cost criterion and finally to the
substantial clinical improvement
criterion. Specifically, we do not make
determinations about substantial
clinical improvement unless a product
has already been determined to be new
and to meet the cost criterion.
Therefore, we are reluctant to import
substantial clinical improvement
considerations into the logical prior
decision about whether technologies are
new. Furthermore, while we make
separate determinations about whether
similar products meet the substantial
clinical improvement criterion, we do
not believe that it would be appropriate
to make determinations about whether
one product or another is clinically
superior.
In response to the comment that
suggested that we codify the factors we
use to evaluate substantial similarity,
we note that we did not propose to
amend the new technology add-on
regulations in the proposed rule.
However, we will consider making such
a proposal in a future rulemaking
period.
We are finalizing our proposal to add
a third factor of consideration to our
analysis of whether a new technology is
substantially similar to one or more
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existing technologies. Specifically, in
making a determination of whether a
new technology is substantially similar
to an existing technology, we will
consider whether the new use of the
technology involves the treatment of the
same or similar type of disease and the
same or similar patient population (74
FR 24130), in addition to considering
the already established factors described
in the FY 2006 IPPS final rule (that is,
(1) whether a product uses the same or
a similar mechanism of action to
achieve a therapeutic outcome; and (2)
whether a product is assigned to the
same or a different DRG).
c. LipiScanTM Coronary Imaging System
InfraReDx, Inc. submitted an
application for new technology add-on
payments for FY 2010 for the
LipiScanTM Coronary Imaging System
(LipiScanTM). The LipiScanTM device is
a diagnostic tool that uses Intravascular
Near Infrared Spectroscopy (INIRS)
during a cardiac catheterization to scan
the artery wall in order to determine
coronary plaque composition. The
purpose of the device is to identify
lipid-rich areas in the artery because
such areas have been shown to be more
prone to rupture. The procedure does
not require flushing or occlusion of the
artery. INIRS identifies the chemical
content of plaque by focusing near
infrared light at the vessel wall and
measuring reflected light at different
wavelengths (that is, spectroscopy). The
LipiScanTM system collects
approximately 1,000 measurements per
12.5 mm of pullback, with each
measurement interrogating an area of 1
to 2 mm2 of lumen surface
perpendicular to the longitudinal axis of
the catheter. When the catheter is in
position, the physician activates the
pullback and rotation device and the
scan is initiated providing 360 degree
images of the length of the artery. The
rapid acquisition speed for the image
freezes the motion of the heart and
permits scanning of the artery in less
than 2 minutes. When the catheter
pullback is completed, the console
displays the scan results, which are
referred to as a ‘‘chemogram’’ image.
The chemogram image requires reading
by a trained user, but, according to the
applicant, was designed to be simple to
interpret.
With regard to the newness criterion,
the LipiScanTM received a 510K FDA
clearance for a new indication on April
25, 2008, and was available on the
market immediately thereafter. On June
23, 2006, InfraReDx, Inc. was granted a
510K FDA clearance for the ‘‘InfraReDx
Near Infrared (NIR) Imaging System.’’
Both devices are under the common
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name of ‘‘Near Infrared Imaging
System’’ according to the 510K
summary document from the FDA.
However, the InfraReDx NIR Imaging
System device that was approved by the
FDA in 2006 was approved ‘‘for the near
infrared imaging of the coronary
arteries,’’ whereas the LipiScanTM
device cleared by the FDA in 2008 is for
a modified indication. The modified
indication specified that LipiScanTM is
‘‘intended for the near-infrared
examination of coronary arteries * * *,
the detection of lipid-core-containing
plaques of interest * * * [and] for the
assessment of coronary artery lipid core
burden.’’
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24132), we
expressed our concerns regarding
whether LipiScanTM is substantially
similar to its predicate device that was
approved by FDA in 2006. Specifically,
it appears that the two devices, which
are manufactured by the same company,
do not differ in either design or
functionality, according to the approval
order documents from the FDA. In the
2008 approval order, the FDA stated,
‘‘The LipiScan Coronary Imaging
System utilizes the same basic catheter
design as the predicate, the InfraReDx
NIR Imaging System (June 23, 2006).
These devices have a similar intended
use, use the same operating principal,
incorporate the same basic catheter
design, have the same shelf life, and are
packaged using the same materials and
processes. The modifications from the
InfraReDx NIR Imaging System to the
LipiScan Coronary Imaging System are
the improved catheter design, improved
user interface (including PBR and
console), and the additional testing
required to support an expanded
indication for use.’’ Therefore, it
appears that the only difference between
the two approvals may be a
modification of the intended use.
As mentioned earlier in our
discussion of substantial similarity in
section II.I.4.b. of this final rule, our
policy regarding substantial similarity
discussed in the FY 2006 final rule (70
FR 47351 through 47532) outlined two
criteria as it relates to two separate
technologies that are made by different
manufacturers that were used to guide
our determination of whether two
technologies were substantially similar
to one another. Although the
LipiScanTM is a diagnostic device and
not a therapeutic device we believe that
the substantial similarity component of
the newness criterion still applies.
Both the prior and the new FDA
indications for LipiScanTM use the same
43815
or a similar mechanism of action to
achieve a desired therapeutic outcome,
and both treat patients that would
generally be assigned to the same MS–
DRG. Similarly, both indications of
LipiScanTM are intended to treat the
same disease in the same patient
population. Consequently, in the 2010
IPPS/RY 2010 LTCH PPPS proposed
rule, we stated that we have concerns as
to whether or not the two intended uses
are substantially similar, especially
considering that the technologies appear
essentially identical. In the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule,
we welcomed public comment on
whether or not the latest 510K FDA
clearance should be considered
‘‘substantially similar’’ to its predicate
technology approved by the FDA in
2006 (74 FR 24133).
Comment: One commenter, the
manufacturer, gave comments regarding
whether LipiScanTM was substantially
similar to its predicate device and
whether it met the newness criterion for
new technology add-on payments. The
manufacturer included the following
table to illustrate the differences
between the version of the device that
was approved in 2006 and the version
that was approved in 2008:
2006 NIRS device
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Console .....
Catheter ....
Algorithm ...
Marketed 2008 LipiScan
No display of results of scan ........................................................
Saline-filled with microbubble problem obscuring many scans ...
No algorithmic processing of NIR signals—no means of certifying that lipid core plaque is present.
Results displayed immediately.
Air-filled with no microbubble problem.
Algorithm validated in over 1,000 autopsy measurements proving that NIRS can detect lipid core plaque, and providing diagnosis of lipid core plaque to the MD during the case.
In addition, the commenter asserted
that the version of the device that was
approved by the FDA in 2006 was
‘‘never marketed, donated or sold to
hospitals because it had numerous
shortcomings that were not overcome
until [the date of its second FDA
clearance, April 25, 2008].’’ Finally, the
commenter noted that Medicare claims
do not contain any charge for
LipiScanTM prior to that date.
Response: Because the manufacturer
has provided statements that
LipiScanTM was not marketed until after
its second FDA clearance, we believe
that it is no longer necessary to
determine whether the version of the
device that was cleared by the FDA in
2008 is substantially similar to that
which was cleared in 2006. As noted by
the applicant, CMS uses the date of FDA
approval or the date that a technology
is marketed (if the manufacturer can
document there was a delay in bringing
the technology to market after FDA
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approval) and thus available to
Medicare beneficiaries as the start of the
newness period. In this case, the
manufacturer has provided such
documentation. Therefore, we believe
that based on the evidence that supports
that LipiScanTM was not marketed or
otherwise available to Medicare
beneficiaries until April 25, 2008,
LipiScanTM meets the newness criterion.
We note that the LipiScanTM
technology is identified by ICD–9–CM
procedure code 38.23 (Intravascular
spectroscopy), which became effective
October 1, 2008, and cases involving the
use of this device generally map to MS–
DRG 246 (Percutaneous Cardiovascular
Procedures with Drug-Eluting Stent(s)
with MCC or 4+ Vessels/Stents); MS–
DRG 247 (Percutaneous Cardiovascular
Procedures with Drug-Eluting Stent(s)
without MCC); MS–DRG 248
(Percutaneous Cardiovascular
Procedures with Non-Drug-Eluting
Stent(s) with MCC or 4+ Vessels/Stents);
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MS–DRG 249 (Percutaneous
Cardiovascular Procedures with NonDrug-Eluting Stent(s) without MCC);
MS–DRG 250 (Percutaneous
Cardiovascular Procedures without
Coronary Artery Stent with MCC); and
MS–DRG 251 (Percutaneous
Cardiovascular Procedures without
Coronary Artery Stent without MCC).
In an effort to demonstrate that the
technology meets the cost criterion, the
applicant used the FY 2009 After
Outliers Removed (AOR) file (posted on
the CMS Web site) for cases potentially
eligible for LipiScanTM. The applicant
believes that every case within DRGs
246, 247, 248, 249, 250, and 251 are
eligible for LipiScanTM. In addition, the
applicant believes that LipiScanTM will
be evenly distributed across patients in
each of the six MS–DRGs (16.6 percent
within each MS–DRG). Using data from
the AOR file, the applicant found the
average standardized charge per case for
MS–DRGs 246, 247, 248, 249, 250, and
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251 was $65,364, $42,162, $58,754,
$37,048, $61,016, and $35,878
respectively, equating to an average
standardized charge per case of $50,037.
The applicant indicated that the average
standardized charge per case does not
include charges related to LipiScanTM;
therefore, it is necessary to add the
charges related to the device to the
average standardized charge per case in
evaluating the cost threshold criterion.
Although the applicant submitted data
related to the estimated cost of
LipiScanTM per case, the applicant
noted that the cost of the device was
proprietary information. Based on a
sampling of two hospitals that have
used the device, the applicant used a
markup of 120 percent of the costs and
estimates $5,280 in charges related to
LipiScanTM. Because the applicant
lacked a significant sample of cases to
determine the charges associated with
the device, we expressed our concerns
in the proposed rule as to whether or
not the estimate of $5,280 in charges
related to the device was a valid
estimate (74 FR 24133).
Adding the estimated charges related
to the drug to the average standardized
charge per case (based on the case
distribution from the applicant’s 2009
AOR analysis) results in a case-weighted
average standardized charge per case of
$55,317 ($50,037 plus $5,280). Using
the FY 2010 thresholds published in
Table 10 (73 FR 58008), the caseweighted threshold for MS–DRGs 246,
247, 248, 249, 250, and 251 was $53,847
(all calculations above were performed
using unrounded numbers). Because the
case-weighted average standardized
charge per case for the applicable MS–
DRGs exceed the case-weighted
threshold amount, the applicant
maintains that LipiScanTM would meet
the cost criterion. In the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule, we
invited public comment on whether or
not LipiScanTM meets the cost criterion.
Comment: One commenter, the
applicant, submitted comments
regarding whether LipiScanTM meets the
cost criterion. The commenter noted
that LipiScanTM is now used in 11
hospitals, 10 of which are nonDepartment of Veterans Affairs (VA)
hospitals. This represented an increase
from the two hospitals it noted in its
application when the applicant
submitted it in November 2008. Based
on a sampling of all 10 non-VA
hospitals that are actively using the
device, the applicant determined that
the average charge for the device was
$7,497. Using the same methodology
from the proposed rule and the AOR file
from the FY 2010 proposed rule (posted
on the CMS Web site) instead of the FY
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2009 final rule AOR file, the applicant
determined a case-weighted average
standardized charge of $47,059 for MS–
DRGs 246–251. Based on charge data
from these 10 hospitals, the applicant
determined a mean charge of $7,497 for
the LipiScanTM device. The applicant
added the average charge of the device
to the charge per case and determined
an average case-weighted charge per
case of $54,556 ($47,059 plus $7,497).
Based on the Table 10 thresholds
published in the proposed rule (74 FR
24570), the case-weighted threshold for
MS–DRGs 246–251 was $52,881.
Because the case-weighted average
standardized charge per case for the
applicable MS–DRGs exceed the caseweighted threshold amount, the
applicant maintains that based on this
analysis the LipiScanTM would meet the
cost criterion.
In addition, the applicant stated that
it analyzed Hospital Cost Report
Information System (‘‘HCRIS’’) data
from 2007. Specifically, the applicant
searched for the 100 cardiac
catheterization labs that had the highest
volume of cases in the United States.
Based on the HCRIS data from these 100
labs, the applicant determined the mean
cost-to-charge ratio was 0.204 with a
mark-up of 490 percent yielding a
charge of $11,760 for LipiScanTM.
Assuming that the LipiScanTM device
was marked-up 490 percent, the caseweighted average standardized charge
per case for cases involving the use of
LipiScanTM would be $58,819 ($47,059
plus $11,760) across MS–DRGs 246–
251. Similar to the above computation,
based on the Table 10 thresholds
published in the proposed rule (74 FR
24570), the case-weighted threshold for
MS–DRGs 246–251 was $52,881.
Because the case-weighted average
standardized charge per case for the
applicable MS–DRGs exceed the caseweighted threshold amount, the
applicant maintains that based on this
analysis the LipiScanTM would also
meet the cost criterion.
Response: We thank the commenter
for the updated analyses. As noted
above in its comment, the applicant
determined the case-weighted threshold
using Table 10 thresholds from the
proposed rule. The thresholds in Table
10 published in the proposed rule are
for applicants for new technology addon payments for FY 2011. The correct
case-weighted threshold to be used to
evaluate FY 2010 proposals is the same
threshold ($53,847) that the applicant
used in its analysis from the proposed
rule, which is based on Table 10
thresholds for FY 2010 applicants (as
noted in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule). Nevertheless,
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under the applicant’s updated analysis
using the Table 10 threshold for FY
2010 applicants, the case-weighted
average standardized charge per case in
either of the two analyses above (in the
applicant’s comment) would exceed the
case-weighted Table 10 threshold of
$53,847.
We reviewed all three analyses that
the applicant submitted (one in the
proposed rule and two in its comment)
and, based on all three analyses, we
agree that the applicant meets the cost
criterion.
With regard to substantial clinical
improvement, the applicant maintains
that the device meets this criterion for
the following reasons. The applicant
noted that the September 1, 2001 final
rule states that one facet of the criterion
for substantial clinical improvement is
‘‘the device offers the ability to diagnose
a medical condition in a patient
population where the medical condition
is currently undetectable or offers the
ability to diagnose a medical condition
earlier in a patient population than
allowed by currently available methods.
There must also be evidence that use of
the device to make a diagnosis affects
the management of the patient’’ (66 FR
46914). The applicant believes that
LipiScanTM meets all facets of this
criterion. The applicant asserted that the
device is able to detect a condition that
is not currently detectable. The
applicant explained that LipiScanTM is
the first device of its kind to be able to
detect lipid-core-containing plaques and
to assess coronary artery lipid core
burden. The applicant further noted that
FDA, in its approval documentation, has
indicated that ‘‘This is the first device
that can help assess the chemical
makeup of coronary artery plaques and
help doctors identify those of particular
concern.’’
In addition, the applicant stated that
the LipiScanTM chemogram permits a
clinician to detect lipid-core-containing
plaques in the coronary arteries
compared to other currently available
devices that do not have this ability.
The applicant explained that the
angiogram, the conventional test for
coronary atherosclerosis, shows only
minimal coronary narrowing. However,
the applicant indicated that the
LipiScanTM chemogram has the ability
to reveal when an artery contains
extensive lipid-core-containing plaque
at an earlier stage.
The applicant also noted that the
device has the ability to allow providers
to make a diagnosis that better affects
the management of the patient.
Specifically, the applicant explained
that the chemogram results are available
to the interventional cardiologist during
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the PCI procedure, and have been found
to be useful in decision-making. In their
application, the applicant stated that
physicians have reported changes in
therapy based on LipiScanTM findings in
20 to 50 percent of patients. The
applicant further stated in their
application that the most common use
of LipiScanTM results has been for
selection of the length of artery to be
stented. In some cases a longer stent has
been used when there is a lipid-corecontaining plaque adjacent to the area
that is being stented because a flowlimiting stenosis is present. Therefore,
the applicant contends that the use of
LipiScanTM by clinicians to select the
length of artery to be stented and as an
aid in selection of intensity of lipidaltering therapy, demonstrates that
LipiScanTM affects the management of
patients.
The applicant also submitted
commentary from Interventional
Cardiologists (a group of clinicians who
currently utilize the LipiScanTM device)
explaining the clinical benefits of the
device. The applicant further noted that
the device may have other potential
uses that would be of clinical benefit,
and studies are currently being
conducted to investigate these other
potential uses. The applicant explained
that LipiScanTM offers promise as a
means to enhance progress against the
two leading problems in coronary
disease management: (1) The
unacceptably high rate of second events
that occur even after catheterization,
revascularization, and the institution of
optimal medical therapy; and (2) the
failure to diagnose coronary disease
early, which results in sudden death or
myocardial infarction being the first
sign of the disease in most patients. The
applicant further stated that the
identification of coronary lipid-corecontaining plaques, which can most
readily be done in those already
undergoing catheterization, is likely to
be of benefit in the prevention of second
events. In the longer term, the applicant
stated that the identification of lipidcore-containing plaques by LipiScanTM
may contribute to the important goal of
primary prevention of coronary events,
which, in the absence of adequate
diagnostic methods, continue to cause
extensive morbidity, mortality and
health care expenditures in Medicare
beneficiaries and the general
population.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, we noted that while
we recognize that the identification of
lipid-rich plaques in the coronary
vasculature holds promise in the
management of coronary artery disease,
we were concerned that statements in
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the FDA approval documents, as well as
statements made by investigators in the
literature, suggest that the clinical
implications of identifying these lipidrich plaques are not yet certain and that
further studies need to be done to
understand the clinical implications of
this information (74 FR 24134). We also
noted that we were concerned that there
are no outcome data regarding the use
of the LipiScanTM technology.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, we welcomed public
comment regarding whether or not the
LipiScanTM technology represents a
substantial clinical improvement in the
Medicare population.
Comment: Two commenters
submitted comments regarding whether
LipiScanTM represented a substantial
clinical improvement. One commenter
supported approving LipiScanTM for
new technology add-on payments and
noted that the statute indicated that
either a ‘‘diagnostic device or a therapy
should be eligible for the add-on
payment.’’ (emphasis provided) The
commenter stated that the device had
been studied in detail by the FDA and
that the FDA concluded that the device
identified lipid core plaques with
‘‘accuracy suitable for clinical use.’’
Additionally, the commenter stated that
the device ‘‘has already started changing
the therapeutic decisionmaking process
and has the potential to provide
additional benefits in the struggle
against the leading cause of death in the
United States.’’
The applicant stated that it believed
that LipiScanTM is a ‘‘substantial
clinical improvement’’ over existing
technologies because it enables the
physician to choose the length of artery
to be stented as well as the intensity of
lipid lowering medical therapy that
should be used. The applicant asserted
that the detection of lipid core plaque
could ultimately be helpful to
physicians in managing patient care and
improving clinical outcomes because
such plaques are prone to sudden
rupture. Additionally, the applicant
asserted that there were three ways in
which it met CMS’ regulatory standard
for a substantial clinical improvement
including:
1. It detects ‘‘a condition that is not
currently detectable’’ because it is the
only device approved to identify the
lipid core content in coronary arteries.
2. It ‘‘enables the patient to be
diagnosed earlier’’ because other
available diagnostic tests (including
exercise testing and coronary
angiography) do not identify lipid core
plaque; whereas without this
technology, the first sign that a lipid-
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43817
rich plaque is present may be an acute
myocardial infarction.
3. It affects the management of the
patient by:
• Affecting the selection of the length
of the artery to be stented;
• Affecting the selection of the
appropriate target levels for lipid
altering pharmacologic therapy;
• The chance that it may eventually
be linked to the prevention of peristenting myocardial infarction.
As an attachment to its comment, the
applicant submitted a legal analysis that
stated that neither the statute nor the
regulations require that a diagnostic
device be linked to improved clinical
outcomes; rather, an improvement in
diagnosis alone is the only requirement.
The legal memorandum also noted that
the statute ‘‘references technology that
improves either diagnosis or treatment’’
and that a new technology ‘‘need not
improve both, nor does the statute
specify that the diagnostic must be
linked to a treatment that improves
outcomes.’’ Additionally, the legal
analysis stated that LipiScanTM has
submitted evidence in accord with both
the statute and the regulations that it
‘‘provides an improvement in diagnosis
of coronary artery disease by identifying
the presence of the lipid core plaque’’
and asserts that this point is further
evidenced by the FDA which stated that
the device ‘‘is the first device that can
help assess the chemical make-up of
coronary artery plaques and help
physicians identify those plaques with
lipid cores, which may be of particular
concern.’’ The legal analysis also stated
that CMS should not require new
diagnostics to be judged by the same
criteria that have been applied to judge
new therapeutics because ‘‘such an
approach would not be in accord with
the plain language of the regulation and
that statue, both of which envision
distinct clinical benefits associated with
either a diagnostic or a therapy.’’
Finally, the applicant summarized an
article that considered the ‘‘effect of
diagnostic imaging on decisionmaking.’’
Specifically, the applicant summarized
the hierarchy of six levels of diagnostic
efficacy presented in the article:
‘‘Level 1: Technical efficacy, the
physics are appropriate for the target of
the diagnostic;
Level 2: Diagnostic accuracy, the
sensitivity and specificity for the
diagnostic target are appropriate;
Level 3: Diagnostic thing efficacy, the
physician accepts the diagnostic as
capable of identifying the target;
Level 4: Therapeutic efficacy, the
physician selects or does not select a
given therapy on the basis of the
diagnostic outcome;
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Level 5: Therapeutic outcome efficacy,
the therapy selected on the basis of the
results of the diagnostic outcome
provides an improvement in the health
outcome of the patient;
Level 6: Cost-effectiveness, the
benefits to society have a favorable
relationship to the costs of the
diagnostic.’’
The applicant claimed that, applying
the analysis from the article, the FDA
approval established that Levels 1 and
2 were met which it believed to be
consistent with the requirement under
42 CFR 412.87(b)(1). Further, the
applicant asserted that the testimony
provided by physicians who are using
LipiScan demonstrates that physicians
are accepting the results to identify lipid
core plaque (Level 3) and are utilizing
the device to guide therapy (Level 4).
Response: We disagree with the
commenters who stated that the statute
and regulations require that a diagnostic
technology need only ‘‘improve’’
diagnosis and that the FDA approval of
a diagnostic technology in and of itself
meets the regulatory criteria under
§ 412.87(b)(1). The commenter correctly
notes that section 1886(d)(5)(K)(viii) of
the Act requires us to provide for public
input on whether a new technology
‘‘substantially improves the diagnosis or
treatment’’ of Medicare beneficiaries.
Section 1886(d)(5)(K)(vi) of the Act also
authorizes the Secretary to establish
through notice-and-comment
rulemaking the criteria that a new
medical service or technology must
meet in order to be eligible for the new
technology add-on patient. Under this
authority, we established three criteria
through notice and comment
rulemaking—the newness criterion, the
cost criterion, and the substantial
clinical improvement criterion (66 FR
46924). Specifically, § 412.87(b)(1) of
the regulations provides that a new
medical service or technology must
‘‘represent an advance that substantially
improves, relating to technologies
previously available, the diagnosis or
treatment of Medicare beneficiaries.’’
As we explained in that rule, we will
consider a diagnostic technology to
meet the substantial clinical
improvement criterion if the technology
not only ‘‘offers the ability to diagnose
a medical condition in a patient
population where that medical
condition is currently undetectable or
offers the ability to diagnose a medical
condition earlier in a patient population
than allowed by currently available
methods,’’ but also if ‘‘use of the device
to make a diagnosis affects the
management of the patient’’ (66 FR
46914). Under the commenter’s
analysis, a diagnostic technology
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effectively would only need to receive
FDA approval and be the only
technology approved for a particular
diagnostic capability in order to be
deemed a ‘‘substantial improvement’’
for purposes of new technology add-on
payments, regardless of its ability to
positively affect patient management.
This approach would deem a device
leading to the identification of new
information (in this case, whether
plaques contain a lipid core) as a
substantial improvement in diagnosis
even if such detection has not been
‘‘demonstrated to represent a substantial
improvement in caring for Medicare
beneficiaries’’ and is not linked to
evidence-based, significant, and positive
changes in the management of patients
or, ultimately, to changes in clinical
outcomes. We do not believe this
rationale is consistent with our prior
statements regarding the substantial
clinical improvement criterion of the
new technology add-on payment
provision. Nor do we believe it would
be appropriate to provide additional
payments for new diagnostic tools that
fail to significantly change the
management of patients, thereby
improving clinical outcomes.
As to whether LipiScanTM represents
a substantial improvement in diagnosis,
we considered first, whether
LipiScanTM ‘‘offers the ability to
diagnose a medical condition in a
patient population where that medical
condition is currently undetectable or
offers the ability to diagnose a medical
condition earlier in a patient population
than allowed by currently available
methods,’’ and second whether ‘‘use of
the device to make a diagnosis affects
the management of the patient’’ (66 FR
46914). In the case of LipiScanTM, the
applicant has stated that it believes that
LipiScanTM offers the ability to diagnose
a condition that is previously
undetectable because it allows the
detection of lipid-rich plaques in
patients with coronary artery disease
(CAD). We agree with the applicant that
existing technologies may not be able to
adequately identify lipid-rich plaques.
However, we disagree that use of
LipiScanTM affects the management of
the patient at this time.
To qualify for the new technology
add-on payment, a diagnostic capability
must also be linked to ‘‘evidence that
use of the device to make a diagnosis
affects the management of the patient.’’
We believe that this evidence is
necessary to determine whether the new
technology affords a ‘‘clear
improvement over the use of previously
available technologies.’’ We do not
consider any particular type of evidence
to be dispositive; instead, we will
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consider all information presented for
each application to determine whether
there is evidence to support a
conclusion that ‘‘use of the device to
make a diagnosis affects the
management of the patient’’ (in the case
of a diagnostic technology).
Consequently, we do not consider
merely anecdotal claims that a device
affects the management of the patient as
sufficient evidence to demonstrate that
a new diagnostic device affects the
management of the patient, particularly
where the device could be used for a
relatively large patient population.
Rather, we will consider whether the
peer-reviewed medical literature
supports or clinical studies indicate that
the diagnostic device should generally
be used by providers in guiding the
management of their patients. In
addition, we will consider evidence
demonstrating clinically accepted use of
the device in a manner that actually
affects the management of patients.
In the case of LipiScanTM, we note
that other methods exist for diagnosing
CAD, including intravascular
ultrasound (IVUS) and optical
coherence tomography (OCT). In
addition, the evidence available to CMS
at the time of making a final rule
determination consisted of anecdotal
claims made by the applicant and one
other commenter, that the identification
of such plaques affects the management
of the patient. A review of the literature
yielded no additional evidence to
support the applicant’s claim.
Furthermore, we believe that the
prognostic implications of detecting
lipid-rich plaque are not yet sufficiently
well enough understood and
documented in the peer-reviewed
evidence to conclude that such
identification will lead to significant
and evidence-based changes in the
management of CAD. In addition, we
note that there are relatively few cases
in which LipiScanTM has been used
relative to the patient population in
which it could potentially be used.
Specifically, the applicant claims that
the device could potentially be used in
every patient who undergoes coronary
angiography. To date, the device is only
in use in 11 hospitals total, and there
have been no data published to indicate
that management of patients has
changed, even in the hospitals where
the device has been used. Given the size
of the patient population that the
manufacturer claims stands to benefit
from use of LipiScanTM, the fact that so
few hospitals are using the technology
raises significant concerns regarding
whether use of LipiScanTM actually
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affects the management of patients in a
meaningful manner.
Therefore, while we recognize that
LipiScanTM provides the ability to
detect lipid-rich plaque which is
currently undetectable by any other
means, we are nonetheless still
concerned that there is significant
uncertainty within the clinical
community regarding the prognostic
implications of obtaining this
information. We note that we did not
receive any public comment during the
public comment period from physicians
who may be using the device. We
believe the evidence supplied by the
applicant that the device is affecting the
management of the patient is not able to
be validated broadly and is still
anecdotal. Further, the discussions of
the technology in the scientific studies
submitted by the applicant acknowledge
the possible potential of the technology
to affect treatment in the future, but all
stated that additional studies are
necessary to determine its actual
clinical utility. Specifically, in an
editorial published in 2008, the author
wrote, ‘‘In conclusion, further studies
are warranted to determine if detection
of [lipid core plaque of interest] by [near
infrared spectroscopy] imaging will
contribute to enhanced prediction of
outcomes in patients with known CAD.’’
(Young, 2008) Also, in a letter to the
editor in the Journal of the College of
Cardiology, another author wrote about
his experience with three patients over
a period of three weeks to share his
‘‘initial observations.’’ The author wrote
that ‘‘* * * preliminary results suggest
that intravascular investigation of
chemical composition of a coronary
plaque has become a clinical reality
[but] it remains to be seen whether
chemograms would perform better than
the ultrasound of whether they will be
able to predict adverse events and
faciltate development of clinically
effective strategies for management of
vulnerable plaques before it is too late.’’
(Maini, 2008) (emphasis added).
We believe that these conclusions,
and others, as stated in the literature
further support our previously stated
view that the prognostic implications of
detecting lipid-rich plaque are not well
enough understood and therefore the
detection of such plaque cannot be
reasonably assumed to lead to evidencebased, significant, and positive medical
management of patients with CAD that
is generally accepted by clinicians,
much less lead to improved clinical
outcomes. We agree with the commenter
and applicant that the identification of
lipid-rich plaques may hold promise
and ultimately lead to changes in the
management of CAD and that
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LipiScanTM ‘‘has the potential to
provide additional benefits in the
struggle against the leading cause of
death in the United States.’’ However,
we do not believe the evidence and
information available at this time allows
us to determine that it meets the
substantial clinical improvement
criterion.
For these reasons, we are not
approving LipiScanTM for new
technology add-on payments for FY
2010.
d. Spiration® IBV® Valve System
Spiration, Inc. submitted an
application for new technology add-on
payments for FY 2010 for the Spiration®
IBV® Valve System (Spiration® IBV®).
The Spiration® IBV® is a device that is
used to place, via bronchoscopy, small,
one-way valves into selected small
airways in the lung in order to limit
airflow into selected portions of lung
tissue that have prolonged air leaks
following surgery while still allowing
mucus, fluids, and air to exit, thereby
reducing the amount of air that enters
the pleural space. The device is
intended to control prolonged air leaks
following three specific surgical
procedures: lobectomy; segmentectomy;
or lung volume reduction surgery.
According to the applicant, an air leak
that is present on postoperative day 7 is
considered ‘‘prolonged’’ unless present
only during forced exhalation or cough.
In order to help prevent valve migration,
there are five anchors with tips that
secure the valve to the airway. The
implanted valves are intended to be
removed no later than 6 weeks after
implantation.
With regard to the newness criterion,
the Spiration® IBV® received a
Humanitarian Device Exemption (HDE)
approval from the FDA on October 24,
2008. We are unaware of any previously
FDA-approved predicate devices, or
otherwise similar devices, that could be
considered substantially similar to the
Spiration® IBV®. However, the
applicant asserted that the FDA has
precluded the device from being used in
the treatment of any patients until
Institutional Review Board (IRB)
approvals regarding its study sites.
Therefore, it would appear that the
Spiration® IBV® would meet the
newness criterion once it has obtained
at least one IRB approval because the
device would then be available on the
market to treat Medicare beneficiaries.
In the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we welcomed public
comments about the date on which the
newness period should begin for this
technology should it meet the other
criteria to be approved for new
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43819
technology add-on payments (74 FR
24135).
We also noted that the Spiration®
IBV® is currently described by ICD–9–
CM procedure code 33.71 (Endoscopic
insertion or replacement of bronchial
valve(s)). At the September 2008 ICD–9–
CM Coordination and Maintenance
Committee meeting, we discussed a
proposal to revise the existing code and
create a new code for endoscopic
bronchial valve insertion in single and
multiple lobes. In the proposed rule, we
included the revised title of procedure
code 33.71 to ‘‘Endoscopic insertion or
replacement of bronchial valve(s), single
lobes’’ and also the new procedure code
33.73 (Endoscopic insertion or
replacement of bronchial valve(s),
multiple lobes) in order to distinguish
between single and multiple lobes
(Table 6F and 6B in the Addendum to
the proposed rule (74 FR 24501 and
24494, respectively)).
Comment: The applicant commented
that nine hospitals have confirmed
receipt of the Spiration® IBV® and the
first IRB approval for the Spiration®
IBV® was March 12, 2009. The
applicant believes that this would
confirm that the technology meets the
newness criteria.
Another commenter commented that
the IRB at the commenter’s hospital has
made pending approval of the
Spiration® IBV® and expects to be able
to use the Spiration® IBV® within the
next month.
Response: We thank the commenters
for providing this information on when
the newness period should begin for the
Spiration® IBV®. Based on the
information above from the applicant,
the Spiration® IBV® meets the newness
criterion and the newness period for the
Spiration® IBV® begins on March 12,
2009.
In an effort to demonstrate that the
technology meets the cost criterion, the
applicant searched the FY 2007
MedPAR file for cases potentially
eligible for use of the Spiration® IBV®.
Specifically, the applicant searched for
cases with one of the following
procedure codes: 32.4 (Lobectomy of
lung); 32.3 (Segmental resection of
lung); or 32.22 (Long volume reduction
surgery). The applicant found 4,225
cases (or 21.6 percent of all cases) in
MS–DRG 163 (Major Chest Procedure
with MCC), 8,960 cases (or 45.8 percent
of all cases) in MS–DRG 164 (Major
Chest Procedure with CC), and 6,358
cases (or 32.5 percent of all cases) in
MS–DRG 165 (Major Chest Procedure
without CC/MCC). The average
standardized charge per case was
$88,326 for MS–DRG 163, $48,494 for
MS–DRG 164, and $38,463 for MS–DRG
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165, equating to a case-weighted average
standardized charge per case of $53,842.
The average standardized charge per
case does not include charges related to
the Spiration® IBV®; therefore, it is
necessary to add the charges related to
the device to the average standardized
charge per case in evaluating the cost
threshold criterion. Although the
applicant submitted data related to the
estimated cost of the Spiration® IBV®
per case, the applicant noted that the
cost of the device was proprietary
information. The applicant estimates
$21,450 in charges related to the
Spiration® IBV® (based on a 100-percent
charge markup of the cost of the device).
The applicant based this amount on
seven actual cases that received the
device. Because the applicant lacked a
significant sample of cases to determine
the charges associated with the device,
we expressed our concerns in the
proposed rule as to whether or not the
$21,450 in charges related to the device
is a valid estimate. In addition, based on
the seven cases, the applicant
determined an estimate of the number of
valves used per case (the applicant
noted that the number of valves used
per case is proprietary). We also
expressed concerns that the applicant
lacked a significant sample of cases to
determine a valid estimate of the
number of valves per case. Adding the
estimated charges related to the device
to the average standardized charge per
case (based on the case distribution
from the applicant’s FY 2007 MedPAR
claims data analysis) resulted in a caseweighted average standardized charge
per case of $75,292 ($53,842 plus
$21,450). Using the FY 2010 thresholds
published in Table 10 (73 FR 58008),
the case-weighted threshold for MS–
DRGs 163, 164, and 165 was $54,715 (all
calculations above were performed
using unrounded numbers). Because the
case-weighted average standardized
charge per case for the applicable MS–
DRGs exceed the case-weighted
threshold amount, the applicant
maintains that the Spiration® IBV®
would meet the cost criterion.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, we invited public
comment on whether or not the
Spiration® IBV® meets the cost
criterion.
Comment: In response to our concerns
in the proposed rule, the applicant
commented and cited a recent study in
Chest,4 prepublished on line on April 6,
2009 (Travaline 2009). The study
reports on use of bronchial valves (not
4 Travaline JM et al. Treatment of persistent
pulmonary air leaks using endobronchial valves.
Chest; Prepublished online; April 6, 2009.
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necessarily made by the applicant) for
air leaks from a number of etiologies.
From December 2002 through January
2007, 40 patients were treated with
bronchial valves in 17 centers. The
mean number of valves per case was 2.9
for all patients in the study. The mean
number of valves was 2.28 for the subset
of seven post surgical air leak cases in
the study.
We note that the applicant informed
us that the information in the proposed
rule was incorrect and the number of
actual cases where the Spiration® IBV®
was used was not seven. The applicant
informed CMS that the correct number
of actual cases that used the Spiration®
IBV® was eight cases. In the proposed
rule, the applicant determined an
average of 3.9 valves per case (or
$21,450 in charges related to the device)
for the Spiration® IBV® based on these
eight actual cases. However, the
applicant explained that if we were to
remove one case that they considered to
be outlier because it used 10 valves, the
average number of valves per case
would be 3.0, which is similar to the
average amount of valves per case from
the Travaline study. The commenter
also noted that the lower number of
valves used in the Travaline study for
post surgical leaks compared to the
Spiration® IBV® data can be attributed
to the design of the Spiration® IBV®
compared to the valve used in the study
that limits the sub segmental treatment.
The commenter believes that this newly
published data supports the conclusion
that it is typical to insert multiple valves
per case in prolonged air leak cases.
The applicant also commented that
since the proposed rule, two additional
cases were performed using the
Spiration® IBV® (making a total of 10
cases). The applicant included these
two additional cases in its revised
estimate of the average amount of valves
per case. In addition to removing the
outlier case above, the applicant also
removed an additional case they
considered to be an outlier that used
four valves and determined an average
of 2.5 valves per case (or $13,750 in
charges related to the Spiration® IBV®).
The applicant also noted that the
case-weighted threshold was $54,715
which is slightly higher than the caseweighted average standardized charge
per case of $53,842 (which does not
include charges related to the device).
The commenter explained that even if
we added a charge of $5,550 for only
one Spiration® IBV® to the caseweighted average standardized charge
per case (for a total case-weighted
average standardized charge per case of
$59,392), the Spiration® IBV® would
still meet the cost criterion since the
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case-weighted average standardized
charge per case ($59,392) exceeds the
case-weighted threshold ($53,842).
The commenter also stated the
following to strengthen confidence in its
MedPAR analysis. The commenter
explained that its MedPAR analysis
profiled cases identified by the relevant
surgical codes since specific ICD–9–CM
procedure and diagnosis are not
available to identify cases of prolonged
air leaks within the FY 2007 MedPAR.
The applicant cited peer reviewed
clinical literature that was submitted as
part of its new technology add-on
payment application to demonstrate that
patients with prolonged air leaks had a
greater length of stay and complication
rates compared to patients who did not
have a prolonged air leak. Specifically,
the applicant noted that one study 5
with 91 post operative patients after
pulmonary resection demonstrated that
patients with air leaks after 3 days had
a greater length of stay (mean of 9.4 days
vs. 5.4 days with a p value of p<0.0001).
The commenter also noted that a study
of 552 post operative patients after
LVRS in the National Emphysema
Treatment Trial 6 demonstrated that
patients with air leaks had more
complications (57 percent versus 30
percent with a p value of p=0.0004) and
longer length of stay (11.8 days vs. 7.6
days with a p value of p=0.0005). The
commenter also cited a retrospective
study 7 of 100 patients from a single
center that showed the median length of
stay for patients with prolonged air leak
after radical upper lobectomy procedure
was 11 days versus the median of 7 days
for patients without prolonged air leak.
Based on these clinical data, the
applicant concluded that prolonged air
leak cases are costlier than cases
without prolonged air leak. As a result,
the commenter believes that its
MedPAR analysis was conservative in
evaluating charges for surgical
procedures as a whole, without being
able to uniquely identify costlier
prolonged air leak cases.
Response: We thank the applicant for
submitting additional data to determine
the amount of charges related to the
Spiration® IBV®. In order to determine
that the applicant met the cost criteria,
in addition to the applicant’s analysis,
we searched the March update of the FY
2008 MedPAR for the same procedure
codes that the applicant searched in
their MedPAR analysis. We found 5,501
cases in MS–DRG 163 (or 23.9 percent
5 Bardell T, Petiskas D Can Respir J 2003 March,
Vol. 10, No 2.
6 Decamp MM, Ann Thorac Surg. 2006 July; Vol.
82, No. 1.
7 Abolhoda A et al. Chest 1998; 113:1507–10.
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of all cases), 11,151 cases in MS–DRG
164 (or 48.4 percent of all cases), and
6,380 cases in MS–DRG 165 (or 27.7
percent of all cases). The average
standardized charge per case was
$85,958 for MS–DRG 163, $48,731 for
MS–DRG 164, and $37,586 for MS–DRG
165, equating to a case-weighted average
standardized charge per case of $54,535.
Adding the revised estimate of charges
of $13,750 (2.5 valves × $5,550) related
to the device to the average
standardized charge per case (based on
the case distribution from out FY 2008
MedPAR claims data analysis) resulted
in a case-weighted average standardized
charge per case of $68,285. Using the FY
2010 thresholds published in Table 10
(73 FR 58008), the case-weighted
threshold for MS–DRGs 163, 164 and
165 was $55,952 (all calculations above
were performed using unrounded
numbers). Based on this analysis, the
case-weighted average standardized
charge per case for the applicable MS–
DRGs exceeds the case-weighted
threshold amount. Additionally, similar
to what the applicant stated above, if we
only included the amount of charges for
one valve, the case-weighted average
standardized charge per case of $60,035
($54,535 plus $5,550) would still exceed
the case-weighted threshold of $55,952.
Therefore, we believe that the applicant
meets the cost criterion.
Additionally, the applicant submitted
supplemental data from multiple
sources in an effort to determine the
average amount of valves that would be
used per case. We note that the average
number of valves from actual cases
involving the Spiration® IBV® (2.5
valves per case) is higher than the
average amount of valves (2.28 valves
per case) from the seven post surgical
air leak cases from the Traveline study
(not the Spiration® IBV®). However, we
prefer to rely on actual case data when
available and the actual case data is a
more conservative estimate of the
average amount of valves per case
compared to those cases in the studies
that did not use the Spiration® IBV®.
With respect to how the device would
meet the substantial clinical
improvement criterion, the applicant
submitted information that was based
on the Summary of Safety and Probable
Benefit (SSPB) from the FDA’s HDE
approval order for the device. The
clinical results indicate the Spiration®
IBV® can be deployed in the intended
airway reasonably safely with a
minimally invasive bronchoscopy
procedure. There have been a limited
number of device complications and no
occurrences of device erosion or
migration. The Spiration® IBV® can be
removed using a bronchoscope.
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Laboratory results indicate that the
Spiration® IBV® significantly reduces
airflow to the lung tissue beyond the
treated airway, and a significant
reduction in distal airflow is anticipated
to augment the resolution of air leaks of
the lung. Therefore, the applicant
asserts, it is reasonable to conclude that
the probable benefit to health associated
with using the device for the target
population outweighs the risk of illness
or injuries, taking into account the
probable risks and benefits of currently
available devices or alternative forms of
treatment when used as indicated in
accordance with the directions for use.
We recognize that prolonged air leaks
after these types of lung surgery can be
a significant problem, and that
Spiration® IBV® therapy may represent
a new alternative in treating properly
selected patients. However, we
emphasized our concerns in the
proposed rule that the outcome data
presented are from a sample set of only
seven patients, and the FDA HDE did
not require demonstration of either
safety or effectiveness. Therefore, in the
FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we welcomed public
comment as to whether or not the
Spiration® IBV® represents a substantial
clinical improvement for Medicare
beneficiaries.
We did not receive any written public
comments regarding this application for
new technology add-on payments
concerning the new technology town
hall meeting.
Comment: A number of commenters
agreed with the applicant that the
Spiration® IBV® meets the substantial
clinical improvement criteria. The
commenters also recommended the
approval of the Spiration® IBV® for new
technology add-on payments in FY
2010. One commenter, an association of
thoracic surgeons, expressed support for
approving the Spiration® IBV® for new
technology add-on payments. The
commenter explained that the
Spiration® IBV® offers a less invasive
treatment of the prolonged air leak,
whereas the alternative treatment would
be a major re-operation which costs
more money and poses a greater risk to
the patient.
The remaining commenters were
physicians who had experience using
bronchial valves or had actual
experience using the Spiration® IBV®.
These commenters noted that excluding
the Spiration® IBV®, current treatments
for prolonged air leaks include chest
tube drainage, occlusion of airways with
fibrin ‘‘glue’’, and/or re-operation. One
of the commenters explained that
endobronchial valves offer a unique
method for treating prolonged air leaks
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by temporarily preventing air from
flowing into the segment of the lung
with the air leak. The commenter noted
that the efficacy of the valve can be
predicted effectively by occluding the
lobe or segment involved with a balloon
catheter to determine if the air leak can
be stopped. If a balloon is effective in
stopping the leak, then a valve can also
be effective in stopping the leak. The
commenter explained that the advantage
of this treatment is that after the leak
has completely healed, the valves can be
removed with a minimally invasive
fiber-optic bronchoscopy. The
commenter concluded that the
Spiration® IBV® represents a substantial
improvement since it offers a valuable,
new, unique treatment option for
prolonged post thoracotomy air leak and
is the only bronchial valve with FDA
approval (HDE).
Another commenter stated that using
a bronchial valve to treat an air leak,
resulted in the air leak ceasing at the
end of the procedure. The commenter
noted that for safety reasons, chest tubes
are left in for 48 hours and patients in
its care have been discharged 72 hours
after the procedure. The bronchial valve
was typically removed within 4–6
weeks after the procedure. The
commenter further stated that it was not
aware of any randomized clinical trials
that prove that bronchial valves make
air leaks stop. However, the commenter
maintained that based on their
experience, air leaks that lasted 14 days
or longer which suddenly ceased upon
use of a bronchial valve would be strong
circumstantial evidence that the therapy
works and can shorten hospitalization
in appropriately selected patients. The
commenter also believes that using a
bronchial valve for air leaks still present
after five days following surgery would
likely result in an overall cost savings
since the duration of hospitalization is
usually dependent on air leak cessation.
The commenter concluded that the
Spiration® IBV® represents a substantial
clinical improvement and CMS should
approve Spiration® IBV® for new
technology add-on payments in FY
2010.
One of the commenters noted that in
its experience using endobronchial
valves, patients with prolonged air leaks
who were in the hospital for many
weeks with chest tubes in place were
discharged and had the chest tubes
removed within days upon use of an
endobronchial valve. The commenter
cited an example of a patient currently
treated by the commenter who has
undergone numerous procedures with
anesthesia in the operating room and
requires another two procedures. The
commenter believed that this patient
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would have been able to be managed in
a bronchoscopy suite under moderate
sedation with use of an endobronchial
valve. As the only bronchial valve with
FDA approval (HDE), the commenter
believed the Spiration® IBV® represents
a substantial clinical improvement and
recommended that CMS make new
technology add-on payments for the
Spiration® IBV® in FY 2010.
Another commenter noted that
conservative management of air leaks
results in prolonged hospitalization and
limited mobilization of patients with a
much higher risk of additional
complications such as pneumonia,
empyema, deep venous thrombosis and
pulmonary embolism, and progressive
deconditioning. These complications
take a toll on patients with prolonged
air leaks and result in a significantly
worse overall outcomes, prolonged
hospital stay, and substantial increase in
costs.
The commenter also noted its
extensive experience using the
Spiration® IBV® valve in clinical trials
as a potential therapy for palliation of
severe emphysema. Specifically, the
commenter stated that the valves are
easy to place in desired segments and
effectively block distal airflow with a
high safety profile in published studies.
The commenter further stated that the
valves are stable with no incidence of
valve migration in over 600 valves
placed in emphysema patients with
follow-up that included endoscopic and
radiologic surveillance. The commenter
also noted their extensive experience in
valve removal, which is part of the
intended therapy for patients that have
valve treatment for air leaks (since once
the air leaks are resolved the valves will
no longer be necessary). The commenter
disclosed that it did not have any
personal experience in using the
Spiration® IBV® for patients with air
leaks, but are familiar with the existing
literature on similar treatments as well
as the case series using the Spiration®
IBV® for this indication. With this
background, the commenter believed
that the Spiration® IBV® has a high
likelihood of helping to resolve
prolonged postsurgical air leaks and
therefore minimizes the duration of
chest tube drainage and hospitalization
for patients (with an attendant decrease
in the risk of complications that
accompany prolonged hospitalization).
The commenter also believed that the
high safety profile and effectiveness of
the Spiration® IBV® for occluding
segmental airways suggests a very high
likelihood of clinical benefit in this
group of patients with the indication of
prolonged air leak. The commenter
concluded that it believed that the
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Spiration® IBV® represents a substantial
improvement to currently available
treatment options for patients who have
post-surgical prolonged air leaks. The
commenter recommended that CMS
approve the Spiration® IBV® for new
technology add payments so that
hospitals are appropriately reimbursed
for this new important technology.
Response: We appreciate the
commenters submitting their comments
in support of the Spiration® IBV®. Many
of the commenters described their
positive experiences using the
Spiration® IBV® or other bronchial
valves that resolved cases of air leaks,
which improved the clinical outcome of
the patient. Furthermore, the
commenters suggested that most, if not
all, of the cases treated using the
Spiration® IBV® and other bronchial
valves would have had to have
undergone further invasive treatments
had the Spiration® IBV® or other
bronchial valves not have been available
to resolve the air leak. Additionally, the
Spiration® IBV® and other bronchial
valve provided a quick resolution to
these cases of prolonged air leaks. We
considered the commenters’ positive
experiences using the Spiration® IBV®
in our determination (below) on
whether the Spiration® IBV® represents
a substantial clinical improvement.
Comment: The applicant commented
that providers have few treatment
options for effectively controlling
prolonged air leaks. The applicant noted
that aside from the Spiration® IBV®, no
other bronchoscopic treatments have
been clinically accepted or approved by
the FDA. Therefore, management of
prolonged air leaks due to persistent
bronchopleural fistula involves chest
drainage and occasionally pleurodesis,
with more difficult cases requiring
pleurectomy and surgical repair. The
applicant further noted that current
treatment options for air leaks are
associated with risks and complications
such as prolonged use of chest tubes
which increases the risk of pneumonia,
deep venous thrombosis, pulmonary
embolus, atelectasis, subcutaneous
emphysema and empyema; restricted
ambulation due to chest tube which
increases the risks associated with
inactivity; prolonged requirements for
pain medication and extended post
operative length of stay which increases
the potential for hospital acquired
infections.
In response to our concerns in the
proposed rule, the applicant
acknowledged that there are limited
outcomes data associated with the use
of the Spiration® IBV® for prolonged air
leaks. However, the applicant cited that
additional data has been published
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since the proposed rule regarding the
use of a bronchial valve for prolonged
air leaks. Specifically, the applicant
cited the following clinical benefit data
from the Traveline 2009 study for
patients who received a bronchial valve
for air leaks from multiple causes:
following valve placement, the air leaks
resolved or decreased in 37 of 40
patients (92.5 percent); 19 patients (47.5
percent) had complete resolution of the
air leak acutely, 18 patients (45 percent)
had reduction, two patients (5 percent)
had no change in air leak status, and
one patient (2.5 percent) the immediate
change in air leak was not reported.
Additionally, the applicant reported
that all 10 procedures performed with
the Spiration® IBV® resulted in air leak
decrease and/or resolution. The
applicant concluded that these results
demonstrated the following: Valve
placement may reduce or avoid
complications associated with current
treatments of prolonged air leaks;
patients who received bronchial valves
experienced air leak resolution or
decrease unlike a situation absent
bronchial valves where a patient may
need to remain in the hospital; patients
with a bronchial valve are able to be
discharged with the valve thus avoiding
risks, complications and costs
associated with prolonged lengths of
hospitalizations. The applicant believed
that these conclusions from the newly
published data together with Spiration®
data demonstrate that the Spiration®
IBV® meets the substantial clinical
improvement criteria.
Response: We thank the applicant for
providing additional clinical data to
demonstrate that the Spiration® IBV®
meets the substantial clinical
improvement criteria. With respect to
substantial clinical improvement, we
considered all the case specific clinical
information presented by the applicant
and the public to determine whether
there is evidence to support a
conclusion that use of the Spiration®
IBV® represents a substantial clinical
improvement. Specifically, we
considered the peer-reviewed medical
literature, clinical studies, and the
clinically accepted use of the device.
We remain concerned that no
prospective comparative data exists to
help understand the benefit of the
technology versus other modalities. We
also do not know what the outcome
would have been for the cases presented
as examples in the Traveline study (that
is, if or when those air leaks might have
resolved on their own). Additionally,
many of the cases in that study were not
for the indicated use (post-operative
prolonged air leak management).
However, we agree that the Spiration®
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IBV® can improve clinical outcomes by
providing an alternative treatment that
is effective and often a less invasive
method of treating prolonged air leaks
in a small patient population that is
properly and carefully selected (as
required by the FDA). Additionally, we
received positive comments from a
major thoracic society and from
physicians who indicated that the
Spiration® IBV® and other bronchial
valves produced positive clinical
outcomes by resolving air leaks. Also,
the comments we received from the
physicians demonstrated a change to the
clinical therapy for cases of air leaks by
using a bronchial valve such as the
Spiration® IBV® instead of other
alternative treatments such as an
invasive surgery to resolve the air leak.
Furthermore, the Spiration® IBV® is the
only device currently approved for the
purpose of treating prolonged air leaks
following lobectomy, segmentectomy,
and LVRS patients in the United States.
Without the availability of this device,
patients with prolonged air leaks
(following lobectomy, segmentectomy,
and LVRS) might otherwise remain
inpatients in the hospital (and have a
longer length of stay than they might
otherwise have without the Spiration®
IBV®) or might even require additional
invasive surgeries to resolve the air leak.
We also note that use of the Spiration®
IBV® may lead to more rapid beneficial
resolution of prolonged air leaks and
reduce recovery time following the three
lung surgeries mentioned above.
Therefore, after reviewing the totality of
the evidence, we have determined that
the Spiration® IBV® represents a
substantial clinical improvement over
existing therapies for prolonged air
leaks for carefully selected patients.
Accordingly, after consideration of
the clinical evidence received, we are
approving the Spiration® IBV® for new
technology add-on payments in FY
2010. However, we remain interested in
seeing whether the clinical evidence
continues to find it to be effective. This
approval is on the basis of using the
Spiration® IBV® consistent with the
FDA approval (HDE), and we emphasize
the need for appropriate patient
selection accordingly. Therefore, we
intend to limit the add-on payment to
cases involving prolonged air leaks
following lobectomy, segmentectomy
and LVRS in MS–DRGs 163, 164, and
165. Cases involving the Spiration®
IBV® that are eligible for the new
technology add-on payment will be
identified by assignment to MS–DRGs
163, 164, and 165 with procedure code
33.71 or 33.73 in combination with one
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of the following procedure codes: 32.22,
32.30, 32.39, 32.41, or 32.49.
The average cost of the Spiration®
IBV® is reported as $2,750. Based on the
applicant’s revised data, the average
amount of valves per case is 2.5.
Therefore, the total maximum cost for
the Spiration® IBV® is expected to be
$6,875 per case ($2,750 × 2.5). Under
section 412.88(a)(2), new technology
add-on payments are limited to the
lesser of 50 percent of the average cost
of the device or 50 percent of the costs
in excess of the MS–DRG payment for
the case. As a result, the maximum addon payment for a case involving the
Spiration® IBV® is $3,437.50.
e. TherOx Downstream® System
TherOx, Inc. submitted an application
for new technology add-on payments for
FY 2010 for the TherOx Downstream®
System. However, the applicant
withdrew its application for new
technology add-on payments during the
public comment period.
We did not receive any public
comments on this application.
5. Technical Correction to the
Regulations
In the FY 2009 IPPS final rule, when
we revised the regulations at § 412.87 to
incorporate changes relating to the
announcement of determinations and
deadline for consideration of new
medical service or technology
applications, we made a change to
paragraph (b)(1) (73 FR 48755). In
paragraph (b)(1), we inadvertently used
the incorrect word ‘‘relating’’ in the
provision that read ‘‘A new medical
service or technology represents an
advance that substantially improves,
relating to technologies previously
available, the diagnosis or treatment of
Medicare beneficiaries’’ (emphasis
added). The correct word should have
been ‘‘relative.’’ We proposed to make a
technical correction to § 412.87(b)(1),
replacing the word ‘‘relating’’ with the
word ‘‘relative’’ (74 FR 24137). We did
not receive any public comments on this
proposal. Accordingly, we are finalizing
this proposed correction.
III. Changes to the Hospital Wage Index
for Acute Care Hospitals
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
level in the geographic area of the
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43823
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
FY 2010 hospital wage index based on
the statistical areas, including OMB’s
revised definitions of Metropolitan
Areas, appears under section III.C. 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 of the Act
provides that the Secretary base the
update on a survey of wages and wagerelated 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 adjustment for FY 2010 is
discussed in section II.B. of the
Addendum to this final 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 budget neutrality
adjustment for FY 2010 is discussed in
section II.A.4.b. of the Addendum to
this final 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 applying beginning October 1, 2009
(the FY 2010 wage index) appears under
section III.D. of this preamble.
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study of wage index reform, and public
comments we received on the MedPAC
recommendations and the CMS/
Acumen study and analysis.
B. Requirements of Section 106 of the
MIEA–TRHCA
1. Wage Index Study Required Under
the MIEA–TRHCA
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a. Legislative Requirement
Section 106(b)(1) of the MIEA–
TRHCA (Pub. L. 109–432) required
MedPAC to submit to Congress, not later
than June 30, 2007, a report on the
Medicare wage index classification
system applied under the Medicare
IPPS. Section 106(b) of MIEA–TRHCA
required 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 the
MIEA–TRHCA instructed 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 Secretary was also to
consider each of the following:
• Problems associated with the
definition of labor markets for the wage
index adjustment.
• The modification or elimination of
geographic reclassifications and other
adjustments.
• The use of Bureau of Labor of
Statistics (BLS) data or other data or
methodologies to calculate relative
wages for each geographic area.
• Minimizing variations in wage
index adjustments between and within
MSAs and statewide rural areas.
• The feasibility of applying all
components of CMS’ proposal to other
settings.
• Methods to minimize the volatility
of wage index adjustments while
maintaining the principle of budget
neutrality.
• The effect that the implementation
of the proposal would have on health
care providers on each region of the
country.
• Methods for implementing the
proposal(s), including methods to phase
in such implementations.
• Issues relating to occupational mix
such as staffing practices and any
evidence on quality of care and patient
safety including any recommendation
for alternative calculations to the
occupational mix.
In the FY 2009 IPPS final rule (73 FR
48563 through 48567), we discussed the
MedPAC’s study and recommendations,
the CMS contract with Acumen, L.L.C.
for assistance with impact analysis and
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b. Interim and Final Reports on Results
of Acumen’s Study
(1) Interim Report on Impact Analysis of
Using MedPAC’s Recommended Wage
Index
In the FY 2009 IPPS final rule (73 FR
48566 through 48567), we discussed the
analysis conducted by Acumen
comparing use of the MedPAC
recommended wage indices to the
current CMS wage index. We refer
readers to section III.B.1.e. of that final
rule for a full discussion of the impact
analysis as well as to Acumen’s interim
report available on the Web site:
https://www.acumenllc.com/reports/cms.
(2) Acumen’s Final Report on Analysis
of the Wage Index Data and
Methodology
Acumen’s final report addressing the
issues in section 106(b)(2) of the MIEA–
TRHCA is divided into two parts. The
first part analyzes the strengths and
weaknesses of the data sources used to
construct the MedPAC and CMS
indexes. The first part of Acumen’s
study is complete and was published on
Acumen’s Web site after the publication
of the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule. The second part of
Acumen’s study, which is expected to
be released on Acumen’s Web site after
the publication of this FY 2010 IPPS/RY
2010 LTCH PPS final rule, will focus on
the methodology of wage index
construction and covers issues related to
the definition of wage areas and
methods of adjusting for differences
among neighboring wage areas, as well
as reasons for differential impacts of
shifting to a new index.
The following is a description of the
analyses for both parts of Acumen’s
final report.
Part I: Wage Data Analysis
• Differences between the BLS data
and the CMS wage data—Acumen
assessed the strengths and weaknesses
of the data used to construct the CMS
wage index and the MedPAC
compensation index by examining the
differences between the BLS and the
CMS wage data. Acumen also evaluated
the importance of accounting for selfemployed workers, part-time workers,
and industry wage differences.
• Employee benefit (wage-related)
cost—Acumen considered whether
benefit costs need to be included in the
hospital wage index and discussed the
differences between Worksheet A
benefits data (proposed by MedPAC to
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use with BLS wage data) and Worksheet
S–3 benefit data. Acumen also analyzed
the possibility of using BLS’ Employer
Costs for Employee Compensation
(ECEC) series as an alternative to
Worksheet A or Worksheet S–3 benefits
data that would pose less of a data
collection burden for providers.
• Impact of the fixed national
occupational weights—Acumen
assessed MedPAC’s and CMS’ methods
for adjusting for occupational mix
differences. While the proposed
MedPAC compensation index uses fixed
weights for occupations representative
of the hospital industry nationally, the
CMS wage index incorporates an
occupational mix adjustment (OMA)
from a separate data collection.
• Year-to-year volatility in the CMS
and BLS wage data—Acumen calculated
the extent of volatility in the CMS and
BLS wage indexes using several
measures of volatility. Acumen also
explored potential causes of volatility,
such as the number of hospitals and the
annual change in the number of
hospitals in a wage area. Finally,
Acumen evaluated the impact on annual
volatility of using a 2-year rolling
average of CMS wage index values.
In the first part of its final report,
Acumen suggests that MedPAC’s
recommended methods for revising the
wage index represent an improvement
over the existing methods, and that the
BLS data should be used so that the
MedPAC approach can be implemented.
Comment: Several commenters
reiterated their concerns regarding the
use of the BLS data for computing the
Medicare wage index that they had
expressed in public comments on the
FY 2009 IPPS final rule (73 FR 48564).
The commenters stated that they still
have significant concerns about the
shortcomings of the BLS data, and they
urged CMS to move cautiously in
considering MedPAC’s and Acumen’s
findings. Other commenters expressed
support for MedPAC’s and Acumen’s
findings and recommendations,
although some commenters cautioned
that a few refinements may still be
needed before adopting these
recommendations. MedPAC commented
that they look forward to the completion
of the Acumen study and to working
with CMS on improving the hospital
wage index.
Response: As Acumen’s study is
incomplete at the time of preparation of
this final rule, we are making no
assessments or conclusions in this rule
with regards to Acumen’s findings in
Part I of its final report. As we mention
below, we will consider both of
Acumen’s final reports and public
comments in assessing MedPAC’s
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recommendations and making future
proposals for changes in the wage index.
Part II: Wage Index Construction
• Alternative wage area definitions—
Acumen will explore the conceptual
basis for defining wage areas and
investigate alternative wage area
definitions that have been considered in
prior literature to reduce differences
between areas.
• Differences between and within
contiguous wage areas—Acumen will
estimate different methods for
smoothing wage index values between
geographically proximate areas and
examine the justification for and
sensitivity to assumptions used by
MedPAC in its smoothing method.
• Reasons for differential impacts of
shifting to a new index—Acumen will
analyze the impact on hospitals if CMS
were to adopt MedPAC’s proposed
compensation index, with a focus on
hospitals that would no longer qualify
for exceptions such as geographic
reclassification and the rural floor.
Acumen will also determine if there are
identifiable reasons for the different
impacts.
As mentioned above, Acumen is
expected to complete and publish its
analysis for the second part of its final
report after the publication date of this
final rule.
We indicated in the FY 2009 IPPS
final rule that, in developing any
proposal(s) for additional wage index
reform that may be included in the FY
2010 IPPS proposed rule, we would
consider all of the public comments on
the MedPAC recommendations that we
had received in that proposed
rulemaking cycle, along with the
interim and final reports to be submitted
to us by Acumen. As Acumen’s study
was not complete at the time of issuance
of the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we did not propose any
additional changes to the hospital wage
index for acute care hospitals for the FY
2010 IPPS.
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2. FY 2009 Policy Changes in Response
to Requirements Under Section 106(b)
of the MIEA–TRHCA
To implement the requirements of
section 106(b) of the MIEA–TRHCA and
respond to MedPAC’s recommendations
in its June 2007 report to Congress, in
the FY 2009 IPPS final rule (73 FR
48567 through 48574), we made the
following policy changes relating to the
hospital wage index. (We refer readers
to the FY 2009 IPPS final rule for a full
discussion of the basis for the proposals,
the public comments received, and the
FY 2009 final policy.)
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a. Reclassification Average Hourly Wage
Comparison Criteria
In the FY 2009 IPPS final rule, we
adopted the policy to adjust the
reclassification average hourly wage
standard, comparing a reclassifying
hospital’s (or county hospital group’s)
average hourly wage relative to the
average hourly wage of the area to
which it seeks reclassification. We
provided for a phase-in of the
adjustment over 2 years. For
applications for reclassification for the
first transitional year, FY 2010, the
average hourly wage standards were set
at 86 percent for urban hospitals and
group reclassifications and 84 percent
for rural hospitals. For applications for
reclassification for FY 2011 (for which
the application deadline is September 1,
2009) and for subsequent fiscal years,
the average hourly wage standards will
be 88 percent for urban and group
reclassifications and 86 percent for rural
hospitals (§§ 412.230, 412.232, and
412.234 of the regulations). As stated
above, these policies were adopted in
the FY 2009 IPPS final rule.
In response to our summary of the FY
2009 policy changes in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
(74 FR 24139), we received several
public comments, which are
summarized below.
Comment: Several commenters
opposed raising the average hourly wage
thresholds to 88 percent for urban and
group reclassifications and 86 percent
for rural hospitals for applications for
FY 2011 and subsequent years.
Response: As we discussed in the FY
2009 IPPS proposed and final rules,
section 106(b) of the MIEA–TRHCA
required the Secretary to make one or
more proposals to revise the wage index
adjustment for FY 2009. In the FY 2009
IPPS proposed rule (73 FR 48567
through 48574), we indicated that while
we had limited authority to make
changes to the nine specific areas of the
wage index that the law required us to
study, we did carefully review the
criteria established in regulations for
allowing a hospital to geographically
reclassify. Specifically, in the FY 2009
IPPS final rule, we updated the
geographic reclassification criteria based
on a review of the statistical metrics that
were used to establish the original
standards in 1993. The original
individual standards were set using a
methodology that calculated a
percentile range of one standard
deviation from the mean in which a
typical hospital’s average hourly wage
would be expected to fall relative to its
combined labor market average hourly
wage. In short, we found that the
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43825
average hospital average hourly wage as
a percentage of its area’s wage had
increased from approximately 96
percent in FY 1993 to 98 percent in the
most recent 3 fiscal years. Further, the
standard deviation had been reduced
from approximately 12 percent to 10
percent over the same time period. The
original criteria were set equal to the
average less the standard deviation (96
percent less 12 percentage points). The
revised reclassification criteria based on
these same statistical metrics led us to
change the standard to 88 percent (98
percent less 10 percentage points). By
refining our standards, we found that
the number of hospitals that are able to
reclassify despite not demonstrating
average hourly wage levels that truly
justify a higher wage index will be
reduced.
We considered public comments
received in response to the FY 2009
IPPS proposed rule before making this
change final in the FY 2009 IPPS final
rule (73 FR 48567 through 48574). The
change in policy did not affect any 3year geographic reclassifications that
went into effect beginning in FY 2009.
Further, in response to public comments
on the FY 2009 IPPS proposed rule, we
decided to adopt the revised
reclassification criteria over a 2-year
transitional period. Hospitals will be
subject to the 88 percent criteria for
urban and group reclassifications (86
percent for rural areas) for 3-year
geographic reclassifications beginning
for FY 2011 applications due to the
MGCRB no later than 5 p.m. (EST) on
September 1, 2009.
Finally, in the FY 2009 IPPS final rule
and in section III.B.1.b. of the preamble
of this final rule, we discuss our
contract with Acumen to assist us in
studying the wage index and the
MedPAC recommendations, and also to
assist us in developing other proposals
for reforming the wage index. At this
time, the study is still in progress and
Acumen intends to issue its final report
this year. We will consider possible
additional changes to the wage index
through the formal rulemaking process
after our review of Acumen’s final
report and recommendations.
b. Within-State Budget Neutrality
Adjustment for the Rural and Imputed
Floors
In the FY 2009 IPPS final rule, we
adopted State level budget neutrality
(rather than the national budget
neutrality adjustment) for the rural and
imputed floors, to be effective beginning
with the FY 2009 wage index. The
transition from the national budget
neutrality adjustment to the State level
budget neutrality adjustment is being
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phased in over a 3-year period. In FY
2009, hospitals received a blended wage
index that was 20 percent of a wage
index with the State level rural and
imputed floor budget neutrality
adjustment and 80 percent of a wage
index with the national budget
neutrality adjustment. In FY 2010, the
blended wage index reflects 50 percent
of the State level adjustment and 50
percent of the national adjustment. In
FY 2011, the adjustment will be
completely transitioned to the State
level methodology.
In the FY 2009 IPPS final rule, we
incorporated this policy in our
regulation at § 412.64(e)(4). Specifically,
we provided that CMS makes an
adjustment to the wage index to ensure
that aggregate payments after
implementation of the rural floor under
section 4410 of the Balanced Budget Act
of 1997 (Pub. L. 105–33) and the
imputed rural floor under § 412.64(h)(4)
are made in a manner that ensures that
aggregate payments to hospitals are not
affected and that, beginning October 1,
2008, CMS would transition from a
nationwide adjustment to a statewide
adjustment, with a statewide adjustment
fully in place by October 1, 2010. We
note that the imputed floor expires on
September 30, 2011 (as discussed in
section III.H. of this preamble).
Comment: Several commenters
requested that CMS repeal its decision
to apply a State level budget neutrality
adjustment for the rural and imputed
floors. The commenters cited the
disparity between the severe negative
economic consequences of the policy for
States with hospitals receiving a floor
payment, compared to the relatively
minor benefits received by nonfloor
States. Multiple commenters pointed
out that, because numerous other
aspects of the Medicare wage index
either cross State lines (CBSAs), or are
modeled on national budget neutrality
(geographic reclassification and outlier
payments), they were concerned that a
State-specific adjustment establishes a
poor precedent and violates the intent of
the legislation that established the rural
floor.
Response: We disagree that a State
level budget neutrality adjustment
establishes a poor precedent. Unlike
geographic reclassification or outlier
payment budget neutrality adjustments,
the construction of the rural and
imputed floors requires that wage index
comparisons be made between labor
market areas within a specific State.
Analysis in the FY 2009 IPPS final rule
demonstrated how, at a State-by-State
level, the rural and imputed floors
create a benefit for a minority of States
that is then funded by a majority of
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States, including States that are
overwhelmingly rural in character. In
the FY 2009 IPPS final rule, we also
explained that because the imputed and
rural floor comparisons occur at the
State level, we believed it would be
sound policy to make the budget
neutrality adjustment specific to the
State, redistributing payments among
hospitals within the State, rather than
adjusting payments to hospitals in other
States. In the FY 2009 IPPS final rule,
we adopted a 3-year phase-in to address
the concerns that such a transition in
policy may lead to sudden decreases in
payments for certain providers. FY 2010
will mark the second year of this
transition, with a 50-percent national,
50-percent within-State budget
neutrality adjustment. We believe that
this transition period will continue to
mitigate any negative impacts on
affected hospitals while we proceed
towards the planned adoption of 100percent within-State budget neutrality
in FY 2011.
In addition, we do not believe the
legislative history demonstrates an
intent for a particular type of budget
neutrality adjustment. The Conference
Report for the rural floor states: ‘‘The
Secretary would be required to make
any adjustments in the wage index in a
budget neutral manner.’’ (H.R. Conf.
Rep. No. 105–217, 105th Cong., 1st Sess.
at 712) However, the report does not
reference a national budget neutrality
adjustment, as compared to a statewide
budget neutrality adjustment. Both the
legislative history and the plain
language of the rural floor provision
anticipate that the Secretary would have
administrative discretion regarding the
‘‘manner’’ of the budget neutrality
adjustment. Section 4410(b) of the BBA
of 1997 (Pub. L. 105–33) requires that
the Secretary adjust wage indices ‘‘in a
manner which assures that the aggregate
payments made under section 1886(d)
of the Social Security Act * * * in a
fiscal year for the operating costs of
inpatient hospital services are not
greater or less than those which would
be made in the year if this section did
not apply.’’ Thus, Congress provided
discretion to the Secretary to determine
the manner of ensuring that the rural
floor did not increase costs above what
they would have been in the absence of
the rural floor, and the Secretary has
exercised such discretion through the
adoption of a statewide adjustment.
Comment: A number of commenters
in an all-urban State urged CMS to make
the imputed floor a permanent
provision. The commenters explained
that their State is geographically
disadvantaged because it is bordered by
two of the five largest cities in the
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United States, and the hospitals in the
State have to compete with those larger
cities for labor resources and patients.
The commenters noted that, when CMS
adopted the imputed floor policy in the
FY 2005 IPPS final rule (69 FR 49109),
CMS acknowledged a concern by some
individuals that hospitals in all-urban
States are financially and competitively
disadvantaged in the absence of an
imputed floor wage index. The
commenters stated that CMS has
provided no rationale for discontinuing
the imputed floor after FY 2011 and has
provided no documentation to support
that the ‘‘anomalous’’ situation, as it
was described by CMS in the FY 2005
IPPS final rule, has changed for allurban States.
Response: We appreciate the
commenter’s concern about the imputed
floor. However, we made no proposals
regarding the imputed floor in the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule. Therefore, we are making no
decisions in this final rule regarding any
future extension of the imputed floor.
We will address the imputed floor
policy in the FY 2011 IPPS proposed
rule, which will allow for opportunity
for public comment.
Comment: One commenter requested
clarification as to the discrepancy
between rural and imputed floor budget
neutrality factors referenced in the
proposed rule (1.00016 referenced at 74
FR 24243 (the Addendum to the
proposed rule) and 1.000017 referenced
at 74 FR 24663 (Appendix A to the
proposed rule)).
Response: We have included an
updated budget neutrality factor in
section I.A.4.c. of the Addendum to this
final rule, along with an explanation in
section VI.I of Appendix A to this final
rule of why the adjustment amounts
varied in the proposed rule.
Comment: One commenter requested
CMS to explain how the rural floor
budget neutrality adjustment is
performed so that it can be certified and
compared to prior years. The
commenter also expressed concerns
about how State level budget neutrality
may complicate a hospital’s geographic
reclassification application process, may
result in rural hospitals with high wage
indices being significantly
disadvantaged, and may cause
deviations in payments between
hospital reclassifications into a labor
market from an adjoining State.
Response: We provided ample details
of the iterative rural floor budget
neutrality calculation process in the FY
2008 IPPS final rule with comment
period (72 FR 47325 through 4733). In
the FY 2009 IPPS final rule (73 FR
48574), we further explained how the
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same calculation process will be used to
phase in a State level budget neutrality
adjustment.
In response to the commenter’s other
concerns, the specific scenarios
presented may occur regardless of how
rural and imputed floor budget
neutrality is achieved. The application
of the rural floor itself, despite a
national or a State level budget
neutrality adjustment, may result in
situations where hospitals classified or
reclassified to the same labor market
area may receive differing wage indices.
Hospitals always must evaluate multiple
scenarios when determining whether to
apply for a reclassification or withdraw
a geographic reclassification request. We
provide the best information available
in the IPPS proposed rule to facilitate
these decisions and allow hospitals a
45-day period following publication of
the proposed rule to evaluate their
options.
C. Core-Based Statistical Areas for the
Hospital Wage Index
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).
As with the FY 2009 final rule, in the
FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24139), we
proposed to provide that hospitals
receive 100 percent of their wage index
based upon the CBSA configurations.
Specifically, for each hospital, we
proposed to determine a wage index for
FY 2010 employing wage index data
from hospital cost reports for cost
reporting periods beginning during FY
2006 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, it has been our longstanding
policy that where an MSA has been
divided into Metropolitan Divisions, we
consider the Metropolitan Division to
comprise the labor market areas for
purposes of calculating the wage index
(69 FR 49029) (regulations at
§ 412.64(b)(1)(ii)(A)).
On November 20, 2008, OMB
announced three Micropolitan
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Statistical Areas that now qualify as
MSAs (OMB Bulletin No. 09–01). The
new urban CBSAs are as follows:
• Cape Girardeau-Jackson, MissouriIllinois (CBSA 16020). This CBSA is
comprised of the principal cities of Cape
Girardeau and Jackson, Missouri in
Alexander County, Illinois; Bollinger
County, Missouri, and Cape Girardeau
County, Missouri.
• Manhattan, Kansas (CBSA 31740).
This CBSA is comprised of the principal
city of Manhattan, Kansas in Geary
County, Pottawatomie County, and
Riley County.
• Mankato-North Mankato,
Minnesota (CBSA 31860). This CBSA is
comprised of the principal cities of
Mankato and North Mankato, Minnesota
in Blue Earth County and Nicollet
County.
OMB also changed the principal cities
and titles of a number of CBSAs and a
Metropolitan Division, as follows:
• Broomfield, Colorado qualifies as a
new principal city of the DenverAurora, Colorado CBSA. The new title
is Denver-Aurora-Broomfield, Colorado
CBSA.
• Chapel Hill, North Carolina
qualifies as a new principal city of the
Durham, North Carolina CBSA. The new
title is Durham-Chapel Hill, North
Carolina CBSA.
• Chowchilla, California qualifies as a
new principal city of the Madera,
California CBSA. The new title is
Madera-Chowchilla, California CBSA.
• Panama City Beach, Florida
qualifies as a new principal city of the
Panama City-Lynn Haven, Florida
CBSA. The new title is Panama CityLynn Haven-Panama City Beach, Florida
CBSA.
• East Wenatchee, Washington
qualifies as a new principal city of the
Wenatchee, Washington CBSA. The new
title is Wenatchee-East Wenatchee,
Washington CBSA.
• Rockville, Maryland replaces
Gaithersburg, Maryland as the third
most populous city of the BethesdaFrederick-Gaithersburg, Maryland
Metropolitan Division. The new title is
Bethesda-Frederick-Rockville, Maryland
Metropolitan Division.
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, 2009.
We note that several public
commenters who responded to the
proposed rule expressed their concerns
that CAHs in the new MSAs will lose
their CAH status and be forced to
convert to IPPS hospitals because the
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areas will be designated as urban
instead of rural. The commenters
recalled that the same situation
occurred in FY 2005 when CMS
adopted OMB’s CBSA definitions. At
that time, CMS allowed CAHs located in
rural counties that became urban to
maintain their CAH status for 2 years
(69 FR 49221). If these CAHs were
unable in 2 years to obtain rural status
under § 412.103, they were required to
convert to IPPS status. A more detailed
discussion of the public comments and
our response is included in section
VII.C. of the preamble of this final rule.
D. Occupational Mix Adjustment to the
FY 2010 Wage Index
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
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 FY 2010
Occupational Mix Adjustment Based on
the 2007–2008 Occupational Mix
Survey
As provided for under section
1886(d)(3)(E) of the Act, we collect data
every 3 years on the occupational mix
of employees for each short-term, acute
care hospital participating in the
Medicare program. For the FY 2009
hospital wage index, we used data from
the 2006 Medicare Wage Index
Occupational Mix Survey (the 2006
survey) to calculate the occupational
mix adjustment. In the 2006 survey, we
included several modifications to the
original occupational mix survey, 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.
The 2006 survey provided for the
collection of hospital-specific wages and
hours data, a 6-month prospective
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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 focused
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 had four subcategories:
Registered nurses, licensed practical
nurses, aides, orderlies, attendants, and
medical assistants. The registered nurse
subcategory included 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. To allow flexibility for
the reporting period beginning and
ending dates to accommodate some
hospitals’ biweekly payroll and
reporting systems, we modified the 6month data collection period for the
2006 survey from January 1, 2006,
through June 30, 2006, to a 6-month
reporting period that began on or after
December 25, 2005, and ended before
July 9, 2006. OMB approved the revised
2006 occupational mix survey (Form
CMS–10079 (2006)) on April 25, 2006.
The original timelines for the collection,
review, and correction of the 2006
occupational mix data were discussed
in detail in the FY 2007 IPPS final rule
(71 FR 48008).
As we proposed, for the FY 2010
hospital wage index, we used
occupational mix data collected on a
revised 2007–2008 Medicare Wage
Index Occupational Mix Survey (the
2007–2008 survey) to compute the
occupational mix adjustment for FY
2010. In the FY 2008 IPPS final rule
with comment period (72 FR 47315), we
discussed how we modified the 2006
occupational mix survey. The revised
2007–2008 occupational mix survey
provided for the collection of hospitalspecific wages and hours data for the 1year period of 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.
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On February 2, 2007, we published in
the Federal Register a notice soliciting
comments on the proposed revisions to
the 2006 occupational mix survey (72
FR 5055). The comment period for the
notice ended on April 3, 2007. After
considering the comments we received,
we made a few minor editorial changes
and published the final 2007–2008
occupational mix survey on September
14, 2007 (72 FR 52568). OMB approved
the survey without change on February
1, 2008 (OMB Control Number 0938–
0907). The 2007–2008 Medicare
occupational mix survey (Form CMS–
10079 (2008)) is available on the CMS
Web site at: https://www.cms.hhs.gov/
AcuteInpatientPPS/WIFN/
list.asp#TopOfPage, and through the
fiscal intermediaries/MACs. Hospitals
were required to submit their completed
surveys to their fiscal intermediaries/
MACs by September 2, 2008. The
preliminary, unaudited 2007–2008
occupational mix survey data were
released in early October 2008, along
with the FY 2006 Worksheet S–3 wage
data, for the FY 2010 wage index review
and correction process.
2. Calculation of the Occupational Mix
Adjustment for FY 2010
For FY 2010 (as we did for FY 2009),
we are calculating 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. Repeat this
computation for each of the four nursing
subcategories: Registered nurses;
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 four 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
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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 is 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 is 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.G.
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
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.G. of this
preamble).
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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
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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. The FY 2010 occupational mix
adjusted national average hourly wage is
$33.5268.
Step 11—To compute the
occupational mix adjusted wage index,
divide each area’s occupational mix
adjusted average hourly wage (Step 9)
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43829
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 FY 2010 occupational mix adjusted
Puerto Rico-specific average hourly
wage is $14.2555.
The table below is an illustrative
example of the occupational mix
adjustment.
BILLING CODE 4120–01–P
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Because the occupational mix
adjustment is required by statute, all
hospitals that are subject to payments
under the IPPS, or any hospital that
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 2010 wage index. For the
FY 2007–2008 survey, the response rate
was 89 percent.
In computing the FY 2010 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. 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 proposed occupational
mix adjustment, we applied the national
occupational mix factor of 1.0000 in
calculating the area’s FY 2010
occupational mix adjusted wage index.
(We indicated in the FY 2008 and FY
2009 IPPS final rules that we reserve the
right to apply a different approach in
future years, including potentially
penalizing nonresponsive hospitals (72
FR 47314).) In addition, if a hospital
submitted a survey, but that survey data
cannot be used because we determine 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 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
occupational mix adjustment factor
ranged from a low of 0.9252 (CBSA
17780, College Station-Bryan, TX), to a
high of 1.0933 (CBSA 29700, Laredo,
TX). Also, in computing a hospital’s
occupational mix adjusted salaries and
wage-related costs for nursing
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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 2010, there are 7
CBSAs (that include 15 hospitals) for
which we did not have occupational
mix data for any of its hospitals. The
CBSAs are:
• CBSA 21940—Fajardo, PR (one
hospital)
• CBSA 22140—Farmington, NM (one
hospital)
• CBSA 25020—Guayama, PR (three
hospitals)
• CBSA 36140—Ocean City, NJ (one
hospital)
• CBSA 38660—Ponce, PR (six
hospitals)
• CBSA 41900—San German-Cabo Rojo,
PR (two hospitals)
• CBSA 49500—Yauco, PR (one
hospital)
Since the FY 2007 IPPS final rule, we
have periodically discussed applying a
hospital-specific penalty to hospitals
that fail to submit occupational mix
survey data. (71 FR 48013 through
48014; 72 FR 47314 through 47315; and
73 FR 48580). During the FY 2008
rulemaking cycle, some commenters
suggested a penalty equal to a 1- to 2percent reduction in the hospital’s wage
index value or a set percentage of the
standardized amount. During the FY
2009 rulemaking cycle, several
commenters reiterated their view that
full participation in the occupational
mix survey is critical, and that CMS
should develop a methodology that
encourages hospitals to report
occupational mix survey data but does
not unfairly penalize neighboring
hospitals. However, to date, we have not
adopted a penalty for hospitals that fail
to submit occupational mix data.
After review of the data for the
proposed FY 2010 wage index, we
became concerned about the increasing
number of hospitals that fail to submit
occupational mix data and the impact it
may have on area wage indices. The
survey response rate has dropped
significantly from 93.8 percent for the
2003 survey to 90.7 percent for the 2006
survey and 90.3 percent for the 2007–
2008 survey. In 40 CBSAs, the response
rate was under 70 percent. In addition,
for 50 areas, including New York-White
Plains-Wayne, New York-New Jersey
(35644), Oklahoma City, Oklahoma
(36420), Rural Georgia (11), Rural
Oklahoma (37), Dallas-Plano-Irving, TX
(19124), Newark-Union, NJ–PA (35084),
and Fort Worth-Arlington, TX (23104),
the area response rate decreased 15
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percent or more between the 2006
survey and the 2007–2008 survey. In all
of Puerto Rico, only 21.6 percent of
hospitals submitted 2007–2008 survey
data. If we had proposed to apply a
penalty for nonresponsive hospitals for
the FY 2010 wage index, Puerto Rico
hospitals would have been significantly
adversely affected in both the proposed
national and Puerto Rico-specific wage
indices. We indicated in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
that, while we were not proposing a
penalty at that time, we would consider
the public comments we previously
received, as well as any public
comments on the proposed rule, as we
develop the proposed FY 2011 wage
index. One approach that we will
explore is to assign any nonresponsive
hospital the occupational mix factor
deriving from the survey that would
result in the greatest negative
adjustment to the hospital’s wage index.
We also will consider applying the same
penalty to hospitals that submit
unusable occupational mix data.
Although we would apply this penalty
factor in establishing the hospital’s
payment rate, we would not use this
factor in computing the area’s wage
index. Rather, in computing the area
wage index, we would apply the same
methodology as described above (that is,
assign the nonresponsive hospital the
average occupational mix adjustment
factor for the labor market area) so that
other hospitals in the area are minimally
impacted by the hospital’s failure to
submit occupational mix data. Again,
we note that we reserve the right to
penalize nonresponsive hospitals in the
future. In the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule, we welcomed
public comments on this matter and
indicated that we would address this
issue in next year’s IPPS proposed rule.
Comment: Several commenters
indicated that they share CMS’ concerns
about the increasing number of
hospitals that fail to submit
occupational mix data. The commenters
contended that accuracy and fairness in
the occupational mix adjustment will
only be achieved through 100 percent
hospital participation and agreed that
CMS should consider a penalty for
hospitals that do not participate. The
commenters suggested that CMS should
not simply substitute unfavorable
occupational mix data for noncompliant
hospitals because it could unfairly
penalize other neighboring hospitals
that are diligent in reporting their data.
Some commenters recommended that
CMS apply a percentage adjustment to
the standardized rate or to the wage
index that would reduce Medicare
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payment to nonparticipating hospitals,
similar to the slight payment differential
for hospitals failing to provide quality
data. One commenter added that the
penalty should be applied in a budget
neutral manner. Another commenter
suggested that the penalty should be
applied to inpatient and outpatient
payments. The commenters also
recommended an appeal process that
would allow hospitals to rectify the
situation when the Medicare contractor
or CMS determines that a hospital’s data
were not submitted, not acceptable, or
unusable.
Response: We appreciate all of the
comments and suggestions we received
regarding a penalty for hospitals that do
not participate in the occupational mix
survey. We will consider these
comments and other methods in
developing a proposal for the FY 2011
IPPS proposed rule.
Comment: Several commenters gave
suggestions for improving the next
update of the occupational mix survey.
(The 2007–2008 survey will expire with
the FY 2012 wage index.) Suggestions
included the following:
• Use calendar year 2010 instead of
the 12 months ending June 30, 2011.
• Add unit secretaries because their
duties are similar to the administrative
functions of nurses and medical
assistants.
• Add an ‘‘all other nursing’’ category
to capture all employees in the specified
cost centers who are not in the specific
categories (for example, emergency
medical technicians and instrument
technicians). This will help CMS and
others to quantify the percent of nursing
cost center employees that are not
covered under the survey categories.
• Revise the Medicare cost report to
include the occupational mix survey
data.
Response: Although we made no
proposals in the FY 2010 proposed rule
regarding the next update of the
occupational mix survey, we appreciate
receiving these comments and will
consider them as we plan and develop
the new survey. As with prior updates
to the occupational mix survey, we will
publish a notice of proposed data
collection with a comment period,
through the Paperwork Reduction Act
process, in a future Federal Register.
E. Worksheet S–3 Wage Data for the FY
2010 Wage Index
The FY 2010 wage index values are
based on the data collected from the
Medicare cost reports submitted by
hospitals for cost reporting periods
beginning in FY 2006 (the FY 2009 wage
index was based on FY 2005 wage data).
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1. Included Categories of Costs
The FY 2010 wage index includes the
following categories of data associated
with costs paid under the IPPS (as well
as outpatient costs):
• Salaries and hours from short-term,
acute care hospitals (including paid
lunch hours and hours associated with
military leave and jury duty).
• Home office costs and hours.
• Certain contract labor costs and
hours (which include direct patient
care, certain top management,
pharmacy, laboratory, and nonteaching
physician Part A services, and certain
contract indirect patient care services
(as discussed in the FY 2008 final rule
with comment period (72 FR 47315)).
• Wage-related costs, including
pensions and other deferred
compensation costs. We note that, on
March 28, 2008, CMS published a
technical clarification to the cost
reporting instructions for pension and
deferred compensation costs (sections
2140 through 2142.7 of the Provider
Reimbursement Manual, Part I). These
instructions are used for developing
pension and deferred compensation
costs for purposes of the wage index, as
discussed in the instructions for
Worksheet S–3, Part II, Lines 13 through
20 and in the FY 2006 IPPS final rule
(70 FR 47369).
Comment: Several commenters
addressed our policy for determining
pension costs for the wage index. The
commenters acknowledged that they
have raised many of their arguments,
such as arguments regarding
retroactivity, before the Provider
Reimbursement Review Board (PRRB).
Response: First, we did not propose to
make any changes to, nor request public
comments on, reporting pension costs
for the wage index. Therefore, we
consider the public comments received
on this issue outside of the scope of this
rulemaking. Further, we already
discussed our policies for reporting
pension costs in the FY 2006 IPPS final
rule (70 FR 47369). We note that the
policy for reporting pension costs for
the wage index currently can be found
in section 3605.2 of the Provider
Reimbursement Manual (PRM), Part II,
and section 2142 of PRM, Part I. We
expect that purely legal arguments, such
as arguments on retroactivity, will be
addressed through the adjudication
process.
2. Excluded Categories of Costs
Consistent with the wage index
methodology for FY 2009, the wage
index for FY 2010 also excludes the
direct and overhead salaries and hours
for services not subject to IPPS payment,
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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 FY
2010 wage index 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).
3. 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 (HHAs), 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, other than for LTCHs.
(Beginning with this final rule, for the
RY 2010, we are including in the same
document updates to the LTCH PPS.)
Such comments should be made in
response to separate proposed rules for
those providers.
F. Verification of Worksheet S–3 Wage
Data
The wage data for the FY 2010 wage
index were obtained from Worksheet
S–3, Parts II and III of the FY 2006
Medicare cost reports. Instructions for
completing Worksheet S–3, Parts II and
III are in the Provider Reimbursement
Manual (PRM), Part II, sections 3605.2
and 3605.3. The data file used to
construct the wage index includes FY
2006 data submitted to us as of March
2, 2009. As in past years, we performed
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.
For the proposed FY 2010 wage index,
we identified and excluded 34 providers
with data that were too aberrant to
include in the proposed wage index,
although we stated that if data elements
for some of these providers were
corrected, we intended to include some
of these providers in the FY 2010 final
wage index. We instructed fiscal
intermediaries/MACs to complete their
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data verification of questionable data
elements and to transmit any changes to
the wage data no later than April 15,
2009. The data for 2 of the hospitals
identified in the proposed rule were
resolved; however, the data for 8
additional hospitals were identified as
too aberrant to include in the final wage
index. Therefore, we determined that
the data for 40 hospitals (that is, 34
¥ 2 + 8 = 40) should not be included
in the FY 2010 final wage index.
In constructing the FY 2010 wage
index, we included the wage data for
facilities that were IPPS hospitals in FY
2006, inclusive of those facilities that
have since terminated their
participation in the program as
hospitals, as long as those data did 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
and to ensure that the current wage
index represents the labor market area’s
current wages as compared to the
national average of wages. However, we
excluded the wage data for CAHs as
discussed in the FY 2004 IPPS final rule
(68 FR 45397). For this final rule, we
removed 17 hospitals that converted to
CAH status between February 18, 2008,
the cut-off date for CAH exclusion from
the FY 2009 wage index, and February
16, 2009, the cut-off date for CAH
exclusion from the FY 2010 wage index.
After removing hospitals with aberrant
data and hospitals that converted to
CAH status, the FY 2010 wage index is
calculated based on 3,519 hospitals.
In the FY 2008 final rule with
comment period (72 FR 47317) and the
FY 2009 IPPS final rule (73 FR 48582),
we discussed our policy for allocating a
multicampus hospital’s wages and
hours data, by full-time equivalent
(FTE) staff, among the different labor
market areas where its campuses are
located. During the FY 2010 wage index
desk review process, we requested fiscal
intermediaries/MACs to contact
multicampus hospitals that had
campuses in different labor market areas
to collect the data for the allocation. As
we proposed, the FY 2010 wage index
in this final rule includes separate wage
data for campuses of three multicampus
hospitals.
For FY 2010, we are again allowing
hospitals to use FTE or discharge data
for the allocation of a multicampus
hospital’s wage data among the different
labor market areas where its campuses
are located. The Medicare cost report
was updated in May 2008 to provide for
the reporting of FTE data by campus for
multicampus hospitals. Because the
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data from cost reporting periods that
begin in FY 2008 will not be used in
calculating the wage index until FY
2012, a multicampus hospital will still
have the option, through the FY 2011
wage index, to use either FTE or
discharge data for allocating wage data
among its campuses by providing the
information from the applicable cost
reporting period to CMS through its
fiscal intermediary/MAC. Two of the
three multicampus hospitals chose to
have their wage data allocated by their
Medicare discharge data for the FY 2010
wage index. One of the hospitals
provided FTE staff data for the
allocation. The average hourly wage
associated with each geographical
location of a multicampus hospital is
reflected in Table 2 of the Addendum to
this final rule.
G. Method for Computing the FY 2010
Unadjusted Wage Index
The method used to compute the FY
2010 wage index without an
occupational mix adjustment follows:
Step 1—As noted above, we are
basing the FY 2010 wage index on wage
data reported on the FY 2006 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, 2005,
and before October 1, 2006. In addition,
we included data from some hospitals
that had cost reporting periods
beginning before October 2005 and
reported a cost reporting period
covering all of FY 2005. 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 2005 data. We note
that, if a hospital had more than one
cost reporting period beginning during
FY 2006 (for example, a hospital had
two short cost reporting periods
beginning on or after October 1, 2005,
and before October 1, 2006), we
included 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
included 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. (We note that,
beginning with FY 2008 (72 FR 47315),
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we include Lines 22.01, 26.01, and
27.01 of Worksheet S–3, Part II for
overhead services in the wage index.
However, we note that the wages and
hours on these lines are not
incorporated into Line 101, Column 1 of
Worksheet A, which, through the
electronic cost reporting software, flows
directly to Line 1 of Worksheet S–3, Part
II. Therefore, the first step in the wage
index calculation for FY 2010 is to
compute a ‘‘revised’’ Line 1, by adding
to the Line 1 on Worksheet S–3, Part II
(for wages and hours respectively) the
amounts on Lines 22.01, 26.01, and
27.01.) In calculating a hospital’s
average salaries plus wage-related 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 wagerelated 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
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
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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 minus the sum of lines
22.01, 26.01, and 27.01) to revised hours
excluding the sum of lines 22.01, 26.01,
and 27.01 (Line 1 minus the sum of
Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8,
8.01, 22.01, 26.01, and 27.01). (We note
that for the FY 2008 and subsequent
wage index calculations, we are
excluding the sum of lines 22.01, 26.01,
and 27.01 from the determination of the
ratio of overhead hours to revised hours
because hospitals typically do not
provide fringe benefits (wage-related
costs) to contract personnel. Therefore,
it is not necessary for the wage index
calculation to exclude overhead wagerelated costs for contract personnel.
Further, if a hospital does contribute to
wage-related costs for contracted
personnel, the instructions for Lines
22.01, 26.01, and 27.01 require that
associated wage-related costs be
combined with wages on the respective
contract labor lines.); (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’
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
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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, as we
proposed, we are not making any
changes to the usage for FY 2010. 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
After
10/14/2005
11/14/2005
12/14/2005
01/14/2006
02/14/2006
03/14/2006
04/14/2006
05/14/2006
06/14/2006
07/14/2006
08/14/2006
09/14/2006
10/14/2006
11/14/2006
12/14/2006
01/14/2007
02/14/2007
03/14/2007
Before
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
11/15/2005
12/15/2005
01/15/2006
02/15/2006
03/15/2006
04/15/2006
05/15/2006
06/15/2006
07/15/2006
08/15/2006
09/15/2006
10/15/2006
11/15/2006
12/15/2006
01/15/2007
02/15/2007
03/15/2007
04/15/2007
Adjustment
factor
1.04966
1.04632
1.04296
1.03955
1.03610
1.03269
1.02936
1.02613
1.02298
1.01990
1.01688
1.01391
1.01098
1.00808
1.00526
1.00257
1.00000
0.99745
For example, the midpoint of a cost
reporting period beginning January 1,
2006, and ending December 31, 2006, is
June 30, 2006. An adjustment factor of
1.02298 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
2006 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.
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43835
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
sum of total hours from Step 4 to arrive
at a national average hourly wage. Using
the data as described above, the national
average hourly wage (unadjusted for
occupational mix) is $33.5491.
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 average hourly wage (unadjusted
for occupational mix) of $14.2462 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 Public Law
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. The areas affected by
this provision are identified in Table
4D–2 of the Addendum to this final
rule.
In the FY 2005 IPPS final rule (69 FR
49109), we adopted the ‘‘imputed’’ floor
as a temporary 3-year measure to
address a concern by some individuals
that hospitals in all-urban States were
disadvantaged by the absence of rural
hospitals to set a wage index floor in
those States. The imputed floor was
originally set to expire in FY 2007, but
we extended it an additional year in the
FY 2008 IPPS final rule with comment
period (72 FR 47321). In the FY 2009
IPPS final rule (73 FR 48570 through
48574 and 48584), we extended the
imputed floor for an additional 3 years,
through FY 2011.
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Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations
H. Analysis and Implementation of the
Occupational Mix Adjustment and the
FY 2010 Occupational Mix Adjustment
Wage Index
As discussed in section III.D. of this
preamble, for FY 2010, we apply the
occupational mix adjustment to 100
percent of the FY 2010 wage index. We
calculated the occupational mix
adjustment using data from the 2007–
2008 occupational mix survey data,
using the methodology described in
section III.D.3. of this preamble.
Using the occupational mix survey
data and applying the occupational mix
adjustment to 100 percent of the FY
2010 wage index results in a national
average hourly wage of $33.5268 and a
Puerto Rico-specific average hourly
wage of $14.2555. After excluding data
of hospitals that either submitted
aberrant data that failed critical edits, or
that do not have FY 2006 Worksheet S–
3 cost report data for use in calculating
the FY 2010 wage index, we calculated
the FY 2010 wage index using the
occupational mix survey data from
3,178 hospitals. Using the Worksheet
S–3 cost report data of 3,519 hospitals
and occupational mix survey data from
3,178 hospitals represents a 90.3 percent
survey response rate. The FY 2010
national average hourly wages for each
occupational mix nursing subcategory
as calculated in Step 2 of the
occupational mix calculation are as
follows:
Average hourly
wage
Occupational mix nursing subcategory
sroberts on DSKD5P82C1PROD with RULES
National
National
National
National
National
RN .................................................................................................................................................................................
LPN and Surgical Technician ........................................................................................................................................
Nurse Aide, Orderly, and Attendant ..............................................................................................................................
Medical Assistant ..........................................................................................................................................................
Nurse Category .............................................................................................................................................................
The national average hourly wage for
the entire nurse category as computed in
Step 5 of the occupational mix
calculation is $30.482374867. Hospitals
with a nurse category average hourly
wage (as calculated in Step 4) of greater
than the national nurse category average
hourly wage receive an occupational
mix adjustment factor (as calculated in
Step 6) of less than 1.0. Hospitals with
a nurse category average hourly wage (as
calculated in Step 4) of less than the
national nurse category average hourly
wage receive an occupational mix
adjustment factor (as calculated in Step
6) of greater than 1.0.
Based on the July 2007 through June
2008 occupational mix survey data, we
determined (in Step 7 of the
occupational mix calculation) that the
national percentage of hospital
employees in the nurse category is 44.31
percent, and the national percentage of
hospital employees in the all other
occupations category is 55.69 percent.
At the CBSA level, the percentage of
hospital employees in the nurse
category ranged from a low of 29.08
percent in one CBSA, to a high of 70.76
percent in another CBSA.
We compared the FY 2010
occupational mix adjusted wage indices
for each CBSA to the unadjusted wage
indices for each CBSA. As a result of
applying the occupational mix
adjustment to the wage data, the wage
index values for 205 (52.4 percent)
urban areas and 32 (68.1 percent) rural
areas will increase. One hundred and
six (27.1 percent) urban areas will
increase by 1 percent or more, and 5 (1.3
percent) urban areas will increase by 5
percent or more. Nineteen (40.4 percent)
rural areas will increase by 1 percent or
more, and no rural areas will increase
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19:22 Aug 26, 2009
Jkt 217001
by 5 percent or more. However, the
wage index values for 186 (47.6 percent)
urban areas and 14 (29.8 percent) rural
areas will decrease. Eighty-eight (22.5
percent) urban areas will decrease by 1
percent or more, and no urban area will
decrease by 5 percent or more. Seven
(14.9 percent) rural areas will decrease
by 1 percent or more, and no rural areas
will decrease by 5 percent or more. The
largest positive impacts are 7.83 percent
for an urban area and 2.97 percent for
a rural area. The largest negative
impacts are 3.90 percent for an urban
area and 2.32 percent for a rural area.
One rural area is unaffected. These
results indicate that a larger percentage
of rural areas (68.1 percent) benefit from
the occupational mix adjustment than
do urban areas (52.4 percent). While
these results are more positive overall
for rural areas than under the previous
occupational mix adjustment that used
survey data from 2006, approximately
one-third (29.8 percent) of rural CBSAs
will still experience a decrease in their
wage indices as a result of the
occupational mix adjustment.
We also compared the FY 2010 wage
data adjusted for occupational mix from
the 2007–2008 survey to the FY 2010
wage data adjusted for occupational mix
from the 2006 survey. This analysis
illustrates the effect on area wage
indices of using the 2007–2008 survey
data compared to the 2006 survey data;
that is, it shows whether hospitals’ wage
indices are increasing or decreasing
under the current survey data as
compared to the prior survey data. Our
analysis shows that the FY 2010 wage
index values for 185 (47.3 percent)
urban areas and 19 (40.4 percent) rural
areas will increase. Sixty-two (15.9
percent) urban areas will increase by 1
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$36.071788464
20.882610908
14.619113985
16.486068445
30.482374867
percent or more, and no urban areas will
increase by 5 percent or more. One (2.1
percent) rural area will increase by 1
percent or more, and no rural areas will
increase by 5 percent or more. However,
the wage index values for 202 (51.7
percent) urban areas and 28 (59.6
percent) rural areas will decrease using
the 2007–2008 data. Fifty-five (14.1
percent) urban areas will decrease by 1
percent or more, and one (0.26 percent)
urban area will decrease by 5 percent or
more. Three (6.4 percent) rural areas
will decrease by 1 percent or more, and
no rural areas will decrease by 5 percent
or more. The largest positive impacts
using the 2007–2008 data compared to
the 2006 data are 4.32 percent for an
urban area and 2.34 percent for a rural
area. The largest negative impacts are
6.46 percent for an urban area and 4.40
percent for a rural area. Four urban
areas and no rural areas will be
unaffected. These results indicate that a
larger percentage of urban areas (47.3
percent) will benefit from the 2007–
2008 occupational mix survey as
compared to the 2006 survey than will
rural areas (40.4 percent). Further, the
wage indices of more CBSAs overall
(52.5 percent) will be decreasing due to
application of the 2007–2008
occupational mix survey data as
compared to the 2006 survey data to the
wage index. However, as noted in the
analysis above, a greater percentage of
rural areas (68.1 percent) will benefit
from the application of the occupational
mix adjustment than will urban areas.
The wage index values for FY 2010
(except those for hospitals receiving
wage index adjustments under section
1886(d)(13) of the Act) included in
Tables 4A, 4B, 4C, and 4F of the
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Addendum to this final rule include the
occupational mix adjustment.
Tables 3A and 3B in the Addendum
to this final rule list the 3-year average
hourly wage for each labor market area
before the redesignation of hospitals
based on FYs 2008, 2009, and 2010 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 final
rule includes the adjusted average
hourly wage for each hospital from the
FY 2004 and FY 2005 cost reporting
periods, as well as the FY 2006 period
used to calculate the FY 2010 wage
index. The 3-year 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
average hourly wages in Tables 2, 3A,
and 3B in the Addendum to this final
rule include the occupational mix
adjustment. The wage index values in
Tables 4A, 4B, 4C, and 4D–1 also
include the State-specific rural floor and
imputed floor budget neutrality
adjustments.
sroberts on DSKD5P82C1PROD with RULES
I. Revisions to the Wage Index Based on
Hospital Redesignations
1. General
Under section 1886(d)(10) of the Act,
the MGCRB considers applications by
hospitals for geographic reclassification
for purposes of payment under the IPPS.
Hospitals must apply to the MGCRB to
reclassify 13 months prior to the start of
the fiscal year for which reclassification
is sought (generally by September 1).
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 42 CFR 412.230 through
412.280.
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 average
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hourly wage data from the 3 most
recently published hospital wage
surveys in evaluating a hospital’s
reclassification application for FY 2003
and any succeeding fiscal year.
Section 304(b) of Public Law 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 42 CFR 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 labor market area 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 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.
Eligible counties are discussed and
identified under section III.I.5. 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 are applicable
both to the hospitals 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:
• 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
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43837
wage data for the redesignated hospitals
applies to the redesignated hospitals.
• 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.
• 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 also has adopted the following
policies:
• The wage data for a reclassified
urban hospital is included in both the
wage index calculation of the urban 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.
• In cases where hospitals have
reclassified to rural areas, such as urban
hospitals reclassifying to rural areas
under 42 CFR 412.103, the hospital’s
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. The effect
of this policy, in combination with the
statutory requirement at section
1886(d)(8)(C)(ii) of the Act, is that rural
areas may receive a wage index based
upon the highest of: (1) Wage data from
hospitals geographically located in the
rural area; (2) wage data from hospitals
geographically located in the rural area,
but excluding all data associated with
hospitals reclassifying out of the rural
area under section 1886(d)(8)(B) or
section 1886(d)(10) of the Act; or (3)
wage data associated with hospitals
geographically located in the area plus
all hospitals reclassified into the rural
area.
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In addition, in accordance with the
statutory language referring to
‘‘hospitals’’ in the plural under sections
1886(d)(8)(C)(i) and 1886(d)(8)(C)(ii) of
the Act, our longstanding policy is to
consider reclassified hospitals as a
group when deciding whether to
include or exclude them from both
urban and rural wage index
calculations.
3. FY 2010 MGCRB Reclassifications
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Under section 1886(d)(10) of the Act,
the MGCRB considers applications by
hospitals for geographic reclassification
for purposes of payment under the IPPS.
The specific procedures and rules that
apply to the geographic reclassification
process are outlined in 42 CFR 412.230
through 412.280.
At the time this final rule was
constructed, the MGCRB had completed
its review of FY 2010 reclassification
requests. Based on such reviews, there
were 292 hospitals approved for wage
index reclassifications by the MGCRB
for FY 2010. Because MGCRB wage
index reclassifications are effective for 3
years, for FY 2010, hospitals reclassified
during FY 2008 or FY 2009 are eligible
to continue to be reclassified to a
particular labor market area based on
such prior reclassifications. There were
313 hospitals approved for wage index
reclassifications in FY 2008 and 271
hospitals approved for wage index
reclassifications in FY 2009. Of all of
the hospitals approved for
reclassification for FY 2008, FY 2009,
and FY 2010, based upon the review at
the time of this final rule, 861 hospitals
are in a reclassification status for FY
2010.
Under 42 CFR 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.
Generally stated, the request for
withdrawal of an application for
reclassification or termination of an
existing 3-year reclassification that
would be effective in FY 2010 had to be
received by the MGCRB within 45 days
of the publication of the FY 2010 IPPS
proposed rule. Hospitals may also
cancel prior reclassification
withdrawals or terminations in certain
circumstances. 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 42 CFR 412.273, as well as the
FY 2002 IPPS final rule (66 FR 39887)
and the FY 2003 IPPS final rule (67 FR
50065).
Changes to the wage index that result
from withdrawals of requests for
reclassification, wage index corrections,
appeals, and the Administrator’s review
process for FY 2010 are incorporated
into the wage index values published in
this FY 2010 IPPS/RY 2010 LTCH PPS
final rule. These changes 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 2011
reclassifications are due to the MGCRB
by September 1, 2009 (the first working
day of September 2009). We note that
this is also the deadline for canceling a
previous wage index reclassification
withdrawal or termination under 42
CFR 412.273(d). Applications and other
information about MGCRB
reclassifications may be obtained,
beginning in mid-July 2009, via the
CMS Internet Web site at: https://
cms.hhs.gov/MGCRB/
02_instructions_and_applications.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.
Comment: Several commenters
suggested that CMS lower the
employment interchange measure (EIM)
from 15 percent to 7.5 percent. EIM is
a measure of ties between two adjacent
entities, used when defining Combined
Statistical Areas (CSAs). The EIM is
calculated as the sum of the percentage
of employed residents commuting from
the smaller area to the larger area and
the percentage of employment in the
smaller area accounted for by workers
residing in the larger area. Hospitals
seeking a group reclassification from
one urban area to another must be
located in the same CSA (or CBSA
where relevant) as the urban area to
which they seek redesignation, as stated
in § 412.234(a)(3)(iv) of the regulations.
Response: We are not adopting the
commenters’ recommendation. First, we
have a longstanding policy of using
OMB’s statistical area definitions to set
our labor market areas, and OMB does
not modify the statistical area
definitions to meet the requirements of
any nonstatistical program. Second,
such a change in the EIM could
significantly reduce the wage indices of
some reclassified hospitals. In analyzing
the implications of the EIM change
suggested by the commenters, we
reviewed 31 of 127 CSAs (these are the
31 areas for which the Office of
Personnel Management uses a 7.5
percent EIM in determining locality
payment adjustments under the general
schedule for Federal employees). The
result was that the change would allow
a total of at least 57 hospitals in 21
counties to reclassify, and while a
national budget neutrality adjustment
would affect all hospitals equally, the
additional reclassifications could
significantly reduce the wage index
applied to reclassified hospitals in
certain areas—in some cases, by as
much as 10 percent as a result of the
additional reclassifications. These
effects could be even more significant
were the EIM changed for all counties
nationally.
4. Redesignations of Hospitals Under
Section 1886(d)(8)(B) of the Act
Section 1886(d)(8)(B) of the Act
requires 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 are met. Effective
beginning FY 2005, we use OMB’s 2000
CBSA standards and the Census 2000
data to identify counties in which
hospitals qualify under section
1886(d)(8)(B) of the Act to receive the
wage index of 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 FY
2010 chart below with the listing of the
rural counties containing the hospitals
designated as urban under section
1886(d)(8)(B) of the Act. For discharges
occurring on or after October 1, 2009,
hospitals located in the rural county 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 CONTAINING HOSPITALS REDESIGNATED AS URBAN UNDER SECTION 1886(d)(8)(B) OF THE ACT
[Based on CBSAs and Census 2000 data]
Rural county
CBSA
Cherokee, AL .......................................
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Rome, GA.
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RURAL COUNTIES CONTAINING HOSPITALS REDESIGNATED AS URBAN UNDER SECTION 1886(d)(8)(B) OF THE ACT—
Continued
[Based on CBSAs and Census 2000 data]
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Rural county
CBSA
Macon, AL ............................................
Talladega, AL .......................................
Hot Springs, AR ...................................
Windham, CT .......................................
Bradford, 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 .................................................
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 ..........................................
Davidson, 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 ......................................
Champaign, OH ....................................
Columbiana, OH ...................................
Cotton, OK ............................................
Linn, OR ...............................................
Adams, PA ...........................................
Clinton, PA ...........................................
Greene, PA ...........................................
Monroe, PA ..........................................
Schuylkill, PA ........................................
Susquehanna, PA ................................
Clarendon, SC ......................................
VerDate Nov<24>2008
19:22 Aug 26, 2009
Auburn-Opelika, AL.
Anniston-Oxford, AL.
Hot Springs, AR.
Hartford-West Hartford-East Hartford, CT.
Gainesville, FL.
West Palm Beach-Boca Raton-Boynton, FL.
Gainesville, FL.
Fort Walton Beach-Crestview-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.
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.
Baton Rouge, LA.
Holland-Grand Haven, MI.
Grand Rapids-Wyoming, MI.
Muskegon-Norton Shores, MI.
Lansing-East Lansing, MI.
Saginaw-Saginaw Township North, MI.
Rochester, MN.
Springfield, MO.
Gulfport-Biloxi, MS.
Burlington, NC.
Greensboro-High Point, NC.
Durham, NC.
Raleigh-Cary, NC.
Charlotte-Gastonia-Concord, NC-SC.
Spartanburg, SC.
Santa Fe, NM.
Carson City, NV.
Syracuse, NY.
Albany-Schenectady-Troy, NY.
Rochester, NY.
Albany-Schenectady-Troy, NY.
Ithaca, NY.
Poughkeepsie-Newburgh-Middletown, NY.
Buffalo-Niagara Falls, NY.
Cleveland-Elyria-Mentor, OH.
Springfield, OH.
Youngstown-Warren-Boardman, OH-PA.
Lawton, OK.
Corvallis, OR.
York-Hanover, PA.
Williamsport, PA.
Pittsburgh, PA.
Allentown-Bethlehem-Easton, PA-NJ.
Reading, PA.
Binghamton, NY.
Sumter, SC.
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RURAL COUNTIES CONTAINING HOSPITALS REDESIGNATED AS URBAN UNDER SECTION 1886(d)(8)(B) OF THE ACT—
Continued
[Based on CBSAs and Census 2000 data]
Rural county
CBSA
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Lee, SC ................................................
Oconee, SC ..........................................
Union, SC .............................................
Meigs, TN .............................................
Bosque, TX ...........................................
Falls, TX ...............................................
Fannin, TX ............................................
Grimes, TX ...........................................
Harrison, TX .........................................
Henderson, TX .....................................
Milam, TX .............................................
Van Zandt, TX ......................................
Willacy, TX ...........................................
Buckingham, VA ...................................
Floyd, VA ..............................................
Middlesex, VA ......................................
Page, VA ..............................................
Shenandoah, VA ..................................
Island, WA ............................................
Mason, WA ...........................................
Wahkiakum, WA ...................................
Jackson, WV ........................................
Roane, WV ...........................................
Green, WI .............................................
Green Lake, WI ....................................
Jefferson, WI ........................................
Walworth, WI ........................................
Sumter, SC.
Greenville, SC.
Spartanburg, SC.
Cleveland, TN.
Waco, TX.
Waco, TX.
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-Christiansburg-Radford, 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 were permitted to compare the
reclassified wage index for the labor
market area in Table 4C in the
Addendum to the proposed rule into
which they would be 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 could have withdrawn from
an MGCRB reclassification within 45
days of the publication of the FY 2010
proposed rule.
Comment: Several commenters
suggested that CMS allow Lugar
hospitals the ability to waive their Lugar
status once and have the waiver be
effective until the hospital chooses to
withdraw.
Response: 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 to which the greatest number
of workers in the county commute.
Hospitals satisfying the criteria under
section 1886(d)(8)(B) of the Act are
treated as urban hospitals and are also
eligible for reclassification through the
MGCRB or may waive their Lugar status
if eligible to receive the out-migration
adjustment. Once a hospital is listed as
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a Lugar hospital under section
1886(d)(8)(B) of the Act, it is treated as
such until the hospital waives its Lugar
status. Hospitals can only waive Lugar
status if they are in a county that is
eligible to receive an out-migration
adjustment. A rural hospital that is
redesignated as Lugar, or urban, that
wishes to stay rural can apply to be
reclassified back to rural status under
§ 412.103 of the regulations. Otherwise,
hospitals that are redesignated as Lugar
can only waive Lugar status if they are
eligible for the out-migration
adjustment.
The wage index is updated annually
and, as such, hospitals wishing to waive
their Lugar redesignation in order to
receive the rural area wage index plus
the out-migration adjustment must
request the waiver annually. Each year,
the preamble of the IPPS proposed rule
is specific that hospitals redesignated
under section 1886(d)(8) of the Act or
reclassified under section 1886(10) of
the Act will be deemed to have chosen
to retain their redesignation or
reclassification, and that hospitals
redesignated under section 1886(d)(8) of
the Act will be deemed to have waived
the out-migration adjustment, unless
they explicitly notify CMS within 45
days from the publication of the
proposed rule that they elect to receive
the out-migration adjustment instead.
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For example, we refer readers to the FY
2009 IPPS proposed rule (73 FR 23635).
The introductory text of Table 4J in the
Addendum to the rule also reminds
hospitals of the annual process.
If a hospital chooses to waive its
Lugar status within 45 days of the
proposed rule, each year it must send a
written request to CMS at the following
address: Division of Acute Care, Center
for Medicare Management, C4–08–06,
7500 Security Boulevard, Baltimore, MD
21244, Attn: Brian Slater; and must send
a copy to the MGCRB. The mailing
address for the MGCRB is: 2520 Lord
Baltimore Drive, Suite L, Baltimore, MD
21244–2670.
5. Reclassifications Under Section
1886(d)(8)(B) of the Act
As discussed in the FY 2009 IPPS
final rule (73 FR 48588), Lugar hospitals
are treated like reclassified hospitals for
purposes of determining their
applicable wage index and receive the
reclassified wage index for the urban
area to which they have been
redesignated. Because Lugar hospitals
are treated like reclassified hospitals,
when they are seeking reclassification
by the MGCRB, they are subject to the
rural reclassification rules set forth at 42
CFR 412.230. The procedural rules set
forth at § 412.230 list the criteria that a
hospital must meet in order to reclassify
as a rural hospital. Lugar hospitals are
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subject to the proximity criteria and
payment thresholds that apply to rural
hospitals. Specifically, the hospital
must be no more than 35 miles from the
area to which it seeks reclassification
(§ 412.230(b)(1)); and the hospital must
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)). In accordance
with policy adopted in the FY 2009
IPPS final rule (73 FR 48568 and 48569),
beginning with reclassifications for the
FY 2010 wage index, a Lugar hospital
must also demonstrate that its average
hourly wage is equal to at least 84
percent (for FY 2010 reclassifications)
and 86 percent (for reclassifications for
FY 2011 and subsequent fiscal years) 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. We treat New
England deemed counties in a manner
consistent with how we treat Lugar
counties. (We refer readers to FY 2008
IPPS final rule with comment period (72
FR 47337) for a discussion of this
policy.)
6. Reclassifications Under Section 508
of Public Law 108–173
Section 508 of Public Law 108–173
allowed certain qualifying hospitals to
receive wage index reclassifications and
assignments that they otherwise would
not have been eligible to receive under
the law. Although section 508 originally
was scheduled to expire after a 3-year
period, Congress extended the provision
several times, as well as certain special
exceptions that would have otherwise
expired. For a discussion of the original
section 508 provision and its various
extensions, we refer readers to the FY
2009 IPPS final rule (73 FR 48588). The
most recent extension of the provision
was included in section 124 of Public
Law 110–275 (MIPPA). Section 124
extended, through FY 2009, section 508
reclassifications as well as certain
special exceptions. Because the latest
extension of these provisions expires on
September 30, 2009, and will not be
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19:22 Aug 26, 2009
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applicable in FY 2010, we are not
making any changes related to these
provisions in this final rule.
J. FY 2010 Wage Index Adjustment
Based on Commuting Patterns of
Hospital Employees
In accordance with the broad
discretion under section 1886(d)(13) of
the Act, as added by section 505 of
Public Law 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 ‘‘out-migration’’
adjustment). The process, 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. Beginning with the
FY 2008 wage index, we use postreclassified wage indices when
determining the out-migration
adjustment (72 FR 47339).
For the FY 2010 wage index, we
calculated the out-migration adjustment
using the same formula described in the
FY 2005 IPPS final rule (69 FR 49064),
with the addition of using the postreclassified wage indices, to calculate
the out-migration adjustment. This
adjustment is calculated as follows:
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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 index
areas, multiply this result by the result
obtained 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 index 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. For example, hospitals that
received the adjustment for the first
time in FY 2009 will be eligible to retain
the adjustment for FY 2010. 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, 2009.
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, 2007, 2008, and 2009 IPPS
final rules, we are specifying 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
wished to receive the out-migration
adjustment, rather than their
reclassification adjustment, had to
follow the termination/withdrawal
procedures specified in 42 CFR 412.273
and section III.I.3. of the preamble of the
proposed rule. Otherwise, they were
deemed to have waived the outmigration adjustment. Hospitals
redesignated under section 1886(d)(8) of
the Act were deemed to have waived the
out-migration adjustment unless they
explicitly notified CMS within 45 days
from the publication of the proposed
rule that they elected to receive the outmigration adjustment instead.
Table 4J in the Addendum to this
final rule lists the out-migration wage
index adjustments for FY 2010.
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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 was
otherwise notified within the necessary
timeframe. In addition, hospitals
eligible to receive the out-migration
wage index adjustment and that
withdrew their application for
reclassification will automatically
receive the wage index adjustment
listed in Table 4J in the Addendum to
this final rule.
Comment: One commenter requested
that CMS allow hospitals to submit their
own commuting data to apply for the
out-migration adjustment.
Response: First, we did not propose
any changes on commuting data for
purposes of calculating the outmigration adjustment. Therefore, we
believe this comment is outside the
scope of the proposed rule. In addition,
as we stated in the FY 2005 IPPS final
rule (69 FR 49063), because the
adjustment is based on the number of
hospital workers in a county who
commute to other higher wage areas, we
believe it would be extremely
problematic for individual hospitals to
track and submit the data necessary for
determining the out-migration
adjustment. A hospital could not simply
survey its own employees to obtain
these necessary data, but would have to
survey all hospital workers who live in
the county where the hospital is located
and commute to hospitals in other
higher wage index areas.
K. Process for Requests for Wage Index
Data Corrections
The preliminary, unaudited
Worksheet S–3 wage data and
occupational mix survey data files for
the FY 2010 wage index were made
available on October 6, 2008, through
the Internet on the CMS Web site at:
https://www.cms.hhs.gov/
AcuteInpatientPPS/WIFN/
list.asp#TopOfPage.
In the interest of meeting the data
needs of the public, beginning with the
proposed FY 2009 wage index, we post
an additional public use file on our Web
site that reflects the actual data that are
used in computing the proposed wage
index. The release of this new file does
not alter the current wage index process
or schedule. We notified the hospital
community of the availability of these
data as we do with the current public
use wage data files through our Hospital
Open Door forum. We encouraged
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hospitals to sign up for automatic
notifications of information about
hospital issues and the scheduling of
the Hospital Open Door forums at:
https://www.cms.hhs.gov/
OpenDoorForums/.
In a memorandum dated October 6,
2008, we instructed all fiscal
intermediaries/MACs 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/
MACs to advise hospitals that these data
were 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, 2008 wage and occupational
mix data files, the hospital was to
submit corrections along with complete,
detailed supporting documentation to
its fiscal intermediary/MAC by
December 8, 2008. 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 files on the
Internet, through the October 6, 2008
memorandum referenced above.
In the October 6, 2008 memorandum,
we also specified that a hospital
requesting revisions to its first and/or
second quarter occupational mix survey
data was to copy its record(s) from the
CY 2007–2008 occupational mix
preliminary files posted to our Web site
in October, highlight the revised cells
on its spreadsheet, and submit its
spreadsheet(s) and complete
documentation to its fiscal
intermediary/MAC no later than
December 8, 2008.
The fiscal intermediaries/MACs
notified the hospitals by mid-February
2009 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/MACs also submitted the
revised data to CMS by mid-February
2009. CMS published the proposed
wage index public use files that
included hospitals’ revised wage index
data on February 23, 2009. In a
memorandum also dated February 23,
2009, we instructed fiscal
intermediaries/MACs 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 10, 2009, to submit requests to
the fiscal intermediaries/MACs for
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reconsideration of adjustments made by
the fiscal intermediaries/MACs 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 also were required to
submit sufficient documentation to
support their requests.
After reviewing requested changes
submitted by hospitals, fiscal
intermediaries/MACs were required to
transmit any additional revisions
resulting from the hospitals’
reconsideration requests by April 15,
2009. The deadline for a hospital to
request CMS intervention in cases
where the hospital disagrees with the
fiscal intermediary’s (or, if applicable,
the MAC’s) policy interpretations was
April 22, 2009.
Hospitals were given the opportunity
to examine Table 2 in the Addendum to
the proposed rule. Table 2 in the
Addendum to the 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 2006 data used
to construct the proposed FY 2010 wage
index. We noted that the hospital
average hourly wages shown in Table 2
only reflect changes made to a hospital’s
data and transmitted to CMS by March
2, 2009.
We released the final wage index data
public use files in early May 2009 on
the Internet at https://www.cms.hhs.gov/
AcuteInpatientPPS/WIFN/
list.asp#TopOfPage. The May 2009
public use files were made available
solely for the limited purpose of
identifying any potential errors made by
CMS or the fiscal intermediary/MAC in
the entry of the final wage index data
that resulted from the correction process
described above (revisions submitted to
CMS by the fiscal intermediaries/MACs
by April 15, 2009). If, after reviewing
the May 2009 final files, a hospital
believed that its wage or occupational
mix data were incorrect due to a fiscal
intermediary/MAC or CMS error in the
entry or tabulation of the final data, the
hospital had to send a letter to both its
fiscal intermediary/MAC and CMS that
outlined why the hospital believed an
error existed and that provided all
supporting information, including
relevant dates (for example, when it first
became aware of the error). CMS and the
fiscal intermediaries (or, if applicable,
the MACs) had to receive these requests
no later than June 8, 2009.
Each request also had to be sent to the
fiscal intermediary/MAC. The fiscal
intermediary/MAC reviewed requests
upon receipt and contacted CMS
immediately to discuss any findings.
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At this point in the process, that is,
after the release of the May 2009 wage
index data files, changes to the wage
and occupational mix data were only
made in those very limited situations
involving an error by the fiscal
intermediary/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/MAC nor CMS approved
the following types of requests:
• 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
MACs on or before April 15, 2009.
• Requests for correction of errors
that were not, but could have been,
identified during the hospital’s review
of the February 23, 2009 wage index
public use files.
• 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 MACs (that
is, by June 8, 2009) were incorporated
into the final wage index in this FY
2010 IPPS/RY 2010 LTCH PPS final
rule, which will be effective October 1,
2009.
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 2010 payment rates.
Accordingly, hospitals that did 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 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 readers also to the FY 2000
IPPS 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
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MAC’s) attention. Moreover, because
hospitals had access to the final wage
index data by early May 2009, they had
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 2010 wage index by August
2009, and the implementation of the FY
2010 wage index on October 1, 2009. If
hospitals availed 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 8,
2009, we retain the right to make
midyear changes to the wage index
under very limited circumstances.
Specifically, in accordance with 42
CFR 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 8 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,
because 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
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 42 CFR 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
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43843
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 8, 2009 deadline for the
FY 2010 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 requested a correction to its
wage index data before CMS calculates
the final wage index (that is, by the June
8, 2009 deadline), and CMS
acknowledges that the error in the
hospital’s wage index data was caused
by CMS’ 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
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; and 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.
IV. Rebasing and Revision of the
Hospital Market Baskets for Acute Care
Hospitals
A. Background
Effective for cost reporting periods
beginning on or after July 1, 1979, we
developed and adopted a hospital input
price index (that is, the hospital market
basket for operating costs). Although
‘‘market basket’’ technically describes
the mix of goods and services used in
providing hospital care, this term is also
commonly used to denote the input
price index (that is, cost category
weights and price proxies combined)
derived from that market basket.
Accordingly, the term ‘‘market basket’’
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as used in this document refers to the
hospital input price index.
The percentage change in the market
basket reflects the average change in the
price of goods and services hospitals
purchase in order to provide inpatient
care. We first used the market basket to
adjust hospital cost limits by an amount
that reflected the average increase in the
prices of the goods and services used to
provide hospital inpatient care. This
approach linked the increase in the cost
limits to the efficient utilization of
resources.
Since the inception of the IPPS, the
projected change in the hospital market
basket has been the integral component
of the update factor by which the
prospective payment rates are updated
every year. An explanation of the
hospital market basket used to develop
the prospective payment rates was
published in the Federal Register on
September 1, 1983 (48 FR 39764). We
also refer readers to the FY 2006 IPPS
final rule (70 FR 47387) in which we
discussed the most recent previous
rebasing of the hospital input price
index.
The hospital market basket is a fixedweight, Laspeyres-type price index that
is constructed in three steps. A
Laspeyres price index measures the
change in price, over time, of the same
mix of goods and services purchased in
the base period. Any changes in the
quantity or mix of goods and services
(that is, intensity) purchased over time
are not measured.
The index itself is constructed in
three steps. First, a base period is
selected (in this final rule, the base
period is FY 2006) and total base period
expenditures are estimated for a set of
mutually exclusive and exhaustive
spending categories based upon type of
expenditure. Then the proportion of
total operating costs that each category
represents is determined. These
proportions are called cost or
expenditure weights. Second, each
expenditure category is matched to an
appropriate price or wage variable,
referred to as a price proxy. In nearly
every instance, these price proxies are
price levels derived from publicly
available statistical series that are
published on a consistent schedule
(preferably at least on a quarterly basis).
Finally, the expenditure weight for each
cost category is multiplied by the level
of its respective price proxy. The sum of
these products (that is, the expenditure
weights multiplied by their price levels)
for all cost categories yields the
composite index level of the market
basket in a given period. Repeating this
step for other periods produces a series
of market basket levels over time.
Dividing an index level for a given
period by an index level for an earlier
period produces a rate of growth in the
input price index over that timeframe.
The market basket is described as a
fixed-weight index because it represents
the change in price over time of the
same mix (quantity and intensity) of
goods and services purchased to provide
hospital services in a base period. The
effects on total expenditures resulting
from changes in the mix of goods and
services purchased subsequent to the
base period are not measured. For
example, shifting a traditionally
inpatient type of care to an outpatient
setting might affect the volume of
inpatient goods and services purchased
by the hospital, but would not be
factored into the price change measured
by a fixed-weight hospital market
basket. In this manner, the market
basket measures pure price change only.
Only when the index is rebased would
changes in the quantity and intensity be
captured in the cost weights. Therefore,
we rebase the market basket periodically
so the cost weights reflect recent
changes in the mix of goods and
services that hospitals purchase
(hospital inputs) to furnish inpatient
care between base periods. We last
rebased the hospital market basket cost
weights effective for FY 2006 (70 FR
47387), with FY 2002 data used as the
base period for the construction of the
market basket cost weights.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24154), we
invited public comments on our
proposed methodological changes to
both the IPPS operating market basket
and the capital input price index (CIPI).
We note that this section addresses only
the rebasing and revision of the IPPS
market basket and CIPI for acute care
hospitals and for children’s and cancer
hospitals and RNHCIs, which are
excluded from the IPPS. We address the
market basket that will be applicable to
LTCHs in section VIII.C.2. of the
preamble of this final rule. Separate
documents will address the market
basket for other hospitals that are
excluded from the IPPS.
B. Rebasing and Revising the IPPS
Market Basket
The terms ‘‘rebasing’’ and ‘‘revising,’’
while often used interchangeably,
actually denote different activities.
‘‘Rebasing’’ means moving the base year
for the structure of costs of an input
price index (for example, in this final
rule, we are shifting the base year cost
structure for the IPPS hospital index
from FY 2002 to FY 2006). ‘‘Revising’’
means changing data sources, or price
proxies, used in the input price index.
As published in the FY 2006 IPPS final
rule (70 FR 47387), in accordance with
section 404 of Public Law 108–173,
CMS determined a new frequency for
rebasing the hospital market basket. We
established a rebasing frequency of
every 4 years and, therefore, for the FY
2010 IPPS update, as we proposed, we
are rebasing and revising the IPPS
market basket and the CIPI.
1. Development of Cost Categories and
Weights
a. Medicare Cost Reports
The major source of expenditure data
for developing the rebased and revised
hospital market basket cost weights is
the FY 2006 Medicare cost reports. As
was done in previous rebasings, these
cost reports are from IPPS hospitals only
(hospitals excluded from the IPPS and
CAHs are not included) and are based
on IPPS Medicare-allowable operating
costs. IPPS Medicare-allowable
operating costs are costs that are eligible
to be paid for under the IPPS. For
example, the IPPS market basket
excludes home health agency (HHA)
costs as these costs would be paid under
the HHA PPS and, therefore, these costs
are not IPPS Medicare-allowable costs.
The IPPS cost reports yield seven
major expenditure or cost categories—
the same as in the FY 2002-based
hospital market basket: Wages and
salaries, employee benefits, contract
labor, pharmaceuticals, professional
liability insurance (malpractice), blood
and blood products, and a residual ‘‘all
other.’’ The cost weights that were
obtained directly from the Medicare cost
reports are reported in Chart 1. These
Medicare cost report cost weights are
then supplemented with information
obtained from other data sources to
derive the IPPS market basket cost
weights.
CHART 1—MAJOR COST CATEGORIES AND THEIR RESPECTIVE COST WEIGHTS FOUND IN THE MEDICARE COST REPORTS
FY 2002-based
market basket
Major cost categories
Wages and salaries .........................................................................................................................................
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43845
CHART 1—MAJOR COST CATEGORIES AND THEIR RESPECTIVE COST WEIGHTS FOUND IN THE MEDICARE COST
REPORTS—Continued
FY 2002-based
market basket
Major cost categories
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Employee benefits ...........................................................................................................................................
Contract labor ..................................................................................................................................................
Professional Liability Insurance (Malpractice) .................................................................................................
Pharmaceuticals ..............................................................................................................................................
Blood and blood products ................................................................................................................................
All other ............................................................................................................................................................
b. Other Data Sources
In addition to the Medicare cost
reports, the other data source we used
to develop the IPPS market basket cost
weights was the Benchmark InputOutput (I–O) Tables created by the
Bureau of Economic Analysis (BEA),
U.S. Department of Commerce. The BEA
Benchmark I–O data are scheduled for
publication every 5 years. The most
recent data available are for 2002. BEA
also produces Annual I–O estimates;
however, the 2002 Benchmark I–O data
represent a much more comprehensive
and complete set of data that are derived
from the 2002 Economic Census. The
Annual I–O is simply an update of the
Benchmark I–O tables. For the FY 2006
market basket rebasing, we used the
1997 Benchmark I–O data. In the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule (74 FR 24155), we proposed to use
the 2002 Benchmark I–O data in the FY
2006-based IPPS market basket, to be
effective for FY 2010. Instead of using
the less detailed, less accurate Annual
I–O data, we aged the 2002 Benchmark
I–O data forward to FY 2006. The
methodology we used to age the data
forward involves applying the annual
price changes from the respective price
proxies to the appropriate cost
categories. We repeat this practice for
each year.
The ‘‘all other’’ cost category obtained
directly from the Medicare cost reports
is divided into other hospital
expenditure category shares using the
2002 Benchmark I–O data. Therefore,
the ‘‘all other’’ cost category
expenditure shares are proportional to
their relationship to ‘‘all other’’ totals in
the 2002 Benchmark I–O data. For
instance, if the cost for telephone
services was to represent 10 percent of
the sum of the ‘‘all other’’ Benchmark I–
O (see below) hospital expenditures,
then telephone services would represent
10 percent of the IPPS market basket’s
‘‘all other’’ cost category. Following
publication of the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule, and in
an effort to provide greater
transparency, we posted on the CMS
market basket Web page at: https://
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www.cms.hhs.gov/MedicareProgram
RatesStats/05_MarketBasket
Research.asp#TopOfPage an illustrative
spreadsheet that shows how the detailed
cost weights in the proposed rule (that
is, those not calculated using Medicare
cost reports) were determined using the
2002 Benchmark I–O data.
2. Final Cost Category Computation
As stated previously, for this rebasing
we used the Medicare cost reports to
derive seven major cost categories. As
we proposed, the FY 2006-based IPPS
market basket includes three additional
cost categories that were not broken out
separately in the FY 2002-based IPPS
market basket. The first is lifted directly
from the Medicare cost reports: Blood
and blood products. The remaining two
are derived using the Benchmark I–O
data: Administrative and business
support services and financial services.
As we proposed, we broke out the latter
two categories so we can better match
their respective expenses with price
proxies. A thorough discussion of our
rationale for each of these cost
categories is provided in section IV.B.3.
of the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24155) and this
final rule. Also, the FY 2006-based IPPS
market basket excludes one cost
category: Photo supplies. The 2002
Benchmark I–O weight for this category
is considerably smaller than the 1997
Benchmark I–O weight, presently
accounting for less than one-tenth of
one percentage point of the IPPS market
basket. Therefore, as we proposed, we
include the photo supplies costs in the
chemical cost category weight with
other similar chemical products (74 FR
24155).
As we proposed, we are not changing
our definition of the labor-related share.
However, we rename our aggregate cost
categories from ‘‘labor-intensive’’ and
‘‘non-labor-intensive’’ services to
‘‘labor-related’’ and ‘‘nonlabor-related’’
services (74 FR 24155). As discussed in
more detail below and similar to the
previous rebasing, we classify a cost
category as labor-related and include it
in the labor-related share if the cost
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FY 2006-based
market basket
11.189
3.214
1.589
5.855
1.082
31.481
11.873
2.598
1.661
5.380
1.078
32.254
category is defined as being laborintensive and its cost varies with the
local labor market. In previous
regulations, we grouped cost categories
that met both of these criteria into laborintensive services. We believe the new
labels more accurately reflect the
concepts that they are intended to
convey. We are not changing our
definition of the labor-related share
because we continue to classify a cost
category as labor-related if the costs are
labor-intensive and vary with the local
labor market.
3. Selection of Price Proxies
After computing the FY 2006 cost
weights for the rebased hospital market
basket, it was necessary to select
appropriate wage and price proxies to
reflect the rate of price change for each
expenditure category. With the
exception of the proxy for professional
liability, all the proxies are based on
Bureau of Labor Statistics (BLS) data
and are grouped into one of the
following BLS categories:
• Producer Price Indexes—Producer
Price Indexes (PPIs) measure price
changes for goods sold in markets other
than the retail market. PPIs are
preferable price proxies for goods and
services that hospitals purchase as
inputs because these PPIs better reflect
the actual price changes faced by
hospitals. For example, we use a special
PPI for prescription drugs, rather than
the Consumer Price Index (CPI) for
prescription drugs, because hospitals
generally purchase drugs directly from a
wholesaler. The PPIs that we use
measure price changes at the final stage
of production.
• Consumer Price Indexes—
Consumer Price Indexes (CPIs) measure
change in the prices of final goods and
services bought by the typical
consumer. Because they may not
represent the price faced by a producer,
we used CPIs only if an appropriate PPI
was not available, or if the expenditures
were more similar to those faced by
retail consumers in general rather than
by purchasers of goods at the wholesale
level. For example, the CPI for food
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purchased away from home is used as
a proxy for contracted food services.
• Employment Cost Indexes—
Employment Cost Indexes (ECIs)
measure the rate of change in employee
wage rates and employer costs for
employee benefits per hour worked.
These indexes are fixed-weight indexes
and strictly measure the change in wage
rates and employee benefits per hour.
Appropriately, they are not affected by
shifts in employment mix.
We evaluated the price proxies using
the criteria of reliability, timeliness,
availability, and relevance. Reliability
indicates that the index is based on
valid statistical methods and has low
sampling variability. Timeliness implies
that the proxy is published regularly,
preferably at least once a quarter.
Availability means that the proxy is
publicly available. Finally, relevance
means that the proxy is applicable and
representative of the cost category
weight to which it is applied. The CPIs,
PPIs, and ECIs selected meet these
criteria.
Comment: Several commenters stated
that although the MMA requires CMS to
rebase the weights used in the hospital
market basket more frequently than
every 5 years to reflect the most current
data available, it does not require CMS
to modify or revise the price proxies
used in the market basket calculation.
The commenters discouraged CMS from
incorporating any new price proxies,
particularly the new blended price
proxy associated with the Chemicals
cost category, and indicated that such a
change was not preferred at this time.
They pointed out that the methodology
and data sources used by CMS to derive
the proposed 2006-based IPPS market
basket yield a projected 2.1 percent
increase in the hospital market basket
update, while the historical
methodology and data sources used to
derive the FY 2002-based IPPS market
basket yield a projected update of 2.3
percent. Several commenters pointed to
the current status and volatility of the
economy as a basis for maintaining the
same price proxies going forward. Those
comments included the following:
• Maintaining the current proxies
will result in a more stable market
basket increase and will demonstrate
forbearance, given the current economic
volatility that has occurred or may be
yet to come.
• The country has recently
experienced a period of very low
inflation. The funds from the ARRA
(Pub. L. 111–5) are beginning to work
their way into the economy, possibly
resulting in a period of higher inflation
that could substantially affect the
market basket estimate.
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• The new price proxies selected by
CMS are not responsive to the
inflationary effects of the President’s FY
2010 Budget and the inflationary
stimulus effect of the Troubled Asset
Relief Program (TARP), which is
demonstrated by the modest market
basket increases in FY 2010 and FY
2011.
• The traditional approach taken in
developing the annual market basket
forecast is inadequate, given the severe
downturn in the economy and the
potential for inflation to pick up at a
pace quicker than we have seen for
many years. Following several years of
updates between 3 percent and 3.5
percent, a lower forecast may well
underestimate hospital input costs,
particularly nursing labor, as hospitals
will not benefit from swelling labor
markets due to the fact that it is unlikely
that newly-unemployed workers possess
the specialized skills required by
hospitals.
As a result of these issues, multiple
commenters urged CMS only to rebase
the data and weights used in the market
basket calculation, and not to revise the
price proxies.
Response: We continuously monitor
the technical appropriateness of all of
CMS’ market baskets (including the
hospital market basket) whether or not
the market basket is being rebased.
However, whenever a market basket is
rebased, it is a matter of practice for
CMS to scrutinize all of its aspects,
including the data sources that are used
to construct it, the selection of its
exhaustive and mutually exclusive cost
categories, the weights associated with
those categories, and the price proxies
that are applied. We are revising the
hospital market basket to make
technical improvements that we believe
results in more accurate payment
updates.
We believe that revising four new
price proxies for existing cost categories
and including three additional price
proxies for the new cost categories in
the FY 2006-based hospital market
basket represents a significant technical
improvement to the market basket.
As many of the commenters stated,
we proposed (and are adopting as final)
a new blended chemical price proxy for
the Chemicals cost weight in the FY
2006-based IPPS market basket. The FY
2002-based IPPS market basket used the
PPI for industrial chemicals (WPI061) to
proxy the chemicals cost category. In
evaluating the technical merit of the
continuing use of that proxy, we
compared the 2002 BEA Benchmark I–
O expenditure weights with the
composition of the PPI for industrial
chemicals. Using a commodity-to-
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industry crosswalk, we were able to
identify the industry expenses classified
by North American Industrial
Classification System (NAICS) that
comprise the commodity-based PPI for
industrial chemicals.
We found that the relative PPI weights
for each of the NAICS expense
categories were not always consistent
with the expense weights for the
hospital industry, as indicated by the
2002 Benchmark I–O data. For example,
hospital spending for NAICS 325120
(Industrial Gas Manufacturing)—the
hospital industry’s largest chemical
expense category (accounting for 29
percent of the hospital industry’s total
chemical expenses)—is not found in the
PPI for industrial chemicals. In
addition, hospital spending attributable
to NAICS 325190 (Other Basic Organic
Chemical Manufacturing) accounts for
just 26 percent of the hospital industry’s
total chemical expenses. However,
NAICS 325190 accounts for 41 percent
of the PPI for industrial chemicals.
Given these findings, we proposed
using a blended chemical price index
that reflects the relative weights of the
hospital industry’s chemical expenses
as indicated by the 2002 Benchmark I–
O data. This blended index is composed
of the PPI for industrial gases (NAICS
325120), the PPI for other basic
inorganic chemical manufacturing
(NAICS 325180), the PPI for other basic
organic chemical manufacturing (NAICS
325190), and the PPI for soap and
cleaning compound manufacturing
(NAICS 325610). The expenses for these
NAICS industries account for
approximately 90 percent of the hospital
industry’s chemical expenses, excluding
NAICS 324110—Petroleum Refineries,
which we proposed to include with
other petroleum-related expenses
classified in the fuel, oil, and gas cost
category. We believe this new blended
proxy represents a more accurate
reflection of the price pressures
associated with hospital chemical
expenses.
With respect to the state of the
economy, we are attentive to the recent
downturn and the fact that this year’s
update is lower relative to historical
market basket updates. We also
recognize the commenters’ uncertainty
regarding future inflationary pressures,
given the activities undertaken in the
last several months to aid the economy.
However, the most recent forecast of the
rebased and revised FY 2006-based IPPS
market basket FY 2010 update factor
reflects the current expectations
regarding the performance of the
economy during FY 2010, including the
inflation expectations associated with
the economic stimulus plans. Moreover,
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this forecast also reflects our most
recent expectations regarding price
pressures associated with the labor
market for hospital workers.
Comment: One commenter stated that
CMS’ proposal to rebase and revise the
market basket appears to be directed at
reducing the rate of increase in future
market basket increases.
Response: When selecting the price
proxies for the IPPS market basket, we
do not evaluate the resulting market
basket update as a criterion in selecting
these proxies, but rather choose the
most technically appropriate measures
of the price pressures faced by the
hospital industry. We believe the
proxies that were articulated in the FY
2010 proposed rule reflect that
approach.
Comment: Several commenters
supported CMS’ proposed use of the PPI
for blood and organ banks for measuring
changes in the cost of blood and blood
products. The commenters expressed
appreciation for CMS’ responsiveness to
the need for greater accuracy in the
calculation of price changes attributable
to blood and blood products in the IPPS
market basket.
Response: We appreciate the
commenters’ support for our proposed
price proxy for the blood and blood
products cost category. We agree with
43847
the commenters that the
implementation of this price proxy
represents a technical improvement to
the IPPS market basket.
After consideration of the public
comments received, we are adopting as
final the price proxies that we proposed
in the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24155–24159).
Chart 2 sets forth the FY 2006-based
IPPS market basket, including cost
categories, weights, and price proxies.
For comparison purposes, the
corresponding FY 2002-based IPPS
market basket is listed as well. A
summary outlining the choice of the
various proxies follows the chart.
CHART 2—FY 2006-BASED IPPS HOSPITAL MARKET-BASKET COST CATEGORIES, WEIGHTS, AND PRICE PROXIES WITH
FY 2002-BASED IPPS MARKET BASKET INCLUDED FOR COMPARISON
FY
2002-based
hospital market basket
cost weights
Cost Categories
Rebased FY
2006-based
hospital market basket
cost weights
1. Compensation ..........................................................
A. Wages and Salaries 1 .......................................
59.993
48.171
59.627
47.213
B. Employee Benefits 1 ..........................................
2. Utilities ......................................................................
A. Fuel, Oil, and Gasoline .....................................
B. Electricity ...........................................................
C. Water and Sewage ...........................................
3. Professional Liability Insurance ................................
4. All Other ...................................................................
A. All Other Products ............................................
(1.) Pharmaceuticals .............................................
(2.) Food: Direct Purchases ..................................
(3.) Food: Contract Services .................................
(4.) Chemicals 2 .....................................................
(5.) Blood and Blood Products 3 ............................
(6.) Medical Instruments ........................................
(7.) Photographic Supplies ....................................
(8.) Rubber and Plastics .......................................
(9.) Paper and Printing Products ..........................
(10.) Apparel ..........................................................
(11.) Machinery and Equipment ............................
(12.) Miscellaneous Products 3 ..............................
B. Labor-related Services ......................................
(1.) Professional Fees: Labor-related 4 .................
11.822
1.251
0.206
0.669
0.376
1.589
37.167
20.336
5.855
1.664
1.180
2.096
........................
1.932
0.183
2.004
1.905
0.394
0.565
2.558
9.738
5.510
12.414
2.180
0.418
1.645
0.117
1.661
36.533
19.473
5.380
3.982
0.575
1.538
1.078
2.762
(2.) Administrative and Business Support Services 5.
(3.) All Other: Labor-Related Services 5 ................
n/a
0.626
4.228
3.193
C. Nonlabor-Related Services ...............................
(1.) Professional Fees: Nonlabor-Related 4 ..........
7.093
n/a
7.885
4.074
Financial Services 6 ........................................
Telephone Services ........................................
Postage ...........................................................
All Other: Nonlabor-Related Services 6 ..........
n/a
0.458
1.300
5.335
1.281
0.627
0.963
0.940
Total .......................................................................
100.000
100.000
(2.)
(3.)
(4.)
(5.)
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Rebased FY 2006-based hospital market basket price
proxies
1.659
1.492
0.325
0.163
0.519
9.175
5.356
ECI for Wages and Salaries, Civilian Hospital Workers.
ECI for Benefits, Civilian Hospital Workers.
PPI for Petroleum Refineries.
PPI for Commercial Electric Power.
CPI–U for Water & Sewerage Maintenance.
CMS Professional Liability Insurance Premium Index.
PPI for Pharmaceutical Preparations (Prescriptions).
PPI for Processed Foods & Feeds.
CPI–U for Food Away From Home.
Blend of Chemical PPIs.
PPI for Blood and Organ Banks.
PPI for Medical, Surgical, and Personal Aid Devices.
PPI
PPI
PPI
PPI
PPI
for
for
for
for
for
Rubber & Plastic Products.
Converted Paper & Paperboard Products.
Apparel.
Machinery & Equipment.
Finished Goods Less Food and Energy.
ECI for Compensation for Professional and Related
Occupations.
ECI for Compensation for Office and Administrative
Services.
ECI for Compensation for Private Service Occupations.
ECI for Compensation for Professional and Related
Occupations.
ECI for Compensation for Financial Activities.
CPI–U for Telephone Services.
CPI–U for Postage.
CPI–U for All Items Less Food and Energy.
Note: Detail may not add to total due to rounding.
1 Contract labor is distributed to wages and salaries and employee benefits based on the share of total compensation that each category represents.
2 To proxy the ‘‘chemicals’’ cost category, we used a blended PPI composed of the PPI for industrial gases, the PPI for other basic inorganic
chemical manufacturing, the PPI for other basic organic chemical manufacturing, and the PPI for soap and cleaning compound manufacturing.
For more detail about this proxy, see section IV.B.3.j. of the preamble of this final rule.
3 The ‘‘blood and blood products’’ cost category was contained within ‘‘miscellaneous products’’ cost category in the FY 2002-based IPPS market basket.
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4 The ‘‘professional fees: Labor-related’’ and ‘‘professional fees: Nonlabor-related’’ cost categories were included in one cost category called
‘‘professional fees’’ in the FY 2002-based IPPS market basket. For more detail about how these new categories were derived, we refer readers
to sections IV.B.3.s. and v. of the preamble of this final rule, on the labor-related share.
5 The ‘‘administrative and business support services’’ cost category was contained within ‘‘all other: Labor-intensive services’’ cost category in
the FY 2002-based IPPS market basket. The ‘‘all other: Labor-intensive services’’ cost category is renamed the ‘‘all other: Labor-related services’’ cost category for the FY 2006-based IPPS market basket.
6 The ‘‘financial services’’ cost category was contained within the ‘‘all other: Non-labor intensive services’’ cost category in the FY 2002-based
IPPS market basket. The ‘‘all other: Nonlabor intensive services’’ cost category is renamed the ‘‘all other: Nonlabor-related services’’ cost category for the FY 2006-based IPPS market basket.
As we proposed in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24156 through 24159), for this final
rule, we use the following choices with
respect to the various proxies:
expenses originate from petroleum
refineries (NAICS 324110), we use the
PPI for petroleum refineries (series code
#PCU324110) as the proxy for this cost
category.
a. Wages and Salaries
d. Electricity
We use the ECI for wages and salaries
for hospital workers (all civilian) (series
code #CIU1026220000000I) to measure
the price growth of this cost category.
This same proxy was used in the FY
2002-based IPPS market basket.
We use the PPI for commercial
electric power (series code #WPU0542)
to measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based IPPS market basket.
b. Employee Benefits
We use the CPI for water and
sewerage maintenance (all urban
consumers) (series code
#CUUR0000SEHG01) to measure the
price growth of this cost category. This
same proxy was used in the FY 2002based IPPS market basket.
We use the ECI for employee benefits
for hospital workers (all civilian) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based IPPS market basket.
c. Fuel, Oil, and Gasoline
For the FY 2002-based market basket,
this category only included expenses
classified under North American
Industry Classification System (NAICS)
21 (Mining). We proxied this category
using the PPI for commercial natural gas
(series code #WPU0552). For the FY
2006-based market basket, we add costs
to this category that had previously been
grouped in other categories. The added
costs include petroleum-related
expenses under NAICS 324110
(previously captured in the
miscellaneous category), as well as
petrochemical manufacturing classified
under NAICS 325110 (previously
captured in the chemicals category).
These added costs represent 80 percent
of the hospital industry’s fuel, oil, and
gasoline expenses (or 80 percent of this
category). Because the majority of the
industry’s fuel, oil, and gasoline
e. Water and Sewage
f. Professional Liability Insurance
We proxy price changes in hospital
professional liability insurance
premiums (PLI) using percentage
changes as estimated by the CMS
Hospital Professional Liability Index. To
generate these estimates, we collect
commercial insurance premiums for a
fixed level of coverage while holding
nonprice factors constant (such as a
change in the level of coverage). This
method also is used to proxy PLI price
changes in the Medicare Economic
Index (68 FR 63244). This same proxy
was used in the FY 2002-based IPPS
market basket.
g. Pharmaceuticals
We use the PPI for pharmaceutical
preparations (prescription) (series code
#PCU32541DRX) to measure the price
growth of this cost category. This is a
special index produced by BLS and is
the same proxy used in the FY 2002based IPPS market basket.
h. Food: Direct Purchases
We use the PPI for processed foods
and feeds (series code #WPU02) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based IPPS market basket.
i. Food: Contract Services
We use the CPI for food away from
home (all urban consumers) (series code
#CUUR0000SEFV) to measure the price
growth of this cost category. This same
proxy was used in the FY 2002-based
IPPS market basket.
j. Chemicals
We use a blended PPI composed of
the PPI for industrial gases (NAICS
325120), the PPI for other basic
inorganic chemical manufacturing
(NAICS 325180), the PPI for other basic
organic chemical manufacturing (NAICS
325190), and the PPI for soap and
cleaning compound manufacturing
(NAICS 325610). Using the 2002
Benchmark I–O data, we found that
these NAICS industries accounted for
approximately 90 percent of the hospital
industry’s chemical expenses.
Therefore, we use this blended index
because we believe its composition
better reflects the composition of the
purchasing patterns of hospitals than
does the PPI for industrial chemicals
(series code #WPU061), the proxy used
in the FY 2002-based IPPS market
basket. Chart 3 below shows the weights
for each of the four PPIs used to create
the blended PPI, which we determined
using the 2002 Benchmark I–O data.
CHART 3—BLENDED CHEMICAL PPI WEIGHTS
Weights
(in percent)
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Name
PPI
PPI
PPI
PPI
for
for
for
for
Industrial Gases ..................................................................................................................................
Other Basic Inorganic Chemical Manufacturing .................................................................................
Other Basic Organic Chemical Manufacturing ....................................................................................
Soap and Cleaning Compound Manufacturing ...................................................................................
k. Blood and Blood Products
In the FY 2002-based IPPS market
basket, we classified blood and blood
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products into the miscellaneous
products category and used the PPI for
finished goods less food and energy to
proxy the price changes associated with
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NAICS
35
25
30
10
325120
325180
325190
325610
these expenses. At the time of the
rebasing of the FY 2002-based IPPS
market basket, we noticed an apparent
divergence between the PPI for blood
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and blood derivatives, the price proxy
used in the FY 1997-based IPPS market
basket, and blood costs faced by
hospitals over the recent time period. A
thorough discussion of this analysis is
found in the FY 2006 IPPS final rule (70
FR 47390).
Since the last rebasing of the market
basket, BLS began collecting data and
publishing an industry PPI for blood
and organ banks (NAICS 621991). For
the FY 2006-based IPPS market basket,
as we proposed, we incorporate this
series (series code #PCU621991) into the
market basket and use it to proxy the
blood and blood products cost category.
l. Medical Instruments
We use the PPI for medical, surgical,
and personal aid devices (series code
#WPU156) to measure the price growth
of this cost category. In the 1997
Benchmark I–O data, approximately half
of the expenses classified in this
category were for surgical and medical
instruments. Thus, we used the PPI for
surgical and medical instruments and
equipment (series code #WPU1562) to
proxy this category in the FY 2002based IPPS market basket. The 2002
Benchmark I–O data show that this
category now represents only 33 percent
of these expenses and the largest
expense category is surgical appliance
and supplies manufacturing
(corresponding to series code
#WPU1563). Due to this reallocation of
costs over time, we are changing the
price proxy for this cost category to the
more aggregated PPI for medical,
surgical, and personal aid devices.
m. Photographic Supplies
We are eliminating the cost category
specific to photographic supplies for the
proposed FY 2006-based IPPS market
basket. These costs will now be
included in the chemicals cost category
because the costs are presently reported
as all other chemical products. Notably,
although we are eliminating the specific
cost category, these costs will still be
accounted for within the IPPS market
basket.
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n. Rubber and Plastics
We use the PPI for rubber and plastic
products (series code #WPU07) to
measure price growth of this cost
category. This same proxy was used in
the FY 2002-based IPPS market basket.
o. Paper and Printing Products
We use the PPI for converted paper
and paperboard products (series code
#WPU0915) to measure the price growth
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of this cost category. This same proxy
was used in the FY 2002-based IPPS
market basket.
p. Apparel
We use the PPI for apparel (series
code #WPU0381) to measure the price
growth of this cost category. This same
proxy was used in the FY 2002-based
IPPS market basket.
q. Machinery and Equipment
We use the PPI for machinery and
equipment (series code #WPU11) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based IPPS market basket.
r. Miscellaneous Products
We use the PPI for finished goods less
food and energy (series code
#WPUSOP3500) to measure the price
growth of this cost category. Using this
index removes the double-counting of
food and energy prices, which are
already captured elsewhere in the
market basket. This same proxy was
used in the FY 2002-based IPPS market
basket.
s. Professional Fees: Labor-Related
We use the ECI for compensation for
professional and related occupations
(private industry) (series code
#CIS2020000120000I) to measure the
price growth of this category. It includes
occupations such as legal, accounting,
and engineering services. This same
proxy was used in the FY 2002-based
IPPS market basket.
t. Administrative and Business Support
Services
We use the ECI for compensation for
office and administrative support
services (private industry) (series code
#CIU2010000220000I) to measure the
price growth of this category. Previously
these costs were included in the ‘‘all
other: labor-intensive cost’’ category
(now renamed the ‘‘all other: laborrelated cost’’ category), and were
proxied by the ECI for compensation for
service occupations. We believe that
this compensation index better reflects
the changing price of labor associated
with the provision of administrative
services and its incorporation represents
a technical improvement to the market
basket.
u. All Other: Labor-Related Services
We use the ECI for compensation for
service occupations (private industry)
(series code #CIU2010000300000I) to
measure the price growth of this cost
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43849
category. This same proxy was used in
the FY 2002-based IPPS market basket.
v. Professional Fees: Nonlabor-Related
We use the ECI for compensation for
professional and related occupations
(private industry) (series code
#CIS2020000120000I) to measure the
price growth of this category. This is the
same price proxy that we use for the
professional fees: labor-related cost
category.
w. Financial Services
We use the ECI for compensation for
financial activities (private industry)
(series code #CIU201520A000000I) to
measure the price growth of this cost
category. Previously these costs were
included in the ‘‘all other: nonlaborintensive cost’’ category (now renamed
the ‘‘all other: nonlabor-related cost’’
category), and were proxied by the CPI
for all items. We believe that this
compensation index better reflects the
changing price of labor associated with
the provision of financial services and
its incorporation represents a technical
improvement to the market basket.
x. Telephone Services
We use the CPI for telephone services
(series code #CUUR0000SEED) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based IPPS market basket.
y. Postage
We use the CPI for postage (series
code #CUUR0000SEEC01) to measure
the price growth of this cost category.
This same proxy was used in the FY
2002-based IPPS market basket.
z. All Other: Nonlabor-Related Services
We use the CPI for all items less food
and energy (series code
#CUUR0000SA0L1E) to measure the
price growth of this cost category.
Previously these costs were proxied by
the CPI for all items in the FY 2002based IPPS market basket. We believe
that using the CPI for all items less food
and energy will remove any doublecounting of food and energy prices,
which are already captured elsewhere in
the market basket. Consequently, we
believe that the incorporation of this
proxy represents a technical
improvement to the market basket.
Chart 4 compares both the historical
and forecasted percent changes in the
FY 2002-based IPPS market basket and
the FY 2006-based IPPS market basket.
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CHART 4—FY 2002–BASED AND FY 2006–BASED PROSPECTIVE PAYMENT HOSPITAL OPERATING INDEX PERCENT
CHANGE, FY 2004 THROUGH FY 2012
FY 2002-based
IPPS market
basket operating
index percent
change
Fiscal year (FY)
FY 2006–based
IPPS market
basket operating
index percent
change
4.0
4.3
4.3
3.4
4.3
4.1
4.0
3.9
4.0
3.6
4.0
3.9
2.1
2.3
2.8
3.0
2.6
2.6
2.1
2.7
2.9
2.6
Historical data:
FY 2004 ....................................................................................................................................................
FY 2005 ....................................................................................................................................................
FY 2006 ....................................................................................................................................................
FY 2007 ....................................................................................................................................................
FY 2008 ....................................................................................................................................................
Average FYs 2004–2008 ..........................................................................................................................
Forecast:
FY 2009 ....................................................................................................................................................
FY 2010 ....................................................................................................................................................
FY 2011 ....................................................................................................................................................
FY 2012 ....................................................................................................................................................
Average FYs 2009–2012 ..........................................................................................................................
Source: IHS Global Insight, Inc., 2nd Quarter 2009, USMACRO/CONTROL0609@CISSIM/TL0509.SIM.
sroberts on DSKD5P82C1PROD with RULES
The differences between the FY 2002based and the FY 2006-based IPPS
market basket increases are mostly
stemming from the revision the proxy
used for the chemicals cost category. As
stated earlier, we are adopting a blended
chemical index that is comprised of four
industry-based chemical price proxies
that represent approximately 90 percent
of the hospital industry’s chemical
expenses. The FY 2002-based IPPS
market basket used the PPI for industrial
chemicals. The PPI for industrial
chemicals attributes more weight to
direct petroleum expenses, which is not
consistent with a hospital’s most recent
purchasing pattern according to the
2002 Benchmark I–O data. The lower
weight for direct petroleum expenses in
the blended chemical index results in
less volatile price movements. We
believe the blended index represents a
technical improvement because it better
reflects the purchasing patterns of
hospitals.
Also contributing to the differences
between the FY 2002-based and the FY
2006-based IPPS market basket
increases is the larger weight associated
with the professional fees category. In
both market baskets, these expenditures
are proxied by the ECI for compensation
for professional and related services.
The weight for professional fees in the
FY 2002-based IPPS market basket is 5.5
percent compared to 9.4 percent in the
FY 2006-based IPPS market basket.
4. Labor-Related Share
Under section 1886(d)(3)(E) of the
Act, the Secretary estimates from time to
time the proportion of payments that are
labor-related. ‘‘The Secretary shall
adjust the proportion (as estimated by
the Secretary from time to time) of
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hospitals’ costs which are attributable to
wages and wage-related costs of the
DRG prospective payment rates * * *.’’
We refer to the proportion of hospitals’
costs that are attributable to wages and
wage-related costs as the ‘‘labor-related
share.’’
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. We include a
cost category in the labor-related share
if the costs are labor intensive and vary
with the local labor market. Given this,
as we proposed, we are including in the
labor-related share the national average
proportion of operating costs that are
attributable to wages and salaries,
employee benefits, contract labor, the
labor-related portion of professional
fees, administrative and business
support services, and all other: laborrelated services (previously referred to
in the FY 2002-based IPPS market
basket as labor-intensive) (74 FR 24159).
Consistent with previous rebasings, the
‘‘all other: labor-related services’’ cost
category is mostly comprised of
building maintenance and security
services (including, but not limited to,
commercial and industrial machinery
and equipment repair, nonresidential
maintenance and repair, and
investigation and security services).
Because these services tend to be laborintensive and are mostly performed at
the hospital facility (and, therefore,
unlikely to be purchased in the national
market), we believe that they meet our
definition of labor-related services.
For the rebasing of the FY 2002-based
IPPS market basket in the FY 2006 IPPS
final rule, we included in the laborrelated share the national average
proportion of operating costs that are
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attributable to wages and salaries,
employee benefits, contract labor,
professional fees, and labor-intensive
services (70 FR 47393). For the FY 2006based IPPS market basket rebasing, the
inclusion of the administrative and
business support services cost category
into the labor-related share remains
consistent with the current labor-related
share because this cost category was
previously included in the laborintensive cost category. As previously
stated, we are establishing a separate
administrative and business support
service cost category so that we can use
the ECI for compensation for office and
administrative support services to more
precisely proxy these specific expenses.
For the FY 2002-based IPPS market
basket, we assumed that all nonmedical
professional services (including
accounting and auditing services,
engineering services, legal services, and
management and consulting services)
were purchased in the local labor
market and, therefore, all of their
associated fees varied with the local
labor market. As a result, we previously
included 100 percent of these costs in
the labor-related share. In an effort to
more accurately determine the share of
professional fees that should be
included in the labor-related share, we
surveyed hospitals regarding the
proportion of those fees that go to
companies that are located beyond their
own local labor market (the results are
discussed below).
We continue to look for ways to refine
our market basket approach to more
accurately account for the proportion of
costs influenced by the local labor
market. To that end, we conducted a
survey of hospitals to empirically
determine the proportion of contracted
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professional services purchased by the
industry that are attributable to local
firms and the proportion that are
purchased from national firms. We
notified the public of our intent to
conduct this survey on December 9,
2005 (70 FR 73250) and received no
comments (71 FR 8588).
With approval from the OMB, we
contacted the industry and received
responses to our survey from 108
hospitals. Using data on FTEs to allocate
responding hospitals across strata
(region of the country and urban/rural
status), we calculated poststratification
weights. Based on these weighted
results, we determined that hospitals
purchase, on average, the following
portions of contracted professional
services outside of their local labor
market:
• 34 percent of accounting and
auditing services;
• 30 percent of engineering services;
• 33 percent of legal services; and
• 42 percent of management
consulting services.
We applied each of these percentages
to its respective Benchmark I–O cost
category underlying the professional
fees cost category. This is the
methodology that we used to separate
the FY 2006-based IPPS market basket
professional fees category into
professional fees: Labor-related and
professional fees: Nonlabor-related cost
categories. In addition to the
professional services listed above, we
also classified expenses under NAICS
55, Management of Companies and
Enterprises, into the professional fees
cost category as was done in previous
rebasings. The NAICS 55 data are
mostly comprised of corporate,
subsidiary, and regional managing
offices, or otherwise referred to as home
offices. Formerly, all of the expenses
within this category were considered to
vary with, or be influenced by, the local
labor market and were thus included in
the labor-related share. Because many
hospitals are not located in the same
geographic area as their home office, we
analyzed data from a variety of sources
in order to determine what proportion
of these costs should be appropriately
included in the labor-related share.
Comment: Several commenters
disagreed with the proposed
methodology to apportion home offices
costs into the labor-related share.
Response: Our proposed methodology
was primarily based on data from the
Medicare cost reports, as well as a CMS
database of Home Office Medicare
Records (HOMER) (a database that
provides city and state information
(addresses) for home offices). The
Medicare cost report requires hospitals
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to report their home office provider
numbers. Using the HOMER database to
determine the home office location for
each home office provider number, we
compared the location of the hospital
with the location of the hospital’s home
office. We then proposed to determine
the proportion of costs that should be
allocated to the labor-related share
based on the percent of hospitals that
had home offices located in their
respective local labor markets—defined
as being in the same MSA. Using this
proposed methodology, we had
determined that 27 percent of hospitals
that had home offices had those home
offices located in their respective local
labor markets, and therefore, we
proposed to allocate 27 percent of
NAICS 55 expenses to the labor-related
share.
In response to the public comments
submitted, we have revisited the home
office cost allocation method and
determined that a revision of the
approach is appropriate. As an
alternative to using provider counts
(where each provider counts evenly) as
the means by which home office costs
are apportioned to the labor-related
share, or deemed nonlabor-related, for
this final rule, we are weighting the
providers by home office compensation
costs as reported in Worksheet S–3, part
II, line 11 of the hospital MCR. (The
Medicare cost report includes, but does
not explicitly itemize, all home office
costs. However, it does contain a line
item for home office compensation
costs.) We believe that this revised
methodology of weighting the providers
based on home office compensation
costs provides a more technically
appropriate estimate of the proportion
of NAICS 55 expenses that should be
allocated to the labor-related share.
As proposed, we are still continuing
to use the same data sources and
methodology to determine whether a
hospital’s home office is located in their
respective MSA. Once we determined
whether the hospital’s home office is
located in their respective MSA, we
used additional data on home office
compensation costs from the Medicare
cost report to assign weights to the
providers. Using this revised
methodology, we determined that 57
percent of hospitals’ home office costs
are paid into their respective local labor
markets—defined as being in the same
MSA.
As was published in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
(74 FR 24159 through 24161), below is
a more detailed explanation on our
methodology used to determine whether
a hospital’s home office was located in
their respective MSA. In addition to the
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number of providers that appeared in
the proposed rule, we have also
included our weighted results.
The Medicare cost report requires
hospitals to report their home office
provider numbers. Using the HOMER
database to determine the home office
location for each home office provider
number, we compared the location of
the hospital with the location of the
hospital’s home office. We then placed
hospitals into one of the following three
groups:
• Group 1—Hospital and home office
are located in different States;
• Group 2—Hospital and home office
are located in the same State and same
city; and
• Group 3—Hospital and home office
are located in the same State and
different city.
We found that 59 percent of the
hospitals with home offices (34 percent
of total home office compensation costs
for hospitals with home offices) were
classified into Group 1 (that is, different
State) and, thus, these hospitals were
determined to not be located in the
same local labor market as their home
office.
We found that 12 percent of all
hospitals with home offices (35 percent
of total home office compensation costs
for hospitals with home offices) were
classified into Group 2 (that is, same
State and same city and, therefore, the
same MSA). Consequently, these
hospitals were determined to be located
in the same local labor market as their
home offices.
We found that 29 percent of all
hospitals with home offices (30 percent
of total home office compensation costs
for hospitals with home offices) were
classified into Group 3 (that is, same
State and different city). Using data
from the Census Bureau to determine
the specific MSA for both the hospital
and its home office, we found that 16
percent of all hospitals with home
offices (22 percent of total home office
compensation costs for hospitals with
home offices) were identified as being in
the same State, a different city, but the
same MSA.
Pooling these results, we were able to
determine that approximately 28
percent of hospitals with home offices
(57 percent of total home office
compensation costs for hospitals with
home offices) had home offices located
within their local labor market (that is,
12 percent of hospitals with home
offices (35 percent of total home office
compensation costs for hospitals with
home offices) had their home offices in
the same State and city (and, thus, the
same MSA), and 16 percent of hospitals
with home offices (22 percent of total
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home office compensation costs for
hospitals with home offices) had their
home offices in the same State, a
different city, but the same MSA). We
note that due to data anomalies
associated with home office
compensation cost data on the Medicare
cost report, we trimmed the data and,
thus, the number of providers classified
in each of the groups is slightly different
than we had published in the proposed
regulation. The aforementioned trim
resulted in excluding hospitals whose
home office costs as a percent of total
hospital costs were in the top and
bottom five percent of that ratio. In the
proposed rule, we had determined that
27 percent of providers had a home
office located in their respective MSA.
Applying our trimming method resulted
in 28 percent of providers having a
home office located in their respective
MSA. Therefore, using the results of our
weighting methodology, we are
classifying 57 percent of the NAICS 55
costs into the professional fees: laborrelated cost category and the remaining
43 percent into the professional fees:
nonlabor-related cost category.
Comment: Several commenters
suggested that CMS maintain the laborrelated share from the FY 2002-based
market basket (69.7 percent) for
hospitals with an area wage index
greater than 1.0 until a statistically valid
approach for changing the labor-related
share can be implemented. In addition,
some commenters stated that, although
CMS is required to rebase the hospital
market basket, the proposal to revise the
labor-related share is not required by
statute and, thus, represents a
discretionary decision by CMS.
Response: As a matter of practice,
CMS typically rebases and revises the
market basket and the labor-related
share simultaneously. We believe that
doing so results in a more technically
accurate market basket that has the
effect of more precisely updating
payments to Medicare’s providers. We
believe that revising the labor-related
share is based on empirical research and
relies on more recent data, representing
a technical improvement to the
construction of the market basket. The
methodology relies, in part, on the
results of a survey of professional fees
that was nationally representative and
inclusive of large, urban-based hospitals
and whose results were estimated using
widely accepted survey estimation
techniques. It also is dependent on data
from the Medicare cost reports and the
HOMER database that showed 43
percent of total home office
compensation costs for hospitals with
home offices had home offices located
in different MSAs. Therefore, we
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disagree with the commenter’s
suggestion to continue to use a laborrelated share of 69.7 percent.
Comment: Several commenters
disagreed with the proposal to only
allocate a portion of home office costs
to the labor-related share based on
whether these costs were incurred in the
local labor market. One commenter
stated that it is generally understood
that there is a significant degree of
correlation between the location of a
multihospital system and the geographic
locations of its member hospitals. All
systems except the limited number of
truly national hospital chains tend to be
clustered in subareas of the country.
Therefore, the commenters claimed that
an assumption that 73 percent of home
office labor costs more closely resemble
national versus regional wage patterns is
not necessarily supported by the
methodology CMS proposed. Second,
the commenter stated that it is generally
the case that home office operations of
multihospital systems and chains tend
to be located in urban areas, even if the
hospitals in the system or chain are
nonurban or rural. The commenter
further stated that this implies that
average wage costs in these system
headquarters may be systematically
higher than the national average wage
cost, making a national pricing proxy
suspect in this case, as well.
Response: In rebasing the laborrelated share, we have identified new
methodologies and newly available
empirical evidence to estimate the
portion of the standardized payment
amount that is subject to the hospital
area wage index. In determining what
proportion of that amount should be
apportioned to the labor-related share
and what proportion should be deemed
nonlabor-related, we referenced the
following:
Section 1886(d)(3)(E)(i) of the Act
states that ‘‘in general.—Except as
provided in clause (ii), 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
computed under subparagraph (D) for
area differences in hospital wage levels
by a factor (established by the Secretary)
reflecting the relative hospital wage
level in the geographic area of the
hospital compared to the national
average hospital wage level.’’
Because the labor-related share
determined through the market basket is
linked to the hospital area wage index,
for this rebasing, we have identified
new methodologies and newly available
empirical evidence to determine a laborrelated share that more precisely reflects
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the wage and wage-related proportion of
activities purchased where the
individual hospital is located. Services
purchased beyond the boundaries of the
local labor market of the individual
hospital are thereby excluded from the
labor-related share.
In order to distribute the appropriate
proportion of home office costs to the
labor-related share, we constructed a
methodology that is similar to that
undertaken to determine the area wage
index. That is, we analyzed the
locations of the individual hospitals and
their respective home offices (at the
MSA-level) as well as the home office
compensation costs of the individual
hospitals. The proportion of home office
costs that we do not include in the
labor-related share was not based on
assumption, but rather it was based on
Medicare cost report data and the
HOMER database. Those data showed
43 percent of home office compensation
costs were purchased from a different
MSA than where the individual hospital
is located and, thus, that proportion of
home office costs are excluded from the
labor-related share. The remaining 57
percent of home office compensation
costs were purchased in the same MSA
as the hospital; therefore, that
proportion of home office costs is
included in the labor-related share.
Based on data published by the BEA,
we determined that the share of total
hospital costs attributable to home office
costs in 2006 was 5.8 percent. Applying
the aforementioned shares to the 5.8
percent figure, we determined that 2.494
percentage points of total costs
represent home office costs that are not
incurred in the same local labor market
as the hospital itself and, thus, are
removed from the labor-related share.
The remaining 3.306 percentage points
remain in the labor-related share.
Comment: Several commenters
addressed the survey CMS conducted
regarding certain professional fees
purchased by hospitals, stating that
CMS used this survey to impute a 2.631
percentage point reduction in the laborrelated share. These commenters stated
that CMS failed to share data on the
characteristics of the hospitals that
responded, possible selection bias, or
survey methodology. They also cited
that the survey only received 108
respondents, which could lead to a high
margin of error. The commenters stated
that CMS provides no indication that it
assessed for response bias in its survey
nor did it explain how (or whether) it
assured that the survey respondents
were representative of all hospitals or of
hospitals in wage areas greater than 1.0.
Another commenter stated that the CMS
survey assumed that such professional
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services should be available in the local
labor market and ignored some
hospital’s unavoidable need to incur
those costs in order to comply with
Federal and State requirements. The
commenters requested CMS not remove
a portion of professional fees from the
labor-related share based on the results
of this survey.
Response: We disagree with the
commenters’ suggestion that we ignore
the survey results and continue to
assign 100 percent of nonmedical
professional fees to the labor-related
share, as has been done historically. We
believe a method that distributes these
fees based on empirical research and
data represents a technical improvement
to the construction of the market basket.
Our intent to survey for this purpose
was announced in the Federal Register
on December 9, 2005 (70 FR 73250). We
received no public comment at that
time.
Although several commenters
indicated that the professional fees
survey was used to decrease the labor-
related share by 2.631 percentage
points, that indication is not correct. In
the FY 2006-based IPPS market basket,
nonmedical professional fees that were
subject to allocation based on the survey
results represent 2.114 percent of total
costs (and are limited to those fees
related to Accounting & Auditing, Legal,
Engineering, and Management
Consulting services). Based on our
survey results, we are apportioning
1.335 percentage points of the 2.114
percentage point figure into the laborrelated share and designating the
remaining 0.779 percentage point as
nonlabor-related.
The survey’s methods unfolded in the
following manner: A small sample of 12
hospitals was initially pre-tested in
order to ensure the understandability of
the survey questions. The survey
prompted sample institutions to select
from multiple choice answers the
proportions of their professional fees
that are purchased from firms located
outside of their respective local labor
market. The multiple choice answers for
43853
each type of professional service
included the following options: 0
percent of fees; 1–20 percent of fees; 21–
40 percent of fees; 41–60 percent of fees;
61–80 percent of fees; 81–99 percent of
fees; and 100 percent of fees. All
respondents were assured that the
information they provided would be
kept strictly confidential.
Understanding that larger, urbanbased hospitals (and those located in
areas with area wage indexes greater
than 1.0) are most likely to be impacted
by the survey’s results, we used data on
full-time equivalents (FTEs) to represent
the sizes of hospitals and selected
hospitals with probability proportional
to their sizes across strata when drawing
the full sample. Strata were formed by
Census Region and Urban/Rural Status.
The distributions of the hospital
population, as well as weighted
distributions for the responders, by
Urban/Rural Status (including data on
hospital size) and Census Region were
as follows:
All hospitals percent distribution
& average FTE
size
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Total
Total
Total
Total
Total
Total
Total
Responding hospitals percent
distribution & average FTE size
100%/994
30%/388
70%/1,255
15%/1,442
23%/1,062
42%/843
20%/899
100%/1,156
25%/449
75%/1,460
20%/1,078
24%/1,656
37%/944
19%/1,081
.................................................................................................................................................................
Rurals .....................................................................................................................................................
Urbans ....................................................................................................................................................
Northeast Region ....................................................................................................................................
Mid-West Region ....................................................................................................................................
South Region ..........................................................................................................................................
West Region ...........................................................................................................................................
Sample weights were calculated as
the inverse of the selection probability
and were subsequently adjusted for
nonresponse bias by strata and poststratified to derive final weights. This
type of application represents a
common survey approach and is based
on valid and widely-accepted statistical
techniques.
For the estimates of the nationwide
proportion of nonmedical professional
services fees purchased outside of the
local labor market, we first examined
the data on multiple levels. First, we
found that fewer than 30 percent of the
responding hospitals paid 100 percent
of their professional fees to vendors
located within their local labor market.
Conversely, we found that roughly 20
percent of responding hospitals reported
81 percent or more of their professional
services fees are paid to vendors located
outside of their local labor market.
In determining the specific and
appropriate proportions of professional
fees to consider labor-related and
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nonlabor-related, we generated
weighted averages from the data in the
following manner:
• For any multiple choice answer
where the standard error associated
with the weighted counts for that
answer was less than 30 percent, we
multiplied the weighted counts
associated with that answer by the
midpoint of the range within that
answer. For example, for Accounting
and Auditing services, if a weighted
count of 500 hospitals responded that
they pay ‘‘1 to 20 percent’’ of their
professional fees for these services to
firms located outside of their local labor
market, we would multiply 500 times 10
percent. We repeat this for each possible
multiple choice answer.
• For any multiple choice answer
where the standard error associated
with the weighted counts for that
answer exceeded 30 percent, we
multiplied the weighted hospital counts
by the low point of the range. Using a
similar example as above, if a weighted
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count of 300 hospitals responded that
they pay ‘‘1 to 20 percent’’ of their
professional fees for these services to
firms located outside of their local labor
market, and the standard error on that
estimate was greater than 30 percent, we
would multiply 300 times 1 percent.
• After applying one of these two
techniques to each answer, dependent
on its associated standard error, we took
a weighted average of the results to
determine the final proportion to be
excluded from the labor-related share
for each of the four types of professional
services surveyed.
We do not assume that access to
professional services such as those
included in this survey should be
available to all hospitals within their
respective local labor market and we
understand that, in some cases,
hospitals may have to obtain these
services from vendors beyond those
boundaries. However, for purposes of
estimating the labor-related share of the
market basket, in accordance with the
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aforementioned section 1886(d)(3)(E)(i)
of the Act, we have used the newly
available empirical evidence to
determine the wage and wage-related
costs in the labor-related share that are
incurred within the geographic location
of the hospital itself.
Comment: Several commenters
questioned why CMS chose to conduct
a survey to determine which proportion
of professional fees is purchased in the
local labor market when they could
have conducted a study of Medicare
cost reports for hospitals which, on line
22.01 of Worksheet S–3, part II, contains
hospitals’ average annual wage for
professional services. In addition, one
commenter suggested that instead of a
survey, CMS should have proposed a
change to the cost report in order to
collect accurate data for all facilities.
Response: The Medicare cost report
data do provide an average hourly wage
for administrative and general (A&G)
services (including those professional
services included in the CMS survey)
under contract. However, the data do
not distinguish whether these services
were purchased in the local labor
market. In addition, a comparison of the
average hourly wage for A&G services
performed by hospital staff (as reported
in line 22 of Worksheet S–3, part II) and
the average hourly wage for A&G
services under contract (as reported on
line 22.01 of Worksheet S–3, part II)
would not be sufficient to determine
whether the contracted services were
purchased in the local or national labor
market. The reason for this is that the
average A&G wages reported for hospital
staff could represent a different
occupational mix than the average A&G
wages under contract. For example, a
hospital could choose to employ staff to
perform their bookkeeping and tax
preparation services, but contract out
their legal services. The higher average
annual wage rate for the contracted A&G
services compared to the in-house A&G
services would not necessarily be a
result of purchasing services in differing
geographic areas, but rather a reflection
of the different skill-mix represented in
each group.
At the time this survey was initiated,
it was not a viable option to alter the
Medicare cost report in such a way as
to collect this information due to the
long periods of time between when the
Medicare cost report questions are
updated.
Comment: One commenter stated that
it is inappropriate to restrict the wage
index adjustment to labor-related costs
that vary with the local labor market
without recognizing that there are
significant nonlabor costs that vary with
the local market, of which professional
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liability insurance is but one obvious
example. The commenter cited a
regression analysis which showed that
85 percent of the variation in the
estimated total unit costs of Medicare
fee-for-service cases was explained by
local input prices.
Response: For purposes of estimating
the labor-related share of the market
basket, in accordance with the
aforementioned section 1886(d)(3)(E)(i)
of the Act, we include only wage and
wage-related costs in that proportion.
The law does not call for the inclusion
of nonlabor-related costs to be included
in the labor-related share.
As described in the FY 2006 IPPS
final rule (70 FR 47394), we previously
performed regression analyses to
reevaluate the assumptions used in
determining the labor-related share.
Using several regression specifications,
we attempted to determine the
proportion of costs that are influenced
by the area wage index. We note that the
results obtained for the relevant
coefficients (roughly equivalent to the
labor share) using the various
specifications were less than 85 percent.
Comment: Many commenters
disagreed with CMS removing any
portion of professional fees from the
labor-related share. The commenters
stated that CMS did not appear to take
into account the prevailing wages of
areas from which hospitals typically
purchase professional fees. They believe
that it is uncommon for hospitals to
purchase professional services from
firms located in areas with lower
prevailing wages than their own wage
area. Therefore, they claimed that CMS
failed to recognize the premium that
hospitals must pay professionals from
similar or higher prevailing wage areas.
Several commenters also believed that
CMS’ assertion that a portion of
professional fees is nonlabor-related is
invalid because professional fees do, in
fact, vary across regions and localities.
The commenters indicated that even if
a professional services firm is not based
in the local area, professional fees are
modified in response to local market
factors. They added that rates and fees
are set in a competitive market and must
reflect the conditions of that market. In
addition, several commenters stated that
professional services are highly laborintensive and constitute a necessary
business expense. Finally, one
commenter indicated that even though
these services may be purchased from
another entity, they represent
substitutes for hospital-employed staff
and, thus, should be regarded by CMS
as labor-related.
Response: We disagree with the
commenters’ assertion that CMS should
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include all professional fees in the
labor-related share. We recognize that
hospitals may often purchase
professional services from geographic
areas with higher prevailing wages than
their own. We further recognize that the
prices for these services vary across
regions and localities and that the
services themselves are labor-intensive.
However, because we now have
empirical evidence we can use to
establish what portion of these
professional fees are actually incurred
in the local labor market, in accordance
with section 1886(d)(3)(E)(i) of the Act,
we are including only such wage and
wage-related costs in the labor-related
share. To the extent the evidence shows
that the fees paid do not vary with, or
are not influenced by, the local labor
market, we are not including them in
the labor-related share and are not
subjecting them to the wage index
adjustment.
Comment: Several commenters stated
that the proposed change to the laborrelated share will only affect hospitals
in areas with a wage index over 1.0.
However, the commenters claimed that
these higher-wage hospitals are much
more likely to hire professional firms
that are actually located in their local
labor market and, thus, are paying
higher wages. The commenters stated
that most urban areas have an excellent
supply of professional services firms,
thereby enabling urban hospitals to
purchase such services from a local or
regional market rather than a national
market. In addition, some commenters
claimed that this proposal will have an
adverse effect on urban hospitals in
general. One commenter stated that the
proposed labor-related share reduction
would most seriously affect large urban
teaching hospitals.
One commenter stated that CMS’
proposed change to the labor-related
share is counter-intuitive to CMS’s
policy goal and would actually dampen
the sensitivity of the IPPS payment
methodology to area wage variations.
The commenter cited that academic
medical centers located in large urban
markets are the most likely hospitals to
be in markets with substantial local
competition for professional services—
markets in which professional services
fees are most likely to be influenced by
local labor market conditions. The
commenter stated that the proposed
methodology premised on the
assumption that 73 percent of home
office costs reflect national average wage
patterns produces a substantial
downward payment bias for teaching
hospitals. Thus, the commenter urged
CMS to only use more recent data and
hold all other aspects constant, which
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would result in a labor-related share of
72.1 percent. The commenter stated
that, at a minimum, the current laborrelated share of 69.7 percent should be
retained, pending further study and
analysis.
Response: We recognize that many
hospitals could be affected differently
by a change in the labor-related share.
However, we believe the law calls for
this proportion to be based on a national
average and does not distinguish
between types of hospitals for purposes
of estimating or applying the laborrelated share.
We disagree with the suggestions that
the FY 2006-based market basket’s
labor-related share should be set to 72.1
percent (as a result of holding all other
aspects constant from the FY 2002based market basket) or that it should be
held to its current 69.7 percent level.
We believe that incorporating more
recent data, as well as the results of our
research, represents a technical
improvement to the accuracy of the
market basket.
Comment: One commenter stated that
in order for hospitals to become more
efficient and cost effective, they often
use contract employees. The commenter
further stated that in order to obtain the
best price and service, these employees
are located outside the local labor
market. The commenter claimed that
disallowing these services to be
included in the wage index survey
would reduce their labor-related
payment rate and not adequately
reimburse for care of Medicare patients.
Response: We do include direct
patient contract labor expenses in the
labor-related share of the IPPS market
basket. These costs are included in the
Wages & Salaries and Benefits cost
weights. We only exclude from the
labor-related share those contract labor
costs associated with professional fees
and home office costs that were
purchased outside of the local labor
market. As stated previously, the
purpose of the labor-related share is to
determine which portion of the
standardized payment amount that is
subject to the hospital wage index.
Therefore, we define the labor-related
share as those expenses that are laborintensive and vary with, or are
influenced by, the local labor market.
Comment: One commenter stated that
without survey detail, they were unsure
of CMS’ treatment of professional fees
paid for by a home office. The
commenter stated that currently CMS
excludes this expense for wage index
purposes as the ‘‘home office cost center
is not included in the current definition
of contract services for the wage index.’’
The commenter believed that this
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created an inconsistency among the
independent hospitals, which can
include the professional fee costs/hours
while health systems cannot. The
commenter asked CMS to comment on
its treatment of professional fees paid
for by a home office and its use of such
data in its survey.
Response: The CMS survey asked the
responding hospitals to share what
proportion of their professional services
were purchased from vendors located
beyond their local labor market. We
expected that, irrespective of the
mechanism of the purchase (that is,
purchased directly by the hospital or
purchased by the hospital’s home office
on the hospital’s behalf), the approach
to answering the questions remains the
same. Therefore, we believe
independent hospitals, as well as
hospital groups, were captured
appropriately.
Comment: One commenter questioned
the conclusion from CMS’ methodology,
which implicitly assumes that the labor
costs associated with ‘‘non-local’’
services, or those that are not adjusted
at all for area wage variations, more
closely reflects the national average than
labor market conditions in the local area
of the hospital receiving the services.
The commenter described the market for
professional services provided to
hospitals as those that can be divided
into the following categories: (1) Truly
local firms whose clientele is comprised
of the hospitals in a specific geographic
area; (2) local offices of regional or
national firms that will staff local
assignments with some mix of local and
non-local professionals; (3) firms that
are ‘‘regional’’ in the sense of serving
multiple geographic markets from a
centralized location; and (4) truly
national firms that operate nationwide
from a single headquarters office and
that serve local hospitals without
assistance from locally based
practitioners. The commenter claimed
that CMS implicitly assumed that any
firm that does not fall into the first
category would experience labor costs
indistinguishable from those that fall in
the last category. However, the
commenter stated that, in reality all
such firms compete against each other
in each local market. Therefore, the
commenter added, local labor market
conditions drive the prices local
hospitals will pay for professional
services even if those services wind up
being rendered by professionals from
out of town. The commenter stated that
there is substantial regional variation in
salaries paid to entry-level and earlycareer professionals who represent the
lion’s share of the cost that will be
billed to hospitals. The commenter
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43855
concluded that a payment methodology
premised on the notion of a national
professional services market with
uniform prices fails to reflect the reality
of what hospitals pay for professional
services. The commenter also states that
CMS did not disclose how professional
services firms were identified as being
‘‘national’’ firms in its survey. The
commenter believed that determining
the location of a contract based on the
mailing address of the contractor could
materially understate the volume of
services rendered by national or
regional firms with a local presence,
which would be fully subject to local
labor market conditions. Thus, the
commenter concluded the effect of
reducing the labor-related share would
be to dampen the sensitivity of the IPPS
payment methodology to area wage
variations.
Response: We recognize that fees paid
for professional services provided by
firms not located in the same local labor
market as the hospital may be
purchased in local labor markets and
not always in a national market.
However, given that we now have
empirical evidence that can be used to
estimate the portion of costs that varies
based on the local labor market, we
believe it is in keeping with section
1886(d)(3)(E)(i) of the Act to only assign
that portion that does vary to the laborrelated share. Section 1886(d)(3)(E)(i) of
the Act states that ‘‘in general.—Except
as provided in clause (ii), 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
computed under subparagraph (D) for
area differences in hospital wage levels
by a factor (established by the Secretary)
reflecting the relative hospital wage
level in the geographic area of the
hospital compared to the national
average hospital wage level.’’
Comment: One commenter stated that
the treatment of contract labor has a
direct influence on the labor-related
share, which in turn affects the area
wage index adjusted portion of the
payments. Conversely, the commenter
stated, because the labor-related share
now includes accounting and auditing
services, it is not clear whether the data
currently used to develop the area wage
index are inclusive of the costs for
accounting and auditing because
consideration of these costs for area
wage index purposes is only a current
CMS wage data policy convention.
Therefore, the commenter added, there
could be a mismatch between the data
CMS is using for the labor-related share
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determination and the data CMS utilizes
for developing the area wage index.
Response: We are not changing our
methodology on how contract labor
costs are included in the IPPS market
basket. As has been done historically,
the market basket includes all contract
labor services purchased by the
hospital. Direct patient contract labor
costs are included in the Wage &
Salaries and Benefits cost weights,
whereas other nondirect patient contract
labor costs are represented in the other
cost weights.
Also, we interpret the commenter’s
statement to imply that accounting and
auditing services were previously
excluded from the labor-related share.
Historically, 100 percent of the
accounting and auditing services
expenses were included in the laborrelated share. We proposed to only
include 66 percent of the accounting
and auditing costs in the labor-related
share because the remaining 34 percent
of these costs were determined to have
been purchased outside of the local
labor market.
With respect to a possible mismatch
between the labor-related share and the
area wage index, data from Worksheet
S–3, part II, of the Medicare cost report
are used to estimate both. Those data
provide information on wage and wagerelated costs incurred by the hospital
but are not detailed enough to
distinguish between costs incurred via
purchase and costs incurred via direct
hire. In estimating the labor-related
share, we incorporate data from other
data sources to supplement the
Medicare cost report data to more
accurately capture and apportion wage
and wage-related costs that are
purchased.
Comment: One commenter questioned
whether the proposed revision of the
labor-related share of the operating IPPS
rates would affect the capital IPPS
geographic adjustment factor (GAF),
which is derived from the hospital wage
index. The commenter requested that
CMS review whether the formula used
to determine the capital GAF should be
revised based on the update of the
operating IPPS labor-related share.
Response: In determining payments
under the capital IPPS, the capital rate
is adjusted for differences in local cost
variations by a factor (the GAF) that is
equal to the hospital’s applicable wage
index raised to the 0.6848 power
(§ 412.316(a) of our regulations). The
formula for the GAF was developed
using a regression analysis and the
exponential form of this factor is used
in order to apply a single factor to the
entire capital rate rather than splitting
the capital rate into labor-related share
and nonlabor-related share (56 FR
43375). The formula for the GAF is
independent of the operating IPPS
labor-related share and, therefore,
requires no adjustment based on the
revision of the operating IPPS laborrelate share. The GAF will continue to
be computed as the hospital’s applicable
wage index raised to the 0.6848 power.
After consideration of the public
comments received, in this final rule,
we are revising our labor-related share
that we proposed in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24159–24161) to incorporate a
revision to our methodology for
allocating NAICS 55 expenses to the
labor-related share.
Below is a chart comparing the FY
2006-based labor-related share and the
FY 2002-based labor-related share.
CHART 5—COMPARISON OF THE FY 2006-BASED LABOR-RELATED SHARE AND THE FY 2002-BASED LABOR-RELATED
SHARE
FY 2002-based
market basket
cost weights
FY 2006-based
market basket
cost weights
Wages and Salaries ........................................................................................................................................
Employee Benefits ...........................................................................................................................................
Professional Fees: Labor-Related ...................................................................................................................
Administrative and Business Support Services ...............................................................................................
All Other: Labor-Related Services ...................................................................................................................
48.171
11.822
5.510
............................
4.228
47.213
12.414
5.356
0.626
3.193
Total Labor-Related Share .......................................................................................................................
69.731
68.802
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Using the cost category weights from
the FY 2006-based IPPS market basket,
we calculated a labor-related share of
68.802 percent, approximately 0.9
percentage points lower than the current
labor-related share of 69.731.
We continue to believe, as we have
stated in the past, that these operating
cost categories are related to, influenced
by, or vary with the local markets.
Therefore, our definition of the laborrelated share continues to be consistent
with section 1886(d)(3) of the Act.
Using the cost category weights that
we determined in section IV.B.1. of this
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preamble, we calculated a labor-related
share of 68.802 percent, using the FY
2006-based IPPS market basket.
Accordingly, we are implementing a
labor-related share of 68.8 percent for
discharges occurring on or after October
1, 2009. We note that section 403 of
Public Law 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 than
would otherwise be made.’’
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As we proposed, we also are updating
the labor-related share for Puerto Rico.
Consistent with our methodology for
determining the national labor-related
share, we add the Puerto Rico-specific
relative weights for wages and salaries,
employee benefits, and contract labor.
Because there are no Puerto Ricospecific relative weights for professional
fees and labor intensive services, we use
the national weights.
Below is a chart comparing the FY
2006-based Puerto Rico-specific laborrelated share and the FY 2002-based
Puerto Rico-specific labor-related share.
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43857
CHART 6—COMPARISON OF THE FY 2006-BASED PUERTO RICO-SPECIFIC LABOR-RELATED SHARE AND FY 2002-BASED
PUERTO RICO-SPECIFIC LABOR-RELATED SHARE
FY 2002-based
market basket
cost weights
FY 2006-based
market basket
cost weights
Wages and Salaries ........................................................................................................................................
Benefits ............................................................................................................................................................
Professional Fees: Labor-Related ...................................................................................................................
Administrative and Business Support Services ...............................................................................................
All Other: Labor-Related Services ...................................................................................................................
40.201
8.782
5.510
............................
4.228
44.221
8.691
5.356
0.626
3.193
Total Labor-Related Share .......................................................................................................................
58.721
62.087
C. Separate Market Basket for Certain
Hospitals Presently Excluded from the
IPPS
the cost structure of children’s and
cancer hospitals and RNHCIs. Therefore,
we believe that the percentage change in
the FY 2006-based IPPS operating
market basket is the best available
measure of the average increase in the
prices of the goods and services
purchased by cancer and children’s
hospitals and RNHCIs in order to
provide care.
We did not receive any public
comments on the provisions of this
section.
In the FY 2006 IPPS final rule (70 FR
47396), we adopted the use of the FY
2002-based IPPS operating market
basket to update the target amounts for
children’s and cancer hospitals and
religious nonmedical health care
institutions (RNHCIs). Children’s and
cancer hospitals and RNHCIs are still
reimbursed solely under the reasonable
cost-based system, subject to the rate-ofincrease limits. Under these limits, an
annual target amount (expressed in
terms of the inpatient operating cost per
discharge) is set for each hospital based
on the hospital’s own historical cost
experience trended forward by the
applicable rate-of-increase percentages.
As we proposed (74 FR 24161), under
the broad authority in sections
1886(b)(3)(A) and (B), 1886(b)(3)(E), and
1871 of the Act and section 4454 of the
BBA, consistent with our use of the
IPPS operating market basket percentage
increase to update target amounts, we
are using the FY 2006-based IPPS
operating market basket percentage
increase to update the target amounts
for children’s and cancer hospitals and
RNHCIs.
Due to the small number of children’s
and cancer hospitals and RNHCIs that
receive, in total, less than 1 percent of
all Medicare payments to hospitals and
because these hospitals provide limited
Medicare cost report data, we are unable
to create a separate market basket
specifically for these hospitals. Based on
the limited data available, we believe
that the FY 2006-based IPPS operating
market basket most closely represents
D. Rebasing and Revising the Capital
Input Price Index (CIPI)
The CIPI was originally described in
the FY 1993 IPPS final rule (57 FR
40016). There have been subsequent
discussions of the CIPI presented in the
IPPS proposed and final payment rules.
The FY 2006 IPPS final rule (70 FR
47387) discussed the most recent
rebasing and revision of the CIPI to a FY
2002 base year, which reflected the
capital cost structure of the hospital
industry in that year.
As we proposed in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24161), we are rebasing and revising
the CIPI to a FY 2006 base year to reflect
the more current structure of capital
costs in hospitals. As with the FY 2002based index, we developed two sets of
weights in order to calculate the FY
2006-based CIPI. The first set of weights
identifies the proportion of hospital
capital expenditures attributable to each
expenditure category, while the second
set of weights is a set of relative vintage
weights for depreciation and interest.
The set of vintage weights is used to
identify the proportion of capital
expenditures within a cost category that
is attributable to each year over the
useful life of the capital assets in that
category. A more thorough discussion of
vintage weights is provided later in this
section.
Both sets of weights are developed
using the best data sources available. In
reviewing source data, we determined
that the Medicare cost reports provided
accurate data for all capital expenditure
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Using the FY 2006-based Puerto Rico
cost category weights, we calculated a
labor-related share of 62.087 percent,
approximately 3.4 percentage points
higher than the current Puerto-Rico
specific labor-related share of 58.721.
Accordingly, we are adopting an
updated Puerto Rico labor-related share
of 62.1 percent.
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cost categories. We used the FY 2006
Medicare cost reports for IPPS hospitals
to determine weights for all three cost
categories: depreciation, interest, and
other capital expenses.
Lease expenses are unique in that
they are not broken out as a separate
cost category in the CIPI, but rather are
proportionally distributed among the
cost categories of depreciation, interest,
and other, reflecting the assumption that
the underlying cost structure of leases is
similar to that of capital costs in general.
As was done in previous rebasings of
the CIPI, we first assumed 10 percent of
lease expenses represents overhead and
assigned them to the other capital
expenses cost category accordingly. The
remaining lease expenses were
distributed across the three cost
categories based on the respective
weights of depreciation, interest, and
other capital not including lease
expenses.
Depreciation contains two
subcategories: (1) Building and fixed
equipment; and (2) movable equipment.
The apportionment between building
and fixed equipment and movable
equipment was determined using the
Medicare cost reports. This
methodology was also used to compute
the apportionment used in the FY 2002based index.
The total interest expense cost
category is split between government/
nonprofit interest and for-profit interest.
The FY 2002-based CIPI allocated 75
percent of the total interest cost weight
to government/nonprofit interest and
proxied that category by the average
yield on domestic municipal bonds. The
remaining 25 percent of the interest cost
weight was allocated to for-profit
interest and was proxied by the average
yield on Moody’s Aaa bonds (70 FR
47387).
For this rebasing, we derived the split
using the relative FY 2006 Medicare
cost report data on interest expenses for
government/nonprofit and for-profit
hospitals. Based on these data, we
calculated an 85/15 split between
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government/nonprofit and for-profit
interest. We believe it is important that
this split reflects the latest relative cost
structure of interest expenses.
Chart 7 presents a comparison of the
FY 2006-based CIPI cost weights and the
FY 2002-based CIPI cost weights.
CHART 7—FY 2006-BASED CIPI COST CATEGORIES, WEIGHTS, AND PRICE PROXIES WITH FY 2002-BASED CIPI
INCLUDED FOR COMPARISON
FY 2002
weights
Cost categories
FY 2006
weights
100.00
74.583
36.234
100.00
75.154
35.789
38.349
19.863
14.896
39.365
17.651
15.076
For-profit interest ................................
Other ...................................................
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Total ....................................................
Total depreciation ...............................
Building and fixed equipment depreciation.
Movable equipment depreciation .......
Total interest .......................................
Government/nonprofit interest ............
4.967
5.554
2.575
7.195
Because capital is acquired and paid
for over time, capital expenses in any
given year are determined by both past
and present purchases of physical and
financial capital. The vintage-weighted
CIPI is intended to capture the longterm consumption of capital, using
vintage weights for depreciation
(physical capital) and interest (financial
capital). These vintage weights reflect
the proportion of capital purchases
attributable to each year of the expected
life of building and fixed equipment,
movable equipment, and interest. We
used the vintage weights to compute
vintage-weighted price changes
associated with depreciation and
interest expense. Following publication
of the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, and in order to provide
greater transparency, we posted on the
CMS market basket Web page at:
https://www.cms.hhs.gov/
MedicareProgramRatesStats/
05_MarketBasketResearch
.asp#TopOfPage an illustrative
spreadsheet that contains an example of
how the vintage-weighted price indexes
are calculated.
Vintage weights are an integral part of
the CIPI. Capital costs are inherently
complicated and are determined by
complex capital purchasing decisions,
over time, based on such factors as
interest rates and debt financing. In
addition, capital is depreciated over
time instead of being consumed in the
same period it is purchased. The CIPI
accurately reflects the annual price
changes associated with capital costs,
and is a useful simplification of the
actual capital investment process. By
accounting for the vintage nature of
capital, we are able to provide an
accurate, stable annual measure of price
changes. Annual nonvintage price
changes for capital are unstable due to
the volatility of interest rate changes
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Price proxy
BEA chained price index for nonresidential construction for hospitals and
special care facilities—vintage weighted (25 years).
PPI for machinery and equipment—vintage weighted (12 years).
Average yield on domestic municipal bonds (Bond Buyer 20 bonds)—vintage-weighted (25 years).
Average yield on Moody’s Aaa bonds—vintage-weighted (12 years).
CPI–U for residential rent.
and, therefore, do not reflect the actual
annual price changes for Medicare
capital-related costs. The CIPI reflects
the underlying stability of the capital
acquisition process and provides
hospitals with the ability to plan for
changes in capital payments.
To calculate the vintage weights for
depreciation and interest expenses, we
needed a time series of capital
purchases for building and fixed
equipment and movable equipment. We
found no single source that provides a
uniquely best time series of capital
purchases by hospitals for all of the
above components of capital purchases.
The early Medicare cost reports did not
have sufficient capital data to meet this
need. Data we obtained from the
American Hospital Association (AHA)
do not include annual capital
purchases. However, AHA does provide
a consistent database back to 1963. We
used data from the AHA Panel Survey
and the AHA Annual Survey to obtain
a time series of total expenses for
hospitals. We then used data from the
AHA Panel Survey supplemented with
the ratio of depreciation to total hospital
expenses obtained from the Medicare
cost reports to derive a trend of annual
depreciation expenses for 1963 through
2006.
In order to estimate capital purchases
using data on depreciation expenses, the
expected life for each cost category
(building and fixed equipment, movable
equipment, and interest) is needed to
calculate vintage weights. We used FY
2006 Medicare cost reports to determine
the expected life of building and fixed
equipment and of movable equipment.
The expected life of any piece of
equipment can be determined by
dividing the value of the asset
(excluding fully depreciated assets) by
its current year depreciation amount.
This calculation yields the estimated
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useful life of an asset if depreciation
were to continue at current year levels,
assuming straight-line depreciation.
From the FY 2006 Medicare cost
reports, the expected life of building
and fixed equipment was determined to
be 25 years, and the expected life of
movable equipment was determined to
be 12 years. The FY 2002-based CIPI
was based on an expected life of
building and fixed equipment of 23
years. It used 11 years as the expected
life for movable equipment.
As we proposed, we used the building
and fixed equipment and movable
equipment weights derived from FY
2006 Medicare cost reports to separate
the depreciation expenses into annual
amounts of building and fixed
equipment depreciation and movable
equipment depreciation (74 FR 24162).
Year-end asset costs for building and
fixed equipment and movable
equipment were determined by
multiplying the annual depreciation
amounts by the expected life
calculations from the FY 2006 Medicare
cost reports. We then calculated a time
series back to 1963 of annual capital
purchases by subtracting the previous
year asset costs from the current year
asset costs. From this capital purchase
time series, we were able to calculate
the vintage weights for building and
fixed equipment and for movable
equipment. Each of these sets of vintage
weights is explained in more detail
below.
For building and fixed equipment
vintage weights, we used the real annual
capital purchase amounts for building
and fixed equipment to capture the
actual amount of the physical
acquisition, net of the effect of price
inflation. This real annual purchase
amount for building and fixed
equipment was produced by deflating
the nominal annual purchase amount by
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the building and fixed equipment price
proxy, BEA’s chained price index for
nonresidential construction for
hospitals and special care facilities.
Because building and fixed equipment
have an expected life of 25 years, the
vintage weights for building and fixed
equipment are deemed to represent the
average purchase pattern of building
and fixed equipment over 25-year
periods. With real building and fixed
equipment purchase estimates available
back to 1963, we averaged nineteen 25year periods to determine the average
vintage weights for building and fixed
equipment that are representative of
average building and fixed equipment
purchase patterns over time. Vintage
weights for each 25-year period are
calculated by dividing the real building
and fixed capital purchase amount in
any given year by the total amount of
purchases in the 25-year period. This
calculation is done for each year in the
25-year period, and for each of the
nineteen 25-year periods. We used the
average of each year across the nineteen
25-year periods to determine the average
building and fixed equipment vintage
weights for the FY 2006-based CIPI.
For movable equipment vintage
weights, the real annual capital
purchase amounts for movable
equipment were used to capture the
actual amount of the physical
acquisition, net of price inflation. This
real annual purchase amount for
movable equipment was calculated by
deflating the nominal annual purchase
amounts by the movable equipment
price proxy, the PPI for machinery and
equipment. Based on our determination
that movable equipment has an
expected life of 12 years, the vintage
weights for movable equipment
represent the average expenditure for
movable equipment over a 12-year
period. With real movable equipment
purchase estimates available back to
1963, thirty-two 12-year periods were
averaged to determine the average
vintage weights for movable equipment
that are representative of average
movable equipment purchase patterns
over time. Vintage weights for each 12year period are calculated by dividing
the real movable capital purchase
amount for any given year by the total
amount of purchases in the 12-year
period. This calculation was done for
each year in the 12-year period and for
each of the thirty-two 12-year periods.
We used the average of each year across
the thirty-two 12-year periods to
determine the average movable
equipment vintage weights for the FY
2006-based CIPI.
43859
For interest vintage weights, the
nominal annual capital purchase
amounts for total equipment (building
and fixed, and movable) were used to
capture the value of the debt
instrument. Because we have
determined that hospital debt
instruments have an expected life of 25
years, the vintage weights for interest
are deemed to represent the average
purchase pattern of total equipment
over 25-year periods. With nominal total
equipment purchase estimates available
back to 1963, nineteen 25-year periods
were averaged to determine the average
vintage weights for interest that are
representative of average capital
purchase patterns over time. Vintage
weights for each 25-year period are
calculated by dividing the nominal total
capital purchase amount for any given
year by the total amount of purchases in
the 25-year period. This calculation is
done for each year in the 25-year period
and for each of the nineteen 25-year
periods. We used the average of each
year across the nineteen 25-year periods
to determine the average interest vintage
weights for the FY 2006-based CIPI.
The vintage weights for the FY 2002based CIPI and the FY 2006-based CIPI
are presented in Chart 8.
CHART 8—FY 2002 VINTAGE WEIGHTS AND FY 2006 VINTAGE WEIGHTS FOR CAPITAL-RELATED PRICE PROXIES
Building and fixed equipment
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Year
FY 2002
23 years
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 .............................................................
0.021
0.022
0.025
0.027
0.029
0.031
0.033
0.035
0.038
0.040
0.042
0.045
0.047
0.049
0.051
0.053
0.056
0.057
0.058
0.060
0.060
0.061
0.061
........................
........................
Total ..................................................
1.000
FY 2006
25 years
Movable equipment
Interest
FY 2002
11 years
FY 2006
12 years
FY 2002
23 years
0.021
0.023
0.025
0.027
0.029
0.031
0.032
0.033
0.036
0.038
0.040
0.042
0.044
0.045
0.046
0.047
0.048
0.050
0.050
0.050
0.048
0.048
0.047
0.049
0.048
0.065
0.071
0.077
0.082
0.086
0.091
0.095
0.100
0.106
0.112
0.117
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
0.063
0.067
0.071
0.075
0.079
0.082
0.085
0.086
0.090
0.093
0.102
0.106
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
0.010
0.012
0.014
0.016
0.019
0.023
0.026
0.029
0.033
0.036
0.039
0.043
0.048
0.053
0.056
0.059
0.062
0.064
0.066
0.070
0.071
0.074
0.076
........................
........................
0.010
0.012
0.014
0.016
0.018
0.020
0.023
0.025
0.028
0.031
0.034
0.038
0.041
0.044
0.047
0.050
0.053
0.057
0.059
0.060
0.060
0.062
0.063
0.068
0.069
1.000
1.000
1.000
1.000
1.000
Note: Detail may not add to total due to rounding.
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25 years
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After the capital cost category weights
were computed, it was necessary to
select appropriate price proxies to
reflect the rate-of-increase for each
expenditure category. As we proposed,
in this final rule, we used the same price
proxies for the FY 2006-based CIPI that
were used in the FY 2002-based CIPI,
with the exception of the Boeckh
Construction Index (74 FR 24164). We
replaced the Boeckh Construction Index
with BEA’s chained price index for
nonresidential construction for
hospitals and special care facilities. The
BEA index represents construction of
facilities such as hospitals, nursing
homes, hospices, and rehabilitation
centers. Although these price indices
move similarly over time, we believe
that it is more technically appropriate to
use an index that is more specific to the
hospital industry. We believe these are
the most appropriate proxies for
hospital capital costs that meet our
selection criteria of relevance,
timeliness, availability, and reliability.
The rationale for selecting the price
proxies, excluding the building and
fixed equipment price proxy, was
explained more fully in the FY 1997
IPPS final rule (61 FR 46196).
The price proxies are presented in
Chart 7.
Chart 9 below compares both the
historical and forecasted percent
changes in the FY 2002-based CIPI and
the FY 2006-based CIPI.
CHART 9—COMPARISON OF FY 2002BASED AND FY 2006-BASED CAPITAL INPUT PRICE INDEX, PERCENT
CHANGE, FY 2004 THROUGH FY
2012
CIPI,
FY 2002based
Fiscal year
FY 2004 ................
FY 2005 ................
FY 2006 ................
FY 2007 ................
FY 2008 ................
Forecast:
FY 2009 ............
FY 2010 ............
CIPI,
FY 2006based
0.5
0.6
0.9
1.2
1.4
0.8
0.9
1.1
1.3
1.4
1.7
1.5
1.5
1.2
CHART 9—COMPARISON OF FY 2002BASED AND FY 2006-BASED CAPITAL INPUT PRICE INDEX, PERCENT
CHANGE, FY 2004 THROUGH FY
2012—Continued
CIPI,
FY 2002based
Fiscal year
FY 2011 ................
FY 2012 ................
Average:
FYs 2004–2008
FYs 2009–2012
CIPI,
FY 2006based
1.4
1.6
1.3
1.4
0.9
1.6
1.1
1.4
Source: IHS Global Insight, Inc, 2nd Quarter
2009;
USMACRO/CONTROL0609@
CISSIM/TL0509.SIM.
IHS Global Insight, Inc. forecasts a 1.2
percent increase in the FY 2006-based
CIPI for FY 2010, as shown in Chart 9.
The underlying vintage-weighted price
increases for depreciation (including
building and fixed equipment and
movable equipment) and interest
(including government/nonprofit and
for-profit) are included in Chart 10.
CHART 10—CMS CAPITAL INPUT PRICE INDEX PERCENT CHANGES, TOTAL AND DEPRECIATION AND INTEREST
COMPONENTS, FYS 2004 THROUGH 2012
Fiscal year
Total
Depreciation
Interest
0.8
0.9
1.1
1.3
1.4
1.5
1.7
2.0
2.1
2.1
¥2.6
¥3.1
¥3.2
¥3.4
¥2.6
1.5
1.2
1.3
1.4
FY 2004 .......................................................................................................................................
FY 2005 .......................................................................................................................................
FY 2006 .......................................................................................................................................
FY 2007 .......................................................................................................................................
FY 2008 .......................................................................................................................................
Forecast:
FY 2009 ................................................................................................................................
FY 2010 ................................................................................................................................
FY 2011 ................................................................................................................................
FY 2012 ................................................................................................................................
2.1
1.8
1.7
1.7
¥2.0
¥2.1
¥1.4
¥0.7
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Source: IHS Global Insight, Inc, 2nd Quarter 2009; USMACRO/CONTROL0609@CISSIM/TL0509.SIM.
Rebasing the CIPI from FY 2002 to FY
2006 decreased the percent change in
the FY 2010 forecast by 0.3 percentage
point, from 1.5 to 1.2, as shown in Chart
9. The difference in the forecast of the
FY 2010 market basket increase is
primarily due to the proposed change in
the price proxy for building and fixed
equipment as well as the proposed
change in the vintage weights applied to
the price proxy for interest. As
mentioned above, we are changing the
price proxy used for building and fixed
equipment to BEA’s chained price index
for nonresidential construction for
hospitals and special care facilities. We
believe this change represents a
technical improvement as the BEA price
index is an index that is more
representative of the hospital industry.
For the FY 2010 update, the result of
this change is a forecasted price change
in total depreciation of 1.8 percent in
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the FY 2006-based CIPI compared to 2.0
percent in the FY 2002-based CIPI. The
other primary factor contributing to the
difference is the change in the vintage
weights used to calculate the vintageweighted price proxy for interest. The
forecasted price change in total interest
is ¥2.1 percent in the FY 2006-based
CIPI compared to ¥1.5 percent in the
FY 2002-based CIPI. This is a result of
changing the expected life of hospital
debt instruments from 23 years to 25
years. We did not receive any public
comments on our proposed
methodological changes to the capital
input price index published in the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule (74 FR 24154). Therefore, we are
adopting as final, without modification,
the proposed FY 2006-based CIPI for FY
2010 in this final rule.
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V. Other Decisions and Changes to the
IPPS for Operating Costs and GME
Costs
A. Reporting of Hospital Quality Data
for Annual Hospital Payment Update
1. Background
a. Overview
CMS is seeking to promote higher
quality and more efficient health care
for Medicare beneficiaries. This effort is
supported by the adoption of an
increasing number of widely-agreed
upon quality measures. CMS has
worked with relevant stakeholders to
define measures of quality in almost
every setting and currently measures
some aspect of care for almost all
Medicare beneficiaries. These measures
assess structural aspects of care, clinical
processes, patient experiences with
care, and, increasingly, outcomes.
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CMS has implemented quality
measure reporting programs for multiple
settings of care. The Reporting Hospital
Quality Data for Annual Payment
Update (RHQDAPU) program
implements a quality reporting program
for hospital inpatient services. In
addition, CMS has implemented quality
reporting programs for hospital
outpatient services, the Hospital
Outpatient Quality Data Reporting
Program (HOP QDRP), and for
physicians and other eligible
professionals, the Physician Quality
Reporting Initiative (PQRI). CMS has
also implemented quality reporting
programs for home health agencies and
skilled nursing facilities that are based
on conditions of participation, and an
end-stage renal disease quality reporting
program that is based on conditions for
coverage.
b. Hospital Quality Data Reporting
Under Section 501(b) of Public Law
108–173
Section 501(b) of the Medicare
Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA),
Public Law 108–173, added section
1886(b)(3)(B)(vii) to the Act. This
section established the authority for the
RHQDAPU program and revised the
mechanism used to update the
standardized payment amount for
inpatient hospital operating costs.
Specifically, section 1886(b)(3)(B)(vii)(I)
of the Act, before it was amended by
section 5001(a) of Public Law 109–171,
provided for a reduction of 0.4
percentage points to the update
percentage increase (also known as the
market basket update) for FY 2005
through FY 2007 for any subsection (d)
hospital that did not submit data on a
set of 10 quality indicators established
by the Secretary as of November 1, 2003.
It also provides that any reduction
would apply only to the fiscal year
involved, and would not be taken into
account in computing the applicable
percentage increase for a subsequent
fiscal year. The statute thereby
established an incentive for IPPS
hospitals to submit data on the quality
measures established by the Secretary,
and also built upon the previously
established Voluntary Hospital Quality
Data Reporting Program that we
described in the FY 2009 IPPS final rule
(73 FR 48598).
We implemented section
1886(b)(3)(B)(vii) of the Act in the FY
2005 IPPS final rule (69 FR 49078) and
codified the applicable percentage
change in § 412.64(d) of our regulations.
We adopted additional requirements
under the RHQDAPU program in the FY
2006 IPPS final rule (70 FR 47420).
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c. Hospital Quality Data Reporting
under Section 5001(a) of Public Law
109–171
Section 5001(a) of the Deficit
Reduction Act of 2005 (DRA), Public
Law 109–171, further amended section
1886(b)(3)(B) of the Act to revise the
mechanism used to update the
standardized payment amount for
hospital inpatient operating costs, in
particular, by adding new section
1886(b)(3)(B)(viii) to the Act.
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 be
reduced by 2.0 percentage points for any
subsection (d) hospital that does not
submit quality data in a form and
manner, and at a time, specified by the
Secretary. 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. In the FY 2007
IPPS final rule (71 FR 48045), 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 subsection
(d) hospitals that do not comply with
requirements for reporting quality data,
as provided for under section
1886(b)(3)(B)(viii) of the Act.
(1) Quality Measures
Section 1886(b)(3)(B)(viii)(III) of the
Act requires that the Secretary expand
the ‘‘starter set’’ of 10 quality measures
that was established by the Secretary as
of November 1, 2003, as the Secretary
determines to be appropriate for the
measurement of the quality of care
furnished by a hospital in inpatient
settings. In expanding this set of
measures, section 1886(b)(3)(B)(viii)(IV)
of the Act requires that, effective for
payments beginning with FY 2007, the
Secretary begin to adopt the baseline set
of performance measures as set forth in
a report issued by the Institute of
Medicine (IOM) of the National
Academy of Sciences under section
238(b) of Public Law 108–173.8
The IOM measures include: 21
Hospital Quality Alliance (HQA) quality
measures (including the ‘‘starter set’’ of
8 Institute of Medicine, ‘‘Performance
Measurement: Accelerating Improvement,’’
December 1, 2005, available at: https://
www.iom.edu/CMS/3809/19805/31310.aspx. IOM
set forth these baseline measures in a November
2005 report. However, the IOM report was not
released until December 1, 2005 on the IOM Web
site.
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43861
10 quality measures); the Hospital
Consumer Assessment of Health
Providers and Systems (HCAHPS)
patient experience of care survey; and 3
structural measures.9 The structural
measures are: (1) Adoption 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 (NQF’s) 30 Safe Practices for
Better Healthcare. The HCAHPS survey
is part of the Consumer Assessment of
Healthcare Providers and Systems
(CAHPS) program, which develops and
supports the use of a comprehensive
and evolving family of standardized
surveys that ask consumers and patients
to report on and evaluate their
experiences with health care. These
surveys cover topics that are important
to consumers, such as the
communication skills of providers and
the accessibility of services. CAHPS
originally stood for the Consumer
Assessment of Health Plans Study, but
as the products have evolved beyond
health plans, the name has evolved as
well to capture the full range of survey
products and tools.
Section 1886(b)(3)(B)(viii)(V) of the
Act requires that, effective for payments
beginning with FY 2008, the Secretary
add other quality measures that reflect
consensus among affected parties, and
to the extent feasible and practicable,
have been set forth by one or more
national consensus building entities.
The NQF is a voluntary consensus
standard-setting organization with a
diverse representation of consumer,
purchaser, provider, academic, clinical,
and other health care stakeholder
organizations. The NQF was established
to standardize health care quality
measurement and reporting through its
consensus development process. We
have generally adopted NQF-endorsed
measures. However, we believe that
consensus among affected parties also
can be reflected by other means,
including consensus achieved during
the measure development process,
consensus shown through broad
acceptance and use of measures, and
consensus through public comment.
Section 1886(b)(3)(B)(viii)(VI) of the
Act authorizes the Secretary to replace
any quality measures or indicators in
9 Structural measures assess characteristics linked
to the capacity of the provider to deliver quality
healthcare. Institute of Medicine: Division of Health
Care Services. Measuring the Quality of Health
Care: A Statement by the National Roundtable on
Healthcare Quality. National Academy Press;
Washington, DC 1999.
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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 is granted
broad discretion to replace measures
that are no longer appropriate for the
RHQDAPU program.
In the FY 2007 IPPS final rule, we
began to expand the RHQDAPU
program measures by adding 11 quality
measures to the 10-measure starter set to
establish an expanded set of 21 quality
measures for the FY 2007 payment
determination (71 FR 48033 through
48037, 48045).
In the CY 2007 OPPS/ASC final rule
(71 FR 68201), we adopted six
additional quality measures for the FY
2008 payment determination, for a total
of 27 measures. Two of these measures
(30–Day Risk Standardized Mortality
Rates for Heart Failure and 30–Day Risk
Standardized Mortality Rates for AMI)
were calculated using existing
administrative Medicare claims data;
thus, no additional data submission by
hospitals was required for these two
measures. The measures used for the FY
2008 payment determination included,
for the first time, the HCAHPS patient
experience of care survey.
In the FY 2008 IPPS final rule (72 FR
47348 through 47358) and the CY 2008
OPPS/ASC final rule with comment
period (72 FR 66875 through 66877), we
added three additional process
measures to the RHQDAPU program
measure set. (These three measures are
SCIP-Infection-4: Cardiac Surgery
Patients with Controlled 6AM
Postoperative Serum Glucose, SCIPInfection-6: Surgery Patients with
Appropriate Hair Removal, and
Pneumonia 30-day mortality (Medicare
patients).) The addition of these 3
measures brought the total number of
RHQDAPU program measures to be
used for the FY 2009 payment
determination to 30 (72 FR 66876). The
30 measures used for the FY 2009
annual payment determination are
listed in the FY 2009 IPPS final rule (73
FR 48600 through 48601).
For the FY 2010 payment
determination, we added 15 new
measures to the RHQDAPU program
measure set and retired one. Of the new
measures, 13 were adopted in the FY
2009 IPPS final rule (73 FR 48602
through 48611) and two additional
measures were finalized in the CY 2009
OPPS/ASC final rule with comment
period (73 FR 68780 through 68781).
This resulted in an expansion of the
RHQDAPU program measures from 30
measures for the FY 2009 payment
determination to 44 measures for the FY
2010 payment determination. The
RHQDAPU program measures for the FY
2010 payment determination consist of:
26 chart-abstracted process measures,
which measure care provided for Acute
Myocardial Infarction (AMI), Heart
Failure (HF), Pneumonia (PN), or
Surgical Care Improvement (SCIP); 6
claims-based measures, which evaluate
30-day mortality or 30-day readmission
rates for AMI, HF, or PN; 9 AHRQ
claims-based patient safety/inpatient
quality indicator measures; 1 claimsbased nursing sensitive measure; 1
structural measure that assesses
participation in a systematic database
for cardiac surgery; and the HCAHPS
patient experience of care survey. The
measures are listed below.
Topic
RHQDAPU program quality measures for the FY 2010 payment
determination
Acute Myocardial Infarction (AMI) ............................................................
• AMI–1 Aspirin at arrival.
• AMI–2 Aspirin prescribed at discharge.
• AMI–3 Angiotensin Converting Enzyme Inhibitor (ACE–I) or
Angiotensin II Receptor Blocker (ARB) for left ventricular systolic
dysfunction.
• AMI–4 Adult smoking cessation advice/counseling.
• AMI–5 Beta blocker prescribed at discharge.
• AMI–6 Beta blocker at arrival.
• AMI–7a Fibrinolytic (thrombolytic) agent received within 30 minutes
of hospital arrival.
• AMI–8a Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI).
• HF–1 Discharge instructions.
• HF–2 Left ventricular function assessment.
• HF–3 Angiotensin Converting Enzyme Inhibitor (ACE–I) or
Angiotensin II Receptor Blocker (ARB) for left ventricular systolic
dysfunction.
• HF–4 Adult smoking cessation advice/counseling.
• PN–2 Pneumococcal vaccination status.
• PN–3b Blood culture performed before first antibiotic received in hospital.
• PN–4 Adult smoking cessation advice/counseling.
• PN–5c Timing of receipt of initial antibiotic following hospital arrival.
• PN–6 Appropriate initial antibiotic selection.
• PN–7 Influenza vaccination status.
• SCIP–1 Prophylactic antibiotic received within 1 hour prior to surgical
incision.
• SCIP–3 Prophylactic antibiotics discontinued within 24 hours after
surgery end time.
• SCIP–VTE–1: Venous thromboembolism (VTE) prophylaxis ordered
for surgery patients.
• SCIP–VTE–2: VTE prophylaxis within 24 hours pre/post surgery.
• SCIP–Infection-2: Prophylactic antibiotic selection for surgical patients.
• SCIP–Infection-4: Cardiac Surgery Patients with Controlled 6AM
Postoperative Serum Glucose.
• SCIP–Infection-6: Surgery Patients with Appropriate Hair Removal.
Heart Failure (HF) ....................................................................................
Pneumonia (PN) .......................................................................................
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Surgical Care Improvement Project (SCIP) .............................................
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RHQDAPU program quality measures for the FY 2010 payment
determination
Topic
Mortality Measures (Medicare Patients) ...................................................
Patients’ Experience of Care ....................................................................
Readmission Measures (Medicare Patients) ...........................................
AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators
(IQIs) and Composite Measures.
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Nursing Sensitive ......................................................................................
Cardiac Surgery ........................................................................................
On December 31, 2008, CMS advised
hospitals that they would no longer be
required to submit data for the
RHQDAPU program measure AMI–6–
Beta blocker at arrival, beginning with
discharges occurring on April 1, 2009.
This change was based on the evolving
evidence regarding AMI patient care, as
well as changes in the American College
of Cardiology/American Heart
Association (ACC/AHA) practice
guidelines for ST-segment elevation
myocardial infarction and non-ST
segment elevation myocardial
infarction, upon which AMI–6 is based.
The new guideline recommends that
early intravenous beta-blockers
specifically should be avoided in certain
patient populations due to increased
mortality risk. These patients are
identified by a complex set of
contraindications that we believe would
make revision of the measure
impractical and might result in
unintended consequences, including
harm to patients based on
misinterpretation of an overly complex
measure in the clinical setting. Based on
the new studies, the ACC/AHA Task
Force on Performance Measures
removed this measure from the set of
AMI performance measures as of
November 10, 2008, and did not replace
the measure. CMS took action to remove
the measure from reporting initiatives
based on the lack of support by the
measure developer and the
considerations identified above.
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43863
• SCIP–Cardiovascular-2: Surgery Patients on a Beta Blocker Prior to
Arrival Who Received a Beta Blocker During the Perioperative Period.
• MORT–30–AMI: Acute Myocardial Infarction 30-day mortality–Medicare patients.
• MORT–30–HF: Heart Failure 30-day mortality—Medicare patients.
• MORT–30–PN: Pneumonia 30-day mortality —Medicare patients.
• HCAHPS survey.
• READ–30–HF: Heart Failure 30-Day Risk Standardized Readmission
Measure (Medicare patients).
• READ–30–AMI: Acute Myocardial Infarction 30-Day Risk Standardized Readmission Measure (Medicare patients).
• READ–30–PN: Pneumonia 30-Day Risk Standardized Readmission
Measure (Medicare patients).
• PSI 04: Death among surgical patients with treatable serious complications.
• PSI 06: Iatrogenic pneumothorax, adult.
• PSI 14: Postoperative wound dehiscence.
• PSI 15: Accidental puncture or laceration.
• IQI 11: Abdominal aortic aneurysm (AAA) mortality rate (with or without volume).
• IQI 19: Hip fracture mortality rate.
• Mortality for selected surgical procedures (composite).
• Complication/patient safety for selected indicators (composite).
• Mortality for selected medical conditions (composite).
• Failure to Rescue (Medicare claims only).
• Participation in a Systematic Database for Cardiac Surgery.
We discussed considerations relating
to retiring or replacing measures in the
FY 2008 IPPS final rule with comment
period and the FY 2009 IPPS final rule,
including the ‘‘topping out’’ of
hospitals’ performance under a measure
(72 FR 47358 through 47359 and 73 FR
48603 through 48604, respectively).
However, in this instance, the measure
no longer ‘‘represent[s] the best clinical
practice,’’ an additional basis under
section 1886(b)(3)(B)(viii)(VI) of the Act
for retiring a measure. For the FY 2010
payment determination and subsequent
payment determinations, we have
formally retired the AMI–6 measure
from the RHQDAPU program. Therefore,
hospitals participating in the RHQDAPU
program are not required to submit data
on the AMI–6 measure beginning with
discharges occurring on April 1, 2009.
However, in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule (74 FR 24167),
we sought public comment on the
retirement of the AMI–6 measure.
Comment: Many commenters
supported immediate retirement of
quality measures, including AMI–6, for
which evolving clinical evidence
suggests potential patient safety
concerns. Other commenters suggested
that CMS seek public input when it is
considering immediate retirement of a
measure. These commenters also
indicated that measure retirement for
other reasons should be conducted
through the rulemaking process. One
commenter indicated that formal
retirement through rulemaking
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following immediate retirement is
confusing.
Response: We believe that immediate
retirement of quality measures should
occur when the clinical evidence
suggests that continued collection of the
data may result in harm to patients.
Under such circumstances, we may not
be able to wait until the annual
rulemaking cycle or until we have had
the opportunity to obtain input from the
public to retire the measure because of
the necessity to discourage potentially
harmful practices which may result
from continued collection of the
measure. We agree with the commenters
that retirement of measures for reasons
other than potential patient safety
concerns should occur through the
rulemaking process allowing for public
comment. Because we generally adopt
and retire RHQDAPU program quality
measures through the rulemaking
process (except for the immediate
retirement exception we are adopting in
this final rule), we believe that it is
appropriate to use the rulemaking
process to confirm the retirement of
measures that were the subject of recent
immediate retirement activity.
(2) Maintenance of Technical
Specifications for Quality Measures
The technical specifications for each
RHQDAPU program measure are listed
in the CMS/The Joint Commission
Specifications Manual for National
Hospital Inpatient Quality Measures
(Specifications Manual). This
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Specifications Manual is posted on the
CMS QualityNet Web site at https://
www.QualityNet.org/. We maintain the
technical specifications by updating this
Specifications Manual semiannually, or
more frequently in unusual cases, and
include detailed instructions and
calculation algorithms for hospitals to
use when collecting and submitting data
on required measures. In the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
(74 FR 24167), we invited public
comment on our process of notifying the
public about the technical specifications
for RHQDAPU program quality
measures and whether it can be
improved to enable more meaningful
public comment on our proposed
measures. We also invited public
comment on whether the information
posted on the https://
www.QualityNet.org Web site, including
the frequency with which this
information is updated, provides
hospitals enough information and time
to implement the collection of data
necessary for these required quality
measures.
Comment: Commenters agreed that
timely updates to quality measures are
necessary for maintaining comparable
and credible measurement results and
supported our process for posting
changes to the Specifications Manual on
the QualityNet Web site, and issuing
notifications regarding updates issued.
Some commenters suggested adding
other methods to notify stakeholders as
to technical specifications updates.
These suggestions included utilizing a
Real Simple Syndication (RSS) to send
e-mail alerts to stakeholders, providing
links to specifications not on the
QualityNet Web site, listserv
notifications, sharing the draft technical
specifications with hospitals and data
vendors 30 days prior to their release so
that errors and omissions can be
identified and corrected before the final
version of the specifications is released,
and not releasing the Specifications
Manual until all revisions and updates
are complete, thereby reducing the
number of addenda. One commenter
requested that the Specifications
Manual be released with all relevant
changes once a year.
Response: We will consider these
suggestions for other methods to notify
stakeholders as to technical
specifications updates. The
Specifications Manual is updated in two
scheduled releases a year occurring at 6
month intervals in order to incorporate
updates to the code sets used in the
measure specifications, add or remove
measures, and to provide vendors with
adequate notice of changes. The
Specifications Manual contains
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specifications for measures that have
been adopted into the RHQDAPU
program. However, we may include
specifications for some of the proposed
measures or measures under
consideration for preview purposes
only. Specifications for measures that
are under development are not included
in the Specifications Manual.
(3) Public Display of Quality Measures
Section 1886(b)(3)(B)(viii)(VII) of the
Act requires that the Secretary establish
procedures for making quality data
available to the public after ensuring
that a hospital has the opportunity to
review its data before these data are
made public. Data from the RHQDAPU
program are included on the Hospital
Compare Web site, https://
www.hospitalcompare.hhs.gov. The
RHQDAPU program currently includes
process of care measures, risk adjusted
outcome measures, the HCAHPS patient
experience of care survey, and a
structural measure regarding cardiac
surgery registry participation. This Web
site assists beneficiaries and the general
public by providing information on
hospital quality of care to 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 hospitals
provide to patients, thereby providing
an additional incentive to hospitals to
improve the quality of care that they
furnish.
Comment: Several commenters
submitted suggestions for improving
public reporting of RHQDAPU program
measures on the Hospital Compare Web
site. A number of commenters stated
that the Hospital Compare Web site is
cumbersome to navigate and that data
are displayed in a rigid fashion. The
commenters suggested that CMS give
end users the flexibility to create
customized reports or tailor the data
display to the end user’s needs. Some
commenters also suggested that
hospitals would benefit from examining
how well they are performing if they
had access to reports that show
performance on the care processes that
take place during discharge. Other
commenters stated that the display of
data on the Hospital Compare Web site
for the public may be interpreted as
encouraging performance at 100 percent
on the measures even though lower
levels of performance on measures may
be appropriate, and requested that CMS
remove the current wording under the
‘‘Learn how to use the information from
this site’’ link on the Hospital Compare
Web site because it misrepresents to the
public what the appropriate quality
benchmarks are for certain measures.
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Several commenters supported the
adoption of a more consumer-friendly
star rating system for hospitals that
would allow consumers to make
decisions about where to receive care
based on a composite ‘‘score’’ for the
facility, rather than minor performance
differences on individual measures.
Another commenter disagreed with
posting results on the Hospital Compare
Web site when a hospital has fewer than
25 eligible cases in a reporting period
for a measure, stating that the results
may not be statistically valid or
understood by most health care
consumers. Another commenter stated
that all reporting formats should be
tested with consumers before being
publicly displayed.
Response: Section
1886(b)(3)(B)(viii)(VII) of the Act
requires that the Secretary establish
procedures for making the data reported
under the RHQDAPU program available
to the public. We appreciate these
suggestions regarding potential
improvements to the Hospital Compare
Web site. We continue to conduct
consumer focus groups and work to
identify areas for improvement, and will
make changes that we believe are
beneficial. In terms of a report that
focuses upon care provided at
discharge, hospitals can use their
quarterly Hospital Compare preview
reports, the downloadable Hospital
Compare data sets, and other QualityNet
reports to examine their performance on
measures that relate to care provided at
discharge. Although we do not believe
that the current wording in the ‘‘Learn
how to use the information from this
site’’ is misleading, we will re-examine
the language and determine whether it
would be appropriate to make changes.
We are also working on conditionspecific (AMI, HF, PN, SCIP and
HCAHPS) composites for the Hospital
Compare Web site in the future to make
it more consumer-friendly.
On the Hospital Compare Web site,
we employ a footnote for rates based
upon fewer than 25 cases: ‘‘The number
of cases is too small (<25) to reliably tell
how well a hospital is performing,’’ but
display the rate so that consumers can
decide whether and how to consider the
information.
2. Retirement of RHQDAPU Program
Measures
As stated above, we retired the AMI–
6 measure from the RHQDAPU program
measure set beginning with discharges
occurring on April 1, 2009, because we
believed, based on new evidence, that
the continued use of the measure raised
specific patient safety concerns. In
situations such as this, we do not
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believe that it is appropriate to wait for
the annual rulemaking cycle. Rather, in
the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24168), we
proposed to promptly retire the measure
and notify hospitals and the public of
the retirement of the measure and the
reasons for its retirement through the
usual hospital and QIO communication
channels used for the RHQDAPU
program, which include e-mail blasts to
hospitals and the dissemination of
Standard Data Processing System
(SDPS) memoranda to QIOs, as well as
posting the information on the
QualityNet Web site. We proposed to
confirm the retirement of the measure in
the next IPPS rulemaking. In other
circumstances where we do not believe
that continued use of a measure raises
specific patient safety concerns, we
intend to use the regular rulemaking
process to retire a measure.
We invited public comment on
whether any other RHQDAPU program
measures should be retired from the
RHQDAPU program, as well as on the
criteria that should be used in retiring
measures. To the extent that
performance has improved because of
the collection and public display of
quality measures, we also invited public
comment on how performance could be
maintained on the ‘‘topped out’’
measures once they are retired. We note
that many of the measures in the
existing program have experienced
improved performance rates over the
years. On our Web site, https://
www.cms.hhs.gov/HospitalQualityInits/,
we have posted the performance rates
for the existing measures over the years
that they have been collected through
the RHQDAPU program. However, thus
far, only one measure, the pneumonia
oxygenation assessment measure, has
reached such a high level of compliance
(nearly 100 percent for the vast majority
of hospitals) that we retired the
measure.
Comment: Some commenters
recommended 11 measures for
retirement for varying reasons. Seven of
these measures were recommended for
retirement based on their performance
being uniformly high nationwide, with
little variability among hospitals. These
seven measures are:
• AMI–1 Aspirin at arrival
• AMI–3 ACEI/ARB for left
ventricular systolic dysfunction
• AMI–4 Adult smoking cessation
advice/counseling
• AMI–5 Beta-blocker prescribed at
discharge
• HF–4 Adult smoking cessation
advice/counseling
• PN–4 Adult smoking cessation
advice/counseling
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• SCIP–Infection-6: Surgery patients
with appropriate hair removal
Commenters also recommended that
CMS implement an ongoing
surveillance mechanism for measures
that are retired due to unvarying high
performance rates nationwide in order
to prevent deterioration of performance.
Four of the 11 measures
recommended for retirement from the
RHQDAPU program were recommended
for reasons other than high unvarying
performance. These four measures are:
• HF–1 Discharge instructions
• PN–3b Blood culture performed
before first antibiotic received in
hospital
• SCIP–Infection-2: Prophylactic
antibiotic selection for surgical patients
• SCIP–Infection-4: Cardiac Surgery
Patients with Controlled 6AM
Postoperative Serum Glucose
With regard to the HF–1 Discharge
instructions measure, a commenter
stated that while high quality discharge
instructions are important for better
outcomes, this measure neither
measures nor affects the quality of the
discharge instruction. Another
commenter stated that the complexity of
the data collection guidelines for this
measure outweighs its value.
Several commenters recommended
retirement of measure PN–3b, Blood
culture performed before first antibiotic
received in hospital, because they
believe that it does not align with
current clinical guidelines.
Some commenters also suggested
retirement of the SCIP–Infection-2:
Prophylactic antibiotic selection for
surgical patients measure because the
measure is overly complicated and
confusing, and the SCIP–Infection-4:
Cardiac Surgery Patients with
Controlled 6AM Postoperative Serum
Glucose measure because of a perceived
risk of complications due to extended
insulin drips. Several commenters
suggested that CMS develop a process
for determining when process measures
should be retired to accommodate the
inclusion of broad outcome measures on
a topic, and that CMS retire measures
when negative unintended
consequences result.
Response: We will consider these
suggestions for measures to retire in a
future rulemaking. We note that we will
continue to retire measures based on
reasons other than potential harm to
patients by using the rulemaking
process, and we believe it is important
to weigh all relevant factors and
consequences related to retirement of a
measure with affected parties before
proposing retirement. We agree that
high levels of unvarying performance
across hospitals should be among the
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factors considered in measure
retirement. Such measures do not afford
opportunities for improvements in care,
nor do they allow consumers to discern
meaningful differences in performance
among hospitals.
We currently do not have mechanisms
available to conduct continued
surveillance of retired measures, but
will explore options for monitoring
whether the performance on retired
measures deteriorates following their
retirement. We also agree that quality
measures should relate to high quality
care processes, should be related to
better patient outcomes, should align
with current clinical guidelines when
possible, and should not be overly
burdensome to collect. We will consider
these factors when evaluating current
RHQDAPU program measures for
retirement. We agree that outcome
measures are useful indicators of
quality, and in recent years have added
outcome measures for mortality,
readmission, and patient safety
indicators to the RHQDAPU program.
However, we do not believe that
outcome measures necessarily render
process measures incompatible or
redundant.
Also, we agree that measures should
be evaluated for negative unintended
consequences, and that this should be a
consideration for measure retirement.
We strive to stay informed about
measure support in current scientific
literature, the continuing ability of
measures to assess quality of care, and
evolving unintended consequences.
Some negative unintended
consequences (such as patient harm)
may warrant immediate action while
other consequences (such as increased
burden on the hospital) may need to be
weighed against the utility of continuing
to collect and publicly post the measure.
Comment: One commenter indicated
that there are no further measures that
needed to be retired because there are
no other ‘‘topped out’’ measures.
Response: We have observed and
other commenters have pointed out that
there may be a number of RHQDAPU
program measures that have high levels
of unvarying performance. However, as
we stated in the response to a previous
comment, we also believe that there are
other criteria that we must additionally
consider before we propose to retire a
measure from the RHQDAPU program.
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3. Quality Measures for the FY 2011
Payment Determination and Subsequent
Years
a. Considerations in Expanding and
Updating Quality Measures Under the
RHQDAPU Program
In the FY 2009 IPPS proposed rule,
we solicited public comment on several
considerations related to expanding and
updating quality measures, including
how to reduce the burden on the
hospitals participating in the RHQDAPU
program and which approaches to
measurement and collection would be
most useful while minimizing burden
(73 FR 23653 through 23654).
In the FY 2009 IPPS final rule, we
responded to the public comments we
received on these issues (73 FR 48613
through 48616). We also stated that in
future expansions and updates to the
RHQDAPU program measure set, we
would be taking into consideration
several important goals. These goals
include: (a) Expanding the types of
measures beyond process of care
measures to include an increased
number of outcome measures, efficiency
measures, and patients’ experience-ofcare measures; (b) expanding the scope
of hospital services to which the
measures apply; (c) considering the
burden on hospitals in collecting chartabstracted data; (d) harmonizing the
measures used in the RHQDAPU
program with other CMS quality
programs to align incentives and
promote coordinated efforts to improve
quality; (e) seeking to use measures
based on alternative sources of data that
do not require chart abstraction or that
utilize data already being reported by
many hospitals, such as data that
hospitals report to clinical data
registries, or all-payer claims data bases;
and (f) weighing the relevance and
utility of the measures compared to the
burden on hospitals in submitting data
under the RHQDAPU program.
Specifically, we give priority to quality
measures that assess performance on: (a)
Conditions that result in the greatest
mortality and morbidity in the Medicare
population; (b) conditions that are high
volume and high cost for the Medicare
program; and (c) conditions for which
wide cost and treatment variations have
been reported, despite established
clinical guidelines. We have used and
continue to use these criteria to guide
our decisions regarding what measures
to add to the RHQDAPU program
measure set.
Although RHQDAPU program
payment decisions were initially based
solely on a hospital’s submission of
chart-abstracted quality measure data, in
recent years we have adopted measures,
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including structural and claims-based
quality measures that do not require a
hospital to submit chart-abstracted
clinical data. This supports our stated
goal to expand the measures for the
RHQDAPU program while minimizing
the burden on hospitals and, in
particular, without significantly
increasing the chart abstraction burden.
In addition to claims-based measures,
we are considering registries 10 and
electronic health records (EHRs) as
alternative ways to collect data from
hospitals. Many hospitals submit data to
and participate in existing registries. In
addition, registries often capture
outcome information and provide
ongoing quality improvement feedback
to registry participants. Instead of
requiring hospitals to submit the same
data to CMS that they are already
submitting to registries, we believe that
we could collect the data directly from
the registries, thereby enabling us to
expand the RHQDAPU program
measure set without increasing the
burden of data collection for those
hospitals participating in the registries.
Examples of registries actively used by
hospitals include the Society of
Thoracic Surgeons (STS) Cardiac
Surgery Registry (with approximately 90
percent participation by cardiac surgery
programs), the AHA Stroke Registry
(with approximately 1200 hospitals
participating), and the American
Nursing Association (ANA) Nursing
Sensitive Measures Registry (with
approximately 1400 hospitals
participating). In the FY 2009 IPPS final
rule (73 FR 48608 through 48609), we
adopted the first RHQDAPU program
measure related to registries:
Participation in a Systematic Database
for Cardiac Surgery. We continue to
evaluate whether it is feasible to adopt
measures that rely on one or more
registries as a source for data collection.
We also stated our intention to
explore mechanisms for data
submission using EHRs (73 FR 48614).
Establishing such a system will require
interoperability between EHRs and CMS
data collection systems, additional
infrastructure development on the part
of hospitals and CMS, and the adoption
of standards for the capturing,
formatting, and transmission of data
elements that make up the measures.
However, once these activities are
accomplished, the adoption of measures
that rely on data obtained directly from
EHRs will enable us to expand the
RHQDAPU program measure set with
less cost and burden to hospitals.
10 A registry is a collection of clinical data for
purposes of assessing clinical performance, quality
of care, and opportunities for quality improvement.
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In the FY 2009 IPPS final rule, we
adopted nine AHRQ measures for the
RHQDAPU program. Although we
stated that we would initially calculate
the measures using Medicare claims
data (73 FR 48608), we also stated that
we remained interested in using allpayer claims data to calculate them and
that we might propose to collect such
data in the future. In the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24169), we invited input and
suggestions on how all-payer claims
data can be collected and used by CMS
to calculate these measures, as well as
on additional AHRQ measures that we
should consider adopting for future
RHQDAPU program payment
determinations.
We noted that we continue to use
these criteria to guide our decisions on
what measures to propose for the
RHQDAPU program measure set.
Therefore, we invited comments on the
new quality measures we have proposed
to include in future payment years and
on the criteria we should use to retire
measures.
Comment: Several commenters
supported the concept of EHR-based
data collection. One commenter
expressed concern that the process to
implement electronic data collection
may delay the adoption of measures, in
particular the stroke measures, for the
RHQDAPU program. Another
commenter applauded CMS for
considering EHRs as an alternative way
to collect data, but suggested that no
new quality measures be introduced for
2 years while the industry implements
EHRs, and that some consideration be
given to small rural hospitals that may
not be able to adopt EHRs as soon as
larger urban hospitals. One commenter
believed that infrastructure
development for establishing
interoperability will be challenging and
asked that CMS consider a phase-in
period of 5 years, with reasonable
benchmarks for every 6 months to 1
year.
Response: We appreciate these
supportive comments regarding EHRbased data collection as an alternative
data source for quality measures. We
encourage adoption of EHRs, and we
also acknowledge the challenges that
must be met both by hospitals and CMS
to establish the infrastructure and
interoperability necessary to collect data
on quality measures via EHRs. In
determining whether to adopt new
quality measures for the RHQDAPU
program, we weigh the potential benefit
of improvement that would result from
reporting a given measure against the
potential resource burden associated
with reporting a measure. For purposes
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of the RHQDAPU program, EHR-based
data submission may provide an
alternative means of submitting quality
data that would benefit hospitals by
reducing their chart abstraction burden.
However, because of the challenges
noted above, we do not plan to make
EHR-based data submission the only
means by which hospitals can submit
quality data for the RHQDAPU program
in the near future.
Comment: Several commenters
opposed the direct collection of data
from EHRs for quality measures, stating
that quality data produced in this
manner is unlikely to be useful or valid
either for quality measurement or for
research, and that programming
software is incapable of interpreting and
deciding between discrepant
documentation in a single medical
record.
Response: We disagree with the
comment that quality data produced
from EHRs is not likely to be useful for
quality measurement and research. The
data collected from the EHR would
essentially be the same data that
hospitals would otherwise have to
manually abstract from a medical chart.
These data are what we currently use for
quality measure reporting and for
research. We acknowledge that
additional programming work may need
to be completed to enable current EHR
systems to collect and submit quality
measure data. We are currently working
with the Healthcare Information
Technology Standards Panel (HITSP), a
public-private partnership working to
establish Health IT interoperability
standards under contract to the DHHS
Office of the National Coordinator on
Health IT, to standardize the
specifications of data elements used in
stroke, VTE, and emergency department
measures so that they may be collected
and reported via EHRs. Standardization
of the specifications allows software to
convert clinical data of different types
into a form that can be analyzed for
quality measurement. We encourage
collaboration between standards setting
organizations and measure developers
on the creation of standards for
electronic collection of data elements
for other quality measures as well,
particularly those used in our quality
data reporting programs.
Comment: A number of commenters
supported the use of registries as an
alternative source of hospital-specific
data on quality measures and as a means
to reduce hospital burden. Several
commenters indicated that the use of
registries to collect hospital-level data
would reduce administrative burden
and ensure appropriate risk-adjustment
for quality improvement and public
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reporting purposes, as well as other
benefits, including the identification of
opportunities for quality improvement,
improvements in patient safety practices
and coordination of care, and improved
patient outcomes.
However, several commenters
expressed concern regarding the
possibility that they may be required to
participate in proprietary registries in
the future, and requested clarity
regarding alternatives for data
submission should some hospitals (for
example, small hospitals, rural
hospitals) not have the resources to
participate in registry-based data
collection initiatives. These commenters
saw registry-based data collection as
costly and labor intensive because many
registries require chart abstraction.
Other commenters saw registries as
useful for monitoring quality, but
indicated that many data fields
collected by registries are not related to
quality measures, and preferred that if
such a mechanism were to be used for
data collection, CMS only receive data
relevant to the quality measures of
interest, and that the data be limited to
the Medicare population only.
Response: We are interested in
reducing the burden associated with
quality measurement. If hospitals are
participating in registries and submit
the same data to those registries that
they would otherwise have to submit for
measures that are part of the RHQDAPU
program, we believe that the registry
data would be an efficient alternative
source from which to collect the data,
and that this would prevent the hospital
from having to report the same data
twice. Many hospitals are currently
participating in a number of registries
that collect data on quality measures
that are topics of interest to us.
However, we acknowledge the
commenters’ concern regarding the cost
associated with participation in certain
registries which may make this
alternative mechanism for data
submission less feasible for some
hospitals. We anticipate that registrybased data collection may be one means,
but not an exclusive means, of
submitting data for quality measures.
We will take these considerations into
account when selecting measures and
potential data submission mechanisms
for those measures for the RHQDAPU
program in the future.
Comment: A number of commenters
indicated that it would not be feasible
for hospitals to implement all-payer
claims reporting for the AHRQ measures
while trying to adopt a standardized
EHR at the same time. Another
commenter indicated that, for all-payer
data to be transmitted to the QIO
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43867
Clinical Warehouse, data vendors that
currently collect and submit most of the
clinical data for the RHQDAPU program
would need to develop the capability to
process and submit all-payer
administrative data to the QIO Clinical
Warehouse, and that the current CMS
Abstraction & Reporting Tool (CART)
would need to be modified to collect
these additional data. One commenter
urged CMS to develop a national allpayer claims database.
Response: We thank the commenters
for these comments. While we are
interested in collecting all-payer claims
data from hospitals in the future, we
currently do not have a data collection
mechanism in place to receive these
claims. We will continue to explore the
feasibility of collecting all-payer claims
data in the future.
Comment: Several commenters
encouraged CMS to look to the National
Priorities Partnership goals as a
framework for the types of measures
that should be included in the
RHQDAPU program. Some commenters
believe that some of the measures
proposed are not NQF-endorsed. Some
commenters suggested that CMS
consider adopting the criteria for
measure selection developed by The
Joint Commission.
Response: The National Priorities
Partnership is a 28 member organization
convened by the NQF for the purpose of
identifying improvement goals and
action steps for the U.S. healthcare
system. We are a member of the
National Priorities Partnership and
participate in its framework-setting
activity. Our measure selection activity
for the RHQDAPU program is informed
by this framework. The SCIP—Infection9 and -10 measures and the two
measures of registry participation
included in the proposed rule address
the National Priorities Partnership goals
of increasing patient safety and
population health. The proposed SCIP—
Infection-9 and -10 measures are NQFendorsed, and the two structural
measures regarding registry
participation are inpatient applications
of an NQF-endorsed measure of registry
participation (NQF #0493). We regularly
communicate with The Joint
Commission regarding the aligned
measures and participate in measure
maintenance workgroups with The Joint
Commission.
Comment: Several commenters stated
that measures selected for the
RHQDAPU program should be both
endorsed by the NQF and adopted by
the HQA. Some commenters suggested
that these steps were required by the
DRA. One commenter stated that the
standard for consensus for selection of
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quality measures should be consistent
with the National Technology Transfer
and Advancement Act of 1995 (Pub. L.
104–113) (NTTAA) standards.
Response: Section
1886(b)(3)(B)(viii)(V) of the Act requires,
effective for payments beginning with
FY 2008, that the Secretary add quality
measures that reflect consensus among
affected parties and, to the extent
feasible and practicable, have been set
forth by one or more national consensus
building entities. This provision does
not require that the measures we adopt
for the RHQDAPU program be endorsed
by any particular entity, and we believe
that consensus among affected parties
can be reflected by means other than
endorsement by a voluntary consensus
organization, including consensus
achieved during the measure
development process, consensus shown
through broad acceptance and use of
measures, and consensus through public
comment (74 FR 24165 through 24166).
Nevertheless, we have stated on
numerous occasions that we prefer to
adopt quality measures that have been
endorsed by the NQF. The NQF uses a
formal consensus development process.
As the NQF notes on its Web site at:
https://www.qualityforum.org/
Measuring_Performance/
Consensus_Development_Process.aspx,
it has been recognized as a voluntary
consensus standards-setting
organization as defined by the NTTAA
and Office of Management and Budget
Circular A–119.
In contrast, the HQA has a limited
membership and its current policy is to
limit measures that it selects for
adoption to a subset of NQF-endorsed
measures. In selecting measures for the
RHQDAPU program we consider a
variety of factors that we have discussed
both in this final rule and in previous
final rules and take into consideration
input received from the public
including but not limited to members of
the HQA.
Comment: One commenter supported
the measure selection criteria that CMS
stated in the proposed rule and
suggested that emphasis in measure
selection be placed upon the following:
results of cost-benefit analyses;
opportunities to leverage data reported
to State health agencies and State
hospital associations; alignment of
measures and incentives across
providers and settings through the
application of care coordination
measures and measures of quality across
episodes of care that increase providers’
clinical and financial accountability;
and measurement of ambulatory care
sensitive and preventable hospital
admissions and readmissions for
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beneficiaries with chronic conditions.
The commenter also suggested that CMS
avoid selecting measures that allow
hospitals to be rewarded for providing
marginally effective care or care that is
already routinely furnished.
Response: We thank the commenter
for these suggestions. In general, we
agree with these suggested
considerations for measure selection.
We adopt measures of high relevance to
the Medicare population for which the
benefit of public reporting and
improvement justifies the collection
burden, and intend to reduce the
collection burden by utilizing data
sources such as administrative data,
registries, and EHRs. We strive to align
measures across settings whenever
possible and will continue to do so. The
current and proposed RHQDAPU
program measure set contains measures
of readmission for beneficiaries with
certain acute and chronic conditions,
and we intend to expand measurement
in this area. We also intend to adopt
measures of care coordination suitable
for inclusion in the RHQDAPU program
when such measures are developed. We
also agree with the commenter that
quality measures should emphasize
effective care for which there is
evidence of wide variability despite the
presence of established guidelines. With
regard to measurement of quality across
episodes of care, the current RHQDAPU
program process measures focus on
topics of acute care quality. However,
we believe that the 30-day mortality and
30-day readmission measures adopted
for the RHQDAPU program also touch
on the issue of quality across the
continuum of care because other
providers in the larger community share
responsibility with the hospital for
mortality and readmission during the
30-day period measured, as the quality
of ambulatory follow up care or
postacute care after discharge affects the
likelihood of these events occurring.
Comment: Two commenters
supported the RHQDAPU program in
general. One of these commenters
attributed great improvements in
performance and benefits to patients to
the reporting of quality data and
indicated that the reporting program
allows hospitals to see comparative
information that they otherwise might
not see.
Response: We agree with and
appreciate these supportive comments.
Comment: One commenter opposed
quality data reporting and stated that
decreasing payments via incentive
programs leads to decreases in quality
and safety of care for patients.
Response: We disagree with this
statement. The IOM, in its 2005 volume
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titled Performance Measurement:
Accelerating Improvement (part of the
IOM series on ‘‘Pathways to Quality
Health Care’’) credits performance
measurement as the cornerstone of
quality improvement in healthcare.
Analyses of Hospital Compare data over
time indicates improvement trends in
most of the measures since reporting
began in 2004.
In summary, we will continue to
pursue goals regarding the expansion
and updating of quality measures under
the RHQDAPU program while
minimizing burden. We will take into
account the public comments we
received on the possible uses of EHRs,
registries, and all-payer claims data in
the RHQDAPU program. We also will
consider the measure selection criteria
suggested by various commenters in
prioritizing and selecting quality
measures for the future.
b. RHQDAPU Program Quality Measures
for the FY 2011 Payment Determination
(1) Retention of Existing RHQDAPU
Program Quality Measures
For the FY 2011 payment
determination, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
24169), we proposed to retain 41
RHQDAPU program quality measures
that we are using for the FY 2010
payment determination. We refer
readers to the table in the proposed rule
(74 FR 24169 through 24170) for a
complete list of the measures we
proposed to retain.
As we discussed in section V.A.1.c.(1)
of this final rule, we retired the
AMI–6 Beta blocker at arrival measure
from the RHQDAPU program measure
set for the FY 2010 payment
determination and subsequent years.
We discussed above the public
comments we received regarding the
retirement of measures that are
proposed for the FY 2011 payment
determination. We did not receive any
other public comments regarding our
proposal to retain for the FY 2011
payment determination the 41 measures
that we are using for the FY 2010
payment determination. Therefore, we
are adopting as final, without change,
our proposal to retain the 41 quality
measures used for the FY 2010 payment
update.
(2) NQF Harmonization of Two Existing
RHQDAPU Program Measures
In May 2008, the NQF reviewed the
specifications for two of the RHQDAPU
program measures that we adopted for
the FY 2010 payment determination:
PSI 04—Death among surgical patients
with treatable serious complications;
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and Nursing Sensitive—Failure to
rescue (Medicare claims only). This was
part of an NQF project titled ‘‘National
Voluntary Consensus Standards for
Hospital Care 2007: Performance
Measures.’’ As a result of this project by
the NQF, these two measures now have
the same name: ‘‘Death among surgical
inpatients with serious, treatable
complications’’ and share a single set of
measure specifications.
In order to maintain consistency with
national voluntary consensus standards
with respect to referencing the measure,
in the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24170), we
proposed to combine PSI 04—Death
among surgical patients with treatable
serious complications; and Nursing
Sensitive—Failure to rescue (Medicare
claims only) into a single measure,
Death among surgical inpatients with
serious, treatable complications, and to
list the measure under proposed topic
name—AHRQ PSI and Nursing
Sensitive Care. This measure, as well as
its specifications, would replace, for
purposes of hospital reporting, the two
RHQDAPU program measures that we
adopted for the FY 2010 payment
determination: PSI 04: Death among
surgical patients with treatable serious
complications; and Nursing Sensitive—
Failure to rescue (Medicare claims
only). However, we indicated that we
may continue to publicly report the
measure in two different topics areas on
the Hospital Compare Web site—
Nursing Sensitive Care and AHRQ PSIs,
IQIs and Composite Measures. We
invited public comment on this
proposal.
Comment: Several commenters
supported harmonization of the Failure
to Rescue measure and PSI 04: Death
among surgical inpatients with serious,
treatable complication in accordance
with consensus standards. However, a
number of commenters questioned the
possible display of the harmonized
measure in more than one topic area on
the Hospital Compare Web site, stating
this may be unnecessary, redundant,
and result in confusion. One commenter
indicated that continuing to report the
measure under the two separate topic
areas is beneficial.
Response: We thank the commenters
for their support of our use of the single
harmonized measure and measure
specification for the RHQDAPU
program. The harmonized measure
addresses two areas of topical
significance, patient safety and nursing
sensitive care. Therefore, we believe
that publicly displaying the measure
results in more than one topic area on
the Hospital Compare Web site will give
end-users a richer picture of a hospital’s
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performance in both of these topic areas.
We will conduct consumer testing to
ensure that display of the measure on
the Hospital Compare Web site does not
appear redundant or confusing to
consumers.
After consideration of the public
comments we received, we have
decided to adopt as final our proposal
to harmonize these two measures for the
FY 2011 payment determination.
(3) New Chart-Abstracted Measures
For the FY 2011 payment
determination, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
24170), we proposed to add two new
chart-abstracted measures. These
proposed new measures, SCIP–
Infection-9 Postoperative Urinary
Catheter Removal on Post Operative Day
1 or 2 and SCIP–Infection-10:
Perioperative Temperature
Management, are additions to the
existing SCIP measure set. The SCIP
Infection measures are designed to
assess practices that reduce the risk of
infections that surgical patients could
acquire in the hospital. They have high
relevance to the Medicare population,
and address the growing concern
regarding hospital-acquired infections.11
Although these two measures require
that hospitals abstract data from medical
records, they add to the scope of the
existing SCIP measure set. Hospitals
currently collect and report data
elements for eight SCIP measures.
Additional data elements required for
these two proposed new SCIP measures
are minimal, and would be abstracted
from the same records hospitals use to
abstract data for the other SCIP
measures. Therefore, we expect the
additional burden on hospitals to be
minimal. The two measures are NQFendorsed. We invited public comment
on our proposal to include SCIP–
Infection-9 and SCIP–Infection-10 as
RHQDAPU program measures to be
used for the FY 2011 payment
determination.
Comment: Several commenters
supported CMS’ recognition of the
burden associated with collection of
chart-abstracted measures and limiting
the number of chart-abstracted measures
proposed this year.
Response: We appreciate these
comments and will continue to carefully
consider the potential burden associated
with the collection of chart-abstracted
measures for the RHQDAPU program
11 U.S. Government Accountability Office.
Health-Care Associated Infections in Hospitals: An
Overview of State Reporting Programs and
Individual Hospital Initiatives to Reduce Certain
Infections. September 2008.
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relative to potential benefit of public
reporting and quality improvement.
Comment: Several commenters
supported the two proposed new chartabstracted measures. The commenters
indicated that these measures have the
potential to reduce hospital-acquired
infections while minimizing burden, as
the data elements would come from the
same records hospitals are using to
abstract data for the other SCIP
measures.
Response: We appreciate these
supportive comments. We believe that
these measures address areas of topical
importance to the Medicare program
because they measure quality of surgical
care and practices associated with
reduction of hospital-acquired
infections, and thus, ensure better
patient outcomes.
Comment: A few commenters
opposed the inclusion of both SCIP–
Infection-9 and SCIP–Infection-10 in the
RHQDAPU program solely because they
are not HQA adopted.
Response: As we discussed more fully
in our response to a prior comment, we
do not believe that HQA endorsement is
a required prerequisite for quality
measure selection under the RHQDAPU
program.
Comment: One commenter expected a
moderate increase in the administrative
burden related to abstraction. Another
commenter asked CMS to consider
whether it should adopt SCIP–Infection9 if it is considering implementing the
Nursing Sensitive/HAI measure,
Catheter Associated Urinary Tract
Infection (CA UTI), in FY 2012. The
commenter stated that the two measures
work toward the same goal of reduced
UTIs, and ultimately, a broader outcome
measure should supplant the related
process measure that is more likely to
become outdated as science evolves.
Response: Both SCIP–Infection-9 and
SCIP–Infection-10 impose minimal
additional abstraction burden as they
build upon an existing measurement set
for a population for which charts are
already being pulled for abstraction. We
acknowledge that the process measured
by SCIP–Infection-9 is related to the
outcome measured by the CA UTI
measure being considered among
measures for future adoption in FY 2012
and beyond. Though CA UTI is being
considered for the future, SCIP–
Infection-9 was proposed for the FY
2011 payment determination because
there is widespread variation in practice
for the processes measured, and the
practices associated with the measure
improve patient outcomes. The
processes measured in SCIP–Infection-9
may be related to the CA UTI measure,
but the process measure is not
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supplanted by the outcome measure.
The processes SCIP–Infection-9 is
intended to measure are of clinical
relevance to the Medicare population
and have the potential to improve
patient care outcomes.
After consideration of the public
comments we received, we have
decided to finalize our proposal,
without change, to adopt SCIP–
Infection-9: Postoperative Urinary
Catheter Removal on Post Operative Day
1 or 2 and SCIP–Infection-10:
Perioperative Temperature Management
as quality measures under the
RHQDAPU program for the FY 2011
payment determination. As we stated in
the proposed rule, the collection of the
new chart-abstracted measures for the
FY 2011 payment determination will
begin with 1st calendar quarter 2010
discharges, for which the submission
deadline will be August 15, 2010.
(4) New Structural Measures
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24170), we
also proposed to adopt two additional
structural measures for the FY 2011
payment determination. Structural
measures assess the characteristics and
capacity of the provider to deliver
quality health care. We proposed to add
two additional registry participation
measures. The two structural measures
are: (1) Participation in a Systematic
Clinical Database Registry for Stroke
Care; and (2) Participation in a
Systematic Clinical Database Registry
for Nursing Sensitive Care. These
measures are specific applications for
the inpatient setting of a structural
measure entitled ‘‘Participation by a
physician or other clinician in a
systematic clinical database registry that
includes consensus endorsed
measures,’’ which received NQF
endorsement under a project titled
‘‘National Voluntary Consensus
Standards for Health IT: Structural
Measures 2008.’’ The proposed
measures are appropriate applications of
the NQF-endorsed measure because the
NQF has endorsed measures for Stroke
Care and Nursing Sensitive Care which
are currently being collected by widely
used stroke and nursing sensitive care
registries. Therefore, we believe that the
proposed Stroke Registry Participation
structural measure and Nursing
Sensitive Care Registry Participation
structural measure meet the consensus
requirement in section
1886(b)(3)(B)(viii)(V) of the Act.
As we have previously stated, we also
believe that participation in registries
reflects a commitment to assessing the
quality of care provided and identifying
opportunities for improvement. Many
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registries also collect outcome data and
provide feedback to hospitals about
their performance. Moreover, registries
offer a potential future data source from
which we can collect quality data.
The Participation in a Systematic
Clinical Database Registry for Stroke
structural measure would require each
hospital that participates in the
RHQDAPU program to indicate whether
it is participating in a systematic
qualified clinical database registry for
inpatient stroke care and, if so, to
identify the registry.
The Participation in a Systematic
Clinical Database Registry for Nursing
Sensitive Care structural measure would
similarly require each hospital
participating in the RHQDAPU program
to indicate whether it is participating in
a systematic qualified clinical database
registry measuring nursing sensitive
care quality for inpatient care and, if so,
to identify the registry.
We solicited public comment on these
registry structural measures.
Specifically, we invited public comment
on whether ‘‘systematic qualified
clinical database registry’’ is adequately
defined and, if not, how it should be
defined. In defining ‘‘systematic
qualified clinical database registry,’’
should registries that do not collect
outcome measures and/or do not
provide feedback to hospitals about
their performance be excluded? Are
there other registries that we should
consider in future rulemakings, beyond
stroke and nursing sensitive registries,
particularly for conditions where there
is high mortality/morbidity in the
Medicare population, high cost to the
health care system, and widespread
treatment variations despite established
clinical guidelines? Finally, we
welcomed more precise data on what
percentage of hospitals already
participate in a stroke registry or a
nursing sensitive registry.12 Because we
also retire measures when performance
has reached a sufficiently high level, we
invited public comment on whether
reporting on stroke registry and nursing
sensitive care registry structural
measures has sufficient relevance and
utility to justify the reporting burden, if
a substantial proportion of hospitals
already participate in these registries.
Both proposed structural measures
can be submitted using a Web-based
12 Examples of registries that we are aware of that
are being actively used by hospitals include the
Society of Thoracic Surgeons (STS) Cardiac Surgery
Registry (with approximately 90 percent
participation by cardiac surgery programs), the
AHA Stroke Registry (with approximately 1200
hospitals participating), and the American Nursing
Association (ANA) Nursing Sensitive Measures
Registry (with approximately 1400 hospitals
participating).
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collection tool that we will make
available on the QualityNet Web site.
We invited public comment on our
proposal to adopt these two structural
measures for the FY 2011 payment
determination.
Comment: Several commenters
indicated that the two structural
measures of clinical registry
participation should not be included in
the RHQDAPU program. They indicated
that the measures had not been
endorsed by the NQF or adopted by the
HQA and there appears to be no
established connection between
whether a hospital answers ‘‘yes’’ or
‘‘no’’ to the registry participation
measures and the quality of the care that
hospital provides. Some commenters
expressed concern that these measures
contain an implicit encouragement by
the Medicare program for hospitals to
participate in clinical data registries
designed and operated by external
organizations, which can be costly.
Others commenters applauded the use
of registries to promote quality
improvement.
Response: The proposed structural
measures are specific applications for
the inpatient setting of NQF-endorsed
measure ‘‘participation by a physician
or other clinician in a systematic
clinical database registry that includes
consensus endorsed measures.’’
Therefore, we believe that they meet the
requirement for consensus in section
1886(b)(3)(B)(viii)(V) of the Act. The
measure as endorsed by the NQF is an
indicator of quality, because it measures
adoption of technology that has the
capacity to improve quality of care. We
believe that registries can play an
important role in providing hospitals
with information and services for
internal quality improvement by
providing performance benchmarking
information, continuous feedback, and
opportunities to learn best practices.
Our intent with these structural
measures is to assess the degree of
current participation in registries
collecting NQF-endorsed measures on
the topics of stroke and nursing
sensitive quality measures among
hospitals participating in the RHQDAPU
program. We note that hospitals are not
required to actually participate in the
registries in order to meet the
RHQDAPU program requirements. We
also note that in the public comments
we received, many hospitals indicated
that registry participation afforded them
with valuable insights for improving
quality and patient outcomes.
Comment: Several commenters
supported the structural measure
‘‘Participation in a systematic clinical
database registry for stroke.’’ The
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commenters agreed that stroke
measurement should be a priority for
the RHQDAPU program because strokes
cause significant mortality and
morbidity in the Medicare population,
and are treated with wide variation
despite established guidelines. The
commenters also stated that
participation in such registries has
resulted in improvements in the quality
of care delivered to stroke patients.
Commenters recommended that the
Massachusetts Department of Public
Health’s acute stroke registry, the
American Stroke Association (ASA) Get
With the Guidelines-Stroke registry, and
the CDC Paul Coverdell stroke registry
should be recognized as qualifying
registries for the Systematic Clinical
Database Registry for Stroke measures.
A few commenters indicated that
quarterly submission of registry
participation, while not overly
burdensome, is unnecessary because
hospitals tend to participate for an
entire year, and not on an intermittent
basis.
Response: We agree that strokes cause
high morbidity and mortality in the
Medicare population, and we believe
that stroke registries can play an
important role in providing hospitals
with information and services for
internal quality improvement by
providing performance benchmarking
information, continuous feedback, and
opportunities to learn best practices. We
understand that hospitals that
participate in registries tend to
participate continuously for an entire
year, rather than intermittently. Based
on the feedback, we are modifying our
proposal to require that hospitals only
report whether they participate in a
stroke and/or nursing sensitive care
registry once annually. We also are
modifying our submission requirement
with respect to the cardiac surgery
registry participaton measure to be
consistent with the annual submisssion
requirement for the stroke and nursing
sensitive care registry participation
measures.
Comment: A number of commenters
indicated that participation in stroke
registries should not be mandated due
to perceived burden, and that hospitals
should be allowed to report the
measures to CMS without a vendor. One
commenter asked whether and how
CMS would determine volume
thresholds for participation in a stroke
registry, and specifically whether there
would be an expectation that hospitals
having a low volume of stroke cases
participate in a registry.
Response: We acknowledge that
registry participation may be
burdensome for some hospitals, and we
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note that the proposed structural
measures do not mandate that hospitals
actually participate in either a stroke or
nursing sensitive care registry. We also
note that there is no requirement under
the RHQDAPU program that hospitals
use a vendor to report measures to the
QIO Clinical Warehouse, the structural
measures can be reported directly by
hospitals using a Web-based tool.
Comment: Commenters suggested
criteria for a qualified systematic
clinical database registry for stroke care.
One commenter suggested a data
collection system that supports realtime data collection concurrent with
patient care, that collects at a minimum
all data required to support the NQFendorsed stroke measures, and that uses
the data to guide improvement in stroke
care within an organized program of
quality improvement. Another
commenter suggested that registries
should be required to include the
following services and information: (1)
A feedback component; (2) the intended
use (that is, plan of action/care) of the
information; (3) potential intervention
actions; (4) evaluation; and (5) the
outcome measure intended to impact
(this could be either a process-outcome
link supported by literature,
intermediate outcome, or long-term
outcome). Commenters also suggested
that the risk adjustment methodologies
employed must be explained if a
hospital is collecting outcome data, and
the feedback provided should be
‘‘systematic,’’ which requires
coordination of the feedback and
dissemination of that feedback to the
defined stroke team (not just the
statement feedback to hospital).
Response: We appreciate these
suggestions and will consider these for
future measure refinement. We note that
the current NQF-endorsed measure
#0493, upon which the stroke and
nursing sensitive registry participation
structural measures are based, contains
the following definition for systematic
clinical database registry:
‘‘c. Registry measures shall include at
least two (2) representative NQF
consensus endorsed measures for
registry’s clinical topic(s) and report on
all patients eligible for the selected
measures.
‘‘d. Registry provides calculated
measures results, benchmarking, and
quality improvement information to
individual physicians and clinicians.
‘‘e. Registry must receive data from
more than 5 separate practices and may
not be located (warehoused) at an
individual group’s practice.
Participation in a national or state-wide
registry is encouraged for this measure.
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‘‘f. Registry may provide feedback
directly to the provider’s local registry
if one exists.’’
This definition of systematic clinical
database registry is part of the
specification for measure #0493 shown
in NQF’s 2008 Consensus Report
regarding National Voluntary Consensus
Standards for Health Information
Technology. We will modify this
definition to apply to inpatient
hospitals, and to the specific topics of
stroke and nursing sensitive care
registries.
Comment: Some commenters
supported the structural measure for
‘‘Participation in a Systematic Clinical
Database Registry for Nursing Sensitive
Care.’’ One commenter suggested that
the Patients First nursing sensitive
measure project be recognized as a
qualifying registry under the measure.
Another commenter suggested that the
National Database of Nursing Quality
Indicators (NDNQI) be considered a
qualifying registry.
Response: We appreciate these
supportive comments. Participation in a
particular registry is not required in
order for a hospital to properly report
the Participation in a Systematic
Clinical Database Registry for Nursing
Sensitive Care measure, or any of the
other structural measures we have, to
date, adopted for the RHQDAPU
program. A hospital can successfully
report this structural measure simply by
indicating whether they participate in a
systematic clinical database registry for
nursing sensitive care and, if so, which
registry.
Comment: A number of commenters
indicated that participation in a nursing
sensitive care registry, though currently
widespread, may not be feasible for
smaller hospitals due to the cost and the
need for additional staff for data
abstraction and reporting.
Response: We understand the cost
implications of participating in such
registries. However, as we have stated
above, actual participation in a nursing
sensitive care registry is not required
under the RHQDAPU program.
Comment: Commenters suggested that
CMS consider three additional registry
topics for measuring hospital
participation:
• Sepsis Survival
• Surgical Quality Improvement
• Healthcare Safety and Healthcare
Acquired Infections
Response: We thank the commenters
for these suggestions and will consider
these registry topics in the future.
After consideration of the public
comments we received, we are adopting
as final the two proposed structural
measures: Participation in a Systematic
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Clinical Database Registry for Stroke
Care; and Participation in a Systematic
Clinical Database Registry for Nursing
Sensitive Care under the RHQDAPU
program for the FY 2011 payment
determination. Based on public
comments, we will collect these
structural measures once annually
rather than quarterly as originally
proposed. Annual data submission for
these structural measures via a Webbased collection tool will begin in July
2010 with respect to the time period
January 1, 2010, through June 30, 2010.
In summary, after consideration of the
public comments we received, for the
FY 2011 payment determination, we are
adopting as final our proposals to retain
41 of the measures we adopted for the
FY 2010 payment determination. In
addition, we are adopting as final our
proposal to harmonize an AHRQ
measure and a Nursing Sensitive
measure by combining these measures
into a single measure entitled Death
among surgical inpatients with serious,
treatable complications for the
RHQDAPU program measure set for FY
2011 payment determination. Finally,
we are adopting as final our proposal to
add an additional four measures to the
RHQDAPU program measure set for the
FY 2011 payment determination: SCIP–
Infection-9: Postoperative Urinary
Catheter Removal on Post Operative Day
1 or 2; SCIP–Infection-10: Perioperative
Temperature Management; Participation
in a Systematic Clinical Database
Registry for Stroke Care; and
Participation in a Systematic Clinical
Database Registry for Nursing Sensitive
Care.
Set out below are the 46 RHQDAPU
program quality measures we are
adopting for the FY 2011 payment
determination:
Topic
RHQDAPU Program quality measures for the FY 2011 payment
determination
Acute Myocardial Infarction (AMI) ............................................................
• AMI–1 Aspirin at arrival.
• AMI–2 Aspirin prescribed at discharge.
• AMI–3 Angiotensin Converting Enzyme Inhibitor (ACE–I) or
Angiotensin II Receptor Blocker (ARB) for left ventricular systolic
dysfunction.
• AMI–4 Adult smoking cessation advice/counseling.
• AMI–5 Beta blocker prescribed at discharge.
• AMI–7a Fibrinolytic (thrombolytic) agent received within 30 minutes
of hospital arrival.
• AMI–8a Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI).
• HF–1 Discharge instructions.
• HF–2 Left ventricular function assessment.
• HF–3 Angiotensin Converting Enzyme Inhibitor (ACE–I) or
Angiotensin II Receptor Blocker (ARB) for left ventricular systolic
dysfunction.
• HF–4 Adult smoking cessation advice/counseling.
• PN–2 Pneumococcal vaccination status.
• PN–3b Blood culture performed before first antibiotic received in hospital.
• PN–4 Adult smoking cessation advice/counseling.
• PN–5c Timing of receipt of initial antibiotic following hospital arrival.
• PN–6 Appropriate initial antibiotic selection.
• PN–7 Influenza vaccination status.
• SCIP–1 Prophylactic antibiotic received within 1 hour prior to surgical
incision.
• SCIP–3 Prophylactic antibiotics discontinued within 24 hours after
surgery end time.
• SCIP–VTE–1: Venous thromboembolism (VTE) prophylaxis ordered
for surgery patients.
• SCIP–VTE–2: VTE prophylaxis within 24 hours pre/post surgery.
• SCIP–Infection-2: Prophylactic antibiotic selection for surgical patients.
• SCIP–Infection-4: Cardiac Surgery Patients with Controlled 6AM
Postoperative Serum Glucose.
• SCIP–Infection-6: Surgery Patients with Appropriate Hair Removal.
• SCIP–Infection-9: Postoperative Urinary Catheter Removal on Post
Operative Day 1 or 2 *.
• SCIP–Infection-10: Perioperative Temperature Management *.
• SCIP–Cardiovascular-2: Surgery Patients on a Beta Blocker Prior to
Arrival Who Received a Beta Blocker During the Perioperative Period.
• MORT–30–AMI: Acute Myocardial Infarction 30-day mortality –Medicare patients.
• MORT–30–HF: Heart Failure 30-day mortality Medicare patients.
• MORT–30–PN: Pneumonia 30-day mortality –Medicare patients.
• HCAHPS survey.
• READ–30–HF: Heart Failure 30-Day Risk Standardized Readmission
Measure (Medicare patients).
• READ–30–AMI: Acute Myocardial Infarction 30-Day Risk Standardized Readmission Measure (Medicare patients).
• READ–30–PN: Pneumonia 30-Day Risk Standardized Readmission
Measure (Medicare patients).
• PSI 06: Iatrogenic pneumothorax, adult.
Heart Failure (HF) ....................................................................................
Pneumonia (PN) .......................................................................................
Surgical Care Improvement Project (SCIP) .............................................
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Mortality Measures (Medicare Patients) ...................................................
Patients’ Experience of Care ....................................................................
Readmission Measure (Medicare Patients) .............................................
AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators
(IQIs) and Composite Measures.
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43873
RHQDAPU Program quality measures for the FY 2011 payment
determination
Topic
AHRQ PSI and Nursing Sensitive Care ** ...............................................
Cardiac Surgery ........................................................................................
Stroke Care ..............................................................................................
Nursing Sensitive Care .............................................................................
• PSI 14: Postoperative wound dehiscence.
• PSI 15: Accidental puncture or laceration.
• IQI 11: Abdominal aortic aneurysm (AAA) mortality rate (with or without volume).
• IQI 19: Hip fracture mortality rate.
• Mortality for selected surgical procedures (composite).
• Complication/patient safety for selected indicators (composite).
• Mortality for selected medical conditions (composite).
• Death among surgical inpatients with serious, treatable complications.
• Participation in a Systematic Database for Cardiac Surgery.
• Participation in a Systematic Clinical Database Registry for Stroke
Care *.
• Participation in a Systematic Clinical Database Registry for Nursing
Sensitive Care *.
* New measure for FY 2011 payment determination.
** Harmonized measure. This measure may be publicly reported under two topics—the AHRQ PSIs and the Nursing Sensitive Care topic.
4. Possible New Quality Measures for
the FY 2012 Payment Determination
and Subsequent Years
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24172), we
invited public comment on the
following quality measures and topics
that we might consider adopting
beginning with the FY 2012 payment
determination. We also sought
suggestions and rationales to support
the adoption of measures and topics for
the RHQDAPU program that are not
included in this list.
Measure topic
Measure description
AMI ...........................................................................................................
ED—Throughput .......................................................................................
Statin at discharge.
Median time from admit decision time to time of departure from the
emergency department for emergency department patients admitted
to inpatient status.
Median time from emergency department arrival to time of departure
from the emergency room for patients admitted to the facility from
the emergency department.
Lower Extremity Bypass Complications.
Comorbidity Adjusted Complication Index.
PCI mortality rate for patients without ST segment elevation myocardial
infarction (STEMI) and without cardiogenic shock.
Patients with an ischemic stroke or a hemorrhagic stroke and who are
non-ambulatory should start receiving DVT prophylaxis by end of
hospital day two.
Patients with an ischemic stroke prescribed antithrombotic therapy at
discharge.
Patients with an ischemic stroke with atrial fibrillation discharged on
anticoagulation therapy.
Acute ischemic stroke patients who arrive at the hospital within 120
minutes (2 hours) of time last known well and for whom IV t-PA was
initiated at this hospital within 180 minutes (3 hours) of time last
known well.
Patients with ischemic stroke who receive antithrombotic therapy by
the end of hospital day two.
Ischemic stroke patients with LDL >/= 100 mg/dL, or LDL not measured, or, who were on cholesterol reducing therapy prior to hospitalization are discharged on a statin medication.
Patients with ischemic or hemorrhagic stroke or their caregivers who
were given education or educational materials during the hospital
stay addressing all of the following: personal risk factors for stroke,
warning signs for stroke, activation of emergency.
Patients with an ischemic stroke or hemorrhagic stroke who were assessed for rehabilitation services.
This measure assesses the number of patients that receive VTE prophylaxis or have documentation why no VTE prophylaxis was given
within 24 hours after the initial admission (or transfer) to the Intensive Care Unit (ICU) or surgery end time.
Patients who received parenteral and warfarin therapy (overlap therapy): (1) For at least 5 days, with an INR greater than or equal to 2
prior to discontinuation of parenteral therapy OR (2) For more than 5
days, with an INR less than 2, but were discharged on overlap therapy OR (3) Who were discharged in less than five days on overlap
therapy.
ED—Throughput .......................................................................................
Complications ...........................................................................................
Complications ...........................................................................................
PCI ............................................................................................................
Stroke .......................................................................................................
Stroke .......................................................................................................
Stroke .......................................................................................................
Stroke .......................................................................................................
Stroke .......................................................................................................
Stroke .......................................................................................................
Stroke .......................................................................................................
Stroke .......................................................................................................
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VTE ...........................................................................................................
VTE ...........................................................................................................
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Measure topic
Measure description
VTE ...........................................................................................................
This measure assesses the number of patients receiving intravenous
(IV) UFH therapy with documentation that the dosages and platelet
counts are monitored by protocol (or nomogram).
This measure assesses the number of VTE patients that are discharged home, home care, or home hospice on warfarin with written
discharge instructions that addresses all four criteria: Follow-up Monitoring; Compliance Issues; Dietary Restrictions; and, Potential for
Adverse Drug Reactions/Interactions.
This measure assesses the number of patients that were diagnosed
with VTE during hospitalization (not present at admission) that did
not receive VTE prophylaxis.
Post-operative Renal Failure.
Surgical Re-exploration.
Anti-Platelet Medication at Discharge.
Beta Blockade at Discharge.
Anti-Lipid Treatment Discharge.
Risk-Adjusted Operative Mortality for Coronary Artery Bypass Graft
CABG.
Risk-Adjusted Operative Mortality for Aortic Valve Replacement (AVR).
Risk-Adjusted Operative Mortality for Mitral Valve Replacement/Repair
(MVR).
Risk-Adjusted Operative Mortality MVR+CABG Surgery.
Risk-Adjusted Operative Mortality for AVR+CABG.
Pre-Operative Beta Blockade.
Duration of Prophylaxis for Cardiac Surgery Patients.
Prolonged Intubation (ventilation).
Deep Sternal Wound Infection Rate.
Stroke/Cerebrovascular Accident.
Patient Falls: All documented falls with or without injury, experienced
by patients on an eligible unit in a calendar month.
Falls with Injury: All documented patient falls with an injury level of
minor or greater.
Catheter Associated Urinary Tract Infection.
Central Line Associated Blood Stream Infection in the ICU and high
risk neonatal intensive care unit.
Ventilator Associated Pneumonia in the ICU.
Pressure Ulcer Prevalence.
Restraint Prevalence (vest and limb).
Skill Mix: Percentage of hours worked by: RN, LPN/LVN, UAP, Contract/Agency.
Hours per patient day worked by RN, LPN, and UAP.
Practice Environment Scale-Nursing Work Index.
Voluntary turnover for RN, APN, LPN, UAP.
PSI 03: Decubitus Ulcer.
PSI 07: Infection Due to Medical Care.
PSI 08: Post Operative Hip Fracture.
PSI 09: Post Operative Hemorrhage or Hematoma *.
PSI 10: Post Operative Physiologic Metabolic Derangement *.
PSI 11: Post Operative Respiratory Failure.
PSI 12: Post Operative PE or DVT.
PSI 13: Post Operative Sepsis.
IQI 08: In-hospital Mortality for Esophageal Resection.
IQI 09: In-hospital Mortality for Pancreatic Resection.
IQI 12: In-hospital Mortality for Coronary Artery Bypass Graft CABG.
IQI 13: In-hospital Mortality for Craniotomy *.
IQI 14: In-hospital Mortality for Hip Replacement.
IQI 15: In-hospital Mortality for AMI.
IQI 16: In-hospital Mortality for CHF.
IQI 17: In-hospital Mortality for Stroke.
IQI 18: In-hospital Mortality for GI Hemorrhage *.
IQI 20: In-hospital Mortality for Pneumonia.
Short Half-Life prophylactic administered preoperatively redosed within
4 hours after preoperative dose.
Hospital-specific 30-day risk-standardized readmission rate following
Percutaneous Coronary Intervention (PCI) among patients aged 18
years or older.
PCI Mortality for STEMI/shock patients: Hospital-specific 30-day allcause risk-standardized mortality rate following Percutaneous Coronary Intervention (PCI) among patients aged 18 years or older with
ST segment elevation myocardial infarction (STEMI) or cardiogenic
shock at the time of procedure.
VTE ...........................................................................................................
VTE ...........................................................................................................
Cardiac
Cardiac
Cardiac
Cardiac
Cardiac
Cardiac
Surgery
Surgery
Surgery
Surgery
Surgery
Surgery
........................................................................................
........................................................................................
........................................................................................
........................................................................................
........................................................................................
........................................................................................
Cardiac Surgery ........................................................................................
Cardiac Surgery ........................................................................................
Cardiac
Cardiac
Cardiac
Cardiac
Cardiac
Cardiac
Cardiac
Nursing
Surgery ........................................................................................
Surgery ........................................................................................
Surgery ........................................................................................
Surgery ........................................................................................
Surgery ........................................................................................
Surgery ........................................................................................
Surgery ........................................................................................
Sensitive ......................................................................................
Nursing Sensitive ......................................................................................
Nursing Sensitive/HAI ...............................................................................
Nursing Sensitive/HAI ...............................................................................
Nursing
Nursing
Nursing
Nursing
Sensitive/HAI ...............................................................................
Sensitive ......................................................................................
Sensitive ......................................................................................
Sensitive ......................................................................................
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Nursing Sensitive ......................................................................................
Nursing Sensitive ......................................................................................
Nursing Sensitive ......................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
Outcomes .................................................................................................
SCIP .........................................................................................................
PCI Readmission ......................................................................................
PCI Mortality .............................................................................................
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43875
Measure topic
Measure description
ICD Complications ....................................................................................
PCI Mortality for non-STEMI/non-shock patients: Hospital-specific 30day all-cause risk-standardized mortality rate following Percutaneous
Coronary Intervention (PCI) among patients aged 18 years or older
without ST segment elevation myocardial infarction (STEMI) and
without cardiogenic shock at the time of procedure.
Hospital-specific risk-standardized complication rate following
implantable cardioverter defibrillator (ICD) implantation among patients aged 18 years or older.
Methicillin-Resistant Staphylococcus Aureus (MRSA).
Clostridium Difficile Associated Diseases (CDAD).
Hospital Acquired Infections .....................................................................
Hospital Acquired Infections .....................................................................
* AHRQ is currently working with to improve and refine these measures, after which they will be updated to reflect the most current evidence
learned as a result of validation efforts and empirical analyses.
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We invited public comment on these
measures for potential future use in the
RHQDAPU program, as well as
suggestions and supporting rationales
for additional measures to consider
using in the program at a future time.
• General Comments
Comment: Several commenters
expressed concern over the number of
measures listed as being under
consideration for FY 2012 and
subsequent years in the proposed rule.
Commenters believed that a large
increase in measures in future years
would compete with other critical
initiatives that would be occurring (such
as HIT adoption for incentive payments
and transitioning to ICD–10–CM and
ICD–10–PCS implementation). The
commenters recommended that CMS
give consideration to the number and
burden associated with the measures
particularly as many are not EHR-based
or registry-based measures. The
commenters also suggested that CMS
prioritize the measures, avoid
redundancy by adopting measures that
add information not captured in other
measures, and consider measures that
are closest in relation to desired
outcomes for patients. One commenter
also suggested that CMS assess the
feasibility of constructing measures
from data contained in the typical
hospital electronic health record.
Response: We listed an array of
measures that we are considering for the
future. We will carefully weigh the
burden associated with the adoption of
measures against the benefit of publicly
reporting that data. We anticipate
limited adoption of chart-abstracted
measures in the future because we wish
to minimize the burden associated with
quality measurement during a time
when hospitals will be implementing
new technologies and systems. We also
will continue to assess the feasibility of
alternative data sources for measures,
such as registries and EHRs.
Comment: Commenters recommended
that CMS provide clarity on the status
of the proposed measures regarding
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NQF endorsement, information about
the data abstraction burden, and a
central location for specifications for
measures under consideration. Another
commenter also suggested that for
measures under consideration, CMS
provide information on benchmarking,
potential use, affect on patient care, and
development.
Response: We understand the
commenters’ desire to have more
information about the measures being
considered for the future. We provide
some additional information in our
responses to comments below, and we
will endeavor to provide more detailed
information about measures under
consideration in the future.
• Comment on Measure Topic: AMI
Comment: One commenter indicated
that the Statin at Discharge measure for
AMI would be better suited as a
physician measure rather than a
hospital measure.
Response: We will take this into
consideration in determining whether to
adopt this measure for the RHQDAPU
program in the future. However
discharge medications, such as aspirin
at discharge, form the basis for other
measures which we have implemented
in the RHQDAPU program.
• Comments on Measure Topic: ED–
Throughput
Comment: Several commenters
supported the concept of the ED–
Throughput measures. Some
commenters made suggestions for
refinements to the specifications for
‘‘Median time from admit decision time
to time of departure from the emergency
room for patients admitted to the facility
from the ED’’ measure. They suggested
using the time when an admit order is
written, and the time of departure from
the emergency department to calculate
the median times for this measure.
Other commenters suggested
stratification by population type.
Response: We appreciate the
supportive comments. These
suggestions are in keeping with the
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current measure specifications as
endorsed by NQF. These ED–
Throughput measure specifications are
available in the Specifications Manual
on https://www.QualityNet.org.
Comment: One commenter opposed
the ED–Throughput measures because
the commenter believed that they
measured utilization.
Response: The ED–Throughput
measures are NQF-endorsed quality
measures. The ED–Throughput
measures reflect not only the processes
of care that occur while the patient is in
the emergency department, but also
reflect the coordination of care,
communication, and efficiency of
service provision beyond the walls of
the emergency department. They
address ED overcrowding, which has
been identified as a major quality issue
by the IOM.
• Comment on Measure Topic:
Complications
Comment: One commenter stated that
global measures such the Comorbidity
Adjusted Complication Index are useful
to hospitals in quality improvement
efforts.
Response: We agree that global
measures can provide useful quality
improvement information to hospitals.
We also believe that the topic of
complications is an important one for
consumers. This measure is currently
undergoing evaluation as part of the
NQF consensus development project
entitled Hospital Care: Outcomes and
Efficiency Measures Phase II. We will
take this comment into consideration in
determining whether to adopt such
measures in the future.
• Comments on Measure Topic: Stroke
Comment: Numerous commenters
encouraged CMS to adopt the stroke
measures, which they see as evidencebased measures that accurately measure
evidence-based care of the stroke patient
to minimize secondary strokes and other
complications, have been thoroughly
researched, and are widely recognized.
Several commenters cited firsthand
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experience with dramatic quality
improvements resulting from the
collection and reporting of these
measures to a registry.
Response: We appreciate and agree
with these supportive statements. Stroke
is a topic of great relevance to the
Medicare population due to its impact
on morbidity and mortality, and an area
of great potential improvement for
hospitals.
Comment: Two commenters
supported the stroke measures under
consideration but recommended
limiting the measures in scope to
‘‘Certified Stroke Centers’’ in order to
minimize the possibility that patients
will suffer from unintended
consequences due to a provider’s lack of
expertise with stroke. One commenter
supported all but the STK–10 Assessed
for Rehabilitation stroke measure and
recommended that CMS establish
eligibility criteria for the Assessment of
Rehabilitation measure instead of
including the entire stroke population
as currently defined in the
Specifications Manual.
Response: We will consider these
comments in deciding whether to adopt
these measures in the future. We note
that we adopt measures for the
RHQDAPU program that are broadly
applicable to all participating hospitals,
and that acute care for stroke is not
given only by hospitals that have
attained specific certifications.
Regarding the measure on stroke
assessment, the scope of the NQFendorsed measure includes the entire
stoke population. However, the measure
allows for variation in the extent/degree
of the assessment based on clinical
indications. Specifications for the stroke
measures are available in the
Specifications Manual at https://
www.QualityNet.org.
Comment: Several commenters
generally opposed the future adoption
of one or more of the stroke measures
into the RHQDAPU program. One
commenter stated that the abstraction
rules for stroke are in need of greater
refinement as they currently allow too
much room for subjective interpretation.
One commenter had concerns regarding
inclusion of the anticoagulation
measure because falls in the elderly
population can be a significant problem
with the risk of intracranial bleeding
surpassing the benefit of anticoagulation
therapy for atrial fibrillation. A few
commenters opposed ‘‘Thrombolysis
therapy’’ for stroke, stating that this
therapy is not yet the standard of care
for community or rural hospitals and
that administering thrombolytic therapy
to stroke patients has a high risk of
complications.
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Response: We appreciate these
comments and will take them into
consideration. Most of the comments we
received overwhelmingly supported the
adoption of these measures for the
RHQDAPU program in the future. We
believe that the stroke topic is of great
clinical relevance to the Medicare
population because of its impact on
morbidity and mortality, as well a
stroke’s debilitating effect on the quality
of life among Medicare beneficiaries. All
of the measures in the stroke set under
consideration are important to the
overall outcome of the patient. The
stroke measures are based on current
AHA and ASA guidelines. We believe
that current guidelines for stroke care
apply across hospital types. The
measure ‘‘Patients with an ischemic
stroke with atrial fibrillation discharged
on anticoagulation therapy’’ currently
excludes patients for whom risks
associated with treatment with an
anticoagulant would outweigh potential
benefits. Providing timely thrombolytic
therapy has shown to greatly reduce
complications, mortality and morbidity
related to stroke. The measures are
intended for public reporting, and are
not intended to encourage a particular
treatment when it is not warranted.
• Comments on Measure Topic: VTE
Comment: Two commenters
supported CMS adding measures VTE–
1, –2 and –3 as shown in the inpatient
measure specification manual in FY
2012, but did not support measures
VTE–4, –5, and –6. The commenters
stated that the measures shown in the
table do not seem to align with the VTE
measures included in the Specifications
Manual effective with October 1, 2009
discharges. The commenters also
recommended that the measure ‘‘VTE–
1: prophylaxis in medical and nonSCIP–VTE surgical patients’’, which we
proposed in the FY 2009 IPPS proposed
rule (73 FR 23648) but did not adopt, be
considered for future adoption into the
RHQDAPU program.
Response: The VTE measures we
listed in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule are the same
as the VTE measures in the aligned
Specifications Manual. VTE–1 appears
in the aligned Specifications Manual,
and we will include VTE–1 on the list
of measures to be considered for FY
2012 and beyond.
Comment: One commenter supported
all but VTE–3 and –4 as shown in the
inpatient measure specification manual,
and suggested that the measure
descriptions be clarified.
Response: The formal specifications
can be found in the aligned
Specifications Manual on the
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QualityNet Web site: https://
www.QualityNet.org.
• Comments on Measure Topic: Cardiac
Surgery
Comment: One commenter supported
adopting the Cardiac Surgery measures
for the RHQDAPU program because
these measures are appropriate and
useful for quality improvement and
public reporting purposes. Another
commenter indicated that the data
element specifications for the Cardiac
Surgery topic need more rigor and
standardization.
Response: Cardiac surgery is a topic of
high relevance to the Medicare program
because of its high volume among
Medicare beneficiaries. We note that the
cardiac surgery measures that are under
consideration for adoption in future
years, as well as their specifications, are
NQF-endorsed and are available at
https://www.qualityforum.org/.
• Comments on Measure Topics:
Nursing Sensitive and Nursing
Sensitive/HAI
Comment: Several commenters
supported the Central Line [catheter]
Associated Blood Stream Infection in
the ICU and high risk neonatal intensive
care unit measure, and the CA UTI
infection measure. Several commenters
urged CMS to consider adopting a
Center for Disease Control measure of
Surgical Site Infection that is not listed
in the table of measures under
consideration for future years (Table—
above) but which was listed in the
future measure table in the 2009 IPPS
rule at 73 FR 48611. The commenters
stated that the Central Line Associated
Blood Stream Infection, Catheter
Associated Urinary Tract Infection, and
Surgical Site Infection measures are
thoroughly specified, are currently used
in other reporting initiatives, are
relevant to consumers, and reveal
important information that hospitals can
use for their quality improvement
programs. One commenter supported
adoption of these measures if hospitals
do not have to join a registry to report
the information.
Response: We thank the commenters
for these suggestions and will add
Surgical Site Infection to the list of
measures being considered for FY 2012
and beyond because it addresses the
high priority topical area of hospitalacquired infections. The Central Line
[catheter] Associated Blood Stream
Infection in the ICU and high risk
neonatal intensive care unit measure
and the Catheter Associated UTI
measure are currently being collected by
the CDC’s National Healthcare Safety
Network (NHSN) database as
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surveillance measures. We are
supportive of these measures as they
address hospital-acquired infections.
We are exploring the possibility of
receiving data, with permission from
participating hospitals, from the CDC to
avoid duplicative reporting of
information by hospitals that participate
in NHSN. Furthermore, we are
exploring the development of electronic
specifications for the collection of these
measures from EHRs.
Comment: Several commenters
indicated that more specificity,
information, and clear expectations are
needed for the following Nursing
Sensitive measures: Patient Falls: All
documented falls with or without
injury, experienced by patients on an
eligible unit in a calendar month; Falls
with Injury: All documented patient
falls with an injury level of minor or
greater; CA UTI; Pressure Ulcer
Prevalence; and Restraint Prevalence
(vest and limb). In particular, the
commenters believe that definitions for
falls and CA UTI are needed. Two
commenters indicated that the Pressure
Ulcer Prevalence measure needs more
specificity regarding the stage of the
ulcer and whether the pressure ulcer
was present on admission or hospitalacquired. One commenter indicated
that, at times, pressure ulcers may not
be preventable (for example, cases
where patients experience multisystem
organ failure, malnutrition, when
vasopressors or fluid resuscitation have
been employed, or when the patient
cannot be turned due to traumas
requiring surgery to be performed).
Response: The Nursing Sensitive
measures are currently the subject of an
NQF reevaluation project. We anticipate
that considerations such as these will be
brought forth and addressed as
necessary during the reevaluation
process prior to the time we would
propose to adopt the measures.
Comment: A few commenters
indicated that they would not be able to
calculate the voluntary turnover
measure unless this was manually
tracked, making the collection of data
necessary for this measure resource
intensive. Another commenter indicated
that the measures in the Nursing
Sensitive measure set that rely on
administrative data (such as voluntary
turnover and skill mix) are of
questionable validity for quality
improvement.
Response: We appreciate these
comments and will take them into
consideration in deciding whether to
adopt these measures in the future. Our
understanding is that most hospitals are
currently collecting the data elements
for the voluntary turnover and skill mix
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measures. Registries of Nursing
Sensitive Care quality measures
currently feature these administrativebased measures in hospital feedback
reports for quality improvement
purposes.
Comment: Two commenters criticized
the Ventilator Associated Pneumonia
[VAP] in the ICU measure. One
commenter noted that a recent HHS
National Action Plan to Prevent
Healthcare-Associated Infections
indicated that ‘‘no valid outcome or
process metric had been identified for
VAP.’’ Another commenter indicated
that, while VAP in the ICU is frequently
tracked for State reporting purposes, it
is a poor measure for quality
improvement or for external comparison
because of the challenges with diagnosis
and definitions.
Response: Healthcare-associated
infections are a high priority area for us
because they increase complications
and treatment costs, and we are looking
to this as an area for future
measurement. We agree that the
definition of VAP should undergo
further standardization. Therefore, we
will not consider adopting this measure
for the RHQDAPU program until such a
definition has been determined.
• Comments on Measure Topic:
Outcomes
Comment: Several commenters
supported adoption of the AHRQ
patient safety indicators and inpatient
quality indicators, but many
commenters suggested limiting adoption
to two or three AHRQ measures
annually because collection of more
than three may present a burden to
hospitals. A few commenters suggested
reporting one or more of the AHRQ
indicators separately from the
composite measures.
Response: We agree that these are
important patient safety and outcome
measures for the inpatient setting. These
would be claims-based measures.
Therefore, because we currently
calculate claims-based measures using
only Medicare claims, there would be
no additional reporting burden
associated with these measures. To the
extent that the measures focus on
quality of care issues, we believe that
hospitals will benefit from the
information these measures reveal. We
will consider the suggestion for separate
public reporting of selected indicators.
However, if any of these individual
measures are adopted, we will engage in
consumer testing regarding how best to
display the measures on the Hospital
Compare Web site. The measure
specifications for the AHRQ inpatient
quality indicators and patient safety
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indicators are available at https://
www.qualityindicators.ahrq.gov/.
Comment: One commenter stated that,
while AHRQ patient safety measures
may have value to hospitals for internal
quality improvement purposes, they
currently lack the sensitivity and
specificity required for use as
comparative, publicly reported
measures, especially the researchoriented PSI measures. Because they are
derived from administrative data, one
commenter suggested that they are less
sensitive than measures derived from
clinical chart abstraction at identifying
relevant patients and excluding other
patients. One commenter indicated that
some of the AHRQ indicators have very
high false positive rates and that
extensive field testing and
respecification would be needed. One
commenter suggested that the risk
adjustment seems unfairly advantageous
to larger volume hospitals.
Response: We appreciate these
comments and will take them into
consideration in determining which
measures to adopt for the RHQDAPU
program in the future. We are aware of
and encourage current validation
projects involving positive predictive
value and sensitivity being performed
on these measures as they will lead to
improvements in the measure
specifications.
Comment: One commenter expressed
concern that traditional risk adjustment
would not be appropriate for IQI 17: Inhospital Mortality for Stroke. The
commenter suggested that a proper risk
adjustment model for in-hospital stroke
mortality should account for stroke
severity on presentation and stroke type
(hemorrhagic versus ischemic stroke).
The commenter suggested stratification
of stroke mortality by type and
suggested use of a well-established
stroke severity scale in risk adjustment
models for stroke mortality.
Response: We appreciate this
suggestion. However, we note that the
current risk adjustment model for the
in-hospital stroke mortality measure has
been endorsed by the NQF as
appropriate for this measure, and we
also believe the model is appropriate
because it underwent a rigorous
consensus development process.
• Comments on Measure Topics: PCI
Readmission and PCI Mortality
Comment: Two commenters
supported the PCI 30-day mortality and
30-day readmission rates and requested
that CMS consider adopting the PCI
measure set for FY 2011 payment
determination. One commenter also
stated that it is imperative that the
outcome findings are drilled down far
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enough that hospital-specific results can
be obtained and patients can view
hospital results based upon the
condition or procedure they are
undergoing. One commenter
recommended that that the PCI
Readmission and PCI Mortality measure
related to STEMI/Shock be defined to
include the base population as defined
in the AMI Core Measure in order to
reduce additional abstraction burden in
identifying and defining shock.
Response: We thank the commenters
for their support for the PCI mortality
and readmission measures and will
consider adopting these measures for
the RHQDAPU program. Before we add
them to the RHQDAPU program
measure set, however, we will propose
to adopt them as part of the rulemaking
process. The current outcomes and
readmissions measures are all
calculated at the hospital level for
various conditions, allowing patients to
view hospital level results. Future
outcomes and readmission measures,
including the PCI 30-day mortality and
30-day readmission rates, if adopted for
the RHQDAPU program, would be
calculated in this manner as well. These
measures are specified as claims-based
measures for which there is no chart
abstraction. These measures are
currently undergoing evaluation as part
of an NQF consensus development
project entitled Hospital Care: Outcomes
and Efficiency Measures Phase II.
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• Comment on Measure Topic: ICD
Complications
Comment: One commenter
recommended that CMS follow
definitions established by the ICD
Registry to assure standardization of the
ICD Complications measure.
Response: We intend to use
standardized measure specifications for
measures that are adopted into the
RHQDAPU program and seek to adopt
measures that have been endorsed by
the NQF. Therefore, when available, we
adopt NQF-endorsed measures for a
particular topic and utilize the measure
specifications that were endorsed by the
NQF.
• Comment on Measure Topic:
Hospital-Acquired Infections
Comment: One commenter indicated
that, because of increased screening,
there is a need to distinguish between
healthcare-acquired MRSA infections
and community-associated infections,
and that all multi-drug resistant
infections should be reported in order to
focus efforts on reducing these
infections, rather than one in particular.
Response: We agree that the
distinction between the sources of
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MRSA infections is important. The
MRSA measure under consideration for
the RHQDAPU program focuses only on
hospital-acquired infections. As for the
reporting of other multi-drug resistant
infections, we will take this comment
into account as we develop future
measures.
• Comments on Measure Topic: Topics
and Measures Suggested by Commenters
Comment: Commenters suggested
seven additional topics and measures to
consider for future adoption into the
RHQDAPU program:
• Surgical site infection rate
• Dysphagia screening for stroke
• Pediatric Quality Indicators
• Chronic Obstructive Pulmonary
Disease (COPD)
• Inpatient Resource Use and
Efficiency
• Global smoking cessation measure
• Inpatient Psychiatric Measures
Commenters noted that two of these
topics (Surgical Site Infection and
Chronic Obstructive Pulmonary Disease
(COPD) were discussed in the future
measure section of the FY 2009 IPPS
proposed rule but not in the current
proposed rule for FY 2010.
Response: We will consider these
suggestions when selecting measures for
the RHQDAPU program in the future.
We agree that surgical site infection,
dysphagia screening for stroke, and
COPD are appropriate areas for the
RHQDAPU program because they
address conditions that are of high
prevalence and cost to the Medicare
program.
CMS currently includes several
indicators of Pediatric Quality on the
Hospital Compare Web site based on the
submission of the data as part of other
voluntary quality reporting initiatives.
While we publicly report these
measures, we are not currently
considering requiring these indicators or
other Pediatric Quality indicators for the
RHQDAPU program because pediatric
conditions affect a very small number of
Medicare beneficiaries.
In summary, we appreciate the public
comments we received and will
consider them as we develop proposals
for new quality measures for the FY
2012 payment determination and
subsequent years.
5. Form, Manner, and Timing of Quality
Data Submission
Section 1886(b)(3)(B)(viii)(I) of the
Act requires that subsection (d)
hospitals submit data on measures
selected under that clause with respect
to the applicable fiscal year. In addition,
section 1886(b)(3)(B)(viii)(II) of the Act
requires that each subsection (d)
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hospital submit data on measures
selected under that clause to the
Secretary in a form and manner, and at
a time, specified by the Secretary. The
data submission requirements,
Specifications Manual, and submission
deadlines are posted on the QualityNet
Web site at: https://www.QualityNet.org.
CMS requires that hospitals submit data
in accordance with the specifications for
the appropriate discharge periods.
Hospitals submit quality data through
the secure portion of the QualityNet
Web site (formerly known as QualityNet
Exchange) (https://www.QualityNet.org).
This Web site meets or exceeds all
current Health Insurance Portability and
Accountability Act requirements for
security of protected health information.
a. RHQDAPU Program Procedures for
the FY 2011 Payment Determination
For the FY 2011 payment
determination, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
24174), we proposed that the following
procedures would apply to hospitals
participating in the RHQDAPU program.
These procedures are, for the most part,
the same as the procedures that apply to
the FY 2010 payment determination. We
identify below where we proposed to
modify a procedure.
• Register with QualityNet, before
participating hospitals initially begin
reporting data, regardless of the method
used for submitting data.
• Identify a QualityNet Administrator
who follows the registration process
located on the QualityNet Web site
(https://www.QualityNet.org).
• Notice of Participation. New
subsection (d) hospitals and existing
hospitals that wish to participate in the
RHQDAPU program for the first time
must complete a revised ‘‘Reporting
Hospital Quality Data for Annual
Payment Update Notice of
Participation’’ form (Notice of
Participation form) that includes the
name and address of each hospital
campus that shares the same CMS
Certification Number (CCN).
We proposed that any hospital that
receives a new CCN on or after October
15, 2009 (including new subsection (d)
hospitals and hospitals that have
merged) that wishes to participate in the
RHQDAPU program and has not
otherwise submitted a Notice of
Participation form using that CCN must
submit a completed Notice of
Participation form no later than 180
days from the date identified as the
open date (that is, the Medicare
acceptance date) on the approved CMS
Online System Certification and
Reporting (OSCAR) system. We believe
that this deadline will give these
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hospitals a sufficient amount of time to
get their operations up and running
while simultaneously providing CMS
with clarity regarding whether they
intend to participate in the RHQDAPU
program for FY 2011.
We also proposed that hospitals
having an open date (or Medicare
acceptance date) (as noted on the
approved CMS OSCAR system) before
October 15, 2009, that did not
participate in the RHQDAPU program in
FY 2010 but that wish to participate in
the RHQDAPU program for the FY 2011
payment determination must submit
completed Notice of Participation forms
to CMS on or before December 31, 2009.
These hospitals, unlike hospitals that
receive a new CCN, do not need to get
their operations up and running.
Therefore, we believe this is a
reasonable deadline that will enable
these hospitals to decide whether they
want to participate in the RHQDAPU
program while also enabling CMS to
collect enough data from them to make
an accurate FY 2011 payment
determination.
We note that under our current
requirements, hospitals must begin
submitting RHQDAPU program data
starting with the first day of the quarter
following the date when the hospital
registers to participate in the program.
For purposes of meeting this
requirement, we interpret the
registration date to be the date that the
hospital submits a completed Notice of
Participation form. As proposed
previously in this section, hospitals
must also register with QualityNet and
identify a QualityNet Administrator
who follows the QualityNet registration
process before submitting RHQDAPU
program data.
• Collect and report data for each of
the quality measures under the topic
areas that require chart abstraction. For
the FY 2011 payment determination,
these topic areas are AMI, HF, PN, and
SCIP. Hospitals must report these data
by each quarterly deadline. Hospitals
must submit the data to the QIO Clinical
Warehouse using the CART, The Joint
Commission ORYX ® Core Measures
Performance Measurement System, or
another third-party vendor tool that
meets the measurement specification
requirements for data transmission to
QualityNet. All submissions will be
executed through My QualityNet, the
secure part of the QualityNet Web site.
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.
• Submit complete data for each
quality measure that requires chart
abstraction in accordance with the joint
CMS/The Joint Commission sampling
requirements located on the QualityNet
Web site. These requirements specify
that hospitals must submit a random
sample or complete population of cases
for each of the topics covered by the
quality measures. Hospitals must meet
the sampling requirements for these
quality measures for discharges in each
quarter.
• Submit to CMS on a quarterly basis
aggregate population and sample size
counts for Medicare and non-Medicare
discharges for the topic areas for which
chart-abstracted data must be submitted
(currently AMI, HF, PN, and SCIP).
However, in order to reduce the burden
on hospitals that treat a low number of
patients in a RHQDAPU program topic
area, a hospital that has five or fewer
discharges (Medicare and non-Medicare
combined) in a topic area during a
quarter in which data must be submitted
is not required to submit patient-level
data for that topic area for the quarter.
The hospital must still submit its
aggregate population and sample size
counts for Medicare and non-Medicare
discharges for the four topic areas each
quarter. We also note that hospitals
meeting the five or fewer patient
discharge exception may voluntarily
submit these data.
• Continuously collect and submit
HCAHPS data in accordance with the
HCAHPS Quality Assurance Guidelines,
V4.0 (the most current version of the
guidelines), located at the Web site
https://www.hcahpsonline.org. The QIO
Clinical Warehouse will accept zero
HCAHPS-eligible discharges. However,
in order to reduce the burden on
hospitals that treat a low number of
patients that would be otherwise
covered by the HCAHPS submission
requirements, a hospital that has five or
fewer HCAHPS-eligible discharges
during a month is not required to
submit HCAHPS surveys for that month.
However, hospitals that meet this
exception may voluntarily submit this
data. The hospital must still submit its
total number of HCAHPS-eligible cases
for that month as part of its quarterly
HCAHPS data submission.
• The quarterly data submission
deadline for hospitals to submit patient
level data for the proposed measures
that require chart abstraction is 4
months following the last discharge date
in the calendar quarter. CMS will post
the quarterly submission deadline
schedule on the QualityNet Web site
(https://www.QualityNet.org). The
collection of new chart-abstracted
measures for the FY 2011 payment
determination would begin with 1st
calendar quarter 2010 discharges, for
which the submission deadline would
be August 15, 2010.
• The data submission deadline for
hospitals to submit aggregate population
and sample size count data for the
measures requiring chart abstraction is
four months following the last discharge
date in the calendar quarter. This
requirement allows CMS to advise
hospitals regarding their submission
status in enough time for them to make
appropriate revisions before the data
submission deadline. We will post the
aggregate population and sample size
count data submission deadlines on the
QualityNet Web site (https://
www.QualityNet.org).
• CMS strongly recommends that
hospitals review the QIO Clinical
Warehouse Feedback Reports and the
RHQDAPU Program Provider
Participation Reports that are available
after patient level data are submitted to
the QIO Clinical Warehouse. CMS
generally updates these reports on a
daily basis to provide accurate
information to hospitals about their
submissions. These reports enable
hospitals to ensure that their data were
submitted on time and accepted into the
QIO Clinical Warehouse.
Hospitals are encouraged to regularly
check the QualityNet Web site, https://
www.QualityNet.org, for program
updates and information.
• We also proposed that the following
RHQDAPU program claims-based
measures would be calculated using
Medicare claims:
FY 2011 payment determination: proposed claims-based quality measures
(no hospital data submission required)
Topic
Mortality Measures (Medicare Patients)
• MORT–30–AMI Acute Myocardial Infarction 30-day mortality—Medicare patients.
• MORT–30–HF Heart Failure 30-day mortality—Medicare patients.
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FY 2011 payment determination: proposed claims-based quality measures
(no hospital data submission required)
Topic
• MORT–30–PN Pneumonia 30-day mortality—Medicare patients.
Readmission Measures (Medicare Patients)
• READ–30–HF Heart Failure (HF) 30-Day Risk Standardized Readmission Measure (Medicare patients).
• READ–30–AMI Acute Myocardial Infarction (AMI) 30-Day Risk Standardized Readmission Measure (Medicare patients).
• READ–30–PN Pneumonia (PN) 30-Day Risk Standardized Readmission Measure (Medicare patients).
AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators (IQIs) and Composite Measures
•
•
•
•
•
•
•
•
PSI 06: Iatrogenic pneumothorax, adult.
PSI 14: Postoperative wound dehiscence.
PSI 15: Accidental puncture or laceration.
IQI 11: Abdominal aortic aneurysm (AAA) mortality rate (with or without volume).
IQI 19: Hip fracture mortality rate.
Mortality for selected surgical procedures (composite).
Complication/patient safety for selected indicators (composite).
Mortality for selected medical conditions (composite).
AHRQ Patient Safety Indicator (PSI) and Nursing Sensitive Care
• Death among surgical inpatients with serious, treatable complications.
For the claims-based RHQDAPU
program measures listed in the table
above, hospitals are not required to
submit the data to the QIO Clinical
Warehouse. CMS uses the existing
Medicare fee-for-service claims to
calculate the measures. For the FY 2011
payment determination, CMS will use 3
years of discharges from July 1, 2006,
through June 30, 2009, for the 30-day
mortality and 30-day readmission
measures. For the AHRQ PSI, IQI and
Composite measures (including the
AHRQ PSI and Nursing Sensitive Care
measure, Death among surgical
inpatients with serious, treatable
complications), we will use 1 year of
claims from July 1, 2008, through June
30, 2009, to calculate these measures.
• We proposed that hospitals report
the information needed to calculate the
three proposed structural measures
directly onto the QualityNet Web site on
a quarterly basis starting with 1st
calendar quarter 2010. The quarterly
submission deadline for reporting these
measures will be 41⁄2 months following
the last date in the quarter covered by
the data report. For example, the
reporting deadline for these structural
measures covering 1st calendar quarter
2010 is August 15, 2010. The 41⁄2 month
lag between the end of the quarter and
the reporting deadline is intended to
provide hospitals with sufficient time to
collect the information needed to
accurately report the proposed
structural measures, and aligns with the
quarterly submission deadlines for the
measures for which chart-abstraction is
required. As noted above in section
Topic
V.A.3.b.(4). of this final rule, after
consideration and review of public
comments, we are modifying our
proposal that the two new structural
measures be reported quarterly and
instead, we are finalizing a requirement
that hospitals report these data
annually. We also are requiring annual
reporting for the existing cardiac surgery
structural requirement for the FY 2011
payment determination. Annual data
submission for the structural measures
via a Web-based collection tool will
begin in July 2010 with respect to the
time period of January 1, 2010 through
June 30, 2010.
Below is the list of three structural
measures we are adopting for the FY
2011 payment determination:
FY 2011 payment determination: structural measures
Cardiac Surgery
∑ Participation in a Systematic Database for Cardiac Surgery.
Stroke Care
• Participation in a Systematic Clinical Database Registry for Stroke Care.
Nursing Sensitive Care
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• Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care.
We indicated that we would add a
link on the QualityNet Web site to the
Web page(s) that hospitals can use to
report the structural measures after we
issued this final rule.
Comment: Several commenters
supported our proposal to allow
hospitals with five or fewer heart
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failure, pneumonia, or surgical care
patients in a calendar quarter to not
submit quality measure data for that
quarter. However, the commenters
suggested that should a hospital wish to
voluntarily report such data, it should
be permitted to do so. This will reduce
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the burden on small hospitals with a
very small number of cases.
Response: We currently allow
hospitals treating five or fewer patients
in a calendar quarter in a topic area that
do not otherwise have to submit data for
that topic area to voluntarily report data
for that topic. We believe that this
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allowance is consistent with the intent
of the RHQDAPU program to promote
public reporting and hospital quality
improvement through measuring quality
of care. Currently, many hospitals to
which the RHQDAPU program does not
apply (including CAHs and hospitals
located in Maryland and Puerto Rico)
report these data on a voluntary basis as
part of their quality improvement
efforts.
We note that we will publicly report
the measure rates for all data submitted
by RHQDAPU program participating
hospitals, including data voluntarily
reported by RHQDAPU program
participating hospitals treating five or
fewer cases in a topic in a calendar
quarter, because we expect that a
portion of these hospitals will have
variable quarterly caseloads and will
submit data on a sufficient number of
cases (that is, more than 25) across all
four posted quarters to make their
overall measure rates generally reliable.
However, we also will continue to
include a footnote on the Hospital
Compare Web site in the event that
some of these hospitals do not have data
for at least 25 cases combined over the
four quarters. That footnote states that
‘‘The number of cases is too small (<25)
to reliably tell how well a hospital is
performing.’’ We believe that this
footnote adequately addresses hospital
concerns about data reliability.
Comment: One commenter stated that
the proposed rule does not address the
issue of data resubmission when a
hospital or its vendor becomes aware of
an error in the data that was sent for
posting on the Hospital Compare Web
site. The commenter urged immediate
adoption of an effective mechanism that
allows hospitals and their vendors to
resubmit quality measure data if they
discover an error. The commenter stated
that the point of public reporting is to
put accurate and useful information into
the hands of the public, and this is
facilitated by allowing known mistakes
to be corrected.
Response: Although we understand
the commenter’s concern, the quarterly
validation sample selection is reliant on
a locked final data file of hospital
submitted cases. Allowing resubmission
after the quarterly deadline would delay
the final lockdown date of the quarterly
data file, and CMS would have to delay
the validation process or simply not
validate resubmitted data. We believe
that both of these options would
adversely impact data quality.
We remind the commenter that
hospitals can correct information and
resubmit cases until the quarterly
submission deadline, which generally
occurs 41⁄2; months following the last
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discharge date in a calendar quarter. We
also encourage hospitals to submit data
early in the submission schedule, so
that they can identify errors and
resubmit data before the quarterly
submission deadline. Generally,
hospitals can submit cases from the first
discharge date in a quarter until the
quarterly submission deadline.
After consideration of the public
comments we received, we are adopting
as final our proposals regarding
RHQDAPU program procedures for the
FY 2011 payment determination.
b. RHQDAPU Program Disaster
Extensions and Waivers
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24176), we
solicited public comment about rules
we could adopt that would enable
hospitals to request either an extension
or a waiver of various RHQDAPU
program requirements in the event of a
disaster (such as a hurricane that
damages or destroys the hospital).
Specifically, we welcomed public
comment on the following issues:
• Recommendations for rules that we
could follow when considering whether
to grant an extension or waiver of
RHQDAPU program requirements in the
event of a disaster, including suggested
criteria that we should take into account
(for example, specific hospital
infrastructure damage, hospital closure
time period, degree of destruction of
medical records, impact on data
vendors, and long-term evacuation of
discharged patients impacting HCAHPS
survey participation).
• The role that QIOs and QIO support
contractors should play in the event of
a disaster, including communicating
with affected hospitals, communicating
with State hospital associations, and
collecting information directly from
hospitals.
• How CMS extension or waiver
decisions should be communicated to
affected hospitals.
• Any other issues commenters deem
relevant to a hospital’s request for an
extension or waiver of RHQDAPU
program requirements in the event of a
disaster.
Comment: One commenter
appreciated CMS recognizing that
hospitals facing certain disasters, such
as a hurricane, should be granted an
extension or waiver of the RHQDAPU
program requirements. Commenters
suggested that, although the decision to
grant an extension or waiver is best
made on a case-by-case basis depending
on each hospital’s unique situation,
CMS develop some general criteria for
when such extensions or waivers would
be granted. Commenters reminded CMS
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that when a hospital is damaged or
destroyed, CMS’ usual means of
communicating to the hospital, such as
by QualityNet or the mail, may be
impossible. Commenters urged CMS to
develop a creative and flexible approach
to communicating with hospitals in
these situations to ensure that such
hospitals are aware that they may
receive waivers during difficult times.
Response: We will consider these
comments as we develop program
procedures for disaster extensions or
waivers. We are mindful that many
hospitals operating in these adverse
situations cannot access the Internet or
mail service. We note that we currently
use a variety of means to communicate
with hospitals in these circumstances,
including utilizing our State QIOs and
national/state hospital associations, and
we will continue to do so.
Comment: One commenter supported
CMS and QIOs contacting both hospitals
in affected areas and their data vendors
in the event of disaster. The commenter
also supported using e-mail first to
communicate this information, followed
by a phone call (if phone service is
available) from a QIO, then a follow-up
letter to the hospital administrator and
hospital QualityNet Administrator. The
commenter believed that the reasons for
providing a waiver as outlined in the
proposed rule were fair, but suggested
that when a hospital response is
requested by State or local government
for any reason, then a waiver or
extension should also be considered.
The commenter recommended that, if a
vendor is impacted, that should be
should also be grounds for a hospital
extension or waiver.
Response: We will consider these
recommendations when considering
disaster extension/waiver
communications and reasons for
granting extensions or waivers. We
interpret the comment about ‘‘when a
hospital response is requested by a State
or local government’’ to mean that the
governmental entity has asked the
hospital to continue or cease certain
operations. Since hospital resources
might be redirected from activities
related to hospital quality data reporting
to providing critical services in disaster
situations, we will also consider State
and local government requirements for
hospitals providing critical services to
the public while continuing to operate
in disaster situations. We believe that if
a hospital is required to provide critical
public health services during a disaster
or pandemic, this should be a factor that
we consider when deciding whether to
grant a waiver or extension. We will
also consider the impact a disaster
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might have had on a vendor when
developing our policy on this issue.
Comment: One commenter supported
granting extensions and waivers of
RHQDAPU program requirements in the
event of a disaster and agreed with some
of the criteria we requested comment on
in the proposed rule. The commenter
also supported CMS’ interest in the role
that QIOs would play in the event of a
disaster and believes that they should be
as proactive as possible in providing
support to hospitals.
Response: We thank the commenter
for the feedback as we further develop
our policy for disaster extensions/
waivers. We also acknowledge the
important service that QIOs provide to
hospitals in their support of inpatient
quality data reporting and will
incorporate this comment into our
future plans for operating the
RHQDAPU program.
c. HCAHPS Requirements for the FY
2011 Payment Determination
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24176), we
proposed that, for the FY 2011 payment
determination, the RHQDAPU program
HCAHPS requirements we adopted for
FY 2010 would continue to apply.
Under these requirements, a hospital
must continuously collect and submit
HCAHPS data in accordance with the
current HCAHPS Quality Assurance
Guidelines and the quarterly data
submission deadlines, both of which are
posted at https://www.hcahpsonline.org.
In order for a hospital to participate in
the collection of HCAHPS data, a
hospital must either: (1) Contract with
an approved HCAHPS survey vendor
that will conduct the survey and submit
data on the hospital’s behalf to the QIO
Clinical Warehouse; or (2) selfadminister the survey without using a
survey vendor provided that the
hospital attends HCAHPS training and
meets Minimum Survey Requirements
as specified on the Web site at: https://
www.hcahpsonline.org. A current list of
approved HCAHPS survey vendors can
be found on the HCAHPS Web site at:
https://www.hcahpsonline.org.
Every hospital choosing to contract
with a survey vendor should provide
the sample frame of HCAHPS-eligible
discharges to its survey vendor with
sufficient time to allow the survey
vendor to begin contacting each
sampled patient within 6 weeks of
discharge from the hospital. (We refer
readers to the Quality Assurance
Guidelines located at https://
www.hcahpsonline.org for details about
HCAHPS eligibility and sample frame
creation.) In addition, the hospital must
authorize the survey vendor to submit
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data via My QualityNet, the secure part
of the QualityNet Web site, on the
hospital’s behalf.
After the survey vendor submits the
data to the QIO Clinical Warehouse, we
strongly recommend that hospitals
employing a survey vendor promptly
review the two HCAHPS Feedback
Reports (the Provider Survey Status
Summary Report and the Data
Submission Detail Report) that are
available. These reports enable a
hospital to ensure that its survey vendor
has submitted the data on time and the
data has been accepted into the QIO
Clinical Warehouse.
As we stated above, any hospital that
has five or fewer HCAHPS-eligible
discharges in any month is no longer
required to submit HCAHPS surveys for
that month, although the hospital may
voluntarily choose to submit these data.
However, the hospital must still submit
its total number of HCAHPS-eligible
cases for that month as part of its
quarterly HCAHPS data submission.
In order to ensure compliance with
HCAHPS survey and administration
protocols, hospitals and survey vendors
must participate in all oversight
activities. As part of the oversight
process, during the onsite visits or
conference calls, the HCAHPS Project
Team will review the hospital’s or
survey vendor’s survey systems and
assess protocols based upon the most
recent HCAHPS Quality Assurance
Guidelines. All materials relevant to
survey administration will be subject to
review. The systems and program
review includes, but is not limited to:
(a) Survey management and data
systems; (b) printing and mailing
materials and facilities; (c) telephone
and IVR materials and facilities; (d) data
receipt, entry and storage facilities; and
(e) written documentation of survey
processes. Organizations will be given a
defined time period in which to correct
any problems and provide follow-up
documentation of corrections for
review. As needed, hospitals and survey
vendors will be subject to follow-up site
visits or conference calls. If CMS
determines that a hospital is not
compliant with HCAHPS program
requirements, CMS may determine that
the hospital is not submitting HCAHPS
data that meet the requirements of the
RHQDAPU program.
We continue to strongly recommend
that each new hospital participate in an
HCAHPS dry run, if feasible, prior to
beginning to collect HCAHPS data on an
ongoing basis to meet RHQDAPU
program requirements. New hospitals
can conduct a dry run in the last month
of a calendar quarter. We refer readers
to the Web site at https://
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www.hcahpsonline.org for a schedule of
upcoming dry runs. The dry run will
give newly participating hospitals the
opportunity to gain first-hand
experience collecting and transmitting
HCAHPS data without the public
reporting of results. Using the official
survey instrument and the approved
modes of administration and data
collection protocols, hospitals/survey
vendors will collect HCAHPS data and
submit the data to My QualityNet, the
secure portion of QualityNet.
For FY 2011, we are again
encouraging hospitals to regularly check
the HCAHPS Web site at https://
www.hcahpsonline.org for program
updates and information.
We did not receive any public
comments regarding our HCAHPS
proposals. Therefore, we are adopting as
final our proposals regarding HCAHPS
requirements for the FY 2011 payment
determination.
6. Chart Validation Requirements
a. Chart Validation Requirements and
Methods for the FY 2011 Payment
Determination
For the FY 2011 payment
determination, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
24177), we proposed to generally
continue using the following existing
requirements implemented in previous
years. We note below where we
proposed to modify a requirement.
These requirements, as well as
additional information on these
requirements, will be posted on the
QualityNet Web site after we issue this
FY 2010 IPPS final rule.
• The Clinical Data Abstraction
Center (CDAC) contractor will, each
quarter, ask every participating hospital
to submit five randomly selected
medical charts from which the hospital
previously abstracted and submitted
data to the QIO Clinical Warehouse.
We proposed the following timeline
with respect to CDAC contractor
requests for paper medical records for
the purpose of validating RHQDAPU
program data. Beginning with CDAC
contractor requests for second calendar
quarter 2009 paper medical records, the
CDAC contractor will request paper
copies of the randomly selected medical
charts from each hospital via certified
mail, and the hospital will have 45 days
from the date of the request (as
documented on the request letter) to
submit the requested records to the
CDAC contractor. If the hospital does
not comply within 30 days, the CDAC
contractor will send a second certified
letter to the hospital, reminding the
hospital that it must return paper copies
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of the requested medical records within
45 calendar days following the date of
the initial CDAC contractor medical
record request. If the hospital still does
not comply, then the CDAC contractor
will assign a ‘‘zero’’ score to each data
element in each missing record.
We proposed this timeline to provide
hospitals with transparent and
documented correspondence about
RHQDAPU program validation paper
medical record requests. Hospitals have
submitted numerous questions to CMS
about this process, and we believe this
timeline will provide hospitals with
adequate notice and time to submit
paper copies of requested medical
records to the CDAC contractor. We also
believe that this timeline does not
unduly burden hospitals. We remind
hospitals that CMS reimburses up to 12
cents per copied page to copy the
requested medical records, and CMS
also pays United States Postal Service
fees for hospitals to mail back a paper
copy of the requested medical records.
• Once the CDAC contractor receives
the charts, it will re-abstract the same
data submitted by the hospitals and
calculate the percentage of matching
RHQDAPU program data element values
for all of that data.
• The hospital must pass our
validation requirement of a minimum of
80 percent reliability. We use
appropriate confidence intervals to
determine if a hospital has achieved 80
percent reliability. The use of
confidence intervals allows us to
establish an appropriate range below the
43883
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 the sampled 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 will pool the quarterly
validation estimates for the four most
recently validated quarters (except for
the SCIP–Cardiovascular-2 measure
discussed below). For the FY 2011
payment update, we proposed to
validate 4th quarter CY 2008 through
3rd quarter 2009 discharge data for the
following measures:
Topic
Quality measures validated using data from 4th quarter CY 2008 through 3rd
quarter CY 2009 discharges
AMI (Acute Myocardial Infarction) ............
Aspirin at Arrival ........................................................................................................
Aspirin Prescribed at Discharge ................................................................................
ACEI or ARB for LVSD .............................................................................................
Adult Smoking Cessation Advice/Counseling ...........................................................
Beta-Blocker Prescribed at Discharge ......................................................................
Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival .......................
Primary PCI Received Within 90 Minutes of Hospital Arrival ...................................
Discharge Instructions ...............................................................................................
Evaluation of LVS Function .......................................................................................
ACEI or ARB for LVSD .............................................................................................
Adult Smoking Cessation Advice/Counseling ...........................................................
Pneumococcal Vaccination .......................................................................................
Blood Cultures Performed in the Emergency Department Prior to Initial Antibiotic
Received in Hospital.
Adult Smoking Cessation Advice/Counseling ...........................................................
Initial Antibiotic Received Within 6 Hours of Hospital Arrival ...................................
Initial Antibiotic Selection for Community-Acquired Pneumonia (CAP) in
Immunocompetent Patients.
Influenza Vaccination ................................................................................................
Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision ..........
AMI–1.
AMI–2.
AMI–3.
AMI–4.
AMI–5.
AMI–7a.
AMI–8a.
HF–1.
HF–2.
HF–3.
HF–4.
PN–2.
PN–3b.
Prophylactic Antibiotic Selection for Surgical Patients ..............................................
Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery End Time .....
Cardiac Surgery Patients With Controlled 6 A.M. Postoperative Blood Glucose .....
Surgery Patients with Appropriate Hair Removal .....................................................
Surgery Patients with Recommended Venous Thromboembolism Prophylaxis Ordered.
Surgery Patients Who Received Appropriate Venous Thromboembolism Prophylaxis Within 24 Hours Prior to Surgery to 24 Hours After Surgery.
SCIP–Inf-2.
SCIP–Inf-3.
SCIP–Inf-4.
SCIP–Inf-6.
SCIP–VTE–1.
HF (Heart Failure) ....................................
PN (Pneumonia) .......................................
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SCIP (Surgical Care Improvement
Project)—named SIP for discharges
prior to July 2006 (3Q06).
• SCIP–Cardiovascular-2 will be
validated using data from 2nd and 3rd
calendar quarter 2009 discharges. CMS
adopted this measure in the FY 2009
IPPS final rule and hospitals began
submitting data for this measure starting
with 1st calendar quarter 2009
discharges (73 FR 48605). However,
because we generally strive to provide
hospitals with ample notice before we
add a new measure to the list of
measures for which we will validate
data, we believe that 2nd quarter
discharge data is an appropriate
validation starting point for this
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measure (these data are not due to the
QIO Clinical Warehouse until November
15, 2009).
• We will continue using the designspecific 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
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Measure ID No.
PN–4.
PN–5c.
PN–6.
PN–7.
SCIP–Inf-1.
SCIP–VTE–2.
stratum for variance estimation
purposes.
Comment: Several commenters
supported CMS’ proposal to document
the validation contact process.
Specifically, the commenters supported
CMS’ plans to send two certified letter
requests for medical records for data
validation in case the hospital does not
receive the first letter. The commenters
suggested that CMS contractors also
place phone calls to any hospital that
does not respond to the first letter to
ensure that every effort is made to
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communicate the request to the
appropriate staff in the hospital.
Response: We thank the commenters
and agree that certified letters provide
hospitals with multiple written
documented notification and reminder
attempts. We did not propose
supplementing this notification with
telephone calls because the CDAC
contractor already attempts to call
hospitals as current practice at least
three times about 30 calendar days after
it sends the initial medical record
request. As a practice, we intend to
continue attempting to call hospitals at
least three times around the 30th
calendar day following the initial
request, in addition to sending written
certified letters. We believe that these
attempted calls at different time periods
around the 30th calendar day following
the initial request demonstrate our
commitment to notify hospitals using
multiple communication modes.
Comment: Two commenters indicated
that under the current process, the
validation does not incorporate skip
logic, despite The Joint Commission and
CMS measure specifications and
algorithms that clearly call for skip
logic. The commenters stated that as a
result, charts that are appropriately
abstracted do not pass validation with
the contractor. The commenters noted
that this can be a challenge for some
hospitals because the CDAC contractor’s
decision could affect the cumulative
annual results and cause a hospital to
fail the validation requirement for the
year.
Response: The Specifications Manual
contains instructions regarding the use
of skip logic by hospitals. Starting with
discharges on or after April 1, 2008, and
continuing to the most current update of
the Specifications Manual, CMS and
The Joint Commission have included
the following text in the Missing and
Invalid Data appendix of the
Specifications Manual (currently under
the heading ‘‘Abstraction Software Skip
Logic and Missing Data’’):
‘‘Skip logic allows hospitals and
vendors to minimize abstraction burden
by using vendor software edit logic to
bypass abstraction of data elements not
utilized in the measure algorithm.
However, these bypassed elements also
negatively impact data quality and the
hospital’s CMS chart audit validation
results when elements are incorrectly
abstracted and subsequent data
elements are bypassed and left blank.’’
‘‘The use of skip logic by hospitals
and ORYX vendors is optional and not
required by CMS and The Joint
Commission. Hospitals should be aware
of the potential impact of skip logic on
data quality, abstraction burden, and
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CMS chart audit validation scores.
Vendors and hospitals utilizing skip
logic should closely monitor the
accuracy rate of abstracted data
elements, particularly data elements
placed higher in the algorithm flow (for
example, Comfort Measures data
element).’’
‘‘Historically, CMS chart audit
validation results have been used in
previous payment years as one of many
requirements in the Reporting Hospital
Quality for Annual Payment Update
(RHQDAPU) program. We refer readers
to the Federal Register and the
QualityNet Web site for the current
payment year’s proposed and final
requirements for acute care IPPS
hospitals.’’
The CDAC contractor abstracts all
data elements necessary to calculate a
sampled case’s measure status. The
CDAC contractor uses skip logic only
when it abstracts a data element value
resulting in no additional data necessary
to calculate a measure status. When it
re-abstracts the data elements, the CDAC
contractor also uses the CART tool
provided by CMS free of charge to
hospitals. Under the current validation
process, hospitals are at risk when
utilizing skip logic, if they incorrectly
abstract data elements and do not
abstract subsequent data elements for
the measure.
We do recognize that the use of skip
logic has been an issue for some
hospitals, and we believe that our
proposal for FY 2012 to change the
methodology for calculating the
validation score from data element
counts to a measure match basis will
reduce the likelihood that the use of
skip logic will create validation
problems for hospitals.
After consideration of the public
comments we received, we have
decided to adopt as final, without
change, our proposals regarding chart
validation requirements and methods
for the FY 2011 payment determination.
b. Chart Validation Requirements and
Methods for the FY 2012 Payment
Determination and Subsequent Years
RHQDAPU program data are currently
validated by re-abstracting on a
quarterly basis a random sample of five
medical records for each hospital. This
quarterly sample generally results in an
annual combined sample of 20 patient
records across four calendar quarters per
hospital, but because each sample is
random, it might not include medical
records from each of the measure topics
(for example, AMI, SCIP, etc.). As a
result, data submitted by a hospital for
one or more measure topics might not
be validated for a given quarter or, in
some cases, for an entire year or longer.
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In the FY 2009 IPPS proposed rule (73
FR 23658), we solicited public
comments on the impact of adding
measures to the validation process, as
well as on modifications to the current
validation process that could improve
the reliability and validity of the
methodology. We specifically requested
input concerning the following:
• Which of the measures or measure
sets should be included in the chart
validation process for subsequent years?
• What validation challenges are
posed by the RHQDAPU program
measures and measure sets? What
improvements could be made to
validation or reporting that might offset
or otherwise address those challenges?
• Should CMS switch from its current
quarterly validation sample of five
charts per hospital to randomly
selecting a sample of hospitals, and
selecting more charts on an annual basis
to improve the reliability of hospital
level validation estimates?
• Should CMS select the validation
sample by clinical topic to ensure that
all publicly reported measures are
covered by the validation sample?
In the FY 2009 IPPS final rule, we
summarized and responded to
commenters’ views on these issues and
stated that we will consider the issues
raised by these commenters if we decide
to make changes to the RHQDAPU
program chart validation methodology.
Our objective is to validate the
accuracy of RHQDAPU program data
collected by hospitals using medical
record abstraction. Accurate data
provide consumers with objective
publicly reported information about
hospital quality for more informed
decision making. Consistent with the
public comments we received in
response to the FY 2009 IPPS proposed
rule (73 FR 23658–9) and discussed in
the FY 2009 IPPS final rule (73 FR
48623), we believe that the methodology
recommended in the CMS Hospital
Value-Based Purchasing Report to
Congress is a promising approach worth
consideration in the RHQDAPU
program. This approach is designed to
validate the accuracy of hospital
reported quality measure data, and is
also directly applicable to validating
RHQDAPU program chart-abstracted
quality data.
We recognize that hospitals need
ample notification regarding proposed
changes to the current RHQDAPU
program validation process. We believe
that the FY 2012 RHQDAPU program
annual payment determination is the
earliest opportunity to make significant
modifications to our validation process.
Therefore, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
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24178), we proposed modifications to
the RHQDAPU program validation
methodology beginning with the FY
2012 payment determination.
Specifically, we proposed to do the
following:
• Randomly select on an annual basis
800 participating hospitals that
submitted chart-abstracted data for at
least 100 discharges combined in the
measure topics to be validated. To
determine whether a hospital meets this
‘‘100-case threshold,’’ we will look to
the discharge data submitted by the
hospital during the calendar year three
years prior to the fiscal year of the
relevant payment determination. For
example, if the 100-case threshold
applied for the FY 2011 payment
determination (which it will not), the
applicable measure topics would be
AMI, HF, PN, and SCIP, and we would
choose 800 hospitals that submitted
discharge data for at least 100 cases
combined in these topics during
calendar year 2008. If a hospital did not
submit discharge data for at least 100
cases in these topics during CY 2008,
we would not select the hospital for
validation. We will announce the topic
areas that apply for the FY 2012
payment determination at a later date,
and we plan to select the first 800
hospitals in July 2010. We will select
hospitals for the FY 2012 validation if
they meet the 100-case threshold during
CY 2009. We have proposed this 100case threshold because we believe that
it strikes the appropriate balance
between ensuring that the selected
hospitals have a large enough patient
population to be able to submit
sufficient data to allow us to complete
an accurate validation, while not
requiring validation for hospitals with a
low number of submitted quarterly
cases and relatively unreliable measure
estimates. Based on previously
submitted data, we estimate that 98
percent of participating RHQDAPU
program hospitals will meet this
threshold and, thus, be eligible for
validation. As noted below, we solicited
comments and suggestions on how we
might be able to target the remaining 2
percent of hospitals for validation.
• We validate for each of the 800
hospitals a randomly selected stratified
sample for each quarter of the validation
period. Each quarterly sample will
include 12 cases, with at least one but
no more than three cases per topic for
which chart-abstracted data was
submitted by the hospital. However, we
recognize that some selected hospitals
might not have enough cases in all of
the applicable topics to submit data (for
example, if they have 5 or fewer
discharges in a topic area in a quarter).
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For those hospitals, we would validate
measures in only those topic areas for
which they have submitted data. For the
FY 2012 payment determination, we
will validate 1st calendar quarter 2010
through 3rd calendar quarter 2010
discharge data. We proposed to validate
3 quarters of data for FY 2012 in order
to provide hospitals with enough time
to assess their medical record
documentation and abstraction
practices, and to take necessary
corrective actions to improve these
practices, before documenting their 1st
calendar quarter 2010 discharges into
medical records that may be sampled as
part of this proposed validation process.
Beginning with the FY 2013 payment
determination, we proposed to validate
data submitted by hospitals during the
four quarters that make up the fiscal
year that occurs two years prior to the
year that applies to the payment
determination. For example, for FY
2013, we would validate 4th calendar
quarter 2010 through 3rd quarter 2011
discharge data. This lag between the
time a hospital submits data and the
time we can validate that data is
necessary because data is not due to the
QIO Clinical Warehouse until 4c months
after the end of each quarter, and we
need additional time to select hospitals
and complete the validation process.
• We proposed that the CDAC
contractor will, each quarter that applies
to the validation, ask each of the 800
selected hospitals to submit 12
randomly selected medical charts from
which data was abstracted and
submitted by the hospital to the QIO
Clinical Warehouse. We note that, under
our current requirements, hospitals
must begin submitting RHQDAPU
program data starting with the first day
of the quarter following the date when
the hospital registers to participate in
the program. For purposes of meeting
this requirement, we interpret the
registration date to be the date that the
hospital submits a completed Notice of
Participation form. As proposed
previously in this section, hospitals
must also register with QualityNet and
identify a QualityNet Administrator
who follows the QualityNet registration
process before submitting RHQDAPU
program data.
In addition, we proposed to continue
the following timeline with respect to
CDAC contractor requests for paper
medical records for the purpose of
validating RHQDAPU program data.
Beginning with CDAC contractor
requests for second calendar quarter
2009 paper medical records, the CDAC
contractor will request paper copies of
the randomly selected medical charts
from each hospital via certified mail,
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and the hospital will have 45 days from
the date of the request (as documented
on the request letter) to submit the
requested records to the CDAC
contractor. If the hospital does not
comply within 30 days, the CDAC
contractor will send a second certified
letter to the hospital, reminding the
hospital that it must return paper copies
of the requested medical records within
45 calendar days following the date of
the initial CDAC contractor medical
record request. If the hospital still does
not comply, then the CDAC contractor
will assign a ‘‘zero’’ score to each
measure in each missing record.
• Once the CDAC contractor receives
the charts, it will re-abstract the same
data submitted by the hospitals and
calculate the percentage of matching
RHQDAPU program measure
numerators and denominators for each
measure within each chart submitted by
the hospital. Specifically, we will
estimate the accuracy by calculating a
match rate percent agreement for all of
the variables submitted in all of the
charts. For any selected record, a
measure’s numerator and denominator
can have two possible states, included
or excluded, depending on whether the
hospital accurately included the cases
in the measure numerator(s) and
denominator(s). We will count each
measure in a selected record as a match
if the hospital-submitted measure
numerator and denominator sets match
the measure numerator and
denominator states independently
abstracted by our contractor. For
example, one heart failure case from
which data has been abstracted for four
RHQDAPU program chart-abstracted
measures (that is, HF–1, HF–2, HF–3,
and HF–4) would receive a 75 percent
match if three out of four of the
hospital-reported heart failure measure
numerator and denominator states
matched the re-abstracted numerator
and denominator states. This proposed
scoring approach is the same as
recommended in the CMS Hospital
Value-Based Purchasing Report to
Congress, and is illustrated in further
detail using an example in pages 83–84
of the report which can be found on our
Web site at: https://www.cms.hhs.gov/
AcuteInpatientPPS/downloads/
HospitalVBPPl
anRTCFINALSUBMITTED2007.pdf. We
believe that this approach is
appropriate, and was supported by
many commenters when we requested
comment in the FY 2009 IPPS final rule
for input about the RHQDAPU program
validation process (73 FR 48622 and
48623).
• Use, as we currently do, each
selected case as a cluster comprising
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one or multiple measures utilized in a
validation score estimate. Each selected
case will have multiple measures
included in the validation score (for
example, for the FY 2011 payment
determination, a heart failure record
will include 4 heart failure measures).
Specifically, we propose to continue
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 and clinical topic is treated
as a stratum for variance estimation
purposes.
In the proposed rule, we indicated
that we believe that the proposed
clustering approach is a statistically
appropriate technique for calculating
the annual validation confidence
interval. Because CMS will not be
validating all hospital records, we need
to calculate a confidence interval that
incorporates a potential sampling error.
Our clustering approach incorporates
the degree of correlation at the
individual data record level, because
our previous validation experience
indicates that hospital data mismatch
errors tend to be clustered in individual
data records. We have used this
clustering since the inception of the
RHQDAPU program validation
requirement to calculate variability
estimates needed for calculating
confidence intervals (70 FR 47423).
• Use the upper bound of a one-tailed
95 percent confidence interval to
estimate the validation score; and
• Require all RHQDAPU program
participating hospitals selected for
validation to attain at least a 75 percent
validation score per quarter to pass the
validation requirement.
We believe that this proposal
incorporates many of the principles
supported by the vast majority of
commenters in response to our
solicitation for public comments in the
FY 2009 IPPS proposed rule (73 FR
23658 through 23659). Specifically, we
believe that the increased annual
sample size per hospital will provide
more reliable estimates of validation
accuracy. The proposed sample size of
12 records per quarter would provide a
total of 36 records across the three
sampled quarters for the FY 2012
payment determination, and 48 records
in subsequent years. This estimate
would improve the reliability of our
validation estimate, as compared to the
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current RHQDAPU program annual
validation sample of 20 cases per year.
We also believe that modifying the
validation score to reflect measure
numerator and denominator accuracy
will ensure that accurate data are posted
on the Hospital Compare Web site.
In addition, we believe that stratified
quarterly samples by topic will improve
the feedback provided to hospitals. CMS
would provide validation feedback to
hospitals about all sampled topics
submitted by the hospitals each quarter.
Because all relevant data elements
submitted by the hospital must match
the independently re-abstracted data
elements to count as a match, we have
proposed to reduce the passing
threshold from 80 percent to 75 percent.
We proposed to use an one-tail
confidence interval to calculate the
validation score because we strongly
believe that a one-tail test most
appropriately reflects the pass or fail
dichotomous nature of the statistical test
regarding whether the confidence
interval includes or is completely above
the 75 percent passing validation score.
We also proposed to continue to allow
hospitals that fail to meet the passing
threshold for the quarterly validation an
opportunity to appeal the validation
results to their State QIO. QIOs are
currently tasked by CMS to provide
education and technical assistance
about RHQDAPU program data
abstraction and measures to hospitals,
and the quarterly validation appeals
process will provide hospitals with an
opportunity to both appeal their
quarterly results and receive education
free of charge from their State QIO. This
State QIO quarterly validation appeals
process is independent of the proposed
RHQDAPU program reconsideration
procedures for hospital reconsideration
requests involving validation for the FY
2010 payment update proposed below
in section V.A.9. of this final rule.
Comment: Several commenters
supported setting a slightly lower
validation threshold for the beginning
years of the new validation process as
hospitals and CMS gain experience with
the new system. These commenters
were generally pleased with CMS’
proposal for the changes to the data
validation process and urged CMS to
continue to refine the plan put forward
in the proposed rule.
Response: We agree with the
commenters that the proposed 75
percent threshold provides a reasonable
passing threshold for the proposed
validation process. We will evaluate the
new validation process after initial
implementation through data analysis of
validation results. Based on the results
of this data analysis, we may consider
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proposing modifications in future years
to further refine the validation process.
Comment: Several commenters stated
that the burden to hospitals will be
reduced if they do not have to submit
records for validation every year.
However, because hospitals will be
selected at random each year and there
is no guarantee that a hospital selected
in one year will not be selected in the
following year as well, some
commenters urged CMS to refine the
validation selection process so that
hospitals selected for validation in one
year are not eligible for selection again
until 2 years later. Alternatively, the
commenters suggested that CMS could
ensure that no hospital is selected more
than two times within a 5-year period,
arguing that this would help guarantee
that a particular hospital is not
disproportionately burdened by the
selection process. In addition, the
commenters suggested that CMS should
consider allowing hospitals that pass
validation with a very high score to
receive a ‘‘pass’’ from the validation
process for several years. The
commenters believed that such a policy
would encourage hospitals to ensure
their data are as accurate as possible and
reward those hospitals with high
accuracy rates.
Response: We appreciate these
comments and understand the concern
about being selected multiple times
during a short timeframe. We also
appreciate the recommendation that
hospitals receiving a high validation
score be exempt from validation for two
years. We must weigh this burden
relative to the policy objective to ensure
that we receive accurate data, and
believe that using a truly random
selection process strikes the appropriate
balance. We considered options such as
providing hospitals achieving high
validation scores with a ‘‘free pass’’ for
a certain period, and using a 4 to 5 year
rotating panel of hospitals to lessen
burden. However, we believe that using
a truly random sample on an annual
basis is fair to all hospitals included in
the sample and will encourage all
hospitals to take steps to ensure that
their data are consistently accurate. We
believe that providing hospitals with
automatic exemptions from our
validation requirement could detract
from this policy objective, because
hospitals receiving these exemptions
would know in advance of data
abstraction that CMS would not be
validating their data.
Comment: Commenters agreed that it
is appropriate to focus on the hospital’s
measure rate, as opposed to individual
data elements, because the measure rate
captures the information that is
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important to patient care. Commenters
noted that for data validation in the
current program, there have been
several instances in which a mismatch
between single data elements unrelated
to the quality of care provided by a
hospital, such as the patient’s birth date,
has caused hospitals to fail validation.
Comments believe that validating the
hospital’s measure rate should eliminate
these unfortunate incidents.
Response: The proposed validation
process focuses on validating whether
hospital abstracted data results in
accurate measure rates and denominator
inclusion. We wish to clarify that the
proposed validation process would
measure the accuracy of each measure
rate and measure denominator count
posted on the Hospital Compare Web
site. We will continue to use the data
elements used in the current validation
process to calculate the validation
scores. We also note that all data used
as part of the validation process (both
the current process and the process
proposed for FY 2012 and beyond) is
protected under the Business Associate
provisions of HIPAA and the QIO
regulations.
Comment: Commenters stated that
CMS’ proposed process for validating
hospitals’ quality data beginning in FY
2012 holds promise as a reasonable
approach to ensure the accuracy of the
quality data and improve upon the
deficiencies in the current validation
process.
Response: We agree with the
commenters that the proposed new
validation process is an improved
approach for the validation process. We
will evaluate the new validation process
after initial implementation and may
consider proposing modifications in
future years to further refine it.
Comment: Several commenters stated
that the current CMS validation sample
of five charts per quarter does not
provide a reliable estimate and
advocated increasing the sample size.
Response: We agree that the proposed
requirement to increase the quarterly
sample size from 5 records to 12 records
will provide a more reliable annual
validation estimate.
Comment: One commenter objected to
the proposal to randomly sample
hospitals in the proposed validation
process, as all hospitals would not be
held equally accountable via a valid
sample across all measures.
Response: We believe that the
proposed approach is equitable because
all hospitals meeting the 100-case
threshold will have an equal probability
of being selected in the random sample.
As we stated in the proposed rule (74
FR 24180), we are considering ways to
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include hospitals that do not meet the
100 case threshold in the validation
process, such as by developing targeting
criteria that would focus on these
hospitals.
Comment: One commenter asked for
clarity on how CMS plans to address
validation for hospitals with low
numbers. While the commenter agreed
that it is appropriate to ease the burden
on hospitals with a very small number
of cases, the commenter also believed
that hospitals should always be able to
voluntarily report on quality measures if
they wish and should be held equally
accountable for their participation and
reported data.
Response: As we stated in the
proposed rule (74 FR 24180), we are
considering ways to include hospitals
that do not meet the 100-case threshold
in the validation process, such as by
developing targeting criteria that would
focus on these hospitals. One possible
approach would be to randomly sample
these hospitals as part of the targeted
sample, thereby ensuring that data from
some of these hospitals also would be
validated.
Comment: One commenter urged that
State QIOs be supportive not only
during the validation appeals process
but also proactively during data
collection and reporting.
Response: We agree with the
commenter. CMS currently requires
QIOs under their contract to improve or
maintain consistently high levels of
RHQDAPU program participation to
meet all RHQDAPU program
requirements, not solely validation
appeals.
Comment: Several commenters asked
CMS to consider sending formal
notification to hospitals not selected as
part of the random sample. The
commenters believe that this
notification will aid hospitals with
recordkeeping and internal operating
procedures. The commenters were
concerned that the lack of a consistent
validation could cause internal
processes within the hospitals to break
down in the event that a hospital is not
selected as part of the data validation
sample for multiple years.
Response: We will consider this
comment and will consider using our
QIOs to provide outreach to both
selected and non-selected hospitals. We
understand that hospitals must receive
ample and clear communication about
the requirements, and we recognize that
the absence of quarterly medical record
requests for all hospitals under the
proposed validation process could affect
the hospital’s knowledge and ability to
efficiently comply with the validation
requirement.
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Comment: One commenter supported
keeping validation standardized to a
quarterly process that includes all
hospitals. The commenter objected to
excluding hospitals submitting fewer
than 100 records.
Response: We appreciate the
comment but believe that the improved
reliability of the validation estimate
under the proposed new validation
process will outweigh the benefit of
validating a smaller number of records
for all hospitals. As hospitals have
improved their abstraction methods
over time, we believe that the benefit of
every hospital receiving quarterly
feedback on their hospital’s data has
lessened over time. Regardless of
whether a hospital was included in our
annual validation sample, we plan to
continue providing validation feedback
on highly mismatching data elements
and measures to all hospitals by
providing aggregate validation
information to all hospitals that submit
quality data.
Comment: Commenters stated that the
lack of timely quarterly validation
feedback is a huge problem. Some
commenters did not believe that the
2,500 hospitals not selected for annual
validation under the proposed new
validation process would incorporate
feedback provided to other selected
hospitals, and data errors would
increase over time due to the lack of
hospital-specific feedback.
Response: We interpret the comment
to mean that hospitals that are not
selected under the proposed, new
validation process would not
incorporate aggregate feedback
information because they would not
believe that the aggregate information
would be relevant to them; and that
their failure to incorporate supplied
feedback would cause these hospitals’
data errors to increase over time.
However, we believe that the improved
reliability of the validation estimate
under the proposed new validation
process will outweigh the benefit of
validating a smaller number of records
for all hospitals. As hospitals have
improved their abstraction over time,
we believe that the benefit of every
hospital receiving quarterly feedback
has lessened over time. As we noted in
an earlier response, we plan to continue
providing aggregate validation feedback
at a State and national level on highly
mismatching data elements and
measures to all hospitals regardless of
whether they were included in the
annual validation sample.
Comment: One commenter requested
that CMS clarify that, under the
proposed validation process, only those
hospitals that are selected for validation
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would have their payment at risk, and
that the remaining hospitals would not
be affected in any way by the validation
results of the selected hospitals for that
given year.
Response: Only hospitals randomly
selected for the proposed new annual
validation process would have to meet
the validation requirement for the
applicable payment year. We note,
however, that hospitals that are not
selected for validation in a given year
may nonetheless not receive the full
annual payment update if they fail to
meet other RHQDAPU program
requirements, or if they withdraw from
the program.
Comment: One commenter supported
a randomized selection of 200 hospitals
per quarter for validation with a
minimum number of 20 charts
reviewed. The commenter believes that
hospitals should not be selected for
validation any more frequently than one
time per year. The commenter expressed
concern that if validation occurred more
than one time per year, hospitals may
become complacent in their validation
processes and this may lead to issues
with data integrity. The commenter
urged CMS to reduce the current
administrative burden of quarterly
validation and supported random
selection of hospitals one per quarter
per year with more charts reviewed.
Response: We appreciate the
commenter’s concern and the suggestion
to reduce the burden on the hospitals
through validating one quarter of data
per year. However, we believe that our
proposed approach will enable hospitals
to incorporate feedback learned earlier
in the year and make improvements if
necessary. The increased annual sample
size from the current 20 records per year
to 48 records per year also provides a
more reliable validation estimate for
sampled hospitals.
Comment: One commenter urged
continued attention to the data element
level in order to increase the
denominator and minimize the impact
of a small number of errors.
Response: We understand this
comment and remind hospitals that they
must continue to monitor their data
element level validation processes
because we use individual data
elements as a combined set to calculate
quality measures. The proposed
validation score serves as a composite
score of all data elements used to
calculate quality measures, so it is
critical that hospitals continue to ensure
that data elements are abstracted
accurately because inaccurately
abstracted data elements can result in
inaccurate measure rates and
denominators.
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Comment: One commenter urged
CMS to extend the turnaround time for
chart selection to 60 days. The
commenter suggested that CMS give
hospitals the option to submit
validation cases electronically rather
than by mailing printed copies because
such submissions would avoid shipping
delays and allow faster turn around
time.
Response: We understand the
commenter’s concern about the deadline
for hospitals to return requested medical
records but note that under the current
quarterly validation process, it takes 5 to
6 months from the initial medical record
request until the CDAC contractor
completes the validation process each
quarter and the QIO completes its
review of an appeal (if so requested by
the hospital). We are concerned that
adding time to this process would
adversely impact hospitals’ ability to
incorporate validation feedback into
future abstraction work.
We will consider accepting electronic
submission of validation cases using
compact disc and electronic health
record submission in future years. We
must consider both the cost to accept
and review these submissions, and the
added benefit to the hospitals using
electronic methods to store medical
record information.
Comment: Several commenters
recommended that any changes to the
validation process be tested before CMS
imposes a payment penalty against the
hospitals. These commenters also
recommended that no hospital be
penalized in terms of its annual
payment update if it fails the validation
requirement for only a single quarter.
Response: We believe that the
proposed changes represent a small
relative change to the overall validation
process. We have assessed the impact by
calculating revised scores using the
proposed new validation method.
Preliminary results indicate that our
proposal would not adversely impact
the number of hospitals failing to meet
our annual validation requirement. We
will continue to assess the impact of
this change in the near future, and
consider changes in future years.
Comment: One commenter
recommended allowing all hospitals
passing quarterly validation to appeal
individual mismatches and adjust the
score on a quarterly basis based upon a
successful appeal.
Response: Our proposal, which we
discuss below, to require all hospitals
failing our annual validation
requirement to submit all mismatched
data elements partially addresses this
concern because hospitals failing our
annual validation requirement would be
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able to appeal all data elements
classified as mismatches by the CDAC
contractor. We understand the desire of
the commenter to correct mismatches on
a quarterly basis; however, we do not
currently have a mechanism in place to
accommodate this need. We will
investigate a possible solution to
addrress mismatches on a quarterly
basis for the future.
Comment: One commenter suggested
that CMS and CMS contractors return
case detail reports in Excel file format
rather than using portable document
format (pdf).
Response: We believe that this is an
excellent suggestion, and we will
consider the feasibility of implementing
this suggestion for future years.
Comment: One commenter asked
whether hospitals would be selected
from each State.
Response: In order to maximize the
overall sampling efficiency, the random
sample would not be stratified by State.
The intent of the random sample is to
provide all participating hospitals that
meet the 100-case threshold with an
equal probability of selection.
Comment: Commenters asked
whether hospitals not selected for
validation would be considered for VBP.
Commenters stated that hospitals use
the validation process to learn and
educate their staff about abstraction and
documentation in the medical record.
Response: We interpret the comment
‘‘considered for VBP’’ to mean eligible
to receive payment under a proposed
VBP methodology, as outlined in the
2007 CMS Hospital Value-Based
Purchasing Report to Congress. As of the
date of this final rule, value-based
purchasing for hospitals has not been
legislatively authorized. The proposed
validation requirements would apply
only for purposes of the RHQDAPU
program.
Comment: Commenters asked what
would be the incentive for hospitals
submitting fewer than 100 cases to
continue abstracting and reporting data.
Response: We remind the commenter
that all RHQDAPU program
participating hospitals must continue to
meet the data submission and other
requirements. We also note that we are
considering developing targeting criteria
that would enable us to also validate
data submitted by hospitals that do not
meet the 100-case threshold.
Comment: Commenters noted that
both hospitals and QIOs will have
difficulty allocating resources for
staffing when they do not know, from
year to year, what hospitals will be
selected for validation.
Response: We understand that
hospitals selected for validation will
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need to allocate staffing for this effort
and that hospitals that are not selected
will not need to do so. However, the
additional, minimal burden would be to
submit the documentation for the
requested medical records; a maximum
of 12 records 4 times spaced over a year.
Therefore, we do not believe that there
will be a need for a large allocation of
resources to meet this validation
requirement.
Comment: One commenter asked how
CMS can compare all hospitals when
different measure evaluations are being
used, if some hospitals are using the
new validation process and their
measure score is based on this process.
Response: We interpret the comment
to be asking how we would validate all
publicly reported data through a
random sample of hospitals. We believe
that a random sample of 800 hospitals
provides a reliable estimate of accuracy
for both sampled hospitals and national
measure rates, since the sample is
random and of sufficient size. We
proposed stratifying the validation
sample to ensure that all hospitalsubmitted data are validated for selected
hospitals. The validation sample for all
sampled hospitals would be similar in
sample size by clinical topic to ensure
that the sample is representative of each
hospital’s population of submitted
cases.
After consideration of the public
comments we received, we have
decided to adopt as final our proposal
regarding chart validation requirements
and methods for the FY 2012 payment
determination and subsequent years.
c. Possible Supplements to the Chart
Validation Process for the FY 2013
Payment Determination and Subsequent
Years
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24180), we
also solicited public comment about
criteria we could use to target hospitals
for validation in the future. These
targeting criteria could include
abnormal data patterns identified by
analyzing hospital-submitted measure
rates and counts for RHQDAPU program
measures. For example:
• A high number of years a hospital
was not randomly selected for annual
validation (for example, at least 5 years);
• Consistently high measure
denominator exclusion rates resulting in
unexpectedly low denominator counts;
• Consistently high measure rates,
relative to national averages;
• Small annual submission in the
number of cases in previous years
resulting in hospital exclusion from
RHQDAPU program validation sample.
Comment: One commenter
recommended that CMS not implement
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targeting criteria for the FY 2013
validation. The commenter indicated
that it does not appear to be random,
and CMS would not provide all
hospitals with feedback on their
abstraction accuracy. The commenter
believed that because hospitals widely
vary in their abstraction accuracy,
feedback to all hospitals is more
important than lessening burden
through targeted validation.
Response: We recognize that
providing feedback to hospitals is an
important part of the validation process.
We will continue to work with State
QIOs to provide data element and
measure-specific feedback to all
participating hospitals, regardless of
inclusion in the random sample.
Additionally, our targeting criteria
would not be random; they would be
designed to select hospitals based on
specific criteria. The increased annual
sample size and stratification is
designed to provide hospitals selected
for validation with reliable information
about all of their abstracted data.
Comment: With regard to the
reconsideration process, several
commenters supported CMS’ proposal
to require hospitals to submit their
paper medical records for re-abstraction
when they submit a request for
reconsideration involving data
validation. The commenters believe that
this process will give hospitals that
believe the results of their data
validation testing were inaccurate an
opportunity to have their data reabstracted.
Response: We agree with the
commenters that hospitals should be
able to seek reconsideration of all
validation mismatched data elements
and measures throughout the year if the
hospital fails to meet the annual
validation requirement.
Comment: Some commenters
recommended continuing with the
process of random selection of five
charts per quarter for hospitals having
fewer than 100 discharges.
Response: We appreciate the
recommendation that we continue
validating hospital data for hospitals
having fewer than 100 discharges. As
we discussed above, we are considering
developing targeting criteria that would
focus on these hospitals.
We appreciate the public comments
we received and will take them into
consideration as we consider possible
supplements to the chart validation
process for the FY 2013 payment
determination and subsequent years.
Specifically, CMS plans to propose the
following targeting criteria for FY 2013:
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• Validating hospital data when the
hospital failed the previous year’s
RHQDAPU program validation;
• Validating a sample of hospitals not
included in the previous year’s
RHQDAPU program validation random
sample for submitting fewer than 100
cases; and
• Validating hospital data when the
hospital was not selected in 3 previous
years’ RHQDAPU program random
validation samples.
We will also consider other targeting
criteria for FY 2013 and future years.
7. Data Accuracy and Completeness
Acknowledgement Requirements for the
FY 2011 Payment Determination and
Subsequent Years
For the FY 2011 payment
determination and subsequent years, in
the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24180), we
proposed to require hospitals to
electronically acknowledge on an
annual basis the completeness and
accuracy of the data submitted for the
RHQDAPU program payment
determination. Hospitals will be able to
submit this acknowledgement on the
same Web page that they use to submit
data necessary to calculate the structural
measures, and we believe that this Web
page will provide a secure vehicle for
hospitals to directly acknowledge that
their information is complete and
accurate to the best of their knowledge.
A single annual electronic
acknowledgement will provide us with
explicit documentation acknowledging
that the hospital’s data is accurate and
complete, but will not unduly burden
hospitals. We noted that commenters
generally supported the idea of
electronic attestation in the FY 2009
IPPS final rule (73 FR 48625) at the
point of data submission to the QIO
Clinical Warehouse.
In addition, the Government
Accountability Office (GAO)
recommended in a 2006 report (GAO–
06–54) that hospitals self-report that
their data are complete and accurate.
Therefore, for the FY 2011 payment
determination, we proposed to require
hospitals to electronically acknowledge
their data accuracy and completeness
once between January 1, 2010, and
August 15, 2010. Hospitals will
acknowledge that all information that is,
or will be, submitted as required by the
RHQDAPU program for the FY 2011
payment determination is complete and
accurate to the best of their knowledge.
Comment: Several commenters
commended CMS for proposing to
collect data accuracy and completeness
acknowledgements using an electronic
method.
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Response: We thank the commenters,
and believe that this proposed
requirement imposes a minimal burden
for hospitals.
Comment: A number of commenters
questioned the benefit of the proposed
electronic data accuracy and
completeness acknowledgement, and
believed that data quality would not be
improved. The commenters believed
that requiring hospitals to attest to the
accuracy of their data will not increase
the reliability of the data collected for
the RHQDAPU program and noted that
historically, almost all hospitals have
passed the data validation requirements,
meaning that their data are found to be
accurate and complete.
Response: We believe that this
proposed requirement will ensure that
hospitals continue implementing
procedures for ensuring data
completeness and accuracy. This
proposed requirement is intended to
supplement our existing submission and
validation requirements.
After consideration of the public
comments we received, we are adopting
as final, without modification, our
proposal to require hospitals to
electronically acknowledge on an
annual basis the completeness and
accuracy of the data submitted for the
RHQDAPU program payment
determination.
8. Public Display Requirements for the
FY 2011 Payment Determination and
Subsequent Years
For the FY 2011 payment
determination, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
24180), we proposed to generally
continue using the following existing
requirements implemented in previous
years. Our continued goal for the chart
validation requirements is to validate
the reliability of RHQDAPU program
chart-abstracted data. Accurate data are
needed to calculate accurate publicly
reported quality measures that are
posted on the Hospital Compare Web
site. We added the validation
requirement in the FY 2006 IPPS final
rule (70 FR 47421 through 47422) to
ensure that hospitals submit reliable
data for RHQDAPU program chartabstracted measures, based on our
experience in FY 2005 that hospitals
vastly differed in their data reliability.
We modified the validation
requirements in the FY 2008 IPPS final
rule with comment period (72 FR 47366
and 47367) to update the RHQDAPU
program list of validated measures for
FY 2008, and pooled multiple quarterly
validation estimates into a single annual
estimate to improve reliability. We
modified these requirements to reflect
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the changing RHQDAPU program list of
chart-abstracted measures and validate
all available RHQDAPU program data.
We proposed to update the list of
validated RHQDAPU program measures
for the FY 2011 payment determination
to incorporate changes to our list of
required chart-abstracted RHQDAPU
program measures for CY 2009
discharges. These requirements, as well
as additional information on these
requirements, will be posted on the
QualityNet Web site after we issue this
final rule.
Section 1886(b)(3)(B)(viii)(VII) of the
Act provides that the Secretary shall
establish procedures for making data
submitted under the RHQDAPU
program available to the public. The
RHQDAPU program quality measures
are posted on the Hospital Compare
Web site (https://
www.hospitalcompare.hhs.gov). We
require that hospitals sign a Notice of
Participation form when they first
register to participate in the RHQDAPU
program. Once a hospital has submitted
a form, the hospital is considered to be
an active RHQDAPU program
participant until such time as the
hospital submits a withdrawal form to
CMS (72 FR 47360). Hospitals signing
this form agree that they will allow CMS
to publicly report the quality measures
included in the RHQDAPU program.
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, hospital campuses that
share the same CCN must combine data
collection and submission across their
multiple campuses (for both clinical
measures and HCAHPS). These
measures are then publicly reported on
the Hospital Compare Web site 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 CCNs.
To increase transparency in public
reporting and improve the usefulness of
the Hospital Compare Web site, we plan
to note on the Web site instances where
publicly reported measures combine
results from two or more hospitals.
We did not receive any public
comments on our proposals and are
adopting them as final in this final rule.
9. Reconsideration and Appeal
Procedures for the FY 2010 Payment
Determination
The general deadline for submitting a
request for reconsideration in
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connection with the FY 2010 payment
determination is November 1, 2009. As
discussed more fully below, in the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule (74 FR 24181), we proposed that all
hospitals submit a request for
reconsideration and receive a decision
on that request before they can file an
appeal with the Provider
Reimbursement Review Board (PRRB).
For the FY 2010 payment
determination, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
24181), we proposed to continue
utilizing most of the same procedures
that we utilized in FY 2009. Under these
proposed procedures, the hospital
must—
• Submit to CMS, via QualityNet, a
Reconsideration Request form (available
on the QualityNet Web site) containing
the following information:
—Hospital CMS Certification number
(CCN).
—Hospital Name.
—CMS-identified reason for failure (as
provided in the CMS notification of
failure letter to the hospital).
—Hospital basis for requesting
reconsideration. This must identify
the hospital’s specific reason(s) for
believing it met the RHQDAPU
program requirements and should
receive the full FY 2010 IPPS annual
payment update.
—CEO contact information, including
name, e-mail address, telephone
number, and mailing address (must
include the physical address, not just
the post office box). We proposed to
no longer require that the hospital’s
CEO sign the RHQDAPU program
reconsideration request. We have
found that this requirement increases
the burden for hospitals because it
prevents them from electronically
submitting the RHQDAPU program
reconsideration request forms. In
addition, to the extent that a hospital
can submit a request for
reconsideration on-line, the burden
on our staff is reduced and, as a
result, we can more quickly review
the request.
—QualityNet System Administrator
contact information, including name,
e-mail address, telephone number,
and mailing address (must include the
physical address, not just the post
office box).
—Paper medical record requirement for
reconsideration requests involving
validation. We proposed that if a
hospital asks us to reconsider an
adverse RHQDAPU program payment
decision made because the hospital
failed the validation requirement, the
hospital must submit paper copies of
all the medical records that it
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submitted to the CDAC contractor
each quarter for purposes of the
validation. Hospitals must submit this
documentation to a CMS contractor,
which will redact all patient
identifying information and forward
the redacted copies to CMS. The
contractor will be a QIO support
contractor, which has authority to
review patient level information
under 42 CFR part 480. We will post
the address where hospitals can ship
the paper charts on the QualityNet
Web site after we issue the FY 2010
IPPS/RY 2010 LTCH PPS final rule.
Hospitals submitting a RHQDAPU
program validation reconsideration
request will have all mismatched data
reviewed by CMS, and not their State
QIO. (As discussed in section V.A.6.b.
of this final rule, the State QIO is
available to conduct a quarterly
validation appeal if so requested by a
hospital.)
For the FY 2010 payment
determination, the RHQDAPU program
data that will be validated is 4th
calendar quarter 2007 through 3rd
quarter calendar year 2008 discharge
data, except for SCIP-Infection-4 and
Infection-6, which will be validated
using 2nd and 3rd calendar quarter 2008
discharges (73 FR 48621 through
48622). Hospitals must provide a
written justification for each appealed
data element classified during the
validation process as a mismatch. We
will review the data elements that were
labeled as mismatched, as well as the
written justifications provided by the
hospitals, and make a decision on the
reconsideration request. As we
mentioned above, we proposed that all
hospitals submit a reconsideration
request to CMS and receive a decision
on that request prior to submitting a
PRRB appeal. We believe that the
reconsideration process is less costly for
both CMS and hospitals, and that this
requirement will decrease the number of
PRRB appeals by resolving issues earlier
in the appeals process.
Following receipt of a request for
reconsideration, we will—
• Provide an e-mail
acknowledgement, using the contact
information provided in the
reconsideration request, to the CEO and
the QualityNet Administrator that the
request has been received.
• Provide written notification to the
hospital CEO, using the contact
information provided in the
reconsideration request, regarding our
decision. We expect the process to take
approximately 60 to 90 days from the
reconsideration request due date of
November 1, 2009.
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If a hospital is dissatisfied with the
result of a RHQDAPU program
reconsideration decision, the hospital
may file a claim under 42 CFR part 405,
Subpart R (a PRRB appeal). We solicited
public comments on the extent to which
these proposed procedures will be less
costly for hospitals, and whether they
will lead to fewer PRRB appeals.
Comment: One commenter agreed that
CMS should no longer require the CEO
to sign the RHQDAPU program
reconsideration request so that the
request does not get held up for a
signature, and can be submitted
electronically. The commenter believed
that use of the PRRB is less cost
efficient, and should be the last resort.
The commenter requested that the
reconsideration process provide both
written notification to the hospital CEO
and QualityNet notification to the
QualityNet Administrator working at
the hospital.
Response: We appreciate the
comment and recognize the additional
burden to hospitals associated with the
requirement of a CEO signature.
Comment: Several commenters
supported CMS’ proposal to require
hospitals to submit their paper medical
records for re-abstraction when they
submit an appeal involving data
validation. The commenters indicated
that this process will give hospitals that
believe the results of the data validation
were inaccurate an opportunity to have
their data re-abstracted again as part of
the reconsideration process.
Response: In the proposed rule, we
proposed that hospitals must provide a
written justification for each appealed
data element classified during the
validation process as a mismatch. We
stated that we would review the data
elements that were labeled as
mismatched, as well as the written
justifications provided by the hospitals,
and make a decision on the
reconsideration request. However, we
wish to clarify that this would not be a
re-abstraction, but a review of the
hospital’s justification and the medical
record for each appealed mismatching
data element. The intent of this proposal
is for us to have all of the information
necessary to review a request for
reconsideration based on the hospital’s
validation results.
Comment: One commenter asked for
clarification about two possible
situations that could arise under CMS’
proposal to review paper medical
records as part of the reconsideration
process (when the issue is validation):
1. Hospital fails to return one or more
medical records to the CDAC contractor
for the quarterly validation request
within the 45 calendar day timeframe.
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There are no CDAC contractorabstracted data elements for the
reconsideration contractor to review,
except for medical records returned
after the 45 calendar day deadline.
Would the hospital be allowed to
submit medical records during
reconsideration to receive credit for
information submitted to the CDAC
contractor after the quarterly validation
45 day deadline? If not, would the
reconsideration contractor’s review be
limited in scope to the CDAC
contractor’s original documentation that
verifies contact with the hospital as
outlined in this regulation, and
documents that the CDAC contractor
did not receive the requested medical
records in the required timeframe (for
example, reconsideration limited to data
and hospital receipt of CDAC
contractor’s request for medical records,
written reminder notes, and CDAC
contractor’s non-receipt of medical
records).
2. Hospital receives one or more
‘‘invalid record selection’’ zero scores
for failing to provide the correct medical
record for the requested episode of care.
Invalid record selections occur when
the hospital submits medical record(s)
that do not match the requested patient
episode of care’s admission date,
discharge date, name or other hospital
submitted identification information,
and/or birthdate/birth year. Would the
reconsideration contractor abstract
medical records for these ‘‘invalid
records,’’ or would the reconsideration
contractor and CMS simply review the
electronic submitted data, relative to the
hospital submitted data to the CDAC
contractor in response to the original
medical record request?
In both scenarios, the commenter
argued that hospitals would attempt to
circumvent the CDAC contractor
validation process and submit medical
records to the reconsideration process.
The commenter recommended that CMS
limit the scope of RHQDAPU program
reconsideration review for validation to
verification of CDAC contractor
processing, and not circumventing the
validation process to allow
reconsideration contractor abstraction of
these nonreturned and ‘‘invalid record
selection’’ cases that receive zero
validation scores. The commenter
indicated that CMS should spend its
dollars wisely and create processes that
do not allow hospitals to bypass existing
and expensive quarterly validation
processes.
Response: We appreciate the
comment. Our intent is to provide
hospitals a process to request our
reconsideration review of mismatched
data elements abstracted by the CDAC
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contractor affecting the hospitals’
validation scores. Hospitals must submit
a copy of the entire requested medical
record to the CDAC contractor during
the quarterly validation process for the
requested case to be eligible for
reconsideration of mismatched data
elements. Our review of medical records
that we classify as not matching what
was requested by the CDAC contractor
(called ‘‘invalid record selections’’) will
initially be limited to ascertaining
whether the copy of the record
submitted to the CDAC contractor was
actually an entire copy of the requested
medical record. If we determine during
reconsideration that the hospital did
submit the entire copy of the requested
medical record to the CDAC contractor,
then we would abstract data elements
from the medical record submitted by
the hospital along with its
reconsideration request.
We would also review the hospital’s
justification for medical records not
returned in a timely manner to ascertain
whether the CDAC contractor received
the requested record within 45 calendar
days, and whether the hospital received
the initial medical record request and
reminder notice as specified in this
regulation. If we determine during
reconsideration that the CDAC
contractor did receive a paper copy of
the requested medical record within 45
calendar days, then we would abstract
data elements from the medical record
submitted by the hospital along with its
reconsideration request.
After reviewing the public comments
we received, we are adopting as final
the proposed RHQDAPU program
reconsideration requirements for FY
2010. However, we wish to clarify the
following regarding the scope of our
review when a hospital requests
reconsideration because it failed our
validation requirements:
1. Hospital requests reconsideration
for CDAC contractor-abstracted data
elements classified as mismatches
affecting validation scores. Hospitals
must timely submit a copy of the entire
requested medical record to the CDAC
contractor during the quarterly
validation process for the requested case
to be eligible to request reconsideration
of mismatched data elements.
2. Hospital requests reconsideration
for medical record copies submitted
during the quarterly validation process
and classified as invalid record
selections. Invalid record selections are
defined as medical records submitted by
hospitals during the quarterly validation
process that do not match the patient’s
episode of care information as
determined by the CDAC contractor (in
other words, the contractor determines
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that the hospital returned a medical
record that is different from that which
was requested). If the CDAC contractor
determines that the hospital has
submitted an invalid record selection
case, it awards a zero validation score
for the case because the hospital did not
submit the entire copy of the medical
record for that requested case. During
the reconsideration process, our review
of invalid record selections will initially
be limited to determining whether the
record submitted to the CDAC
contractor was actually an entire copy of
the requested medical record. If we
determine during reconsideration that
the hospital did submit the entire copy
of the requested medical record, then
we would abstract data elements from
the medical record submitted by the
hospital along with its reconsideration
request.
3. Hospital requests reconsideration
for medical records not submitted to the
CDAC contractor within the 45 calendar
day deadline. Our review will initially
be limited to determining whether the
CDAC contractor received the requested
record within 45 calendar days, and
whether the hospital received the initial
medical record request and reminder
notice as specified in this regulation. If
we determine during reconsideration
that the CDAC contractor did receive a
paper copy of the requested medical
record within 45 calendar days, then we
would abstract data elements from the
medical record submitted by the
hospital along with its reconsideration
request.
In sum, we are initially limiting the
scope of our reconsideration reviews
involving validation to information
already submitted by the hospital
during the quarterly validation process,
and we will not abstract medical records
that were not submitted to the CDAC
contractor during the quarterly
validation process. We will expand the
scope of our review only if we find
during the initial review that the
hospital correctly and timely submitted
the requested medical records. In that
case, then we would abstract data
elements from the medical record
submitted by the hospital along with its
reconsideration request.
After consideration of the public
comments we received, we are adopting
as final, with the clarifications outlined
in this final rule, our proposals
regarding reconsideration and appeals
procedures for the FY 2010 payment
determination.
10. RHQDAPU Program Withdrawal
Deadlines
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24181), we
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proposed to accept RHQDAPU program
withdrawal forms for the FY 2011
payment determination from hospitals
until August 15, 2010. We proposed this
deadline so that we would have
sufficient time to update the FY 2011
payment to hospitals starting on October
1, 2010. If a hospital withdraws from the
program for the FY 2011 payment
determination, it will receive a 2.0
percentage point reduction in its FY
2011 annual payment update. We noted
that once a hospital has submitted a
Notice of Participation form, it is
considered to be an active RHQDAPU
program participant until such time as
the hospital submits a withdrawal form
to CMS.
We did not receive any public
comments about our proposal.
Therefore, we are adopting as final our
proposal to accept RHQDAPU program
withdrawal forms for the FY 2011
payment determination from hospitals
until August 15, 2010.
11. Electronic Health Records
a. Background
Starting with the FY 2006 IPPS final
rule, we have encouraged hospitals to
take steps toward the adoption of EHRs
(also referred to in previous rulemaking
documents as electronic medical
records) that will allow for reporting of
clinical quality data from the EHRs
directly to a CMS data repository (70 FR
47420 through 47421). We encouraged
hospitals that are implementing,
upgrading, or developing EHR systems
to ensure that the technology obtained,
upgraded, or developed conforms to
standards adopted by HHS. We
suggested that hospitals also take due
care and diligence to ensure that the
EHR systems accurately capture quality
data and that, ideally, such systems
provide point-of-care decision support
that promotes optimal levels of clinical
performance.
In the FY 2008 IPPS final rule with
comment period (72 FR 47366), we
responded to comments we received on
EHRs and noted that CMS planned to
continue participating in the American
Health Information Community (which
has now sunset and is replaced by the
National eHealth Collaborative) and
other entities to explore processes
through which an EHR could speed the
collection of data and minimize the
resources necessary for quality
reporting.
Recently, we initiated work directed
toward enabling EHR submission of
quality measures through EHR
standards development and adoption.
We are working under an inter-agency
agreement between CMS and the Office
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of the National Coordinator for
Healthcare Information Technology
(ONC) to identify and harmonize
standards for the EHR-based submission
of Emergency Department Throughput
measures, Stroke measures, and Venous
Thromboembolism measures. These
measures have received NQF
endorsement and are potential measures
for future inclusion in the RHQDAPU
program. Pursuant to this agreement, the
Healthcare Information Technology
Standards Panel (HITSP) has been
tasked with harmonizing the EHR data
element standards for the measure sets.
The work for these three measure sets
began in September 2008 and is due to
be completed in a little more than 1
year. It is expected that interoperable
standards will be developed and fully
vetted by October 2009. When HITSP
posts the standards, we anticipate that
EHR vendors will be able to code their
EHR systems with the new
specifications and begin collecting this
data electronically. We expect that these
standards will be provided to its
Certification Commission for Healthcare
Information Technology (CCHIT) for
inclusion in the criteria for certification
of inpatient EHRs.
b. EHR Testing of Quality Measures
Submission
As we have previously stated, we are
interested in the reporting of quality
measures using EHRs, and we continue
to encourage hospitals to adopt and use
EHRs that conform to industry
standards. We believe that the testing of
EHR submission is an important and
necessary step to establish the ability of
EHRs to report clinical quality measures
and the capacity of CMS to receive such
data.
Through CMS’ interagency agreement
with ONC previously described, the
interoperable standards for EHR-based
submission of the Emergency
Department (ED) Throughput, Stroke,
and Venous Thromboembolism (VTE)
measures are scheduled to be finalized
in late 2009 and will be available for
review and testing. We anticipate testing
the components required for the
submission of clinical quality data
extracted from EHRs for these measures,
and are exploring different mechanisms
and formats that will aid the submission
process, as well as ensure that the
summary measure results extracted from
the EHRs are reliable. When the
interoperable EHR-based submission
standards become available, EHR
vendors will be able to employ them in
EHR systems and begin testing how they
facilitate the electronic collection of
these data. We intend to follow similar
processes and procedures to those we
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are using for the PQRI EHR testing being
conducted as described in the CY 2009
Medicare Physician Fee Schedule final
rule with comment period (73 FR 69828
through 69830).
We anticipate moving forward with
testing CMS’ technical ability to accept
data from EHRs for the ED, Stroke, and
VTE measures as early as July 1, 2010.
Pursuant to the Paperwork Reduction
Act, prior to the beginning of testing
EHR-based data submission, we will
publish a Federal Register notice
seeking public comments on the process
we intend to follow to select EHR
vendors/hospitals and the methodology
we plan to use for testing EHR-based
data submissions.
The test measures described above are
not currently required under the
RHQDAPU program. As long as that
remains the case, EHR test data that is
received for these measures will not be
used to make RHQDAPU program
payment decisions. In addition, the
posting of the electronic specifications
for any particular measure should not be
interpreted as a signal that we intend to
select the measure for inclusion in the
RHQDAPU program measure set.
We intend to select several EHR
vendors/hospitals to develop and test
EHR clinical quality data submission.
EHR vendors/hospitals that wish to
participate in the development and
testing process will be able to selfnominate by sending a letter of interest
to: ‘‘RHQDAPU Program IT Testing
Nomination’’, Centers for Medicare and
Medicaid Services, Office of Clinical
Standards and Quality, Quality
Measurement and Health Assessment
Group, 7500 Security Boulevard, Mail
Stop S3–02–01, Baltimore, MD 21244–
8532. The letter must be received by
CMS by 6 p.m., E.S.T. on December 31,
2009. Vendors/hospitals will be selected
based on the following criteria: (1) They
are able to submit clinical EHR data
using interoperability standards such as
Cross Document Sharing (XDS), Cross
Community Access (XCA), Clinical Data
Architecture (CDA), and Health Level 7
Version 3 to a CMS-designated clinical
data repository; and (2) they have
established or have applied for a
QualityNet account. More information
regarding these capabilities will be
made available on the Hospital Quality
Initiative section of the CMS Web site
at: https://www.cms.hhs.gov/
HospitalQualityInits/. Preference may
be given to EHR vendors/hospitals that
utilize EHRs that are currently certified
by the CCHIT, use the National Health
Information Network (NHIN), and/or
utilize Health Information Technology
Standards Panel (HITSP)/Integrating the
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Healthcare Environment (IHE)
standards.
EHR vendors/hospitals that would
like to test the submission of inpatient
EHR data to the CMS-designated clinical
data repository should update their EHR
products or otherwise ensure that those
products can capture and submit the
necessary data elements identified for
an EHR-based submission once the
standardized format has been
determined. We suggest that these
entities begin submitting EHR data
promptly after CMS announces that the
clinical data repository is ready to
accept such data so that problems that
may complicate or preclude a successful
quality measure data submission can be
corrected.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24182), we
welcomed comments on this discussion
of EHR-based data submission testing.
Comment: A number of commenters
supported voluntary EHR testing, the
creation of uniform data content
standards, and the concept of reducing
the burden to hospitals through
automated data transmission via EHR
products. The commenters applauded
CMS for EHR testing and for working to
expand quality data submission to
include electronic formats. The
commenters also commended CMS for
working with ONC to establish
electronic standards for ED, Stroke and
VTE quality measures. The commenters
urged CMS to ensure the scientific
integrity of the electronic standards and
resulting measures, and encouraged
CMS to work closely with NQF’s Health
IT Expert Panel (HITEP) and to
incorporate HITSP standards for
measures. Some commenters urged CMS
to conduct EHR testing for measures
that have already been adopted into the
RHQDAPU program as well. However,
one commenter stated that the timelines
suggested in the proposed rule do not
take into account the realities faced by
hospitals.
Response: We appreciate these
supportive comments regarding
voluntary EHR testing, and acknowledge
the challenges faced by many hospitals
in adopting EHRs at this time. We will
continue to work with standard setting
organizations toward standardization of
data elements for quality measures in
EHRs. A voluntary EHR-based data
submission testing process would be
initiated at such time as CMS systems
are able to support it. Hospitals would
not be required to participate in this
testing process, but would do so
voluntarily. We decided to begin EHR
testing with non-implemented
measures. However, we plan to create
electronic formats for measures already
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adopted for the RHQDAPU program as
well.
We thank the commenters for their
suggestions and will take these
comments into consideration as we
move forward with voluntary EHR
testing. We will announce further
details regarding this voluntary testing
program in a separate Federal Register
notice.
c. HITECH Act EHR Provisions
On February 17, 2009, the President
signed into law the ARRA, Public Law
111–5. The HITECH Act (Title IV of
Division B of the ARRA, together with
Title XIII of Division A of the ARRA)
authorizes payment incentives under
Medicare for the adoption and use of
certified EHR technology beginning in
FY 2011. Hospitals are eligible for these
payment incentives if they meet the
following three requirements:
Meaningful use of certified EHR
technology; electronic exchange of
health information; and reporting on
measures using certified EHR
technology (provided the Secretary has
the capacity to receive such information
electronically). With respect to this
requirement, under section
1886(n)(3)(A)(ii) of the Act, as added by
section 4102 of the HITECH Act, the
Secretary shall select measures,
including clinical quality measures, that
hospitals must provide to CMS in order
to be eligible for the EHR incentive
payments. With respect to the clinical
quality measures, section
1886(n)(3)(B)(i) of the Act requires the
Secretary to give preference to those
clinical quality measures that have been
selected for the RHQDAPU program
under section 1886(b)(3)(B)(viii) of the
Act or that have been endorsed by the
entity with a contract with the Secretary
under section 1890(a) of the Act. Any
measures must be proposed for public
comment prior to their selection, except
in the case of measures previously
selected for the RHQDAPU program
under section 1886(b)(3)(B)(viii) of the
Act.
Thus, the RHQDAPU program and the
HITECH Act have important areas of
overlap and synergy with respect to the
reporting of quality measures using
EHRs. We believe the financial
incentives under the HITECH Act for
the adoption and meaningful use of
certified EHR technology by hospitals
will encourage the adoption and use of
certified EHRs for the reporting of
clinical quality measures under the
RHQDAPU program. Further, these
efforts to test the submission of quality
data through EHRs may provide a
foundation for establishing the capacity
of hospitals to send, and for CMS to
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receive, quality measures via hospital
EHRs for future RHQDAPU program
measures. We again note that the
provisions in this final rule do not
implicate or implement any HITECH
statutory provisions. Those provisions
will be implemented in a future
rulemaking.
B. Medicare-Dependent, Small Rural
Hospitals (MDHs): Budget Neutrality
Adjustment Factors for FY 2002-Based
Hospital-Specific Rate (§ 412.79(i))
1. Background
Under the IPPS, special payment
protections are provided to a sole
community hospital (SCH). Section
1886(d)(5)(D)(iii) of the Act defines an
SCH as a hospital that, by reason of
factors such as isolated location,
weather conditions, travel conditions, or
absence of other like hospitals (as
determined by the Secretary) is the sole
source of inpatient hospital services
reasonably available to Medicare
beneficiaries. The regulations that set
forth the criteria that a hospital must
meet to be classified as an SCH are
located at 42 CFR 412.92. Section
1886(d)(5)(D)(iii)(III) of the Act and the
regulations at § 412.109 also provide
that certain essential access community
hospitals (EACHs) will be treated as an
SCH for payment purposes under the
IPPS.
Under the IPPS, separate special
payment protections also are provided
to a Medicare-dependent, small rural
hospital (MDH). Section
1886(d)(5)(G)(iv) of the Act defines an
MDH as a hospital that is located in a
rural area, has not more than 100 beds,
is not an SCH, and has a high
percentage of Medicare discharges (not
less than 60 percent of its inpatient days
or discharges in its 1987 cost reporting
year or in two of its most recent three
settled Medicare cost reporting years).
The regulations that set forth the criteria
that a hospital must meet to be
classified as an MDH are located at 42
CFR 412.108.
Although SCHs and MDHs are paid
under special payment methodologies,
they are still paid under section 1886(d)
of the Act. Like all IPPS hospitals paid
under section 1886(d) of the Act, SCHs
and MDHs are paid for their discharges
based on the DRG weights calculated
under section 1886(d)(4) of the Act.
For SCHs, effective with hospital cost
reporting periods beginning prior to
January 1, 2009, section 1886(d)(5)(D)(i)
of the Act (as amended by section
6003(e) of Public Law 101–239 (OBRA
1989)) and section 1886(b)(3)(I) of the
Act (as added by section 405 of Public
Law 106–113 (BBRA 1999) and further
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amended by section 213 of Public Law
106–554 (BIPA 2000) provide that SCHs
are paid based on whichever of four
statutorily specified rates (listed below)
yields the greatest aggregate payment to
the hospital for the cost reporting
period. For cost reporting periods
beginning on or after January 1, 2009,
section 122 of Public Law 110–275
(MIPPA 2008) further amended the Act
to specify that SCHs will be paid based
on a FY 2006 hospital-specific rate (that
is, based on their updated costs per
discharge from their 12-month cost
reporting period beginning during
Federal fiscal year 2006), if this results
in the greatest payment to the SCH.
Therefore, currently, SCHs are paid
based on whichever of the following
rates yields the greatest aggregate
payment to the hospital for the cost
reporting period:
• The Federal rate applicable to the
hospital;
• The updated hospital-specific rate
based on FY 1982 costs per discharge;
• The updated hospital-specific rate
based on FY 1987 costs per discharge;
• The updated hospital-specific rate
based on FY 1996 costs per discharge;
or
• The updated hospital-specific rate
based on FY 2006 costs per discharge.
For purposes of payment to SCHs for
which the FY 1996 hospital-specific rate
yields the greatest aggregate payment,
payments for discharges during FYs
2001, 2002, and 2003 were based on a
blend of the FY 1996 hospital-specific
rate and the greater of the Federal rate
or the updated FY 1982 or FY 1987
hospital-specific rate. For discharges
during FY 2004 and subsequent fiscal
years, payments based on the FY 1996
hospital-specific rate are based on 100
percent of the updated FY 1996
hospital-specific rate.
Through and including FY 2006,
under section 1886(d)(5)(G) of the Act,
MDHs are paid based on the Federal rate
or, if higher, the Federal rate plus 50
percent of the amount by which the
Federal rate is exceeded by the updated
hospital-specific rates based on FY 1982
or FY 1987 costs per discharge,
whichever of these hospital-specific
rates is higher. Section 5003(b) of Public
Law 109–171 (DRA 2005) amended
section 1886(d)(5)(G) of the Act to
provide that, for discharges occurring on
or after October 1, 2006, MDHs are paid
based on the Federal rate or, if higher,
the Federal rate plus 75 percent of the
amount by which the Federal rate is
exceeded by the updated hospitalspecific rate based on FY 1982, FY 1987,
or FY 2002 costs per discharge,
whichever of these hospital-specific
rates is the highest. Unlike SCHs, MDHs
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do not have the option to use their FY
1996 hospital-specific rate.
For each cost reporting period, the
fiscal intermediary or MAC determines
which of the payment options will yield
the highest aggregate payment. Interim
payments are automatically made at the
highest rate using the best data available
at the time the fiscal intermediary or
MAC makes the determination.
However, it may not be possible for the
fiscal intermediary or MAC to determine
in advance precisely which of the rates
will yield the highest aggregate payment
by year’s end. In many instances, it is
not possible to forecast the outlier
payments, or the amount of the DSH
adjustment or the IME adjustment, all of
which are applicable only to payments
based on the Federal rate and not to
payments based on the hospital-specific
rate. The fiscal intermediary or MAC
makes a final adjustment at the close of
the cost reporting period after it
determines precisely which of the
payment rates would yield the highest
aggregate payment to the hospital.
If a hospital disagrees with the fiscal
intermediary’s or the MAC’s
determination regarding the final
amount of program payment to which it
is entitled, it has the right to appeal the
fiscal intermediary’s or the MAC’s
decision in accordance with the
procedures set forth in 42 CFR part 405,
Subpart R, which govern provider
payment determinations and appeals.
2. FY 2002-Based Hospital-Specific Rate
Acute care hospitals, including MDHs
and SCHs, are subsection (d) hospitals
paid under the IPPS. As mentioned
earlier, under the special payment
methodologies for MDHs and SCHs,
Medicare payments per discharge are
made based on DRG weights, as with all
other acute care hospitals paid under
the IPPS. (We note that effective
beginning in FY 2008, the MS–DRGs are
used under the IPPS.) As discussed
above, although the specific payment
formulas for MDHs and SCHs differ, it
is common to both types of hospitals
that they may be paid based on an
updated hospital-specific rate
determined from their costs per
discharge in a specified base year.
Section 1886(d)(4)(C)(iii) of the Act
requires that aggregate IPPS payments
be projected to neither increase nor
decrease as a result of the annual
changes to the DRG classifications and
weighting factors. Beginning in FY
1994, in applying the current year’s
budget neutrality adjustment factor to
both the standard Federal rate and
hospital-specific rates, we do not
remove the prior years’ budget
neutrality adjustment factors when
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applying the current year budget
neutrality adjustment factor to assure
that estimated aggregate payments after
the DRG changes are equal to estimated
aggregate payments prior to the changes
(48 FR 46345). If we were to remove the
prior year adjustment(s), we would not
satisfy this requirement. As we have
previously explained (for example, in
the FY 2006 IPPS final rule (70 FR
47429)), all section 1886(d) hospitals,
including hospitals that are paid based
on a hospital-specific rate, are subject to
a DRG budget neutrality adjustment
factor. As is the case for all other IPPS
hospitals, these hospitals are paid based
on DRG classifications and weighting
factors that must be considered when
we determine whether aggregate IPPS
payments are projected to increase or
decrease as a result of the annual
changes to the DRG classifications and
weighting factors.
In order to comply with the statutory
requirement that the DRG changes be
budget neutral, we compute a budget
neutrality adjustment factor based on a
comparison of estimated aggregate
payments using the current year’s
relative weights and factors to aggregate
payments using the prior year’s relative
weights and factors. This budget
neutrality adjustment factor is then
applied to the standardized per
discharge payment amounts (that is, the
Federal rates and the hospital-specific
rates). Cumulative budget neutrality
factors, beginning with the adjustment
factor for FY 1993, apply to all hospitalspecific rates including rebased
hospital-specific rate amounts derived
from base years later than FY 1993. As
discussed in the FY 2001 IPPS proposed
rule (55 FR 19466), in setting updated
DRG weights, each year we normalize
DRG weights by an adjustment factor in
order to first ensure that the average
case weight after recalibration is equal
to the average case weight prior to
recalibration. While this adjustment is
intended to ensure that recalibration
does not affect total payments to
hospitals under section 1886(d) of the
Act, our analysis has indicated that the
normalization adjustment does not
usually achieve budget neutrality with
respect to aggregate payments to
hospitals under section 1886(d) of the
Act. Thus, in order to comply with the
requirement of section 1886(d)(4)(C)(iii)
of the Act that the annual DRG
reclassification changes and
recalibration of the relative weights be
budget neutral, we also compute a
budget neutrality adjustment factor that
is applied to both the standardized
amounts and the hospital-specific rates.
This budget neutrality adjustment
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43895
ensures that the recalibration process
neither increases nor decreases total
payments to hospitals. If we were to
remove this budget neutrality
adjustment factor for years prior to the
base year, the normalized DRG weights
applied to the hospital-specific amounts
would result in higher aggregate
payments than permitted under the
statute.
Section 1886(b)(3)(I) of the Act (as
added by section 405 of Public Law
106–113 (BBRA 1999) and further
amended by section 213 of Public Law
106–554 (BIPA 2000)) contains a
provision for SCHs to rebase their
hospital-specific rate using the
hospital’s FY 1996 cost per discharge
data. Specifically, beginning in FY 2001,
SCHs can also use their reasonable and
allowable FY 1996 operating costs for
inpatient hospital services as the basis
for their hospital-specific rate rather
than only their FY 1982 or FY 1987
costs, if using FY 1996 costs would
result in higher payments. Effective for
cost reporting periods beginning on or
after January 1, 2009, SCHs will be paid
based on their hospital-specific rate
using FY 2006 costs, if this rate yields
higher payments (as provided for under
section 122 of Public Law 110–275
(MIPPA 2008)). For the reasons
explained above, the instructions for
implementing both the FY 1996 and FY
2006 SCH rebasing provisions direct the
fiscal intermediary or MAC to apply
cumulative budget neutrality
adjustment factors to account for DRG
changes since FY 1993 in determining
an SCH’s hospital-specific rate based on
either FY 1996 or FY 2006 cost data.
(The FY 1996 SCH rebasing provision
was implemented in Transmittal A–00–
66 (Change Request 1331) dated
September 18, 2000, and the FY 2006
SCH rebasing provision was
implemented in a Joint Signature
Memorandum (JSM/TDL–09052), dated
November 17, 2008.)
As stated previously, section 5003(b)
of Public Law 109–171 (DRA 2005)
allows MDHs to use the hospital’s FY
2002 costs per discharge (that is, the FY
2002 updated hospital-specific rate) for
discharges occurring on or after October
1, 2006, if that results in a higher
payment. As we discussed in the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule (74 FR 24183 through 24185), to
implement this provision, CMS issued
Transmittal 1067 (Change Request 5276
dated September 25, 2006) with
instructions to fiscal intermediaries to
determine and update the FY 2002
hospital-specific rate for qualifying
MDHs. To calculate an MDH’s FY 2002
hospital-specific rate and update it to
FY 2007, the instructions directed fiscal
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intermediaries to apply cumulative
budget adjustment factors for FYs 2003
through 2007. However, the instructions
did not include the cumulative budget
neutrality adjustment factor to account
for changes in the DRGs from FYs 1993
through 2002. As a result, effective
beginning in FY 2007, any MDH that
was paid based on its FY 2002 hospitalspecific rate (calculated in accordance
with the instructions provided in
Transmittal 1067) has been paid based
on a hospital-specific rate that failed to
include a cumulative budget neutrality
adjustment factor to account for DRG
changes from FYs 1993 through 2002 (a
cumulative budget neutrality
adjustment factor of 0.982557 (or about
-1.74 percent)), in addition to the
cumulative budget neutrality
adjustment factors applied for FYs 2003
through 2007 that have already been
applied as specified in the
implementing instructions. As we
discussed in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule, in order to
conduct a meaningful comparison
between payments under the Federal
rate, which is adjusted by the
cumulative budget neutrality factor, and
payments based on the hospital-specific
rate, consistent with our established
policy of applying a cumulative budget
neutrality adjustment factor to account
for DRG changes since FY 1993, for
discharges beginning on or after October
1, 2009, we stated our intention to
include the cumulative budget
neutrality adjustment factors for the
DRG changes from FYs 1993 through
2002, in addition to the cumulative
budget neutrality adjustment factors for
FYs 2003 forward. The cumulative
budget neutrality adjustment factor of
0.982557 is calculated as the product of
the following budget neutrality
adjustment factors to account for DRG
changes from FYs 1993 through 2002:
0.999851 for FY 1993; 0.999003 for FY
1994; 0.998050 for FY 1995; 0.999306
for FY 1996; 0.998703 for FY 1997;
0.997731 for FY 1998; 0.998978 for FY
1999; 0.997808 for FY 2000; 0.997174
for FY 2001; and 0.995821 for FY 2002.
We considered applying a factor of
0.982557 to any MDH’s FY 2002
hospital-specific rate to account for the
cumulative budget neutrality
adjustment for DRG changes from FYs
1993 through 2002, either effective for
discharges occurring on or after October
1, 2006 (the initial effective date of the
FY 2002 rebasing) or, alternatively,
effective upon the issuance of the
correction. However, consistent with the
prospective nature of the rates under the
IPPS, we are applying the adjustment on
a prospective basis only, effective for
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discharges occurring on or after October
1, 2009 (FY 2010). This effective date
would give affected MDHs sufficient
notice of the change to their hospitalspecific rate. We estimate that
approximately 50 MDHs will be affected
by the application of the cumulative
budget neutrality adjustment for DRG
changes from FYs 1993 through 2002.
Based on the current cumulative budget
neutrality adjustment factor of 0.982557
to account for DRG changes from FYs
1993 through 2002, we estimate that, in
some instances, application of the
cumulative budget neutrality
adjustment factor will lower the
hospital-specific rate to the point that
the Federal rate would result in higher
payments.
Comment: Some commenters asserted
that the application of a cumulative
budget neutrality adjustment factor for
the DRG changes from FYs 1993 through
2002 doubles the impact of this
adjustment on the hospital-specific
rates. The commenters believed that the
average case weight from FYs 1993
through 2002 increased and that the
cumulative budget neutrality
adjustment built into the Federal rates
and hospital-specific rates for this time
period offsets this average case weight
increase. The commenters believed,
therefore, that this budget neutrality
adjustment is already being accounted
for when the fiscal intermediary divides
the MDH’s FY 2002 average cost per
discharge by the hospital’s case mix
index for FY 2002, because the case-mix
index reflects the higher average case
weight increase.
Response: As described in section
II.H. of the preamble of this final rule,
the recalibrated DRG weights are
normalized each year by an adjustment
factor so that the national average case
weight after DRG recalibration is equal
to the national average case weight
before recalibration. The normalization
process is designed to offset any
increase or decrease in the national
average case weight due to recalibration.
Because the weights are normalized,
they do not reflect national average case
weight change due to recalibration.
Therefore, the hospital’s case-mix index
for FY 2002, which is calculated using
DRG weights after normalization, do not
reflect national average case weight
change. We disagree with commenter’s
assertions that the average case weight
from FYs 1993 through 2002 increased
due to recalibration and that the
cumulative budget neutrality
adjustment built into the Federal rates
and hospital specific rates for this time
period offsets an average case weight
increase due to recalibration. The
cumulative budget neutrality
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adjustment is not already being
accounted for when the fiscal
intermediary divides the FY 2002
average cost per discharge for a hospital
by the hospital’s case-mix index for FY
2002.
Comment: One commenter stated that
even if a cumulative budget neutrality
factor should be applied, it is wrongly
calculated, pointing to a change made
by CMS, effective FY 2006 and forward,
to no longer apply the wage index
budget neutrality adjustment factor to
the hospital-specific rate of SCHs and
MDHs, but rather only a DRG
recalibration budget neutrality
adjustment factor (70 FR 47430). The
budget neutrality adjustment factor
applied to the hospital-specific rate
prior to FY 2006 was a composite of
both the budget neutrality adjustment to
account for redistribution of cases
among DRGs and the budget neutrality
adjustment to account for changes to the
wage index. The commenter took issue
that the cumulative budget neutrality
adjustment factor continues to include
factors that adjust for wage index
changes prior to FY 2006, and stated
that the adjustment factors prior to FY
2006 that are included in the
cumulative budget neutrality factor
should be only the DRG recalibration
budget neutrality adjustment factors,
consistent with the change made for FY
2006 forward.
Response: Regarding the application
of combined wage index and DRG
recalibration budget neutrality
adjustment factors for FYs 1993 through
2005, in the FY 2006 IPPS final rule (70
FR 47430), we stated that we believe
that our former policy of applying both
a combined wage and DRG budget
neutrality adjustment factor is still
valid. Therefore, we do not believe it is
necessary or appropriate to change the
applicable budget neutrality adjustment
factors to only DRG recalibration budget
neutrality adjustment factors for that
period. We also note that those factors,
the cumulative budget neutrality
adjustment factors for the hospitalspecific rates, which included both the
wage index and DRG recalibration
budget neutrality adjustment factors for
FYs 1993 through 2005, were
established as a result of a notice-andcomment rulemaking process, and we
would not retroactively recalculate
these factors.
Comment: One commenter stated that
the cumulative budget neutrality
adjustment factor for FYs 1993 through
2005 is incorrect because two factors
within it, the FY 1999 and the FY 2003
budget neutrality adjustment factors, are
incorrect; that is, they are not those
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presented in the applicable Federal
Register notice.
Response: Although the FY 1999
budget neutrality adjustment factor was
initially published in the FY 1999 IPPS
final rule, in the February 25, 1999 final
notice (64 FR 9381), the budget
neutrality adjustment factor for FY 1999
was subsequently revised to 0.998978,
in conjunction with subsequent
revisions to the wage index, effective
March 1, 1999 through September 30,
1999. Consistent with our policy of
applying DRG budget neutrality in a
cumulative manner, the revised factor is
carried permanently in both the
standardized rate and the hospitalspecific rates.
Similarly, for FY 2003, the original
budget neutrality adjustment factor
initially published in the FY 2003 IPPS
final rule was subsequently revised. In
conjunction with the implementation of
the temporary equalization of the IPPS
standardized amounts required by
section 402(b) of Public Law 108–7, the
budget neutrality adjustment factor was
again revised based on wage index
corrections.
We note that we received a number of
public comments of issues that were
outside of the scope of the provisions of
the proposed rule, and therefore, we are
not responding to them in this final
rule. These public comments related to
the SCH FY 2006 hospital-specific rate,
the SCH volume decrease adjustment,
and the application of DSH payments to
the hospital-specific rate.
After considering the public
comments we received and our findings
regarding those comments, we are
finalizing the policy discussed in the
proposed rule to apply a cumulative
budget neutrality adjustment factor to
MDHs’ FY 2002 hospital-specific rates
to adjust for each fiscal year from 1993
forward, as is done for the Federal rate.
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C. Rural Referral Centers (RRCs)
(§ 412.96)
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 that occurred
before October 1, 1994, RRCs received
the benefit of payment based on the
other urban standardized amount rather
than the rural standardized amount (as
discussed in the FY 1993 IPPS final rule
(59 FR 45404 through 45409). 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
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adjustment and the criteria for
geographic reclassification.
Section 402 of Public Law 108–173
raised the DSH adjustment for RRCs
such that they are not subject to the 12percent cap on DSH payments
applicable to other rural hospitals. RRCs
are also not subject to the proximity
criteria when applying for geographic
reclassification. In addition, they do not
have to meet the requirement that a
hospital’s average hourly wage must
exceed, by a certain percentage, the
average hourly wage of the labor market
area where the hospital is located.
Section 4202(b) of Public Law 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 IPPS final rule with comment
period (62 FR 45999), CMS reinstated
RRC status for all hospitals that lost the
status due to triennial review or MGCRB
reclassification. However, CMS did not
reinstate the status of hospitals that lost
RRC status because they were now
urban for all purposes because of the
OMB designation of their geographic
area as urban. Subsequently, in the
August 1, 2000 IPPS 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
all of the other applicable criteria. We
use the definitions of ‘‘urban’’ and
‘‘rural’’ specified in Subpart D of 42 CFR
part 412. One of the criteria under
which a hospital may qualify as an 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). (We refer readers to
§ 412.96(c)(1) through (c)(5) and 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—
• 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
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43897
• 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.)
1. Case-Mix Index (CMI)
Section 412.96(c)(1) provides that
CMS 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 used to
determine the national and regional CMI
values is set forth in the regulations at
§ 412.96(c)(1)(ii). The national median
CMI value for FY 2010 includes data
from all urban hospitals nationwide,
and the regional values for FY 2010 are
the median CMI values of urban
hospitals within each census region,
excluding those hospitals with
approved teaching programs (that is,
those hospitals that train residents in an
approved GME program as provided in
§ 413.75). These values are based on
discharges occurring during FY 2008
(October 1, 2007 through September 30,
2008), and include bills posted to CMS’
records through March 2009.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24185), we
proposed that, in addition to meeting
other criteria, if rural hospitals with
fewer than 275 beds are to qualify for
initial RRC status for cost reporting
periods beginning on or after October 1,
2009, they must have a CMI value for
FY 2008 that is at least—
• 1.4667; or
• The median CMI value (not
transfer-adjusted) for urban hospitals
(excluding hospitals with approved
teaching programs as identified in
§ 413.75) calculated by CMS for the
census region in which the hospital is
located.
Based on the latest available data (FY
2008 bills received through March
2009), in addition to meeting other
criteria, if rural hospitals with fewer
than 275 beds are to qualify for initial
RRC status for cost reporting periods
beginning on or after October 1, 2009,
they must have a CMI value for FY 2008
that is at least—
• 1.4669; or
• The median CMI value (not
transfer-adjusted) for urban hospitals
(excluding hospitals with approved
teaching programs as identified in
§ 413.75) calculated by CMS for the
census region in which the hospital is
located.
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FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule at 74 FR 24186.)
Based on the latest discharge data
available at this time, that is, for cost
Case-mix
reporting periods that began during FY
index value 2007, the final median number of
discharges for urban hospitals by census
1.2612 region are set forth in the following
1.3011 table.
The final median CMI values by
region are set forth in the following
table:
Region
1. New England (CT, ME, MA,
NH, RI, VT) ...........................
2. Middle Atlantic (PA, NJ, NY)
3. South Atlantic (DE, DC, FL,
GA, MD, NC, SC, VA, WV) ..
4. East North Central (IL, IN,
MI, OH, WI) ...........................
5. East South Central (AL, KY,
MS, TN) .................................
6. West North Central (IA, KS,
MN, MO, NE, ND, SD) ..........
7. West South Central (AR, LA,
OK, TX) .................................
8. Mountain (AZ, CO, ID, MT,
NV, NM, UT, WY) .................
9. Pacific (AK, CA, HI, OR,
WA) .......................................
1.4212
1.3994
1.3311
1.4045
1.4692
1.5217
1.4298
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A hospital seeking to qualify as an
RRC should obtain its hospital-specific
CMI value (not transfer-adjusted) from
its fiscal intermediary or MAC. Data are
available on the Provider Statistical and
Reimbursement (PS&R) System. In
keeping with our policy on discharges,
the CMI values are computed based on
all Medicare patient discharges subject
to the IPPS MS–DRG-based payment.
2. Discharges
Section 412.96(c)(2)(i) provides that
CMS 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. In
the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24186) we
proposed to update the regional
standards based on discharges for urban
hospitals’ cost reporting periods that
began during FY 2007 (that is, October
1, 2006 through September 30, 2007),
which were the latest cost report data
available at the time the proposed rule
was developed.
Therefore, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule, we
proposed 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, 2009, must have as the
number of discharges for its cost
reporting period that began during FY
2007 a figure that is at least—
• 5,000 (3,000 for an osteopathic
hospital); or
• The median number of discharges
for urban hospitals in the census region
in which the hospital is located. (We
refer readers to the table set forth in the
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Number of
Discharges
Region
unweighted FTE count of residents for
purposes of direct GME 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, a similar limit on the FTE resident
count for IME purposes is effective for
discharges occurring on or after October
1, 1997.
2. IME Adjustment Factor for FY 2010
The IME adjustment to the MS–DRG
payment is based in part on the
8,347
10,729 applicable IME adjustment factor. The
IME adjustment factor is calculated by
10,725 using a hospital’s ratio of residents to
beds, which is represented as r, and a
9,282 formula multiplier, which is
represented as c, in the following
7,281 equation: c × [{1 + r} .405¥1]. The
formula is traditionally described in
8,636
terms of a certain percentage increase in
7,254 payment for every 10-percent increase
in the resident-to-bed ratio.
Section 502(a) of Public Law 108–173
9,823
modified the formula multiplier (c) to be
8,715 used in the calculation of the IME
adjustment. Prior to the enactment of
We note that the median number of
Public Law 108–173, the formula
discharges for hospitals in each census
multiplier was fixed at 1.35 for
region is greater than the national
discharges occurring during FY 2003
standard of 5,000 discharges. Therefore, and thereafter. In the FY 2005 IPPS final
5,000 discharges is the minimum
rule, we announced the schedule of
criterion for all hospitals.
formula multipliers to be used in the
We reiterate that, if an osteopathic
calculation of the IME adjustment and
hospital is to qualify for RRC status for
incorporated the schedule in our
cost reporting periods beginning on or
regulations at § 412.105(d)(3)(viii)
after October 1, 2009, the hospital
through (d)(3)(xii). Section 502(a)
would be required to have at least 3,000 modified the formula multiplier
discharges for its cost reporting period
beginning midway through FY 2004 and
that began during FY 2007.
provided for a new schedule of formula
multipliers for FYs 2005 and thereafter
D. Indirect Medical Education (IME)
as follows:
Adjustment (§ 412.105)
• For discharges occurring on or after
1. Background
April 1, 2004, and before October 1,
2004, the formula multiplier is 1.47.
Section 1886(d)(5)(B) of the Act
• For discharges occurring during FY
provides for an additional payment
2005, the formula multiplier is 1.42.
amount under the IPPS for hospitals
• For discharges occurring during FY
that have residents in an approved
2006, the formula multiplier is 1.37.
graduate medical education (GME)
• For discharges occurring during FY
program in order to reflect the higher
2007, the formula multiplier is 1.32.
indirect patient care costs of teaching
• For discharges occurring during FY
hospitals relative to nonteaching
hospitals. The regulations regarding the 2008 and fiscal years thereafter, the
formula multiplier is 1.35.
calculation of this additional payment,
known as the indirect medical
Accordingly, for discharges occurring
education (IME) adjustment, are located during FY 2010, the formula multiplier
at § 412.105.
is 1.35. We estimate that application of
Public Law 105–33 (BBA 1987)
this formula multiplier for the FY 2010
established a limit on the number of
IME adjustment will result in an
allopathic and osteopathic residents that increase in IPPS payment of 5.5 percent
a hospital may include in its full-time
for every approximately 10-percent
equivalent (FTE) resident count for
increase in the hospital’s resident-to-bed
direct GME and IME payment purposes. ratio.
Under section 1886(h)(4)(F) of the Act,
We did not receive any public
for cost reporting periods beginning on
comments specifically on the IME
or after October 1, 1997, a hospital’s
adjustment factor.
1. New England (CT, ME, MA,
NH, RI, VT) ...........................
2. Middle Atlantic (PA, NJ, NY)
3. South Atlantic (DE, DC, FL,
GA, MD, NC, SC, VA, WV) ..
4. East North Central (IL, IN,
MI, OH, WI) ...........................
5. East South Central (AL, KY,
MS, TN) .................................
6. West North Central (IA, KS,
MN, MO, NE, ND, SD) ..........
7. West South Central (AR, LA,
OK, TX) .................................
8. Mountain (AZ, CO, ID, MT,
NV, NM, UT, WY) .................
9. Pacific (AK, CA, HI, OR,
WA) .......................................
PO 00000
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Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations
3. IME-Related Changes in Other
Sections of This Final Rule
We refer readers to section V.E.2. and
4. of the preamble of this final rule for
a discussion of changes to the policies
for counting beds and patient days in
relation to the calculations for the IME
adjustment at § 412.105(b) and the DSH
payment adjustment at
§ 412.106(a)(1)(ii). We also address the
public comments we received in section
V.E.2. and 4. of this preamble. The
regulations relating to the DSH payment
adjustment at § 412.106(a)(1)(i) crossreference the IME regulation at
§ 412.105(b), which specifies how the
number of beds in a hospital is
determined for purposes of calculating a
teaching hospital’s IME adjustment.
Specifically, as we proposed, we are
changing our policies with respect to
counting bed days for patients receiving
observation services.
We also refer readers to section V.G.2.
of the preamble of this final rule for a
discussion of our clarification of the
definition of a new medical residency
training program for purposes of
Medicare direct GME payment and the
public comments that we received on
our proposed clarification and our
responses. This clarification also will
apply for purposes of IME payment and
could affect IME FTE resident cap
adjustments for new medical residency
training programs. We also address any
public comments that we received on
this clarification in section V.G.2. of this
preamble.
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E. Payment Adjustment for Medicare
Disproportionate Share Hospitals
(DSHs) (§ 412.106)
1. Background
Section 1886(d)(5)(F) of the Act
provides for additional Medicare
payments to subsection (d) hospitals
that serve a significant disproportionate
number of low-income patients. The Act
specifies two methods by which a
hospital may qualify for the Medicare
disproportionate share hospital (DSH)
adjustment. Under the first method,
hospitals that are located in an urban
area and have 100 or more beds may
receive a Medicare DSH payment
adjustment if the hospital can
demonstrate that, during its cost
reporting period, more than 30 percent
of its net inpatient care revenues are
derived from State and local
government payments for care furnished
to needy patients with low incomes.
This method is commonly referred to as
the ‘‘Pickle method.’’ The second
method for qualifying for the DSH
adjustment, which is the most common,
is based on a complex statutory formula
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under which the DSH payment
adjustment is based on the hospital’s
geographic designation, the number of
beds in the hospital, and the level of the
hospital’s disproportionate patient
percentage (DPP). A hospital’s DPP is
the sum of two fractions: The ‘‘Medicare
fraction’’ and the ‘‘Medicaid fraction.’’
The Medicare fraction is computed by
dividing the number of the hospital’s
inpatient days that are furnished to
patients who were entitled to both
Medicare Part A (including patients
who are enrolled in a Medicare
Advantage (Part C) plan) and
Supplemental Security Income (SSI)
benefits by the hospital’s total number
of patient days furnished to patients
entitled to benefits under Medicare Part
A (including patients who are enrolled
in a Medicare Advantage (Part C) plan).
The Medicaid fraction is computed by
dividing the hospital’s number of
inpatient days furnished to patients
who, for such days, were eligible for
Medicaid, but were not entitled to
benefits under Medicare Part A, by the
hospital’s total number of inpatient days
in the same period.
Because the DSH payment adjustment
is part of the IPPS, the DSH statutory
references (under section 1886(d)(5)(F)
of the Act) to ‘‘days’’ apply only to
inpatient days. Regulations located at 42
CFR 412.106 govern the Medicare DSH
payment adjustment and specify how
the DPP is calculated as well as how
beds and patient days are counted in
determining the Medicare DSH payment
adjustment. Under § 412.106(a)(1)(i), the
number of beds for the Medicare DSH
payment adjustment is determined in
accordance with bed counting rules for
the IME adjustment under § 412.105(b).
In section V.E.4. of this preamble, we
are combining our discussion of changes
to the policies for counting beds in
relation to the calculations for the IME
adjustment at § 412.105(b) and the DSH
payment adjustment at § 412.106(a)(1)
because the underlying concepts are
similar and we believe they should
generally be interpreted in a consistent
manner for both purposes. Specifically,
as we proposed, we are changing our
Medicare DSH policies with respect to
counting patient days and bed days, as
well as IME bed counting policy, for
patients receiving observation services.
2. Policy Change Relating to the
Inclusion of Labor and Delivery Patient
Days in the Medicare DSH Calculation
a. Background
As discussed in the FY 2004 IPPS
final rule (68 FR 45419 through 45420),
prior to December 1991, Medicare’s
policy on counting days for purposes of
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allocating costs on the cost report and
for purposes of the DSH payment
adjustment for maternity patients was to
count an inpatient day for an admitted
maternity patient in a labor and delivery
room at the census-taking hour. This
pre-December 1991 policy is consistent
with current Medicare policy for
counting days for admitted patients in
any other ancillary department at the
census-taking hour. However, based on
decisions in a number of Federal Courts
of Appeal, including the United States
Court of Appeals for the District of
Columbia Circuit, relating to Medicare’s
policy for allocating costs, the policy
regarding the counting of inpatient days
for maternity patients was revised to
reflect our existing policy for purposes
of both cost allocation and the DSH
calculation.
Under the existing regulations at
§ 412.106(a)(1)(ii)(B), patient days
associated with beds used for ancillary
labor and delivery are excluded from
the Medicare DSH calculation. This
policy, in part, is based on cost
allocation rules (that is, rules for
counting days for admitted patients in
ancillary and routine cost centers for
purposes of allocating costs on the
Medicare cost report). In particular,
section 2205.2 of the Provider
Reimbursement Manual (PRM) provides
the following: ‘‘A maternity patient in
the labor/delivery room ancillary area at
midnight is included in the census of
the inpatient routine (general or
intensive) care area only if the patient
has occupied an inpatient routine bed at
some time since admission. No days of
inpatient routine care are counted for a
maternity inpatient who is discharged
(or dies) without ever occupying an
inpatient routine bed. However, once a
maternity patient has occupied an
inpatient routine bed, at each
subsequent census the patient is
included in the census of the inpatient
routine care area to which assigned even
if the patient is located in an ancillary
area (labor/delivery room or another
ancillary area) at midnight. In some
cases, a maternity patient may occupy
an inpatient bed only on the day of
discharge, where the day of discharge
differs from the day of admission. For
purposes of apportioning the cost of
inpatient routine care, this single day of
routine care is counted as the day of
admission (to routine care) and
discharge and, therefore, is counted as
one day of inpatient routine care.’’
In applying the rules discussed above,
if, for example, a Medicaid patient is in
the labor room at the census-taking hour
and has not yet occupied a routine
inpatient bed, the day would not be
counted as an inpatient day in the
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sroberts on DSKD5P82C1PROD with RULES
numerator or the denominator of the
Medicaid fraction of the Medicare DPP.
If, instead, the same patient were in the
labor room at the census-taking hour,
but had first occupied a routine
inpatient bed, the day would be counted
as an inpatient patient day in both the
numerator and the denominator of the
Medicaid fraction of the Medicare DPP
for purposes of the DSH payment
adjustment (and for apportioning the
cost of routine care on the Medicare cost
report).
We further clarified this policy in the
FY 2004 IPPS final rule (68 FR 45419
through 45420), given that hospitals had
increasingly begun redesigning their
maternity areas from separate labor and
delivery rooms and postpartum rooms
to single multipurpose labor, delivery,
and postpartum (LDP) rooms. In order to
appropriately track the days and costs
associated with LDP rooms under our
existing Medicare DSH policy, we stated
that it was necessary to apportion them
between the labor and delivery cost
center, which is an ancillary cost center,
and the routine adults and pediatrics
cost center (68 FR 45420). This is done
by determining the proportion of a
patient’s stay in the LDP room that is
associated with the patient receiving
ancillary services (labor and delivery),
as opposed to routine adult and
pediatric services (postpartum).
Therefore, under the current policy,
days associated with labor and delivery
services furnished to patients who did
not occupy a routine bed prior to
occupying an ancillary labor and
delivery bed before the census-taking
hour are not included as inpatient days
for purposes of the DSH calculation.
This policy is applicable whether the
hospital maintains separate labor and
delivery rooms and postpartum rooms,
or whether it maintains ‘‘maternity
suites’’ in which labor, delivery, and
postpartum services all occur in the
same bed. However, in the latter case,
patient days are counted proportionally
based on the proportion of (routine/
ancillary) services furnished. (We refer
readers to the example provided in the
FY 2004 IPPS final rule (68 FR 45420)
that describes how routine and ancillary
days are allocated under this policy.)
b. Proposed and Final Policy Change
As we indicated in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24188), upon further examination of
our existing policy on counting patient
days, we no longer believe that it is
appropriate to apply the cost allocation
rules for purposes of counting labor and
delivery patient days in the Medicare
DSH calculation. That is, we believe
that even if a particular labor and
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delivery patient day is not included in
the inpatient routine care census-taking
for purposes of apportioning routine
costs, it may still reasonably be
considered to be an inpatient day for
purposes of determining the DPP,
provided that the unit or ward in which
the labor and delivery bed is located is
generally providing services that are
payable under the IPPS. In general, we
believe the costs associated with labor
and delivery patient days (regardless of
whether they are associated with
patients who occupied a routine bed
prior to occupying an ancillary labor
and delivery bed) are generally payable
under the IPPS. Therefore, we believe
that such patient days should be
included in the DPP as inpatient days
once the patient has been admitted to
the hospital an as inpatient.
Accordingly, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule, for cost
reporting periods beginning on or after
October 1, 2009, we proposed to change
our existing policy regarding patient
days to include, in the DPP calculation,
patient days associated with maternity
patients who were admitted as
inpatients and were receiving ancillary
labor and delivery services at the time
the inpatient routine census is taken,
regardless of whether the patient
occupied a routine bed prior to
occupying a bed in a distinct ancillary
labor and delivery room and regardless
of whether the patient occupied a
routine bed prior to occupying an
ancillary labor and delivery bed and
regardless of whether the patient
occupies a ‘‘maternity suite’’ in which
labor, delivery, recovery, and
postpartum care all take place in the
same room. We believed that this
proposed policy would be consistent
with our existing policy under section
2205 of the PRM–I regarding counting
patient days associated with other
ancillary areas (such as surgery and
postanesthesia).
We note that we did not propose to
change our policy on patient days for
labor and delivery patients who are not
admitted to the hospital as inpatients.
For example, if a woman presents at a
hospital for labor and delivery services,
but is determined by medical staff to be
in false labor and is sent home without
ever being admitted to the hospital as an
inpatient, any days associated with such
services furnished by the hospital
would not be included in the DPP for
purposes of the Medicare DSH
calculation. That is, because the patient
would be considered an outpatient, the
day (or days) associated with the
hospital visit would not be counted for
purposes of the Medicare DSH
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calculation because such days would
not be considered inpatient days. In
addition, we indicated that the
proposed policy would not affect
existing policies relating to the
allocation of costs for Medicare cost
reporting purposes or for determining
the number of available beds under
§ 412.105(b)(4) or § 412.106(a)(1)(i). In
other words, our hospital instructions in
the PRM–I for those purposes remain
unchanged and unaffected by the
proposed policy.
Comment: Several commenters
supported the proposal. Specifically, the
commenters asserted that they agreed
with CMS’ statement that, because
inpatient labor and delivery days are
generally payable under the IPPS, they
should be included in the DSH
calculation. Some commenters
commended CMS for revisiting its
policy.
Response: We thank the commenters
for their support.
Comment: One commenter opposed
the proposal. The commenter stated that
CMS should continue to exclude labor
and delivery patient days associated
with patients who did not occupy a
routine bed prior to occupying a labor
and delivery bed. The commenter
asserted that ‘‘historical litigation has
already resulted in a conclusion that
labor and delivery days should be
excluded from the cost allocation rules
[and that] this recognition of the
different nature of labor and delivery
days is inconsistent with CMS’ proposal
to now treat those days exactly the same
as routine days for all patients who are
admitted.’’
Response: As we stated in the
proposed rule (74 FR 24188), upon
further examination of our existing
policy on counting patient days, we no
longer believe that it is appropriate to
apply the cost allocation rules for
purposes of counting labor and delivery
patient days in the Medicare DSH
calculation. That is, we believe that
even if a particular labor and delivery
patient day is not included in the
inpatient routine care census-taking for
purposes of apportioning routine costs,
it may still reasonably be considered to
be an inpatient day for purposes of
determining the DPP, provided that the
unit or ward in which the labor and
delivery bed is located is generally
providing services that are payable
under the IPPS. We disagree that the
rules for patient days included for
purposes of cost allocation must mirror
those included for purposes of Medicare
DSH. We note that we did not propose
to change the cost allocation rules and
that to the extent that labor and delivery
patient days are excluded for cost
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Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations
allocation purposes, that policy is
unaffected by our proposed policy for
Medicare DSH purposes.
Comment: One commenter requested
clarification that labor and delivery
patient days will be counted only for
DSH purposes and not for other patient
day allocation purposes. The
commenter asked that CMS confirm that
a separate line would be added to
Worksheet S–3 of the Medicare cost
report to accommodate the reporting.
Response: As we indicated in the
proposed rule, the proposed policy
would not change existing underlying
policies relating to the allocation of
costs for Medicare cost reporting
purposes. We will provide cost
reporting instructions (at a later time) to
reflect the revised policy.
Comment: Several commenters
requested additional clarification of
how the proposed policy would be
applied. Specifically, the commenters
asked how cost reports that had
appealed the exclusion of labor and
delivery days and cost reports that were
either still open or ‘‘reopenable’’ would
be treated. Some commenters referenced
a recent Administrator’s decision (‘‘QRS
CHW DSH Labor Room Days Groups vs.
Blue Cross Blue Shield Association/
United Government Services LLC–CA’’
signed April 13, 2009) that allowed the
inclusion of patient days associated
with labor, delivery, and postpartum
beds for a group of hospitals located in
the Ninth Circuit Court of Appeals for
fiscal years prior to FY 2004. One
commenter asked whether hospitals
located in the Ninth Circuit would be
treated differently with respect to the
inclusion of labor and delivery days for
periods prior to October 1, 2009. Other
commenters noted that there were
several appeals pending on the issue of
the exclusion of labor and delivery days
currently pending at the Provider
Review and Reimbursement Board
(PRRB) and stated that it would be
equitable to allow all hospitals with
open cost reports and or appeals on this
issue to count all labor and delivery
inpatient days because it would be
CMS’ policy to include the days going
forward. One commenter noted that, in
the FY 2004 IPPS final rule, when CMS
provided guidance for apportioning day
in labor-delivery-postpartum rooms, the
policy was applied to all currently open
and future cost reports and suggested
that the FY 2010 proposed policy also
be applied to all open cost reports.
Response: In response to the
commenters who asked how the
proposed policy would affect previous
cost reporting periods, our proposal to
include labor and delivery days in the
DSH calculation for cost reporting
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periods beginning on or after October 1,
2009, is a change in policy that
stemmed from a reevaluation of the
existing policy. We believe that both the
existing policy and the proposed new
policy, although different, are
permissible and reasonable
interpretations of the law. Accordingly,
we are applying the new policy
prospectively to future cost reporting
periods. Prior cost reporting periods
would be covered under the policies
that existed in those corresponding
periods. With regard to the abovereferenced Administrator’s decision, we
believe it is beyond the scope of this
rule, as the decision was not based on
the underlying labor and delivery policy
but turned instead upon the 9th
Circuit’s interpretation of the regulation
governing the counting of patient days
prior to 2004. Consequently, that
decision addresses only cost reporting
years prior to 2004 for hospitals located
in the 9th Circuit. Therefore, the
Administrator’s decision does not affect
the proposed policy that we are
adopting in this final rule. In response
to the comment regarding hospitals that
filed appeals on the exclusion of labor
and delivery patient days, we note that
such cases will continue to be handled
through the administrative appeals
process.
In response to the commenters who
suggested that the proposed policy
apply to all open cost reports, similar to
the FY 2004 final IPPS policy relating to
labor-delivery-postpartum rooms (68 FR
45420), we remind the commenter that
the FY 2004 policy was a clarification
of existing policy; whereas this year’s
proposed policy is a new policy.
Accordingly, we cannot apply a new
policy to prior cost reporting periods.
Comment: One commenter noted that
the proposed policy would continue to
apply only to individuals who were
admitted as inpatients. The commenter
asked whether a patient who was not
admitted as an inpatient at the time she
began receiving labor and delivery
ancillary services, but was later
admitted as an inpatient, would have all
days counted for purposes of the
Medicare DSH adjustment or only the
days subsequent to the admission as an
inpatient. The commenter also noted
that some hospitals use the term
‘‘admitted’’ loosely and sometimes
consider any patient that presents to the
hospital to be admitted either as an
inpatient or an outpatient; the
commenter asked whether CMS could
develop a specific definition of when a
patient is admitted.
Response: Because the Medicare DSH
adjustment is an add-on payment to the
IPPS payment rate, only the days for
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43901
individuals who are admitted as
inpatients may be included in the DSH
calculation. Days prior to admission as
an inpatient may not be included. We
note that standards for inpatient
admission already exist, but that the
determination to admit a patient is
made by the physician who signs the
admitting orders. We do not believe it
is necessary to create a new standard for
inpatient admissions.
Comment: One commenter stated that
CMS posited a link between available
days for determining the IME payment
adjustment and days that are used for
calculation the disproportionate patient
percentage for DSH. The commenter
stated that available days used to
calculate IME payment adjustments are
unrelated to the Medicare statute that
discusses days for DSH purposes and
asked that CMS clarify how days for the
IME and DSH calculations are related.
Response: We note that the Medicare
DSH proposal relating to patient days
associated with labor and delivery
services specifically referenced patient
days and that the IME adjustment was
not mentioned in the context of this
proposal. The IME adjustment was
addressed, however, in the Medicare
DSH proposal related to available bed
days (and patient days) associated with
observation services. As we have noted,
under § 412,106(a)(1)(i), the number of
beds for the Medicare DSH payment
adjustment is determined in accordance
with bed counting rules for the IME
adjustment under § 412.105(b).
Accordingly, we combined our
discussion of proposed changes to the
policies for counting beds with regard to
observation services for both the IME
and DSH payment adjustments. Both
IME and DSH adjustments are
additional payments under the IPPS
system. Therefore, to the extent that
both adjustments include available bed
day counts, we believe that the available
bed day count generally should be
consistent for both adjustments.
After consideration of the public
comments received, we are finalizing
our proposed policy, without
modification, to include patient days
associated with patients occupying
labor and delivery beds in the
disproportionate patient percentage of
the Medicare DSH adjustment for cost
reporting periods beginning on or after
October 1, 2009, under
§ 412.106(a)(1)(ii).
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3. Policy Change Relating to Calculation
of Inpatient Days in the Medicaid
Fraction in the Medicare DSH
Calculation
a. Background
As stated under section V.E.1. of this
preamble, a hospital can qualify for the
Medicare DSH payment adjustment
based on its Medicare DPP, which is
equal to the sum of the percentage of
total Medicare inpatient days
attributable to patients entitled to both
Medicare Part A (including patients
enrolled in Medicare Advantage (Part
C)) and SSI and the percentage of total
inpatient days attributable to patients
eligible for Medicaid, but not entitled
for Medicare Part A.
Our existing policy of aggregating
days for the Medicare fraction of the
DSH calculation is to count days by the
date of discharge. This policy, which is
specified in the regulations at
§ 412.106(b)(2)(i)(A), applies to how
days are counted in both the numerator
and denominator of the Medicare
fraction.
Under the existing Medicare DSH
payment adjustment policy, a hospital is
required to report its Medicaid inpatient
days (that is, the ‘‘numerator’’ of the
Medicaid fraction) in the cost reporting
period in which the patient was
discharged. However, despite our
existing policy to count the days in the
numerator of the Medicaid fraction
based on the date of discharge, we
believe that there may have been
confusion about the existing policy that
may have led hospitals to vary in the
methodology they use to aggregate days
in the numerator of the Medicaid
fraction for patients who were eligible
for Medicaid. In many cases, we have
found that hospitals are reporting these
days to their fiscal intermediary or MAC
based on the method by which their
respective State Medicaid agencies have
chosen to collect and report Medicaideligible days to the hospital. We
understand that State Medicaid agencies
differ in how they collect and report
Medicaid-eligible days. As a result,
hospitals may be counting Medicaideligible days in the numerator of the
Medicaid fraction of the DPP based on
one of several possible methodologies,
rather than consistently counting days
based on the date of discharge, as
required under the existing policy. The
various methodologies being used by
State Medicaid agencies include date of
discharge, date of admission, date of
Medicaid payment, and dates of service.
As we indicated in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24188 through 24189), with the
exception of the methodology that
accumulates days in the numerator of
the Medicaid fraction by the date of
Medicaid payment, we believe that any
of these methodologies could
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appropriately capture all inpatient days
in which an individual was Medicaideligible for a hospital for the purpose of
counting days in the numerator of the
Medicaid fraction used in the DPP. We
do not believe that the date of Medicaid
payment is appropriate because our
policy is to include inpatient days for
which the patient was eligible for
Medicaid, regardless of whether
Medicaid paid for the days. Therefore,
we believe that the date of Medicaid
payment methodology may not capture
all of the days that a hospital would be
allowed to include in the numerator of
its Medicaid fraction. With respect to
the other possible alternatives to
counting days in the numerator of the
Medicaid fraction, we believe that it
becomes problematic when hospitals
change the methodology they use to
count days in the numerator of the
Medicaid fraction from one cost
reporting period to the next. Such
changes in the methodology of counting
days may result in ‘‘double counting’’ of
the same patient days in more than one
cost reporting period for a hospital.
b. Proposed and Final Policy Change
To address the issue of hospitals
reporting days in the numerator for the
Medicaid fraction of the DPP in the
Medicare DSH calculation based on data
they receive from their respective State
Medicaid agency and the fact that the
State Medicaid agency may report such
days based on one of several different
methodologies, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
24188 through 24189), we proposed to
revise our existing policy by adding a
new paragraph (iv) to § 412.106(b)(4) to
allow hospitals to report days in the
numerator of the Medicaid fraction of
the DPP based on one of three
methodologies. Specifically, we
proposed that, effective for cost
reporting periods beginning on or after
October 1, 2009, a hospital may report
Medicaid-eligible days in the numerator
of the Medicaid fraction of the DPP of
a cost reporting period based on date of
admission, date of discharge, or dates of
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service. However, we indicated that
under the proposed revised policy, a
hospital would be required to notify
CMS (through the fiscal intermediary or
MAC) in writing if the hospital chooses
to change its methodology of counting
days in the numerator of the Medicaid
fraction of the DPP. We proposed to
require that the written notification be
submitted at least 30 days prior to the
beginning of the cost reporting period to
which the requested change would
apply. The written notification must
specify the changed methodology the
hospital wishes to use and the cost
reporting period to which the requested
change would apply. We proposed that
a hospital would only be able to make
such a change effective on the first day
of the beginning of a cost reporting
period and the change would have to be
effective for the entire cost reporting
period; that is, a hospital would not be
permitted to change its methodology in
the middle of a cost reporting period.
This change would also be effective for
all subsequent cost reporting periods
unless the hospital submits a
subsequent notification to change its
methodology for a future cost reporting
period. We noted that we would expect
that a hospital would rarely decide to
change the methodology it uses to count
days in the numerator of the Medicaid
fraction of the DPP and that such a
change would be prompted out of
necessity (for example, the State
Medicaid agency changes the
methodology it uses to provide patient
Medicaid eligibility information to
hospitals). In addition, we proposed that
if a hospital changes its methodology for
counting days in the numerator of the
Medicaid fraction, CMS, or the fiscal
intermediary or MAC, would have the
authority to adjust the inpatient days
reported by the hospital in a cost
reporting period to prevent ‘‘double
counting’’ of days in the numerator of
the Medicaid fraction of the DPP of the
Medicare DSH calculation reported in
another cost reporting period.
Comment: Several commenters
supported the proposed change to allow
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hospitals to choose one of three
methodologies to report Medicaideligible days in the numerator of the
Medicaid fraction of the DPP. The
commenters stated that they supported
the flexibility that the proposed change
afforded to hospitals. They noted that a
rigid methodology of aggregating
inpatient days is an administrative
burden for hospitals if the methodology
differs from that used by the hospital’s
State Medicaid agency to verify
Medicaid eligibility. The commenters
stated that the proposal could alleviate
the administrative burden on hospitals.
Response: We thank the commenters
for their support.
Comment: Several commenters
requested that CMS confirm that the
choice of methodology as addressed by
the proposed change to
§ 412.106(b)(4)(iv) is determined by the
hospitals and not the fiscal Intermediary
and/or MAC. One commenter asked that
CMS modify the proposed regulatory
text to say that the choice of
methodology for accumulating inpatient
days be ‘‘at the hospital’s discretion.’’
Another commenter stated that, under
the existing policy, ‘‘there have been
instances in which the hospital has
reported Medicaid inpatient days based
on discharge but the FI/MAC changed
that method to reflect days on and
admission basis upon audit’’ and asked
that CMS clarify that date of discharge
be used for prior periods, consistent
with existing Medicare policy. The
commenter also stated that the choice of
methodology is ‘‘not a change that can
be made by the FI/MAC upon
settlement.’’
Response: We reiterate and confirm
that the proposed policy would allow
hospitals to report Medicaid-eligible
days in the numerator of the Medicaid
fraction of the DPP of a cost reporting
period based on date of admission, date
of discharge, or dates of service,
effective for cost reporting periods
beginning on or after October 1, 2009.
We disagree that additional regulatory
language is needed to clarify this
provision.
The proposed policy also provides
CMS and the fiscal intermediary or
MAC the authority to adjust the
inpatient days reported by the hospital
in a cost reporting period to prevent
‘‘double counting’’ of days in the
numerator of the Medicaid fraction of
the DPP of the Medicare DSH
calculation reported in another cost
reporting period if a hospital changes its
methodology. In response to the request
for clarification that the choice of
methodology is to be made by the
hospital, not the fiscal intermediary or
MAC, we reiterate that under the
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proposed policy, the provider may
choose one of the three methodologies
proposed. The fiscal intermediary or
MAC would not choose a methodology
for the hospital, but would have the
authority to make an adjustment to
ensure that no inpatient days are
counted more than once in any cost
reporting period. This adjustment
would not affect the methodology
chosen by the hospital for that or any
subsequent cost reporting periods.
In response to the commenters
question about existing Medicare policy
with respect to aggregating inpatient
days for the numerator of the Medicaid
fraction of the DPP, we agree with the
commenters’ statement that the fiscal
intermediary or MAC should not revise
cost reports to reflect any methodology
other than date of discharge under the
existing policy.
Comment: Several commenters
expressed concern that ‘‘hospitals
would be allowed to manipulate
calculations from year to year’’ and that
there was a need to ‘‘avoid hospitals
‘gaming’ the system.’’ These
commenters stressed the importance of
consistency in the calculations over
time. One commenter suggested that
CMS should not allow hospitals to
change methodologies, but insist that
hospitals make a one-time election of
methodology. Another commenter
recommended that, instead of allowing
hospitals to choose a methodology, CMS
should select the methodology that
hospitals should use to accumulate
inpatient days in the numerator of the
Medicaid fraction of the DPP of the
Medicare DSH calculation. Another
comment recommended that CMS
should require hospitals to follow its
State Medicaid agency’s methodology.
The commenter stated that this would
be ‘‘easier in terms of administration
and verification of days,’’ particularly
for hospitals that serve Medicaid patient
populations from multiple States.
Another commenter suggested that CMS
ask hospitals to submit their choice of
methodology each year with the
rationale for their choice to ensure that
the decision to change their
methodology is based on necessity. In
addition, they asserted that the onus
should rest on the hospitals to ensure
that they are not ‘‘double counting’’ or
claiming days to which they are not
entitled.
Response: We agree that consistency
in the calculations so that no ‘‘double
counting’’ of days occurs from one cost
reporting period to the next is
important. In light of public comments
supporting our proposal, we disagree
that CMS should select the methodology
for counting days in the numerator of
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43903
the Medicaid fraction of the DPP, or
require a hospital to follow its State
Medicaid agency’s methodology, or only
allow hospitals to make a one-time
election. We continue to believe in the
appropriateness of providing hospitals
with the flexibility to report Medicaideligible days in the numerator of the
Medicaid fraction of the DPP of a cost
reporting period based on date of
admission, date of discharge, or dates of
service, effective for cost reporting
periods beginning on or after October 1,
2009. For example, if CMS were to
select a methodology that differed from
a hospital’s current methodology and
there was no ‘‘double counting’’ by the
hospital because it had been using one
methodology consistently, this would
not improve the accuracy of the patient
days reported in the numerator of the
Medicaid fraction of the DPP but could
potentially introduce an administrative
burden on the hospital. Another
example relates to if a State Medicaid
agency were to change the method of
verification they currently use. If CMS
were to require a hospital to make a onetime election, and the hospital made an
election that was identical to the State
Medicaid agency’s methodology, and
the State Medicaid agency changed its
methodology, the hospital would no
longer have the flexibility to accumulate
these days based on the State Medicaid
agency’s methodology to ensure the
accuracy of the Medicaid fraction of the
DPP calculation. We reaffirm that, under
the proposed policy, hospitals would be
permitted to change the methodology
they employ from one cost reporting
period to the next, to be effective on the
first day of their cost reporting period
for the entire period, so long as they
notify the fiscal intermediary or MAC in
writing at least 30 days before the
beginning of their cost reporting period
for which the change would take effect.
We note that other commenters
supported the proposed policy in that it
would provide hospitals with the
flexibility to choose one of three
methodologies to report Medicaideligible days. Allowing hospitals the
flexibility to use date of discharge, date
of admission, or dates of service but
precluding ‘‘double counting’’ of days
from year to year should a hospital
choose to change methodologies will
assure accuracy in the calculation. This
would allow hospitals the ability to
accommodate a State Medicaid agency’s
methodology but not necessarily require
them to change their current
methodology. The burden to report the
correct number of patient days on its
cost report remains with the hospital. In
addition, under § 412.106(b)(4)(iii) of
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the regulations, we specify that, with
respect to the Medicaid fraction, ‘‘the
hospital has the burden of furnishing
data adequate to prove eligibility for
each Medicaid patient day claimed
under this paragraph, and of verifying
with the State that a patient was eligible
for Medicaid during each claimed
patient hospital day.’’ This
responsibility for verification exists
without regard to how a State Medicaid
agency may accumulate information. In
other words, if a hospital were to accept
its State Medicaid agency’s
methodology, it would still be required
to verify with the State the patient’s
eligibility during each claimed patient
day. Finally, while we agree that there
could be merit to collecting information
from hospitals regarding their choice of
methodology and rationale for such
choice, we seek to be reasonable about
the administrative burden placed on
both hospitals and the fiscal
intermediaries or MACs.
As we indicated in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24188 through 24189), we believe
that date of discharge, date of
admission, or date of service will
appropriately capture all inpatient days
in which an individual was Medicaideligible for a hospital for the purpose of
counting days in the numerator of the
Medicaid fraction used in the DPP.
Because we believe all three
methodologies could appropriately
capture all relevant days, and our focus
is generally only when ‘‘doublecounting’’ occurs because hospitals
change the methodology they use to
count days in the numerator of the
Medicaid fraction from one cost
reporting period to the next, we do not
believe that it is necessary for hospitals
to submit to CMS the rationale for their
change should they change
methodologies.
We also agree that the burden remains
on the hospital to ensure that the
hospital is not ‘‘double counting’’ days
and reporting the correct number of
patient days on their cost report. We
believe that ensuring that hospitals are
not double counting days should they
choose to change methodologies is
supported by existing DSH regulations
as well as cost reporting requirements
which state that hospitals must attest to
the accuracy of the data that they submit
on the cost report. However, we reiterate
that the fiscal intermediary or MAC still
has the authority to make any necessary
adjustments to the number of days that
the hospitals submitted on its cost
report, to the extent that such days were
already counted in another cost
reporting period. Because existing
policy with respect to accumulating
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days in the numerator of the Medicaid
fraction of the DPP requires that the
days be accumulated based on the date
of discharge, if a hospital does not send
the fiscal intermediary or MAC a written
notice at least 30 days prior to the start
of its next cost reporting period, CMS
and the fiscal intermediary or MAC may
presume that the hospital will
accumulate inpatient days in the
numerator of the Medicaid proxy of the
Medicare DPP using the date of
discharge.
Comment: Several commenters asked
for clarification about when a hospital
must notify CMS and what the hospital
must provide in that notification. In
particular, one commenter noted that, in
a May 6, 2009 Hospital Open Door
Forum, it was stated that hospitals
should provide notification to CMS if
they used a methodology other than
date of discharge.
Response: We reiterate that our
proposed policy would require hospitals
to submit the written notification to the
fiscal intermediary or MAC at least 30
days prior to the beginning of the cost
reporting period in which the requested
change would apply. If a hospital is not
changing the methodology that it uses,
it is not required to notify the fiscal
intermediary or MAC. Should a hospital
choose to change its methodology, we
require the hospital to provide written
notification that specifies the new
methodology the hospital wishes to use
and the cost reporting period to which
the requested change would apply.
Because our current policy is that
hospitals must report these days in the
numerator of the Medicaid fraction by
date of discharge, in the absence of such
written notification, the fiscal
intermediary or MAC may determine
that the hospital is reporting these days
using date of discharge and act
accordingly to ensure that Medicaid
patient days are not ‘‘double counted’’
in the numerator of the Medicaid
fraction of the DPP for cost reporting
periods beginning on or after October 1,
2009.
Comment: Some commenters asked
that CMS further clarify the
methodology for determining total
patient days in the denominator of the
Medicaid proxy for the Medicare DSH
calculation.
Response: Our proposal made no
changes to the way in which CMS
requires hospitals to accumulate total
patient days for the denominator of the
Medicaid fraction of the DPP for the
Medicare DSH calculation.
After consideration of the public
comments we received, we are
finalizing, without modification, our
proposal to revise our existing policy by
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adding a new paragraph (iv) to
§ 412.106(b)(4) to allow hospitals to
report days in the numerator of the
Medicaid fraction of the DPP of the
Medicare DSH calculation based on one
of three methodologies. Specifically, we
are finalizing our proposal that a
hospital may report Medicaid-eligible
days in the numerator of the Medicaid
fraction of the DPP of a cost reporting
period based on date of admission, date
of discharge, or dates of service. The
policy change is effective for cost
reporting periods beginning on or after
October 1, 2009. A hospital is required
to notify CMS (through the fiscal
intermediary or MAC) in writing if the
hospital chooses to change its
methodology of counting days in the
numerator of the Medicaid fraction of
the DPP of the Medicare DSH
calculation and must submit its written
notification at least 30 days prior to the
beginning of the cost reporting period to
which the requested change would
apply. The written notification must
specify the changed methodology the
hospital wishes to use and the cost
reporting period to which the requested
change would apply. As of the effective
date of this policy, in the absence of
such written notification, we clarify that
CMS, the fiscal intermediary, or the
MAC will determine a hospital to be
using date of discharge and act
accordingly to ensure that Medicaid
patient days are not ‘double counted’ in
the numerator of the Medicaid fraction
of the DPP for cost reporting periods
beginning on or after October 1, 2009. In
addition, we proposed that if a hospital
changes its methodology for counting
days in the numerator of the Medicaid
fraction, CMS, or the fiscal intermediary
or MAC, would have the authority to
adjust the inpatient days reported by the
hospital in a cost reporting period to
prevent ‘‘double counting’’ of days in
the numerator of the Medicaid fraction
of the DPP of the Medicare DSH
calculation reported in another cost
reporting period. Further, we are
finalizing our proposed policy that a
hospital would only be permitted to
make such a change effective on the first
day of the beginning of a cost reporting
period and the change would be
effective for the entire cost reporting
period; that is, a hospital would not be
permitted to change its methodology in
the middle of a cost reporting period.
This change would also be effective for
all subsequent cost reporting periods
unless the hospital submits a
subsequent notification to change its
methodology for a future cost reporting
period following the procedures
discussed above.
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4. Policy Change Relating to the
Exclusion of Observation Beds and
Patient Days From the Medicare DSH
Calculation
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a. Background
Observation services are defined in
the Medicare Benefit Policy Manual
(Publication No. 100–02, Chapter 6,
section 20.6A) as a ‘‘well-defined set of
specific, clinically appropriate services,
which include ongoing short-term
treatment, assessment, and reassessment
before a decision can be made regarding
whether patients will require further
treatment.’’ Observation services are
furnished by a hospital and include the
use of a bed and periodic monitoring by
a hospital’s nursing or other staff in
order to evaluate an outpatient’s
condition and/or to determine the need
for a possible admission to the hospital
as an inpatient. As discussed in section
20.6A of the Medicare Benefit Policy
Manual, when a physician orders that a
patient be placed under observation care
but has not formally admitted him or
her as an inpatient, the patient initially
is treated as an outpatient.
Consequently, the costs incurred for
patients receiving observation services
are not generally recognized under the
IPPS as part of the inpatient operating
costs of the hospital. In some
circumstances, observation services,
although furnished to outpatients, are
paid as part of an MS–DRG under the
IPPS. In particular, section 1886(d) of
the Act sets forth the payment system,
based on prospectively determined
rates, for the operating costs of inpatient
hospital services, which are defined
under section 1886(a)(4) of the Act to
include ‘‘the costs of all services for
which payment may be made under this
title that are provided by the hospital (or
by an entity wholly owned or operated
by the hospital) to the patient during the
3 days immediately preceding the date
of the patient’s admission if such
services are diagnostic services
(including clinical diagnostic laboratory
tests) or are other services related to the
admission (as defined by the
Secretary).’’ As further explained in
section 40.3 of Chapter 3 of the
Medicare Claims Processing Manual
(Publication 100–04), if a hospital
outpatient receives diagnostic
preadmission services that are related to
a patient’s hospital admission such that
there is an exact match between the
principal diagnosis for both the hospital
outpatient claim and the inpatient stay,
there is no payment for the diagnostic
preadmission services under the
hospital OPPS. Rather, these
preadmission outpatient services are
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rolled into the particular MS–DRG and
paid under the IPPS.
Our policy prior to October 1, 2003,
as discussed in the FY 2004 IPPS final
rule (68 FR 45418), had been to exclude
all observation days from the available
bed and the patient day counts. CMS
clarified that if a hospital provides
observation services in beds that are
generally used to provide hospital
inpatient services, the days that those
beds are used for observation services
are to be excluded from the bed day
count (even if the patient is ultimately
admitted as an acute inpatient).
In the FY 2004 IPPS proposed rule (68
FR 27205 through 27206), we also
proposed to amend our policy with
respect to observation days for patients
who are ultimately admitted for
inpatient acute care. Specifically, we
proposed that if a patient is admitted as
an acute inpatient subsequent to
receiving outpatient observation
services, the days associated with the
observation services would be included
in the available bed and patient day
counts. We did not finalize this policy
until the FY 2005 IPPS final rule (69 FR
49096 through 49098) when we revised
our regulations at § 412.105(b)(4) and
§ 412.106(a)(1)(ii) to specify that
observation days are to be excluded
from the counts of both available beds
and patient days, unless a patient who
receives outpatient observation services
is ultimately admitted for acute
inpatient care, in which case the bed
days and patient days would be
included in those counts. In
implementing this policy, we revised
Worksheet S–3, Part I of the Medicare
hospital cost report by subscripting
columns 5 and 6 to create columns 5.01
and 5.02, and 6.01 and 6.02, to allow for
separate reporting of observation days
for patients who are subsequently
admitted as inpatients and a separate
line for observation days for patients not
admitted. This policy change applied to
all cost reporting periods beginning on
or after October 1, 2004.
b. Proposed and Final Policy Change
As we previously indicated, a patient
who is receiving observation services is
a hospital outpatient, and the costs
associated with those services are paid
under the OPPS in most circumstances.
If, however, a patient receives
observation services from a hospital and
the outpatient observation care that he
or she receives is related to the
admission such that there is an exact
match between the principal diagnosis
for both the hospital outpatient claim
and the inpatient stay, a payment is not
made to the hospital under the OPPS, as
explained in section 40.3–C of Chapter
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43905
3 of the Medicare Claims Processing
Manual. According to section 40.3–C of
the Medicare Claims Processing Manual,
these preadmission outpatient
diagnostic and nondiagnostic services
are ‘‘deemed to be inpatient services,
and included in the inpatient payment,
unless there is no Part A coverage.’’ By
this, we mean that such preadmission
services are considered operating costs
of hospital inpatient services for
payment purposes only, as described in
section 1886(a)(4) of the Act. That is to
say, payment for these preadmission
services, which can include services
furnished while a hospital outpatient is
under observation who is later admitted
as an inpatient, is included within the
per case inpatient payment if the
services meet the statutory criteria
described in section 1886(a)(4) of the
Act. However, these services are still
services furnished to patients who are
outpatients of the hospital at the time
those services are furnished. We note
that although these preadmission
services may be considered operating
costs for hospital inpatient services for
payment purposes, such services are not
furnished to an inpatient because these
services are furnished prior to the
patient being formally admitted and,
therefore, the associated day is not
considered to be an inpatient day. Thus,
even if payment for these preadmission
services is included in the inpatient
payment, the admission date for the
inpatient stay begins when the patient is
formally admitted. Because observation
services are services furnished to
outpatients of the hospital, in the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule (74 FR 24189 through 24191), we
proposed that the patient days during
which observation services are
furnished are not included in the DSH
calculation, regardless of whether the
patients under observation are later
admitted. We believe that patient days
during which observation services are
furnished, like the days during which
preadmission diagnostic and
nondiagnostic services are furnished,
are not inpatient days and, therefore, we
proposed to exclude such patient days
from the DPP of the Medicare DSH
calculation.
In accordance with section 1812(a) of
the Act, for a patient day to be
considered part of a beneficiary’s spell
of illness, the patient must have had
‘‘inpatient hospital services furnished to
him during such spell.’’ In addition,
section 1861(a) of the Act defines a
‘‘spell of illness’’ as beginning on the
first day on which such ‘‘individual is
furnished inpatient hospital services.’’
Section 1861(b) of the Act defines
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‘‘inpatient hospital services’’ as
‘‘services furnished to an inpatient of
the hospital.’’ Thus, with respect to a
spell of illness, even if observation
services are eventually bundled into the
inpatient payment, the patient is not
admitted as an inpatient while he or she
remains under observation and the days
under observation are not considered to
be inpatient days that count toward a
beneficiary’s spell of illness. In
addition, with respect to the 3-day
inpatient stay requirement for patients
to secure Medicare coverage of SNF
benefits, section 20.1 of Chapter 8 of the
Medicare Benefit Policy Manual
(Publication No. 100–02) states: ‘‘Time
spent in observation status or in the
emergency room prior to (or in lieu of)
an inpatient admission to the hospital
does not count toward the 3-day
qualifying inpatient hospital stay, as a
person who appears at a hospital’s
emergency room seeking examination or
treatment or is placed on observation
has not been admitted to the hospital as
an inpatient; instead, the person
receives outpatient services. For
purposes of the SNF benefit’s qualifying
hospital stay requirement, inpatient
status commences with the calendar day
of hospital admission.’’ Other Medicare
policies do not consider observation
days to be inpatient days because
observation services are outpatient
services furnished to outpatients of the
hospital. While other Medicare policies
do not necessarily dictate how we treat
patient days for DSH payment purposes,
we believe it is important that patient
days be treated consistently among the
various Medicare policies. As we stated
in the proposed rule, we believe that
because observation days are not
considered inpatient days for a
beneficiary’s spell of illness or for
qualifying for SNF benefits, this policy
provides additional support for our
proposal to no longer include any
observation day as an inpatient day in
the calculation of the DPP of the
Medicare DSH calculation, nor should
the associated observation bed days be
included in determining the number of
available inpatient beds used for
purposes of determining a hospital’s
IME and DSH payment adjustments.
As we indicated above, the DSH
regulations at § 412.106 explain how the
DPP is calculated. Specifically, the DPP
is based on the hospital’s patient days
where patient days apply only to
inpatient days. Because a patient under
observation in the hospital is considered
to be an outpatient of the hospital and
receives services prior to being admitted
as an inpatient, we believe that
observation days, even for a patient who
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is subsequently admitted, should not be
considered inpatient days. Accordingly,
in the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24190), we
proposed to revise the regulations at
§ 412.106(a)(1)(ii) to exclude patient
days associated with beds used for
outpatient observation services, even if
the patient is later admitted as an
inpatient. We proposed to exclude all
observation patient days from the DPP
of the Medicare DSH calculation. We
proposed that this proposed provision
would be effective for cost reporting
periods beginning on or after October 1,
2009.
For the same reasons, we also
proposed to eliminate counting
observation bed days for patients who
are subsequently admitted as inpatients
for purposes of both the DSH payment
adjustment and the IME payment
adjustment. The rules for counting
hospital beds for the purposes of the
IME payment adjustment are codified in
the IME regulations at § 412.105(b),
which is cross-referenced in
§ 412.106(a)(1)(i) for purposes of the
DSH payment adjustment. We believe it
is important to apply a consistent
definition for counting bed days for both
the IME and DSH payment adjustments.
Therefore, we proposed to revise
§ 412.105(b)(4) to state that observation
days are excluded from the counts of
available beds, regardless of whether or
not the patient under observation is
ultimately admitted for acute inpatient
care.
As we stated earlier, when we
implemented the policy to include
observation days for admitted patients
for DSH payment adjustment purposes
for FY 2005, we revised the Medicare
hospital cost report to include columns
for hospitals to report their observation
days for patients admitted as inpatients
and observation days for patients not
admitted. Under the proposal in the
proposed rule, hospitals would no
longer be required to distinguish on the
cost report between observation bed
days and patient days for patients who
are ultimately admitted and observation
bed days and patient days for patients
who are not admitted because none of
these bed days and patient days would
be included in the DSH payment
adjustment. We proposed that, effective
for cost reporting periods beginning on
or after October 1, 2009, hospitals
would be required to report their total
observation bed days so that the total
observation bed days can be deducted
from the total bed day count for IME
and DSH payment adjustment purposes.
In summary, we proposed to exclude
observation patient days for admitted
patients from the patient day count in
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§ 412.106(a)(1)(ii) (for DSH) and the bed
day count at § 412.105(b) (for IME), as
a cross-reference at § 412.106(a)(1)(i) (for
DSH), because observation services are
defined as outpatient services furnished
to outpatients of the hospital, regardless
of whether or not the patient under
observation is subsequently admitted.
Comment: Several commenters
opposed the proposal to exclude
observation patient days for admitted
patients from the DSH adjustment and
observation bed days for admitted
patients from the DSH and IME
adjustment. Some commenters argued
that because observation services for
admitted patients are payable as part of
the IPPS bundle, these observation
patient days are part of the IPPS
payment system and should be counted
in the DSH adjustment. Some
commenters contended that ‘‘inpatient
observation days are currently payable
as part of the IPPS bundle, irrespective
of whether the observation stay was
immediately preceding the nonobservation patient stay.’’ Some
commenters also believed that all
observation days, regardless of whether
the observation stay precedes an
inpatient admission, should be included
in the DSH adjustment. In addition,
some commenters disagreed with CMS’
reliance on other Medicare policies (for
example, SNF 3-day stay, spell of
illness) to justify excluding observation
days from the DSH adjustment. Rather,
they asserted that CMS should rely on
the inpatient payment rules to
determine whether days associated with
observation services should be included
in the DSH adjustment.
Another commenter disagreed with
the proposal to exclude observation
days and beds for admitted patient from
the DSH adjustment, citing that it goes
against Congressional intent. The
commenter asserted that when Congress
developed the Medicaid ratio for DSH,
there was no distinction of observation
days. Rather, according to the
commenter, all days were considered
inpatient days although the services the
patient received were what we now
consider to be observation services. The
commenter believed that the proposal to
exclude observation days for admitted
patients from the DSH adjustment will
discourage the use of observation
services, which the commenter believed
is an effective and efficient way to
deliver health care.
One commenter believed that the
proposal to exclude observation days
from the DSH adjustment was
contradictory. The commenter
contended that it is a contradiction that
observation services furnished prior to
admission can be considered as
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inpatient operating costs for payment
purposes, but the observation days and
beds are not considered an inpatient day
or available inpatient bed for the
purposes of IME or DSH payment
adjustment.
Response: We disagree with the
commenters that patient days and beds
associated with observation services
should continue to be included in the
Medicare DSH adjustment. According to
the DSH regulations at § 412.106, the
DPP is based on the hospital’s inpatient
days. Observation services, as described
above, are, by definition, outpatient
services. Because a patient under
observation in the hospital is considered
to be an outpatient of the hospital and
can receive services prior to being
admitted as an inpatient, we believe that
observation days, even for a patient who
is subsequently admitted, should not be
considered inpatient days and should
not be included in the DPP.
Our policy to exclude observation
patient days and observation bed days
from the DSH adjustment is not
intended to discourage the use of
observation services. Rather, it is to
ensure that our DSH adjustments are
appropriately including only inpatient
days and inpatient beds. Because DSH
and IME policies use the same
methodologies and reference the same
regulation to count beds (§ 412.105(b)),
and because we are excluding all
observation beds from the DSH
adjustment, they would be excluded
from the IME adjustment. We do not
believe that excluding observation bed
days and observation patient days from
the DSH adjustment (and, because of the
cross-referencing of § 412.105(b) under
§ 412.106(a)(1)(i), excluding observation
bed days from the IME payment
adjustment) goes against Congressional
intent. Because the DSH payment
adjustment is part of the IPPS, it is our
interpretation that under section
1886(d)(5)(F) of the Act, DSH statutory
references of ‘‘days’’ apply only to
inpatient days. Thus, we do not believe
that patient days associated with
observation services, defined as
outpatient services, should be counted
as an inpatient day and included in the
DPP of the Medicare DSH calculation.
Furthermore, we generally treat
inpatient bed days in the DSH
adjustment and the IME adjustment
consistently; therefore, because we are
excluding observation bed days from the
DSH adjustment, we are excluding
observation bed days from the IME
adjustment.
We also disagree with the
commenters’ assertion that the proposal
to exclude observation patient days and
bed days from the DSH adjustment has
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solely been based on the treatment of
observation days under other Medicare
payment policies. In our discussion in
the proposed rule that we believed
patient days associated with observation
services were not inpatient days for
purposes of the Medicare DSH
adjustment, we found that other
Medicare policies also did not treat days
associated with observation services as
inpatient days. Specifically, we found
that a Medicare beneficiary’s ‘‘spell of
illness’’ is defined under section 1812(a)
of the Act as beginning on the first day
on which such ‘‘individual is furnished
inpatient hospital services’’ and days
under observation do not count towards
a beneficiary’s spell of illness. In
addition, days associated with patients
who are under observation do not count
toward the 3-day inpatient stay
requirement for patients to secure
Medicare coverage of SNF benefits as
described in this preamble. We did not
solely rely on these other Medicare
policies to determine that observation
days are not inpatient days, but we
believe that patient days should
generally be treated consistently across
Medicare payment policies when
possible and appropriate.
Finally, we do not believe it is
contradictory that observation services
can be bundled in the IPPS payment
while the patient days associated with
observation services are not considered
inpatient days. As described above, the
patient receiving the observation
services (which are not unlike any other
preadmission service) is receiving an
outpatient service and, therefore, the
patient is considered an outpatient of
the hospital. Accordingly, given that the
patient days associated with such
observation services (or any
preadmission service) are not
considered inpatient days, we now
believe that such days should not be
included in the Medicare DSH
adjustment.
Comment: Several commenters
supported the proposal to exclude
observation patient days and bed days
from the DSH adjustment and
observation bed days from the IME
payment adjustment. One commenter
supported the proposal because the
commenter believed that patients who
receive observation services are hospital
outpatients, and therefore their patient
days should not be included in the DSH
payment adjustment. Other commenters
expressed support of the proposal
because it would simplify reporting for
hospitals.
Response: We thank the commenters
for their support of our proposal. We
agree that patients receiving observation
services, which occur prior to the
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43907
patient being admitted as an inpatient to
the hospital, are outpatients of the
hospital, and therefore, we now believe
that these patient days should not be
considered inpatient days and included
in the DSH payment adjustment. We are
finalizing our policy to exclude all
observation patient days and bed days
from the DSH adjustment and
observation bed days from the IME
adjustment as proposed, without
modification.
Comment: One commenter supported
the proposal to exclude observation
beds and patient days for admitted
patients from the Medicare DSH
calculation because reporting the data
was burdensome on hospitals. The
commenter recommended that CMS
apply this policy change to prior years.
Response: We thank the commenter
for its support of our proposal to no
longer include observation patient days
and bed days for admitted patients from
the DSH payment adjustment
calculation. We cannot apply this policy
change to prior years because we do not
apply policy changes retroactively. The
effective date of the policy change is for
cost reporting periods beginning on or
after October 1, 2009.
Comment: One commenter questioned
how the observation beds and patient
days would be excluded from the IME
and DSH payment adjustment
calculations. The commenter cited the
proposed rule in which we stated: ‘‘We
are proposing that, effective for cost
reporting periods beginning on or after
October 1, 2009, hospitals would be
required to report their observation bed
days so that total observation days can
be deducted from the bed day count for
IME and DSH payment adjustment
purposes’’. The commenter requested
clarification on this statement because
patient days reported on the cost report
on Worksheet S–3, Lines 1–12, Columns
4, 5, and 6 do not include observation
days and that Medicaid patient days and
total patient days used in the Medicaid
DPP of the Medicare DSH calculation
exclude observation bed days. In
addition, the commenter stated that
observation bed days reported on
Worksheet S–3, Line 26 should not be
included in the DSH calculation and
that it would be incorrect to deduct total
observation days from Medicaid patient
days or total patient days.
Response: Currently, we include
observation patient days for admitted
patients in the Medicare DSH DPP.
Hospitals currently report total hospital
observation bed patient days,
observation patient days for patients
who are admitted, and observation
patient days for patients who are not
admitted on the Medicare hospital cost
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report. In addition, hospitals report on
the Medicare hospital cost report total
Medicaid observation patient days,
Medicaid observation patient days for
patients who are admitted, and
Medicaid observation patient days for
patients who are not admitted. This
information is reported on Worksheet
S–3, Part I, Line 26, Columns 5, 5.01,
5.02, 6, 6.01 and 6.02. Currently, we add
Medicaid observation patient days for
admitted patients to the numerator of
the Medicaid fraction of the DPP, and
we add total observation patient days
for admitted patients to the denominator
of the Medicaid fraction of the DPP. The
commenter is correct that observation
patient days for admitted patients
would not be deducted from the
numerator or denominator of the
Medicaid fraction; rather, we would no
longer include observation patient days
for admitted patients in the patient day
counts in the DPP of the Medicare DSH
calculation for cost reporting periods
beginning on or after October 1, 2009.
However, to determine available bed
days for DSH and IME purposes,
observation bed days would need to be
deducted from total available bed days.
Currently, total bed days available
(reported on Worksheet S–3, Part I, Line
12, Column 2) include all observation
bed days (for both admitted and
nonadmitted patients). Under the
current policy where we include
observation bed days for admitted
patients, we deduct observation bed
days for patients not admitted from the
total available bed day count. However,
effective for cost reporting periods
beginning on or after October 1, 2009, to
ensure that we no longer include any
observation bed days in the bed day
count for IME and DSH purposes, we
would deduct all observation bed days
(reported on Worksheet S–3, Part I, Line
26, Column 6) from the total bed days
available (reported on Worksheet S–3,
Part I, Line 12, Column 2).
Finally, the cost report will be
changed to accommodate this policy
change once this final rule is published.
After consideration of the public
comments we received, we are
finalizing our proposal, without
modification, to exclude observation
patient days for admitted patients from
the patient day count at
§ 412.106(a)(1)(ii) (for DSH) and the bed
day count at § 412.105(b) (for IME), as
cross-referenced at § 412.106(a)(1)(i) (for
DSH). The policy change is effective for
cost reporting periods beginning on or
after October 1, 2009.
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5. Public Comments That Are Out of the
Scope of the Proposed Rule
We received a number of public
comments on DSH-related issues
regarding appeals or pending litigation
on the Medicare fraction and the
inclusion of Medicare managed care
patient days in the Medicare DSH
calculation, for which we did not
include any proposed changes in the
proposed rule. We are not summarizing
these comments in detail nor providing
responses to the comments because we
consider them to be out of the scope of
the provisions of the proposed rule.
F. Technical Correction to Regulations
on Payments for Anesthesia Services
Furnished by Hospital or CAH
Employed Nonphysician Anesthetists or
Obtained Under Arrangements
(§ 412.113)
Section 412.113(c) of the regulations
contains our rules governing payments
for anesthesia services furnished by a
hospital or CAH by qualified
nonphysician anesthetists employed by
the hospital or CAH or obtained under
arrangements. We have discovered that,
under paragraph (c)(2)(i)(B) of § 412.113,
there is an incorrect cross-reference to
‘‘§ 410.66’’ for the definition of a
qualified nonphysician anesthetist. The
correct cross-reference for the definition
of a qualified nonphysician anesthetist
is ‘‘§ 410.69’’. As we proposed in the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule (74 FR 24191), we are correcting the
cross-reference in § 412.113(c)(2)(i)(B) to
refer to ‘‘§ 410.69’’. We did not receive
any public comments on this proposal.
G. Payments for Direct Graduate
Medical Education (GME) (§§ 413.75
and 413.79)
1. Background
Under section 1886(a)(4) of the Act,
costs of approved educational activities
are excluded from the operating costs of
hospital inpatient services. Section
1886(h) of the Act, as implemented in
regulations at § 413.75 through § 413.83,
establishes a methodology for
determining payments to hospitals for
the direct costs of approved GME
programs. Section 1886(h)(2) of the Act
sets forth a methodology for the
determination of a hospital-specific,
base-period per resident amount (PRA)
that is calculated by dividing a
hospital’s allowable direct costs of GME
for a base period by its number of
residents in the base period. The base
period is, for most hospitals, the
hospital’s cost reporting period
beginning in FY 1984 (that is, the period
of October 1, 1983, through September
30, 1984). Medicare direct GME
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payments are calculated by multiplying
the PRA times the weighted number of
full-time equivalent (FTE) residents
working in all areas of the hospital
complex (and nonhospital sites, when
applicable), and the hospital’s Medicare
share of total inpatient days. The base
year PRA is updated annually for
inflation.
Section 1886(h)(4)(F) of the Act
established a limit on the number of
allopathic and osteopathic FTE
residents that a hospital may include in
its FTE resident count for purposes of
calculating direct GME payments. For
most hospitals, the limit, or cap, is the
unweighted number of allopathic and
osteopathic FTE residents training in
the hospital’s most recent cost reporting
period ending on or before December
31, 1996.
2. Clarification of Definition of New
Medical Residency Training Program
For purposes of determining direct
GME and IME payments, the Medicare
statute establishes a cap on the number
of allopathic and osteopathic FTE
residents a hospital may count, which,
for most hospitals, is based on the
number of allopathic and osteopathic
FTE residents the hospital was training
in its most recent cost reporting period
ending on or before December 31, 1996.
Section 1886(h)(4)(H)(i) of the Act
requires the Secretary to prescribe rules
for the application of the FTE resident
cap in the case of medical residency
programs that are established on or after
January 1, 1995. This provision is
applicable for purposes of the IME
adjustment under the IPPS through
section 1886(d)(5)(B)(viii) of the Act.
The provision specifies that such rules
must be consistent with the principles
of the statutory provisions regarding the
establishment of the FTE resident caps
and regarding application of a 3-year
rolling average count of FTE residents.
The statute also requires the Secretary to
give special consideration in such rules
to facilities that meet the needs of
underserved rural areas. Accordingly,
we issued regulations to permit
adjustments to the FTE resident caps,
under certain circumstances, for
hospitals that establish new medical
residency training programs on or after
January 1, 1995. Section 413.79(e)(1) of
the regulations state that if a hospital
had no allopathic or osteopathic
residents in the base year, the hospital
may receive an adjustment to its FTE
resident cap (which otherwise would be
zero) if it establishes one or more new
medical residency training programs,
but only for new programs established
within 3 academic years after residents
begin training in the first new program.
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(Rural hospitals may receive FTE cap
adjustments for newly established
programs at any time under the
regulations at § 413.79(e)(1)(iii)). Under
§ 413.79(e)(2), hospitals that had
allopathic or osteopathic residents in
the base year were permitted to receive
an adjustment for new programs, but
only if the new programs were
established on or after January 1, 1995,
and before August 5, 1997. Section
413.79(l) defines a new medical
residency training program as ‘‘a
medical residency that receives initial
accreditation by the appropriate
accrediting body or begins training
residents on or after January 1, 1995.’’
These regulations concerning cap
adjustments for newly established
medical residency training programs
also apply for IME purposes as stated at
§ 412.105(f)(1)(vii).
As we discussed in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
(74 FR 24191), it has come to our
attention that there has been some
misinterpretation or misunderstanding
of these regulations among some
hospitals and Medicare contractors
despite previous discussions of the
topic in the Federal Register.
Specifically, some hospitals or
contractors took the regulations to mean
that, as long as the relevant accrediting
body (either the Accreditation Council
on Graduate Medical Education
(ACGME) for allopathic programs or the
American Osteopathic Association
(AOA) for osteopathic programs) grants
an ‘‘initial’’ accreditation or reaccredits
a program as ‘‘new,’’ the hospital may
receive an FTE cap adjustment for that
program, regardless of whether that
program may have been accredited
previously at another hospital. In other
words, some hospitals and contractors
appear to have read our regulations to
mean that the Secretary would defer, in
all circumstances, to the relevant
accrediting body’s identification of a
particular accreditation as a ‘‘new’’ or
‘‘initial’’ accreditation of a medical
residency training program.
In the FY 1998 IPPS final rule that
established § 413.79(1) of the
regulations, we discussed both the
meaning of this regulation and the
rationale for establishing it:
‘‘For purposes of this provision, a
‘program’ will be considered newly
established if it is accredited for the first
time, including provisional
accreditation on or after January 1, 1995,
by the accrediting body. Although the
Secretary of the Department of Health
and Human Services has broad
authority to prescribe rules for counting
residents in new programs, the
Conference Report for Public Law 105–
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33 [House Conference Report No. 105–
217, pp. 821–822] indicates concern that
the aggregate number of FTE residents
should not increase over current levels.’’
(62 FR 46006)
Similarly, in the FY 2000 IPPS final
rule (64 FR 41519), we responded to a
public comment suggesting that CMS
include within the definition of ‘‘new
residency program’’ a residency
program that may have been in
existence at other clinical sites in the
past. We replied that ‘‘the language
‘begins training residents on or after
January 1, 1995’ [in the regulation at
§ 413.79(1)] means that the program may
have been accredited by the appropriate
accrediting body prior to January 1,
1995, but did not begin training in the
program until on or after January 1,
1995. The language does not mean that
it is the first time a particular hospital
began training residents in a program on
or after January 1, 1995, but that
program was in existence at another
hospital prior to January 1, 1995, as the
commenter suggests.’’ (Emphasis
added.)
Accordingly, as we have suggested in
discussions in our previous rules, rather
than relying solely on the accrediting
body’s characterization of whether a
program is new, we continue to believe
it is appropriate that CMS require a
hospital to evaluate whether a particular
program is a newly established one for
Medicare GME purposes by considering
whether a program was initially
accredited ‘‘for the first time,’’ and is
not a program that existed previously at
another hospital. In evaluating whether
a program is truly new, as opposed to
an existing program that is relocated to
a new site, it is important to consider
not only the characterization by the
accrediting body, but also supporting
factors such as (but not limited to)
whether there are new program
directors, new teaching staff, and
whether there are only new residents
training in the program(s) at the
different site. In determining whether a
particular program is a newly
established one, it may also be
necessary to consider factors such as the
relationship between hospitals (for
example, common ownership or a
shared medical school or teaching
relationship) and the degree to which
the hospital with the original program
continues to operate its own program in
the same specialty. (Although this
discussion of new programs is framed in
the context of a hospital operating a
program, we note that many programs
are operated or sponsored by schools of
medicine or other nonhospital entities.
This section is intended to address all
GME programs that were previously
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43909
accredited at one operating entity, and
that entity ceases to operate the
program, but the program is then
opened and operated at another entity,
even if it is accredited as a new program
at the second entity. Such a program
may not be treated as new at the second
entity.) In any case, we believe it is
appropriate to be deliberate in the
determinations regarding FTE resident
cap adjustments relating to residents in
new programs. The statute clearly
requires that our rules regarding
adjustments to hospitals’ FTE resident
caps for newly established programs
must adhere to the principles of the
statutory provision limiting the count of
FTE residents for direct GME and IME
payments to the count for the most
recent cost reporting period ending on
or before December 31, 1996. In
addition, as we indicated in our final
rule establishing FTE cap adjustments
for ‘‘new programs,’’ the Conference
Report for the BBA explicitly indicates
that the aggregate number of FTE
residents should be held to the
‘‘current’’ levels at the time the BBA
was enacted (House Conference Report
No. 105–217, pp. 821–822).
If we were to find that a program at
one hospital is a newly established
program merely because it was relocated
from another hospital, the result would
be that an FTE resident cap adjustment
would be granted based on the same
program at two different hospitals.
Furthermore, if both hospitals continue
to operate, the FTE resident cap slots
that were vacated from the program at
the first hospital could potentially be
filled with residents from that hospital’s
other residency training programs. We
do not believe such an increase in the
aggregate number of FTE residents and
the potential duplication of the FTE
resident cap adjustment would be
consistent with the statutory mandate to
adhere to the principles of the base-year
FTE resident caps when devising rules
to account for newly established
medical residency training programs.
Therefore, in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule (74 FR 24192),
we proposed to clarify our policy that a
new medical residency program is one
that receives initial accreditation for the
first time, as opposed to reaccreditation
of a program that existed previously at
the same or another hospital.
Furthermore, we indicated that we
believe it is appropriate and necessary
that CMS expect a hospital that wishes
to claim an adjustment to its direct GME
and IME FTE caps based on residents
training in a medical residency program
to first evaluate whether the program is
‘‘new’’ for Medicare purposes, rather
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than to rely exclusively on the
characterization of a particular program
by the relevant accrediting body.
Comment: Several commenters were
hospitals that have been notified by
CMS, through their fiscal
intermediaries, that their residency
training programs were not new and,
therefore, the hospitals’ FTE resident
caps should not have been adjusted
under § 413.79(e)(1). These programs
were continuations of residency
programs that existed at other hospitals.
One commenter maintained that its
program is separate and distinct from
the program that existed and closed at
the other hospital. The commenter had
provided CMS with evidence to support
its belief. Another commenter had
already taken steps to address the
problem posed by its continuation of
existing programs by creating a
consortium model for new residency
programs that differs greatly from the
original models. The commenters also
stated that funding from Medicare is
vital to the success of the programs and
is necessary for combating the shortage
of primary care physicians. They urged
CMS to reverse its initial position and
retroactively restore the hospital’s direct
GME and IME payments.
Response: If the hospitals disagree
with our decision, they may appeal
these determinations through the
administrative appeals process. Rather
than discuss the specifics of these
determinations in this response, we will
address the commenters’ concerns in
general, in the context of the policy
clarification. In determining whether a
particular residency training program is
new, the relevant fiscal intermediary/
MAC and CMS review the
characteristics of the residency program
in question, considering all of the
relevant criteria discussed earlier to
determine whether there has been a
transfer of a previously existing program
to another hospital. Where we find that
the facts point to the conclusion that a
program is not a new program, we
determine that the hospital does not
qualify for the FTE cap increase for new
medical residency programs. We
understand that in some cases external
factors unrelated to the medical school
or hospital may contribute to this
transfer of a program to another
hospital, and we are also very aware of
the fact that hospitals rely on Medicare
funding for residency programs.
However, as discussed above, we wish
to ensure that FTE cap increases for new
programs are only awarded to programs
that are truly new.
Comment: Some commenters asked
about the proper course of action for a
provider to follow if it has received
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payment relating to residents in a ‘‘new
program,’’ even though those residents
would not be considered to be training
in new programs based on factors
detailed in the proposed rule, and the
cost reports are within the 3-year
reopening period, the issue is under
appeal, or the cost report is currently
being reopened.
Response: If a fiscal intermediary or
MAC identifies a teaching hospital that
has received IME and direct GME
payments relating to residents in a
program that is treated as new, but the
program is, in fact, a transfer of an
existing program in accordance with the
factors outlined in this final rule, the
fiscal intermediary or MAC may reopen
cost reports that are still within the 3year reopening period and recover
overpayments accordingly. If the issue
is already under appeal, the appeal may
proceed according to normal
procedures.
Comment: Several commenters stated
that CMS’ proposed clarification of the
definition of a new residency program
is, in fact, not a clarification, but a
‘‘major change to longstanding agency
policy.’’ The commenters expressed
concern that CMS is retroactively
imposing its new interpretation of
‘‘supporting factors,’’ which was never
previously published in agency
guidance, to deny hospitals an
adjustment to their FTE resident caps
for new programs when they followed
the existing regulations in good faith.
The commenters asserted that residency
programs will no longer be able to
qualify as new based on what the
commenters argued is the literal, simple
meaning of the regulatory phrase (that
is, ‘‘initial accreditation by the
appropriate accrediting body’’) but,
instead, they will have to meet ‘‘new
and ambiguous criteria in the form of
‘supporting factors.’ ’’ The commenters
argued that the new policy will result in
more confusion because the ‘‘supporting
factors’’ will lead to subjective
determinations, particularly if a
hospital’s program meets some, but not
all, of the factors. Several commenters
urged CMS to withdraw the ‘‘confusing,
arbitrary, retrospective ‘clarification’ ’’
regarding what constitutes a new
residency program, and instead
establish a prospective, definitive
process that is consistent with the
prospective payment system under
which hospitals should know up front
what qualifies as a ‘‘new’’ program for
purposes of direct GME and IME
payments.
Commenters also remarked that there
is no legal authority for the proposal in
relevant statutes and legislative history,
and that no change in law or regulation
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has prompted these clarifications. The
commenters stated that the proposal is
inconsistent with regulations at
§ 413.79(e) and (l), and that the changes
are self-serving and ‘‘intended to
support CMS’s position in currently
pending litigation.’’ Another commenter
expressed concern that CMS is shifting
the responsibility for determining what
constitutes a new program to a hospital
without giving the hospital a way to
receive formal approval before the
hospital begins to operate the program
and potentially is subject to
disallowances or overpayments. The
commenter believed the current practice
of allowing the accrediting body to
make a formal determination
beforehand is appropriate, but if CMS
chooses to finalize this ‘‘new’’ policy,
the commenter recommended that CMS
establish a more definitive process that
allows prior approvals to minimize
uncertainty among hospitals.
Response: We disagree with the
commenters that the policy discussed in
the proposed rule is not a clarification
but instead is a ‘‘major’’ policy change.
A significant principle that we must
consider in implementing a policy on
what constitutes a new medical
residency program for purposes of
establishing new FTE resident caps is
that the aggregate number of FTE
residents should not increase
unnecessarily over the numbers of
residents being trained at the time the
BBA was passed. To that end, it is
important to ensure that FTE cap
adjustments are not made for programs
that are not actually new, that is,
programs that have existed previously at
another hospital. As discussed above,
we articulated this point in the Federal
Register at least as early as the FY 2000
IPPS final rule (64 FR 41519).
Further, while we acknowledge that it
would be simple to rely solely on the
accrediting body’s determination as to
whether a program is ‘‘new,’’ as we have
explained above, we also recognize that
the accrediting body may have very
different reasons from CMS for
designating a program as ‘‘new.’’ We
continue to believe it is appropriate to
look at factors in addition to the
accrediting body’s characterization of its
accreditation to determine whether a
particular program constitutes a new
program. Certainly, a program that
maintains the same program director,
teaching staff, and residents but has
only been moved to a different
participating institution would not be
considered a new program for Medicare
purposes. We also do not believe that
there is anything subjective about
making determinations based on several
‘‘supporting factors,’’ as the commenter
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suggests. On the contrary, we believe
that taking a more thorough look at the
characteristics of a program using an
approach that considers multiple factors
is more objective and ensures that FTE
cap adjustments, which could increase
the number of Medicare-funded training
slots in the aggregate, will only be
granted to qualifying teaching hospitals
when warranted. The academic medical
community will be able to consider
these factors before making decisions
related to opening, closing, or
expanding programs. Through proper
planning and consideration of these
factors, teaching hospitals should be
able to determine whether programs that
have commonalities with previously
existing programs may or may not
qualify for FTE cap increases and
associated Medicare IME and direct
GME funding.
We also disagree with the
commenter’s suggestion that we lack the
legal authority to implement this policy.
The BBA and our regulations provide
that hospitals are permitted to receive
an FTE cap increase in order to start
new programs, and CMS is the agency
charged with administering these
provisions. As such, it is our
responsibility to provide guidance when
we believe clarification is needed.
Because it appears there has been some
recent confusion surrounding this
policy, we proposed to clarify our
definition of a new program in the FY
2010 IPPS proposed rule. We believe the
fact that there are pending reopenings,
disallowances, and litigation relating to
the definition of a new program only
supports the need to clarify the policy
at this time.
Comment: One commenter argued
that because the phrase ‘‘initial
accreditation’’ is a term of art used by
the ACGME, it has a ‘‘well understood
meaning’’ in the academic medical
community, and the ‘‘law is clear that
the term as used in the regulation has
the same meaning as is generally
understood in the regulated
community.’’ The commenter believed
that CMS likely was aware of the use of
this term by the ACGME when CMS first
promulgated the definition of a new
medical residency program in the
regulations, and CMS cannot decide
after the fact that it was ‘‘unwise to have
adopted an industry term’’ without
complying with the APA’s
[Administrative Procedure Act’s]
directive for notice and comment
rulemaking.
Response: We understand that ‘‘initial
accreditation’’ is a term that is used by
the ACGME and that the term was used
by the ACGME before the time that the
BBA was passed. Specifically, the
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ACGME describes ‘‘initial
accreditation’’ as follows:
‘‘Accreditation is conferred initially
when a Review Committee determines
that a proposal for a new program or
sponsoring institution substantially
complies with the requirements.
‘‘(a) This initial cycle is considered a
developmental stage during which the
proposal for the new program or
sponsoring institution will be fully
developed and implemented * * *.
‘‘(b) Initial accreditation may be
granted to a new program or sponsoring
institution or a previously-accredited
program or sponsoring institution,
which had had its accreditation
withheld or withdrawn or has
voluntarily withdrawn and has
subsequently applied for reaccreditation * * *.’’
We first provided a definition in the
regulations for ‘‘new medical residency
training program’’ in the final rule with
comment period published in the
Federal Register published on August
29, 1997, shortly following the passage
of the BBA on August 5, 1997. We stated
that a ‘‘ ‘program’ will be considered
newly established if it is accredited for
the first time, including provisional
accreditation on or after January 1,
1995’’ (emphasis added, 62 FR 46006).
In the regulatory text, we defined ‘‘new
medical residency training program’’ as
‘‘a medical residency training program
that receives initial accreditation by the
appropriate accrediting body on or after
July [sic] 1, 1995’’ (emphasis added, 62
FR 46035). Because we used the phrase
‘‘for the first time’’ in the preamble, and
the term ‘‘initial accreditation’’ in the
regulations text, we believed it would be
obvious that CMS did not rely on the
definition of initial program as used by
the ACGME. As defined by the ACGME,
initial accreditation can be given to a
program that was accredited previously.
We did not give any indication that we
were using the term ‘‘initial
accreditation’’ as a term of art as used
by the ACGME.
We next discussed new medical
residency training programs in the May
12, 1998 final rule responding to public
comments on the August 29, 1997 final
rule with comment period (63 FR
263359). In response to public
comments, we revised the definition of
a ‘‘new medical residency training
program’’ to mean ‘‘a medical residency
that receives initial accreditation by the
appropriate accrediting body or begins
training residents on or after January 1,
1995.’’ The purpose of the revision was
not to revise the definition of the word
‘‘initial’’ but, rather, to include the
situation of residency training that
begins on or after January 1, 1995,
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because we recognized that hospitals
usually do not begin training residents
immediately upon receiving an
accreditation letter. The definition has
not been revised since then. Thus, this
is the definition that is currently in the
regulations at § 413.79(l).
Furthermore, it would not be
appropriate for CMS to use a term of art
if that term is unique to only one of the
organizations that accredit GME
programs. The graduate medical
education community consists not just
of the ACGME, but also includes the
AOA (and the Commission on Dental
Accreditation and the Council on
Podiatric Medical Education). We
believe that if, in fact, the term ‘‘initial
accreditation’’ is an industry standard
whose meaning is clearly understood by
the academic medical community, we
would expect it to be used by the AOA
as well. However, we understand that
the AOA does not use ‘‘initial
accreditation’’ as a formal term with
respect to identifying programs as new.
In fact, we understand the AOA only
uses the term ‘‘accreditation’’ with
respect to approvals of sponsoring
institutions (such as Osteopathic
Postdoctoral Training Institutions
(OPTIs)), while the term ‘‘approval’’ is
the term that is applied to a new
program when it is first recognized by
the AOA.
Accordingly, given that the ACGME
and the AOA use different terminology
for accreditation status, we disagree
with the commenter that the ‘‘law is
clear that the term as used in the
regulation has the same meaning as is
generally understood in the regulated
community.’’ We believe it is
appropriate for us to use the term
‘‘initial accreditation’’ in our regulations
and interpret it in a manner that reflects
CMS’ priorities. Unlike the ACGME
which, based on its definition quoted
above, may grant ‘‘initial’’ accreditation
to a previously accredited program or to
a program that applies for
reaccreditation, we continue to interpret
‘‘initial’’ with respect to Medicare GME
payment to mean ‘‘for the first time.’’
That is, as we stated in the August 29,
1997 final rule, a ‘‘ ‘program’ will be
considered newly established if it is
accredited for the first time, including
provisional accreditation, on or after
January 1, 1995’’ (emphasis added, 62
FR 46006), and we continue to believe
that FTE cap increases should be
awarded to programs that are accredited
‘‘for the first time,’’ and not to programs
for which granting new program status
would create duplicate FTE slots.
Comment: One commenter remarked
that hospitals already evaluate whether
their teaching programs are sufficiently
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new when they receive an initial letter
of accreditation from the relevant
accrediting body, as instructed by
§ 413.79(e)(1). The commenter also
stated that those accrediting bodies are
best positioned to determine whether or
not a program is new; and a conflict of
interest inherently exists when
Medicare, which is not an expert in this
area, makes that determination. Some
commenters disagreed with CMS’
statement in the proposed rule that CMS
has provided this definition of new
programs in previous regulations; and
asserted that, if so, this proposal would
not have been necessary. In addition,
the commenters claimed that while the
BBA indicated that Congress did not
want the national cap level to increase
above the levels at the time the BBA was
passed, Congress did not require that
CMS enact barriers to the creation of
new residency programs, and CMS
should recognize that the concern that
there was a surplus of physicians at the
time the BBA was passed is no longer
relevant today.
Response: We recognize that the
accrediting bodies are expert in
identifying and ensuring programs that
meet minimum standards for medical
education. In fact, we recognize their
expertise in our regulations regarding
Medicare-approved residency training
programs. However, accrediting bodies
have different goals than CMS and may
consider different factors when
evaluating whether a particular
residency training program is new. CMS
is charged to protect the Medicare Trust
Fund and carry out the relevant
Medicare statutory provisions.
Therefore, we must ensure that only
appropriate cap increases are granted.
Because our goals are not necessarily
consistent with the goals of accrediting
bodies, our perspective on the status of
a program as ‘‘new’’ may sometimes
differ from the accrediting bodies’
assessment. In addition, we do not
believe that a conflict of interest exists
when we determine a residency
program’s new status. We are not
dictating curricula requirements; rather,
we simply wish to ensure that a
program is truly new from Medicare’s
perspective before granting the hospital
an increase in its FTE resident caps and
the additional IME and GME funding
that accompanies the increase.
We also disagree with the contention
that our clarification will pose barriers
to the establishment of new residency
programs. Our proposal was intended to
clarify Medicare policy with respect to
the treatment of residency training
programs when a previously existing
program is involved. We continue to
encourage the development of new
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training programs, and will continue to
adjust hospitals’ FTE resident caps for
new programs in accordance with our
regulations. However, we will only
allow a hospital’s FTE caps to be
adjusted for programs that are truly
new. In addition, as long as a national
aggregate cap on FTE resident positions
is in place, we continue to believe our
policies should work to maintain that
cap level.
Comment: One commenter expressed
concern that CMS’ criteria for
identifying a new program could
impinge on the quality of new programs
by restricting their ability to hire
experienced program directors and
faculty, while also limiting the freedom
of these individuals to teach and
practice where they choose. The
commenter argued that the ‘‘mere
presence’’ of a program director or
faculty member who worked for another
residency training program does not
make the second program identical to
the first program; rather, the residents
will have a different experience based
on the clinical setting, regardless of who
the director or teaching staff may be.
Response: It is not our intent to
interfere with the direction of a medical
education program or to inhibit the
career choices of physicians. However,
we disagree with the commenter that
the ‘‘mere presence’’ of the same
program director does not contribute to
the similarity in a program that was
operated at two sites. While it is true
that each hospital setting provides
somewhat of a different training
experience, simply because no two
hospitals are exactly the same, the
implementation of the curriculum and
the approach to teaching are very much
influenced by the program director and
the teaching staff. Moreover, when a
program director (or faculty members)
moves from a program that was in
operation at one hospital to a program
that is in operation at another hospital,
we believe this strongly suggests that
the second program is not a new one,
but is the continuation of the first
program. Therefore, in determining
whether a program is new, we believe
it is logical and appropriate to look at
numerous factors, including whether
the programs have in common the
program directors and teaching staff.
Comment: Some commenters noted
that, in the proposed rule, CMS used the
term ‘‘and/or’’ in the list of supporting
factors. Specifically, a residency
program with a new program director
and new residents, but also with some
teaching staff who had taught at the
‘‘original’’ program, may or may not be
considered ‘‘new.’’ The commenter
argued that such rules are unclear, and
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may result in a situation where a
hospital invests significant time and
financial resources into what it believes
is the creation of a new program, only
to find out several years later that CMS
does not believe the program is new.
The commenters stated that if CMS
believes that it must use the ‘‘supporting
criteria’’ set forth in the proposed rule,
then CMS should replace each use of
the term ‘‘and/or’’ with the word ‘‘and,’’
and it should be added after each
criterion, not just the first two. One
commenter further stated that a
determination of whether a program is
‘‘new’’ cannot be based on one single
factor alone (such as the presence of a
single program director from an
‘‘original’’ program). Instead, the
commenter recommended that a
program that is not new should be
defined as one where, at a minimum, all
of its program directors and faculty, and
residents came from the ‘‘original’’
program, while still allowing the
Secretary discretion to determine that
such a program may still be new as a
result of other circumstances. Another
commenter asked whether a hospital
must answer ‘‘no’’ to each of the
supporting criteria or to just half of the
criteria in order for the program to be
considered new. Other commenters
pointed out that medical schools can,
and often do, support more than one
program in the same specialty in
different geographic areas of a State and
with more than one hospital
simultaneously. Therefore, the
commenters added, CMS cannot assume
that a second program in the same
specialty is not a ‘‘new medical
residency training program.’’
Response: We agree that the use of
‘‘and/or’’ in the list of supporting
criteria could be confusing. Therefore,
we are removing the ‘‘or’’ and only
using ‘‘and.’’ Thus, the supporting
factors to be considered in determining
whether a program is new are (but not
limited to) as follows:
—Is the program director new, and
—Is the teaching staff new, and
—Are there new residents?
We understand the commenters’
concerns that these factors do not
provide a test that is as clear as relying
solely on a determination from the
accrediting body. However, as explained
earlier, we believe that our mission and
goals are different from those of the
accrediting bodies; and the
ramifications of a determination as to
whether a program is new for Medicare
purposes are less significant to the
accrediting bodies than they are to us.
We also understand that, at least with
the ACGME, a hospital has a fair
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amount of latitude in requesting that an
accrediting body accredits a program as
a new program. We are wary of
situations where one program has
literally been moved in its entirety from
one hospital to another, and is
accredited as ‘‘new’’ in the second
hospital. We believe that we must
ensure that FTE cap increases are only
made under appropriate circumstances.
By employing these supporting factors,
we will be able to gain a fuller picture
of the program, and to make a
determination based on case-specific
evidence as to whether there are new
program directors, new teaching staff,
and new residents.
With respect to the comment that
schools of medicine often sponsor
residency programs in more than one
geographic area and with more than one
hospital at the same time, we do not
believe that will necessarily affect
whether a program is considered to
meet the new program definition. As we
stated in the proposed rule, we will
consider the degree to which, and the
way in which, two programs continue to
operate simultaneously at the original
hospital and the subsequent hospital.
We understand that a medical school
may sponsor two separate programs in
the same specialty with different
program directors, staff, and residents,
but that is very different from the
situation where a sponsoring school of
medicine closes a program in one
hospital and moves the program to
another hospital. In the former situation,
the fact that there are two separate
programs operating simultaneously and
continually is evidence that could
support a determination that the two
programs are, in fact, separate and
distinct. However, in the latter situation,
the closure of one program and the
movement of the program director,
faculty, and residents to another
hospital are indicative of the relocation
of an existing program for which no FTE
cap increase is warranted. Accordingly,
despite the commenters’ concerns, we
believe we should use the list of
supporting factors to determine what
constitutes a new program, rather than
relying solely on the determination of
an accrediting body.
Comment: One commenter opined
that imposing more stringent standards
for identifying new programs does not
actually address CMS’ concern that
there could be an inappropriate increase
in the aggregate total number of
residency slots funded by Medicare
when one hospital shifts an existing
program to another hospital, and then
the original hospital uses the open slots
to count other residents (when the
hospital had previously trained a
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number of residents that exceeded its
FTE resident caps). The commenter
noted that, just as a hospital may decide
at any time to close one program and
use those slots to count residents that
were previously in excess of its caps, a
nonteaching hospital may decide at any
time to become a new teaching hospital
and participate in training residents in
its own new programs, thereby
increasing the aggregate number of
Medicare-funded positions.
Several commenters also mentioned
alternative methods by which CMS can
preserve the national aggregate cap
without implementing the provisions of
the proposed rule. One commenter
suggested that the cap number can be
kept neutral by removing old cap slots
and reassigning them to new programs.
Other commenters stated that, among
other solutions, one way to maintain the
national cap level is to promulgate rules
stating that a hospital loses the caps
attached to a closed teaching program,
but that those caps can be added back
into the system when a program opens
in a new hospital. One commenter
suggested that CMS work together with
accrediting bodies to use the ‘‘existing
infrastructure’’ to create a clear,
unambiguous method for determining
the criteria for a new program. Another
commenter suggested creating a formal
process by which hospitals can apply
for and receive the ‘‘new program’’
designation.
Response: We disagree with the
commenter’s assertion that the rules
regarding new programs do not address
the underlying concern that the
aggregate number of Medicare-funded
positions should not, in general,
increase over the levels in place when
the BBA was passed. First, we believe
caution is warranted to ensure that any
increase in the aggregate level of
resident slots relates only to truly new
programs. Second, if a hospital that is
training residents in excess of its FTE
resident caps closes one of its programs
and, as a result, the number of FTE
residents the hospital is training equals
its caps, there will be no increase in the
number of FTE residents the hospital is
permitted to count for IME and direct
GME purposes, and no increase in the
aggregate number of FTE resident
positions. In other words, the closure of
a program does not, by itself, allow for
an increase in the aggregate levels of
Medicare-funded resident slots.
However, we do not believe it is
appropriate for an increase to the
aggregate FTE resident caps to occur as
a result of a program that moves from
one hospital to another, allowing the
first hospital to receive the same amount
of Medicare funding by filling the
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43913
vacated slots, and allowing the second
hospital to receive a ‘‘new program’’
increase in its FTE caps for that same
residency program. In such a case, we
do not believe it would be appropriate
for the Medicare program to bear the
additional costs associated with the
transfer of an existing program to
another hospital. Third, we believe that
an implicit assumption in the BBA
conference report language is that, while
new teaching hospitals and new
programs may open over time, some
existing teaching hospitals and
programs would close. Accordingly, this
‘‘offset’’ of resident slots would, to a
certain extent, limit the growth in the
levels of Medicare-funded residency
positions in years subsequent to the
BBA. Therefore, we believe it is
appropriate to take a rigorous approach
to determining whether a program is
new for Medicare purposes, and
whether an increase in the hospital’s
FTE resident caps is appropriate and
consistent with the statutory FTE caps.
Nevertheless, we have considered the
comments we received and whether the
use of a list of ‘‘supporting factors’’
included in the proposed rule is the best
approach to determine whether a
program is actually new for purposes of
Medicare IME and direct GME
payments. We find compelling the
comment that there may be alternative
methods to preserve the national
aggregate cap, while allowing for some
flexibility in the application of the
‘‘factors.’’ We also considered the
suggestion that the aggregate national
cap could remain neutral by removing
existing cap slots and reassigning them
to new programs. One situation is of
particular concern to us; when a
teaching hospital closes a program but
the hospital itself remains open, and
that program is relocated to a hospital
that may qualify for an FTE cap increase
under § 413.79(e)(1) or (3) and applies
for and receives new accreditation for
the program. Because the first hospital
continues to operate and retains the FTE
cap positions relating to the program,
there is the potential for Medicare to
recognize the same residency cap
positions twice—once for the program at
the original hospital and again for the
‘‘new’’ program at the second hospital.
Thus, there could be a form of ‘‘double
counting’’ when the first hospital fills
the same FTE slots that were vacated
from the program that closed at the first
hospital, while the new teaching
hospital is permitted to count FTE
residents in the ‘‘new’’ program as well.
We do not believe such an increase in
the aggregate number of FTE residents
and the potential duplication of the FTE
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resident cap adjustment would be
consistent with the statutory mandate to
adhere to the principles of the base-year
FTE resident caps when devising rules
to account for newly established
medical residency training programs.
However, in the instance where the first
hospital actually closes (that is, its
Medicare provider agreement and its
FTE caps are retired and not used by
another hospital), and its residency
program(s) transition to another
hospital(s) that qualifies for an FTE cap
increase under § 413.79(e)(1) or (3),
there would be no threat of duplicative
FTE slots relating to the same program.
Rather, the national aggregate FTE cap
would remain approximately the same.
After considering the public
comments concerning other means to
maintain a steady national aggregate
cap, we have decided that another
important ‘‘supporting factor’’ to
consider is whether the hospital from
which the program was relocated has
closed (terminated its provider
agreement and its FTE caps are not
being used by another hospital) prior to
the transfer of the program. The fact that
a program originated from a hospital
that closed, where no other hospital
retained the FTE caps, suggests that it
would be appropriate to consider the
program to be new for purposes of
establishing IME and direct GME FTE
caps.
Because our intent is to ensure that no
duplicative FTE resident slots are
created by virtue of an inappropriate
‘‘new program’’ adjustment, a hospital
that is considering starting such a
‘‘new’’ program should ask several
questions:
1. Has this program been relocated
from a hospital that closed?
2. If so, was this program part of the
closed hospital’s FTE cap
determination?
3. More generally, is this program part
of any existing hospital’s FTE cap
determination?
Our goal in prompting hospitals to ask
these questions is to have them assess
whether the positions continue to be
incorporated into the aggregate national
FTE caps. If the answer to the first two
questions is yes, and the answer to the
third question is no, the FTE caps
associated with the previous program
had already been incorporated into the
national aggregate cap (prior to the
hospital’s closure); and because the FTE
caps associated with the previous
program are no longer available for use
at any other hospital, there is ‘‘room’’
under the national aggregate caps for a
‘‘new program’’ adjustment for the
hospital with the successor program.
Consequently, there would be no danger
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that an FTE cap adjustment to reflect a
new program would result in
duplicative FTE caps. Thus, even if
there are significant similarities between
the program in terms of the program
director, teaching staff, or residents, we
could consider the program that was
transferred from the closed hospital to
be new for Medicare direct GME and
IME purposes without concern for
undermining the national aggregate FTE
caps. To determine whether the FTE
residents associated with a program are
part of the closed hospital’s FTE cap
determination, the hospital that seeks an
adjustment to its FTE caps would refer
to the closed hospital’s FTE
documentation associated with its cost
reporting period ending on or before
December 31, 1996, or, if applicable, the
cost report for other permanent cap
adjustments permissible under the
regulations.
However, the same cannot be said of
the situation where there are significant
similarities between programs, and the
first hospital remains open or the first
hospital closes but the FTE caps remain
available for use by another hospital (for
example, the answer to the third
question is yes). We do not believe it
would be appropriate to consider a
program that is substantially the same as
a previous program at another hospital
to be a new program where the first
hospital remains open, or where the
FTE cap slots for the previous program
remain available for use by another
hospital (for example, as a result of a
merger).
Up to this point, we have discussed
the situation where one hospital closes
and a program that was part of the
closed hospital’s FTE cap determination
transfers to a new teaching hospital. We
have indicated that we would add to the
list of supporting factors the condition
under which the program in question
originated at a hospital that closed
because there would be no duplicative
FTE caps due to the closure of the first
hospital. However, because our primary
concern in this instance is that there
should be no duplicative FTE resident
cap slots, our intent would be to ensure,
to the extent possible, that no FTE cap
increases are granted in instances where
another ‘‘active’’ FTE cap still exists, of
which the transferred program was a
part. As we stated above, the hospital to
which the program transfers would need
to assess whether this program was part
of any other hospital’s FTE cap
determination and, if so, whether this
program is still reflected in the FTE caps
of any existing hospital.
For example, we can envision a
scenario where two teaching hospitals,
Hospitals A and B, merge; Hospital B’s
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Medicare provider agreement is retired
(that is, it closes), and their respective
FTE caps are combined under Hospital
A’s single Medicare provider agreement.
Sometime subsequent to the merger, the
merged facility decides that it no longer
wishes to operate one of the programs
that was part of Hospital B’s FTE cap
determination, and the program is
transferred along with its program
director, teaching staff, and residents to
a new teaching Hospital C. In this case,
it would not be appropriate to consider
the program at Hospital C to be a new
program because, although the program
originated from Hospital B which
closed, the FTE caps of which this
program was a part are still in effect and
available for use by the merged facility.
Thus, if we were to adjust Hospital C’s
FTE caps for the transferred program,
the adjustment would result in
duplicative FTE resident slots relating
to the same program. Similarly, there
could be historical situations where a
closed hospital’s FTE caps were
absorbed by another hospital through a
termination clause in a Medicare GME
affiliated group (prior to October 1,
2002) (67 FR 50070). In such a case, a
third hospital might seek an adjustment
to its FTE caps for a new program that
is substantially the same as a program
formerly operated by the closed
hospital. However, it would not be
appropriate for that hospital to receive
FTE cap increases relating to that
program because, again, the FTE caps of
which the transferred program was
originally a part still exist, and,
therefore, an adjustment to the third
hospital’s FTE resident caps would
result in duplicative FTE residents caps
relating to the same program.
With respect to the commenter’s
suggestion that we could consider
promulgating rules that would remove
the slots from a hospital’s FTE resident
cap when it closes a program, but the
hospital itself remains open, in addition
to our concern about duplicative FTE
caps, we do not believe we have the
statutory authority to do this under
section 1886(h)(4) of the Act. Each
hospital’s FTE resident cap is equal to
the FTE count in a base year, which is
usually the hospital’s most recent cost
reporting period ending on or before
December 31, 1996, as adjusted for new
programs under § 413.79(e) and other
provisions, as applicable. Furthermore,
each hospital’s FTE cap is based on a
total count of its allopathic and
osteopathic residents, that is, a hospitalspecific cap, and is not generally
associated with any particular program
or specialty. We have tried, to the extent
possible, to implement our policies in a
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way to maintain the fungibility of FTE
slots within a hospital’s caps in order to
maximize a hospital’s flexibility to
modify the mix and type of residents it
trains. Accordingly, it is acceptable for
a hospital to decide to close one
program to make room within its FTE
resident caps for additional numbers of
residents in another program.
Furthermore, the focus of the
clarification in the proposed rule was
not that a hospital may close a program
and fill those vacated slots with
residents from another specialty, which,
by itself, is acceptable, but rather, it was
to address the point that an FTE cap
increase should only be awarded to a
hospital for starting a genuinely new
program, not one that was merely
transferred from another hospital.
Comment: Several commenters
expressed surprise that CMS initiated a
proposal that will have a ‘‘chilling effect
on primary care production’’ at a time
when the President has been so
outspoken in his support for primary
care. Other commenters similarly voiced
their concerns regarding what they
believed the detrimental and
disproportionate effect the proposed
rule may have on primary care
residencies, which are already too few
in aggregate number and which serve as
the basis of America’s healthcare
system. One commenter noted that the
shortage of primary care physicians
extends to the available faculty for
primary care residency programs, and
this proposal would force closed
primary care programs to find new
faculty when they wish to reopen.
Commenters also believed that the
proposed rule is unrealistic for similar
reasons, as it is unreasonable to suggest
that the director, faculty, and residents
in a closed residency program with
Medicare-funded resident slots should
relocate in order to continue their
careers. The commenters stated that, by
forcing closed primary care residency
programs to relocate, the proposed rule
will harm communities who are served
by those residents. Another commenter
specifically mentioned the retrospective
nature of the proposed rule as posing a
threat to primary care residencies that
started after 1995, while other
commenters mentioned the
retrospective provision of the proposed
rule as another example of its
unreasonable nature.
Several commenters mentioned that
primary care residencies are more costly
to hospitals than other specialty
programs and, thus, would be the first
to close if hospitals were forced to cut
GME costs. The commenters also noted
that residents are increasingly training
in ‘‘newer, more community-based
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environments,’’ specifically in the
primary care field of family medicine,
and CMS should attempt to regulate
towards that new training style ‘‘rather
than continue to keep fitting training
into the hospital.’’ One commenter
echoed the above statements by
explaining that primary care residencies
are often housed in community
hospitals, which are prone to ‘‘being
rebuilt, bought and sold at a regular
pace’’ and, as such, would require their
teaching programs to frequently switch
locations. Another commenter remarked
that CMS’ previous efforts to enforce
this clarification of its ‘‘new program’’
definition have already caused family
medicine programs to spend much time
and effort proving their new status to
CMS, and such situations have even led
to program closings.
In a similar vein, some commenters
believed that the proposed rule
expressly harmed teaching hospitals in
underserved areas. One commenter
explained that many teaching hospitals
serve a disproportionate number of
‘‘indigent and underinsured/uninsured
patients,’’ and thus many are forced to
close due to financial strain. This
commenter believed that those
residency programs, which ‘‘serve those
who need health care the most,’’ should
not be penalized for having to relocate.
Another commenter stated that the
proposed rule is unnecessary and unfair
to hospitals that ‘‘have acted in good
faith’’ by establishing new programs
where they are needed.
Response: We do not understand why
the commenters viewed the proposed
clarification regarding the definition of
new programs as hindering the growth
of primary care residency programs or
residencies in underserved areas in
particular. Neither of these types of
residencies was specifically targeted in
the proposed rule, nor were they
mentioned at all. CMS had no intention
of inappropriately inhibiting the growth
of primary care residencies, or of
‘‘harming’’ teaching programs in
underserved areas, with the proposed
clarification of the definition of a new
program. The supporting factors we
identified as indicative of new
programs, as described in the proposal,
are meant to serve as general guidelines
to hospitals for establishing new
programs in all specialties. Furthermore,
we believe that our revised policy
allowing a hospital to receive FTE cap
increases in the instance where it
operates a program that is transferred
from another hospital that closed should
help provide some flexibility in
situations where hospitals are closing
and the community is struggling to
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43915
maintain an adequate teaching presence
and ensure sufficient access to care.
Comment: One commenter noted that
the proposal states that ‘‘the statute
clearly requires [emphasis added by
commenter] that our rules regarding
adjustments to the hospitals FTE caps
for newly established programs must
adhere to the principles of the statutory
provision limiting the count of FTE
residents for direct GME and IME
payments to the count for the most
recent cost reporting period ending on
or before December 31, 1996.’’ The
commenter observed that the statute
says: ‘‘(i) NEW FACILITIES—The
Secretary shall, consistent with the
principles [emphasis added by
commenter] of subparagraphs (F) and
(G), prescribe rules for the application of
such subparagraphs in the case of
medical residency training programs
established on or after January 1, 1995.
In promulgating such rules for purposes
of subparagraph (F), the Secretary shall
give special consideration to facilities
that meet the needs of underserved rural
areas.’’ This commenter believed that
the Secretary has not given special
consideration to underserved rural
areas, despite a ‘‘mandate’’ to do so, and
‘‘it seems disingenuous to strongly
assert one provision of law while not
following other statutory requirements.’’
Response: We disagree with the
commenter that we are selectively
focusing on certain aspects of the statute
and the BBA conference report
language, to the exclusion of others. It
is clear that an overarching concern of
Congress with respect to GME funding
at the time that the BBA was passed was
that a cap should be placed on the
number of Medicare-funded resident
positions, in an attempt to control
spending while still addressing the
needs of those areas of the country or
those specialties where physicians were
in shorter supply. Specifically, the BBA
conference agreement includes ‘‘* * * a
requirement that the Secretary prescribe
rules for limiting and counting the
number of interns and residents in
training programs established on or after
January 1, 1995. In promulgating such
rules, the Secretary would be required
to give special consideration to facilities
that meet the needs of underserved rural
areas* * *. Among the specific issues
that concerned the Conferees was
application of a limit to new facilities,
that is, hospitals or other entities which
established programs after January 1,
1995. The Conferees understand that
there are a sizeable number of hospitals
that elect to initiate such programs (as
well as terminate such programs) over
any period of time, and the Conferees
are concerned that within the principles
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of the cap that there is proper flexibility
to respond to such changing needs,
including the period of time such
programs would be permitted to receive
an increase in payments before a cap
was applied. Nonetheless, the
Secretary’s flexibility is limited by the
conference agreement that the aggregate
number of FTE residents should not
increase over current levels. The
Conferees are also concerned about the
application of the limit on the number
of residents to programs established to
serve rural underserved areas, which the
Conferees believe have special
importance in easing physician
shortages in such areas. The conference
agreement provides the Secretary with
statutory direction to provide special
consideration to such programs.’’
(House Conference Rept. No. 105–217,
pp. 821–822)
Accordingly, in promulgating
regulations implementing the statutory
caps, we allowed those urban hospitals
that did not have residents in the most
recent cost reporting period ending on
or before December 31, 1996, to adjust
their caps for new programs only during
a period of 3 years after the first new
program began training residents
(§ 413.79(e)(1)(iii)). Rural hospitals were
not so limited. For those urban hospitals
that had residents in the most recent
cost reporting period ending on or
before December 31, 1996, we allowed
cap adjustments only for new programs
established between January 1, 1995 and
August 5, 1997 (§ 413.79(e)(2)).
However, we allowed rural hospitals,
even ones that already had FTE caps
during the base period (that is, the most
recent cost reporting period ending on
or before December 31, 1996), to receive
an increase to their FTE resident cap at
any time for starting new programs
(§ 413.79(e)(3)). Therefore, contrary to
the commenter’s assertion, we have
given ‘‘special consideration’’ to
programs established to serve
underserved areas.
Comment: One commenter asked
CMS for direction regarding a closed
teaching program in a rural facility. The
commenter desired to start another
training program in that same specialty
at a second facility and asked if this
would meet the definition of a new
program under the proposed
clarification.
Response: The hospital should
evaluate the circumstances relating to
the second program by assessing the
factors as described above and in our
proposed rule in order to be considered
a new program. It appears from the
comment that the rural hospital itself
remains open, and only the program
closed. Thus, the hospital that is
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considering opening a program in the
same specialty should focus its
assessment on the other supporting
factors (whether there is a new program
director, new faculty, and new
residents).
Comment: One commenter that
represents dental residency programs
stated that a number of dental programs
were closed in the 1980s and 1990s, and
there is interest in reopening the
programs in the same hospitals and
nonhospital dental school clinics in
which they were previously operated.
The commenter noted that a hospital
may be associated with the same dental
school, program director, and teaching
staff that were involved in operation of
the old program, even though about 10
years may have passed since the
previous program closed. The
commenter believed that programs that
open after being closed for several years
and that require accreditation by the
Council on Dental Accreditation as a
new program should be treated by CMS
as new.
Response: We agree with the
commenter that if a hospital wishes to
begin training residents in a particular
program in which it trained residents in
the past, but the program has not trained
residents for the past 10 years, the
program could subsequently be
considered a new program. We believe
that a program that is closed for several
years and then reopens is separate and
distinct from the previous program, and
would likely not involve any residents
that had trained in the previous
program, even though, as the
commenter indicated, the directors and
teaching staff may be the same.
(However, we note that it may be
necessary to determine whether the
program director and the teaching staff
have been training dental residents
during the past 10 years at another
training site in order to determine
whether the program at the hospital that
is beginning to train residents after a 10year hiatus is truly a new program.)
Comment: One commenter found it
‘‘interesting’’ that CMS provided several
supporting factors for identifying a new
program, but did not propose to change
the actual text of the regulation.
Response: Section 413.79(l) currently
defines a new medical residency
training program as ‘‘a medical
residency that receives initial
accreditation by the appropriate
accrediting body or begins training
residents on or after January 1, 1995.’’
We did not propose to revise the
language of the regulations text because
we believe the existing language is
sufficient in that it conveys the
important point that a program must be
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‘‘initially’’ accredited for the first time
as new by the accrediting body. The
supporting factors that we have
provided for determining whether a
program is to be considered as new by
CMS further clarify and support the
concept of ‘‘initial’’ accreditation.
Comment: One commenter was
concerned that its hospital was
negatively affected by an unfavorable
interpretation of the statute related to
training in nonprovider settings in cases
where the program is jointly funded by
two or more hospitals.
One commenter asked CMS to clarify
the statement ‘‘may count towards board
certification’’ in § 413.75 (b), and give
specific examples of when a
nonapproved program may count
towards certification and when the
interns and residents should be
included in the FTE count.
Response: We appreciate the
submission of these comments.
However, because they are outside the
scope of the proposed rule, we are not
responding to them in this final rule.
In summary, in this final rule, we are
clarifying our existing policy regarding
the definition of a new medical
residency training program. Under
existing policy, to determine whether a
program is new and whether, as a result,
a hospital qualifies for an FTE cap
adjustment, the supporting factors that a
hospital should consider are (but not
limited to) as follows:
—Is the program director new, and
—Is the teaching staff new, and
—Are there new residents?
In determining whether a particular
program is a newly established one, it
may also be necessary to consider
factors such as the relationship between
hospitals (for example, common
ownership or a shared medical school or
teaching relationship) and the degree to
which the hospital with the original
program continues to operate its own
program in the same specialty. In
addition, the following factors could
also be considered:
—Has this program been relocated from
a hospital that closed?
—If so, was this program part of the
closed hospital’s FTE cap
determination?
—More generally, is this program part of
any existing hospital’s FTE cap
determination?
We would not consider a transferred
program to be new in the case where the
program director, teaching staff, and
residents are the same as another
program that closed in another hospital
and the first hospital remains open, or
when an FTE cap that was associated
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with the first program is still available
for use by an existing provider.
3. Participation of New Teaching
Hospitals in Medicare GME Affiliation
Groups
Sections 1886(h)(4)(F) and
1886(d)(5)(B)(v) of the Act establish
limits on the number of allopathic and
osteopathic residents that hospitals may
count for purposes of calculating direct
GME payments and the IME adjustment,
respectively. Accordingly, effective
October 1, 1997, we established
hospital-specific direct GME and IME
FTE resident caps. Furthermore, under
the authority granted by section
1886(h)(4)(H)(ii) of the Act, the
Secretary issued rules to allow
institutions that are members of the
same affiliated group to elect to apply
their direct GME and IME FTE resident
caps on an aggregate basis. Accordingly,
as specified in the regulations at
§§ 413.79(f) and 412.105(f)(1)(vi),
hospitals that are part of the same
Medicare GME affiliated group are
permitted to apply their direct GME and
IME FTE resident caps on an aggregate
basis, and to temporarily adjust each
hospital’s caps to reflect the rotation of
residents among affiliated hospitals
during an academic year. Under
§ 413.75(b), a Medicare GME affiliated
group can be formed by two or more
hospitals if they are under common
ownership, or if they are jointly listed
as program sponsors or major
participating institutions in the same
program. Furthermore, the existing
regulations at § 413.79(f)(1) specify that
each hospital in a Medicare GME
affiliated group must submit a Medicare
GME affiliation agreement (as defined
under § 413.75(b)) to the CMS fiscal
intermediary or MAC servicing the
hospital and send a copy to CMS’
Central Office no later than July 1 of the
residency program year during which
the Medicare GME affiliation agreement
will be in effect. For example, in order
for a hospital to receive a temporary
adjustment to its FTE resident caps to
reflect participation in a Medicare GME
affiliated group for the academic year
beginning July 1, 2009, through June 30,
2010, each hospital in the affiliated
group is required to submit a Medicare
GME affiliation agreement to the fiscal
intermediary or MAC servicing the
hospital and to CMS’ Central Office no
later than July 1, 2009.
As we discussed in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24193), it has recently come to CMS’
attention that flexibility in the
submission deadline for Medicare GME
affiliation agreements due to an
unanticipated need is warranted in
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situations where a hospital opens after
July 1 and begins training residents for
the first time prior to the following July
1. That is, the new hospital, because it
did not train residents in the FTE cap
base year, would have FTE resident caps
of zero. Currently, if a new hospital
begins training residents from another
hospital’s existing program, the new
hospital would not be able to receive a
temporary FTE resident cap adjustment
through participation in a Medicare
GME affiliated group because the
existing regulations do not provide
flexibility for a hospital that begins
training residents after the start of an
academic year to enter into and submit
a Medicare GME affiliation agreement
after the July 1 submission deadline.
That is, a new hospital that opens after
July 1 would not be able to enter into
a Medicare GME affiliation agreement
because the hospital did not exist before
the submission deadline. We
understand that the new hospital is
likely to incur GME costs during the
first year of training residents, and we
believe it is reasonable to permit the
new hospital that receives a new
Medicare provider agreement and
begins training residents for the first
time after July 1 of an academic year to
receive an adjustment to its FTE
resident caps for IME and direct GME
payments through participation in a
Medicare GME affiliated group during
its first year of training residents, even
if the hospital completes and submits
the Medicare GME affiliation agreement
to CMS after July 1 of the academic year.
Accordingly, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule, we
proposed to amend § 413.79(f) by
revising paragraph (f)(1) and adding a
new paragraph (f)(6) (the existing
paragraph (f)(6) would be redesignated
as paragraph (f)(7)). In the proposed new
paragraph (f)(6), we proposed to provide
that a hospital that is new after July 1
and that begins training residents for the
first time prior to the following July 1
would be permitted to receive a
temporary adjustment to its FTE
resident caps to reflect its participation
in an existing Medicare GME affiliated
group if the new hospital submits a
Medicare GME affiliation agreement the
earlier of June 30 of the residency
program year during which the
Medicare GME affiliation agreement
will be in effect or the end of the first
cost reporting period during which the
hospital begins training residents. For
this purpose, a new hospital is one for
which a new Medicare provider
agreement takes effect in accordance
with § 489.13. We proposed to require
that the Medicare GME affiliation
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43917
agreement specify the effective period
for the agreement, which in any case
would begin no earlier than the date the
affiliation agreement is submitted to
CMS. Furthermore, we proposed that
each of the other hospitals participating
in the Medicare GME affiliated group
with the new hospital would be
required to submit an amended
Medicare GME affiliation agreement that
reflects the participation of the new
hospital to the CMS contractor servicing
the hospital and send a copy to the CMS
Central Office no later than June 30 of
the residency program year during
which the Medicare GME affiliation
agreement will be in effect.
Comment: A number of commenters
applauded CMS’ efforts to provide
flexibility in the Medicare GME
affiliation agreement regulation.
However, the majority of the
commenters believed the regulations,
even with the addition of the proposed
policy, remain unduly narrow and
urged CMS to create further flexibility.
For example, several commenters
suggested that CMS add a fourth
criterion for affiliations, specifying that
hospitals that are members of the same
GME consortium may enter into a
Medicare GME affiliation agreement.
Specifically, as an example of GME
consortia, the commenters cited
Osteopathic Postdoctoral Training
Institutions (OPTIs), which are
community-based training consortia
comprised of at least one college of
osteopathic medicine and one or more
teaching hospitals as well as
community-based facilities such as
ambulatory care centers, rehabilitation
centers, or surgicenters. The
commenters believed that OPTIs
‘‘provide a natural basis for affiliations
among teaching hospitals and other
training venues’’ and therefore members
of the same OPTI should be allowed to
adjust their FTE resident caps within an
aggregate cap. Another commenter
requested that CMS allow hospitals that
are members of the same health system
to enter into a Medicare GME affiliation
agreement and adjust their FTE resident
caps within an aggregate cap,
‘‘irrespective of whether the hospital is
designated as ‘new’ or whether the FTE
resident cap at any given hospital is
new since 1995.’’
One commenter provided comments
on our policy on counting FTE residents
training in the nonhospital setting.
Response: We appreciate the
commenters’ support of the proposed
change and the additional suggestions
on creating further flexibility in the
regulations for Medicare GME affiliated
groups. In the May 12, 1998 final rule
(63 FR 26336 through 26341), we
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established the definition of a Medicare
GME affiliated group and discussed the
requirement for the timely submission
of Medicare GME affiliation agreements.
Specifically, the regulation at
§ 413.75(b) defines Medicare GME
affiliated group to mean (1) two or more
hospitals that are located in the same
urban or rural area (as defined in
subpart D of Part 412 of this chapter) or
in a contiguous area, (2) two or more
hospitals that are not located in the
same or in a contiguous urban or rural
area * * * and are jointly listed as the
sponsor, primary clinical site, or major
participating institution for one or more
programs, or (3) two or more hospitals
that are under common ownership.
Furthermore, the regulations specify
that hospitals in an affiliated group are
required to have a shared rotational
arrangement. These provisions permit
hospitals that are members of the same
affiliated group to elect to apply their
FTE resident caps on an aggregate basis.
To respond to the commenters’
suggestion that we expand the
definition of affiliated group to allow
hospitals and other entities involved in
a GME consortium, for example OPTIs,
to affiliate as a Medicare GME affiliated
group, we note that the regulations
specifically only refer to hospitals as
members of an affiliated group. The sole
benefit gained from participating in a
Medicare GME affiliated group is the
ability to count FTE residents under an
aggregate FTE resident cap for GME
payment purposes. That is, by
aggregating FTE resident caps in a
Medicare GME affiliated group, a
hospital that is currently training above
its own FTE resident cap can receive a
temporary cap adjustment from another
hospital that is training below its own
FTE resident cap. The training venues
cited by the commenters (communitybased facilities such as ambulatory care
centers, rehabilitation centers, or
surgicenters) typically are either already
a part of the hospital, which means they
would be included in the affiliated
group, or are nonhospital training sites
in which case there are separate rules
for counting FTE residents training in
the nonhospital setting. There would be
no additional benefit for a nonprovider
to be included as a member of an
affiliated group because a nonprovider
would not have FTE resident caps to
share in an affiliated group.
Furthermore, we note that the hospitals
in an OPTI currently do have the ability
to form an affiliated group under the
current definition of Medicare GME
affiliated group at § 413.75(b). In
addition to the ability to qualify through
geographic proximity, all hospitals that
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meet the rotation requirement and are
listed as sponsors or listed under
‘‘affiliations and outside rotations’’ for a
program in operation in Opportunities,
Directory of Osteopathic Postdoctoral
Education Programs also qualify to
participate in an affiliated group.
In response to the commenter who
suggested CMS allow hospitals that are
members of the same health system to
enter into a Medicare GME affiliation
agreement and adjust their FTE resident
caps within an aggregate cap,
‘‘irrespective of whether the hospital is
designated as ‘new’ or whether the FTE
resident cap at any given hospital is
new since 1995,’’ we note first that
hospitals under common ownership
already qualify to form an affiliated
group because, as we noted in the May
12, 1998 final rule, ‘‘these systems
functionally operate coordinated and
centrally controlled GME programs and
often rotate their residents among
various facilities, depending on training
needs and other considerations’’ (63 FR
26337). In addition, the commenter
suggested that hospitals in an affiliated
group be allowed to temporarily give
away as well as receive FTE caps
‘‘whether the FTE resident cap at any
given hospital is new since 1995.’’ The
regulations at § 413.79(e)(1)(iv) specify
that a new urban teaching hospital that
qualifies for an adjustment to its FTE
caps for a newly approved program may
enter into a Medicare GME affiliation
agreement, but only if the resulting
adjustments to its direct GME and IME
caps are ‘‘positive adjustments.’’
‘‘Positive adjustment’’ means, for the
purpose of this policy, that there is an
increase in the new teaching hospital’s
caps as a result of the affiliation
agreement. At no time would the caps
of a hospital located in an urban area
that qualifies for adjustment to its FTE
caps for a new program under
§ 413.79(e)(1) be allowed to decrease as
a result of a Medicare GME affiliation
agreement. In the FY 2006 IPPS final
rule (70 FR 47453), we stated that we
established this policy ‘‘because of our
concern that hospitals with existing
medical residency training programs
could otherwise, with the cooperation of
new teaching hospitals, circumvent the
statutory FTE resident caps by
establishing new medical residency
programs in the new teaching hospitals
solely for the purpose of affiliating with
the new teaching hospitals to receive an
upward adjustment to their FTE cap
under an affiliation agreement. This
would effectively allow existing
teaching hospitals to achieve an
increase in their FTE resident caps
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beyond the number allowed by their
statutory caps.’’
Finally, we note that each hospital in
an affiliated group is required to crosstrain residents through a shared
rotational arrangement with at least one
other hospital in the affiliated group
because the criteria for being members
of the same affiliated group are intended
to recognize that hospitals that have
relationships for training their residents
need flexibility to adjust their FTE
resident cap. Hospitals that are
geographically near each other, or
operating as training sites under the
same program, or are under common
ownership have the greatest likelihood
of being able to fulfill the cross-training
requirement. Accordingly, we believe
that the current definition of Medicare
GME affiliated group is sufficiently
broad to include hospitals that have
relationships for training residents and
are in need of the flexibility afforded
under an aggregate FTE resident cap.
We consider the comment on the
policy on counting FTE residents in the
nonhospital setting to be outside the
scope of the proposed rule; we did not
propose any change in policy in this
area. Therefore, we are not responding
to it in this final rule.
After consideration of the public
comments we received, we are adopting
as final, without modification, our
proposal to revise paragraph (f)(1) of
§ 413.79 and adding a new paragraph
(f)(6) (the existing paragraph (f)(6) is
redesignated as paragraph (f)(7)). In the
new paragraph (f)(6), we provide that a
hospital that is new after July 1 and that
begins training residents for the first
time prior to the following July 1 is
permitted to receive a temporary
adjustment to its FTE resident caps to
reflect its participation in an existing
Medicare GME affiliated group if the
new hospital submits a Medicare GME
affiliation agreement the earlier of June
30 of the residency program year during
which the Medicare GME affiliation
agreement will be in effect, or the end
of the first cost reporting period during
which the hospital begins training
residents. For this purpose, a new
hospital is one for which a new
Medicare provider agreement takes
effect in accordance with § 489.13. We
are requiring that the Medicare GME
affiliation agreement specify the
effective period for the agreement,
which in any case would begin no
earlier than the date the affiliation
agreement is submitted to CMS.
Furthermore, each of the other hospitals
participating in the Medicare GME
affiliated group with the new hospital is
required to submit an amended
Medicare GME affiliation agreement that
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reflects the participation of the new
hospital to the CMS contractor servicing
the hospital and send a copy to the CMS
Central Office no later than June 30 of
the residency program year during
which the Medicare GME affiliation
agreement will be in effect.
4. Technical Corrections to Regulations
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24193), we
indicated that we had discovered that in
the existing § 413.79(k), under the
provision on residents training in rural
track programs, paragraph (k)(7)
incorrectly appears as regulation text
after paragraph (l) of § 413.79. To correct
this error, we proposed to move
paragraph (l) so that it appears as the
last paragraph of the section after
paragraph (k)(7).
We did not receive any public
comments on this proposal and,
therefore, we are adopting the proposed
change as final.
In addition, the regulations at
§ 413.75(b), paragraph (1), define an
‘‘approved medical residency program’’
as a program that is ‘‘approved by one
of the national organizations listed in
§ 415.152’’. Under § 415.152, in the
definition of an ‘‘approved graduate
medical education (GME) program’’, we
reference a residency program approved
by the ‘‘Committee on Hospitals of the
Bureau of Professional Education of the
American Osteopathic Association’’
(AOA). In the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule (74 FR 24193),
we indicated that it has come to our
attention that the structure of the AOA
has changed and that we should merely
refer to a residency program approved
by the AOA. Therefore, we proposed to
make a technical change to paragraph
(1) of the definition of an ‘‘approved
graduate medical education (GME)
program’’ under § 415.152, to remove
the phrase ‘‘the Committee on Hospitals
of the Bureau of Professional Education
of’’. We did not receive any public
comments on this proposal and
therefore are adopting the proposed
change as final.
H. Hospital Emergency Services Under
EMTALA (§ 489.24)
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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 an
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individual who comes to a hospital
emergency department and requests
examination or treatment for a medical
condition, and apply to all 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. Section
9121 of the Consolidated Omnibus
Budget Reconciliation Act of 1985
(COBRA), Public Law 99–272,
incorporated the responsibilities of
Medicare hospitals in emergency cases
into the Social Security Act. Congress
incorporated these antidumping
provisions within the Act as a part of
the hospital’s provider agreement to
ensure that any individual with an
emergency medical condition is not
denied essential lifesaving services.
Under section 1866(a)(1)(I)(i) of the Act,
a hospital that fails to fulfill its
EMTALA obligations under these
provisions may be subject to
termination of its Medicare provider
agreement, which would result in loss
to the hospital 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 medical condition, it
is obligated to provide that individual
with either necessary stabilizing
treatment or with an appropriate
transfer to another medical facility.
The regulations implementing section
1867 of the Act are found at 42 CFR
489.24. The regulations at 42 CFR
489.20(l), (m), (q), and (r) also refer to
certain EMTALA requirements outlined
in section 1866 of the Act. The
Interpretive Guidelines concerning
EMTALA are found at Appendix V of
the CMS State Operations Manual.
2. Changes Relating to Applicability of
Sanctions Under EMTALA
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
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
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43919
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 or emergency exists. Section
1135(b) of the Act lists the categories of
otherwise applicable statutory and
regulatory requirements that may be
waived or modified. Included among
these are the waiver of sanctions under
EMTALA for, in subparagraph (b)(3)(A),
a transfer of an individual who has not
been stabilized (if the transfer is
necessitated by the circumstances of the
declared emergency in the emergency
area during the emergency period) in
violation of the EMTALA requirements
governing transfer of an individual
whose emergency medical condition has
not 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, pursuant to an
appropriate State emergency
preparedness plan. Section 1135(b) of
the Act further states that, except for
certain emergencies involving pandemic
infectious disease (described in further
detail below), 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.
Section 302(b) of the Pandemic and
All-Hazards Preparedness Act, Public
Law 109–417, made two specific
changes that affect EMTALA
implementation in instances where the
Secretary has invoked the section 1135
waiver authority in an emergency area
during an emergency period. Section
302(b)(1)(A) of Public Law 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 Public Law 109–417
amended section 1135(b) of the Act to
further 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 such
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subsection applies to public health
emergencies.’’
In the FY 2008 IPPS final rule with
comment period (72 FR 47413), we
amended the regulations at
§ 489.24(a)(2) (which refers to the
nonapplicability of certain EMTALA
provisions in an emergency area during
an emergency period) to incorporate the
changes made to section 1135 of the Act
by the Pandemic and All-Hazards
Preparedness Act. We amended the
regulations to specify that, under a
section 1135 waiver, the sanctions that
do not apply are either those for 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 added
a second sentence to paragraph (a)(2) to
state that a waiver of these sanctions for
EMTALA violations is limited to a 72hour 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
section 1135(e) of the Act as it applies
to public health emergencies. In the FY
2009 IPPS final rule (73 FR 28667), we
made a technical change to the
regulations at § 489.24(a)(2) by adding
section 1135 language we had
inadvertently left out when we made
changes to the regulations at
§ 489.24(a)(2) in the FY 2008 IPPS final
rule with comment period. Specifically,
we added the phrases ‘‘pursuant to an
appropriate State emergency
preparedness plan or, in the case of a
public health emergency that includes a
pandemic infectious disease, pursuant
to a State pandemic preparedness plan’’
and ‘‘during an emergency period,’’ to
make the regulatory language consistent
with the statutory text. Existing
§ 489.24(a)(2) states that ‘‘Sanctions
under this section for an inappropriate
transfer during a national emergency or
for the direction or relocation of an
individual to receive medical screening
at an alternate location pursuant to an
appropriate State emergency
preparedness plan or, in the case of a
public health emergency that involves a
pandemic infectious disease, pursuant
to a State pandemic preparedness plan
do not apply to a hospital with a
dedicated emergency department
located in an emergency area during an
emergency period, as specified in
section 1135(g)(1) of the Act. A waiver
of these sanctions is limited to a 72-hour
period beginning upon the
implementation of a hospital disaster
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protocol, except that, if a public health
emergency involves a pandemic
infectious disease (such as pandemic
influenza), the waiver will continue in
effect until the termination of the
applicable declaration of a public health
emergency, as provided for by section
1135(e)(1)(B) of the Act.’’
As we discussed in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24194 through 24195), after further
review of the revised regulatory
language as compared to the statutory
language at section 1135 of the Act, we
believe that further revisions to the
language of § 489.24(a)(2) are necessary
to make the language conform more
closely to the language of section 1135
of the Act and better reflect how the
section 1135 authority has been used in
practice. Specifically, we stated that we
believe that the regulatory language
should be revised to be more consistent
with the language in the statute to state
that EMTALA sanctions for an
inappropriate transfer may be waived
only if the inappropriate transfer arises
out of the circumstances of the
emergency. We further proposed to
amend the regulations to provide that
the sanctions waived for both an
inappropriate transfer and the
redirection or relocation of an
individual to receive a medical
screening examination at an alternate
location are only applicable if the
hospital does not discriminate on the
basis of an individual’s source of
payment or ability to pay. These
additional requirements (which are
underlined) are currently not included
in the regulations text at § 489.24(a)(2).
To ensure that the language of the
regulations is fully consistent with the
statutory language at section 1135 of the
Act, we stated that we believe the
regulations need to be clarified to
include these provisions.
In addition, as we stated in the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule, we believe the existing regulations
do not adequately reflect the Secretary’s
authority under section 1135 of the Act
to waive or modify requirements for a
single health care provider, a class of
health care providers, or a geographic
subset of health care providers located
within an emergency area during an
emergency period. The language at
section 1135(b) of the Act states:
‘‘To the extent necessary to
accomplish the purpose specified in
subsection (a), the Secretary is
authorized, subject to the provisions of
this section, to temporarily waive or
modify the application of, with respect
to health care items and services
furnished by a health care provider (or
classes of health care providers) in any
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emergency area (or portion of such an
area) during any portion of an
emergency period, the requirements of
titles XVIII, XIX, or XXI, or any
regulation thereunder (and the
requirements of this title other than this
section, and regulations thereunder,
insofar as they relate to such titles),
pertaining to—’’ (emphases added).
Thus, it is clear from the emphasized
text that waivers under the section 1135
authority may be tailored and applied to
one or more hospitals in the emergency
area (or portion thereof) during some or
all of the emergency period, as
necessary. However, the existing
regulations may inadvertently imply,
contrary to the flexibility clearly
contemplated in the statute, that all
hospitals in all portions of an
emergency area during an entire
emergency period automatically receive
a waiver of EMTALA sanctions. In the
proposed rule, we proposed revisions to
the regulation text to clarify this issue.
We proposed to revise the regulations
to further clarify that the Secretary has
the authority to implement a section
1135 waiver as necessary to ensure that
the purpose of section 1135(a) of the Act
can be achieved. That is, the Secretary
is authorized to apply a section 1135
waiver, for example, to one or more
hospitals in the emergency area (or
portion thereof) during some or all of
the emergency period, as necessary. The
Secretary may delegate implementation
of a waiver of EMTALA sanctions to
CMS (as the Secretary has done in every
instance in which the section 1135
waiver authority has been invoked thus
far.)
In summary, we proposed to revise
the regulations at § 489.24(a)(2) to state
that a waiver of EMTALA sanctions
pursuant to an inappropriate transfer
only applies if the transfer arises out of
the circumstances of the emergency. We
also proposed to revise the regulations
to provide that the sanctions waived for
an inappropriate transfer or for the
relocation or redirection of an
individual to receive a medical
screening examination at an alternate
location are only in effect if the hospital
to which the waiver applies does not
discriminate on the source of an
individual’s payment or ability to pay.
In addition, we proposed to revise the
regulations to state that the Secretary
has the authority to apply the waiver of
EMTALA sanctions to one or more
hospitals in a portion of an emergency
area or a portion of an emergency
period.
Comment: Several commenters
supported the proposed changes to the
regulations to make them conform more
closely to the statutory text. The
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commenters agreed with the addition to
the regulations stating that a waiver of
EMTALA sanctions would only apply if
the hospital does not discriminate on an
individual’s insurance status or ability
to pay. The commenters also stated that
revising the regulations to clarify that
the Secretary has the authority to waive
EMTALA sanctions for a portion of
hospitals in an emergency area during a
portion of an emergency period will
enable the Secretary to waive EMTALA
sanctions in a more expeditious manner
when a public health emergency is
declared.
Response: We thank the commenters
for their support of the proposals and
are finalizing the provisions regarding a
waiver of EMTALA sanctions only if the
hospital does not discriminate based on
an individual’s source of payment and
ability to pay and the Secretary’s
authority to waive EMTALA sanctions
for a portion of an emergency area and
during a portion of an emergency
period.
Comment: One commenter supported
the intent of the law that a waiver of
sanctions under EMTALA only applies
if the transfer does not discriminate
based on insurance status. However, the
commenter questioned whether the
regulations need to be revised to include
this provision because the law is already
quite clear. The commenter questioned
the involvement of the Secretary in
declaring a public health emergency in
order to invoke the waiver. Specifically,
the commenter stated that ‘‘It is not
evident to us that the government is in
a position to be able to determine which
hospitals within a public health
emergency declaration should be
granted a waiver from the EMTALA
requirements and which ones should
not.’’ The commenter further stated that
emergency situations tend to be chaotic
and it may be difficult to gather
information. The commenter believed
that efforts should be focused on patient
care and not the applicability of waivers
to specific hospitals. Therefore, the
commenter requested that the waiver be
granted to an entire area. The
commenter also asked for clarification
on the timeliness of the declaration of
a public health emergency. Specifically,
the commenter stated that ‘‘We have an
additional concern regarding the
timeliness of a Secretary’s declaration of
a public health emergency, when in fact
events are likely to be ahead of any such
decision. We understand that such
declarations can be retroactive to an
earlier date, but this still begs the
question of timeliness.’’ The commenter
requested information on how to obtain
an extension of a waiver of EMTALA
sanctions past 72 hours. The commenter
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stated that the rule is not clear and
asked for simplicity and clarity on how,
at the local level, the request for an
extension or designation of a public
health emergency can be communicated
to the authorities.
Another commenter supported the
proposed provision, which
acknowledges the Secretary’s authority
to apply the waiver to particular
hospitals because, for example, level I
and II trauma centers may be better
equipped to handle a public health
emergency. The commenter further
stated that ‘‘We do have concerns with
the process for the Secretary, DHHS to
declare a public health emergency
expeditiously enough to allow for
emergency department readiness * * *.
We ask CMS to be aware of this and
enforce the law and regulations
judiciously.’’
Response: We believe that our
proposal to amend the regulations to
state that a waiver of sanctions can only
be applied if the hospital does not
discriminate on the basis of an
individual’s source of payment or
ability to pay is necessary to ensure that
the regulations reflect the entirety of
statutory constraints related to a waiver
of EMTALA sanctions under section
1135 of the Act and that hospitals are
aware of the requirements they must
meet in order to receive a waiver.
Furthermore, we emphasize that the
requirement not to discriminate on an
individual’s source of payment or
ability to pay in order for a waiver of
sanctions to be granted applies to both
the waiver of sanctions governing an
inappropriate transfer and the waiver of
sanctions for the direction or relocation
of an individual to receive a medical
screening at an alternate location. In
response to the involvement of the
Secretary in declaring a public health
emergency, the statute requires the
Secretary to declare a public health
emergency under 42 U.S.C. 247d in
order to invoke the section 1135 waiver
authority. In response to the comment
regarding extending a waiver of
EMTALA sanctions beyond 72 hours,
section 1135(b) of the Act expressly
limits the duration of the waiver to 72
hours (beginning with the
implementation of a hospital disaster
protocol) unless the public health
emergency involves a pandemic
infectious disease. Permitting a waiver
of sanctions beyond that 72-hour period
(except in the case of a pandemic
infectious disease) would require a
change in the law. We will continue to
work with State and local officials to
improve the communication that is
needed to provide for timely and
appropriate patient care during declared
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43921
emergencies. We further note that a
waiver of EMTALA sanctions can be
implemented retroactive to the
beginning of the emergency period.
Comment: The majority of
commenters disagreed with the
proposed language at § 489.24(a)(2)(i)(A)
which specifies that ‘‘If relating to an
inappropriate transfer, the transfer
arises out of the circumstances of the
emergency.’’ The commenters stated
that this language is not consistent with
the statute and could be interpreted too
narrowly and misconstrued as only
providing a waiver of sanctions if the
individual’s ‘‘* * * emergency medical
condition is the direct result of the
public health emergency.’’ The
commenters stated that Congress’ intent
was not to provide a waiver of sanctions
in scenarios where the individual’s
emergency medical condition was
related to the declared emergency but to
provide for a waiver of sanctions in
cases where the hospital had to transfer
the individual in a manner that is
inconsistent with an appropriate
transfer under EMTALA because of
circumstance of the emergency. The
commenters recommended that CMS
revise the proposed regulation text at
§ 489.24(a)(2)(i)(A) so that it reads ‘‘If
relating to an inappropriate transfer, the
transfer is necessitated by the
circumstances of the declared
emergency.’’
Another commenter opposed the
inclusion of the language ‘‘If relating to
an inappropriate transfer, the transfer
arises out of the circumstances of the
emergency’’ ‘‘* * * on the grounds that
it is vague, likely to be arbitrary in its
application, and not required by the
language of the Act.’’ The commenter
further stated that such a regulatory
requirement would necessitate that the
hospital, its legal counsel, CMS, and the
courts be able to determine the
difference between the transfers that are
due to the underlying disaster or
emergency in the geographic area and
those transfers that are not the result of
the underlying disaster or emergency.
The commenter stated that ‘‘To
distinguish between situations that do
and do not arise out of the
circumstances is likely to be arbitrary at
best. Also the administrative and
litigation proceedings that will result
from adding such a vague condition will
only hamper the purpose and
requirements of the Act.’’
Response: We agree with the
commenters that the intent of the statute
is to provide flexibility in cases where
an inappropriate transfer may arise out
of conditions relating to the declared
emergency and that it is not a
requirement that an individual’s
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emergency medical condition be a direct
result of the public health emergency in
order for sanctions to be waived. To
address the commenters’ concerns and
minimize confusion regarding
applicability of the policy described at
§ 489.24(a)(2)(i)(A), in this final rule, we
are revising the regulatory text to state:
‘‘The transfer is necessitated by the
circumstances of the declared
emergency in the emergency area during
the emergency period.’’ We are
removing the phrase ‘‘If relating to’’
under both paragraphs (a)(2)(i)(A) and
(a)(2)(i)(B) of § 489.24 to provide for
further consistency with the statutory
language and clarify that sanctions can
only be waived for an inappropriate
transfer and for the direction or
relocation of an individual to receive a
medical screening and not for any
action ‘‘related to’’ these events. In
response to the commenter who stated
that including language pertaining to an
inappropriate transfer would result in
administrative and litigation
proceedings, currently the statute limits
the waiver related to inappropriate
transfers to transfers necessitated by the
circumstances of the declared
emergency in the emergency area during
the emergency period. This is not a new
requirement under the law. Therefore,
we do not believe that reflecting the
statutory requirement in the regulations
will have any effect on the likelihood of
administrative and litigation
proceedings.
Comment: One commenter stated that
regulations governing the application of
sanctions should be as flexible as
possible because of the innumerable
types of emergency situations that may
occur and the varied hospital and State
responses that may result. The
commenter stated that emergency
situations are unpredictable and that
there may be ‘‘* * * state or hospital
actions that are critical for an effective
emergency response, but may
technically violate EMTALA.’’
Therefore, the commenter requested that
CMS adopt the EMTALA Technical
Advisory Group’s (TAG) high priority
recommendation with respect to
expansion of EMTALA waivers, which
is referred to as recommendation
number 18 of the final TAG report.
Response: The commenter is referring
to the following recommendation made
by the EMTALA TAG: ‘‘The TAG
recommends that HHS pursue statutory
and regulatory changes, as well as
changes to the Interpretive Guidelines,
addressing waiving EMTALA
obligations in an emergency as declared
by a Federal, State, county, or city
government or by an individual
hospital.’’
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The EMTALA TAG report containing
this recommendation can be found at
the following Web site: https://
www.cms.hhs.gov/EMTALA/
03_emtalatag.asp#TopOfPage. The
recommendation made by the EMTALA
TAG would require a statutory change.
Because implementing this
recommendation would require
Congressional action, based on existing
statutory language, we are not revising
the regulation in this final rule.
Comment: Several commenters stated
that ‘‘* * * lessons learned from recent
disasters make it clear that changes to
the law are needed in order to provide
additional flexibility in regulatory
enforcement and payment policy so that
hospitals can maximize their ability to
quickly and safely respond to the needs
of their communities and patients in
disasters.’’ The commenters stated that
they have developed examples of where
changes and additional flexibilities are
necessary and would be willing to work
with CMS and the Secretary on
legislative proposals to address these
changes.
Response: We appreciate the
commenters’ interest in continuing to
improve access to patient care during
emergency situations and the
commenters’ offer to work with CMS
and the Secretary on legislative changes
and future rulemaking to address the
need for increased flexibility for
hospitals during emergency situations.
After consideration of the public
comments we received, we are adopting
as final the proposed change to
§ 489.24(a)(2) of the regulations, except
that we are changing the language under
paragraphs (a)(2)(i)(A) and (a)(2)(i)(B) as
noted above. The revised § 489.24(a)(2)
reads as follows:
‘‘(i) When a waiver has been issued in
accordance with section 1135 of the Act
that includes a waiver under section
1135(b)(3) of the Act, sanctions under
this section for an inappropriate transfer
or for the direction or relocation of an
individual to receive medical screening
at an alternate location do not apply to
a hospital with a dedicated emergency
department if the following conditions
are met:
(A) The transfer is necessitated by the
circumstances of the declared
emergency in the emergency area during
the emergency period.
(B) The direction or relocation of an
individual to receive medical screening
at an alternate location is pursuant to an
appropriate State emergency
preparedness plan or, in the case of a
public health emergency that involves a
pandemic infectious disease, pursuant
to a State pandemic preparedness plan.
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(C) The hospital does not discriminate
on the basis of an individual’s source of
payment or ability to pay.
(D) The hospital is located in an
emergency area during an emergency
period, as those terms are defined in
section 1135(g)(1) of the Act.
(E) There is a determination that a
waiver of sanctions is necessary.
(ii) A waiver of these sanctions 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 waiver will continue in
effect until the termination of the
applicable declaration of a public health
emergency, as provided under section
1135(e)(1)(B) of the Act.’’
I. Rural Community Hospital
Demonstration Program
In accordance with the requirements
of section 410A(a) of Public Law 108–
173, the Secretary has established a 5year 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—
• 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;
• Has fewer than 51 beds (excluding
beds in a distinct part psychiatric or
rehabilitation unit) as reported in its
most recent cost report;
• Provides 24-hour emergency care
services; and
• Is not designated or eligible for
designation as a CAH.
Section 410A(a)(4) of Public Law 108–
173 states that no more than 15 such
hospitals may participate in the
demonstration program.
As we indicated in the FY 2005 IPPS
final rule (69 FR 49078), in accordance
with sections 410A(a)(2) and (a)(4) of
Public Law 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). Eleven rural community
hospitals located within these States are
currently participating in the
demonstration program. (Of the 13
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hospitals that participated in the first 2
years of the demonstration program, 4
hospitals located in Nebraska became
CAHs and withdrew from the program.)
In a notice published in the Federal
Register on February 6, 2008 (73 FR
6971 through 6973), we announced a
solicitation for up to six additional
hospitals to participate in the
demonstration program. The February 6,
2008 notice specified the eligibility
requirements for the demonstration
program. Four additional hospitals were
selected to participate under this
solicitation. These four additional
hospitals began under the
demonstration payment methodology
with the hospital’s first cost reporting
period starting on or after July 1, 2008.
The end date of participation for these
hospitals is September 30, 2010. Two
hospitals among the hospitals that began
the demonstration at the project’s
inception withdrew from the
demonstration between April and June
2009. These two hospitals stated that
they preferred being paid under the SCH
provision of the MIPPA (Pub. L. 110–
275) instead of participating in the
demonstration.
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 (or
the July 1, 2008 date for the newly
selected hospitals). 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.
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Section 410A of Public Law 108–173
requires that, ‘‘in conducting the
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 hospitals
do not exceed the amount that would be
paid to those same hospitals 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 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 hospitals.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24196), we
proposed two measures to achieve
budget neutrality for the demonstration
program for FY 2010, which, when
combined, would lead to an adjustment
in the national inpatient PPS rates. We
proposed to adjust the national
inpatient PPS rates by an amount
sufficient to account for the added costs
of this demonstration program. We
proposed 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, FY 2007, FY 2008, and
FY 2009 IPPS final rules (69 FR 49183;
70 FR 47462; 71 FR 48100; 72 FR 47392;
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43923
and 73 FR 48670), we believe that the
language of the statutory budget
neutrality requirements permits the
agency to implement the budget
neutrality provision in this manner.
First, in the proposed rule, we
estimated the cost of the demonstration
program for FY 2010 for the 13
participating hospitals. We stated that
the estimate of the portion of the budget
neutrality adjustment that accounts for
the costs of the demonstration for FY
2010 for 9 of the 13 hospitals (that is,
the 9 hospitals that had participated in
the demonstration since its inception
and that were continuing to participate
in the demonstration) was based on data
from their first and second year cost
reports—that is, cost reporting periods
beginning in CY 2005 and CY 2006. We
proposed to use these cost reports
because they were the most recent
complete cost reports and thus we
believed they enabled us to estimate FY
2010 costs as accurately as possible. In
addition, we estimated the cost of the
demonstration for FY 2010 for the 4
hospitals that joined the demonstration
in 2008 based on data for their cost
reporting periods beginning October 1,
2005, through July 1, 2006 (that is, cost
reporting periods that include CY 2006).
When we added together the estimated
costs of the demonstration for FY 2010
for the 9 hospitals that had participated
in the demonstration since its inception
and the 4 new hospitals selected in
2008, the proposed total estimated cost
was $14,613,632. This proposed
estimated amount reflected the
difference between the participating
hospitals’ estimated costs under the
methodology set forth in Public Law
108–173 and the estimated amount the
hospitals would have been paid under
the IPPS.
Second, for the proposed rule,
because the cost reports of all hospitals
participating in the demonstration in its
first year (that is, FY 2005) had been
finalized, we were able to determine
how much the cost of the demonstration
program exceeded the amount that was
offset by the budget neutrality
adjustment for FY 2005. For all 13
hospitals that participated in the
demonstration in FY 2005, the amount
was $7,179,461. The total proposed
budget neutrality offset amount to be
applied for the demonstration for the
demonstration for FY 2010 was the sum
of these two amounts, or $21,793,093. In
addition, we stated in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule that
the budget neutrality offset amount may
be different in the IPPS final rule to the
extent that we have more recent data.
We did not receive any public
comments on our proposal.
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For this final rule, based on more
recent data, we are estimating the cost
of the demonstration program for FY
2010 for the 11 currently participating
hospitals. (As indicated previously, two
hospitals recently withdrew from the
demonstration, and we are adjusting the
estimation of the cost of the
demonstration for FY 2010 for this final
rule to reflect this.) The estimate of the
portion of the budget neutrality
adjustment that accounts for the costs of
the demonstration for FY 2010 for 7 of
the 11 currently participating hospitals
(that is, the 7 hospitals that have
participated in the demonstration since
its inception and that continue to
participate in the demonstration) is
based on data from their second year
cost reports—that is, cost reporting
periods beginning in CY 2006. We used
these cost reports because they are the
most recent complete cost reports and,
thus, we believe they enable us to
estimate FY 2010 costs for this final rule
as accurately as possible. (We note that,
at the time of the proposed rule, we had
completed cost reports for cost reporting
periods beginning in CY 2005 for all of
the hospitals that had participated in
the demonstration since its inception
and that were continuing to participate,
and complete cost reports for cost
reporting periods beginning in CY 2006
for most, but not all, such hospitals.
Because we did not have all cost reports
for cost reporting periods beginning in
CY 2006, we used data from CYs 2005
and 2006 to best estimate FY 2010 costs
for these hospitals. For this final rule,
we had complete cost reports for cost
reporting periods beginning in CY 2006
for all 7 currently participating
hospitals. Therefore, we used these most
recent data to estimate costs.) In
addition, we estimate the cost of the
demonstration for FY 2010 for the 4
hospitals that joined the demonstration
in 2008. For 3 of the 4 hospitals that
joined the demonstration in 2008, we
estimate the cost of the demonstration
for FY 2010 based on data for their cost
reporting periods beginning January 1,
2007, through July 1, 2007. Similarly,
we used these cost reports because they
are the most recent cost reports and,
thus, we believe they enable us to
estimate FY 2010 costs for these 3
hospitals as accurately as possible. We
believe that the estimates obtained from
the Medicare inpatient cost amounts on
these cost reports allow for the most
accurate estimation of the cost of the
program in FY 2010. The remaining
hospital of the 4 that began in 2008 is
an Indian Health Service (IHS) provider.
Historically, the hospital has not filed
standard Medicare cost reports. In order
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to estimate its costs, we used an analysis
of Medicare inpatient costs and
payments submitted by the hospital for
the cost reporting period of October 1,
2005, through September 30, 2006. The
Medicare cost amount from this analysis
for the IHS provider is identical to that
used in the proposed rule. We chose
this approach because it is consistent
with our overall methodology. When we
add together the estimated costs of the
demonstration for FY 2010 for the 7
hospitals that have participated in the
demonstration since its inception and
the 4 new hospitals selected in 2008
based on the more recent data, the total
estimated cost is $15,081,251. This
estimated amount reflects the difference
between the participating hospitals’
estimated costs under the methodology
set forth in Public Law 108–173 and the
estimated amount the hospitals would
have been paid under the IPPS.
Second, for this final rule, because the
FYs 2005 and 2006 cost reports of all
hospitals participating in the
demonstration in its first and second
years have been finalized, we are able to
determine how much the cost of the
demonstration program exceeded the
amount that was offset by the budget
neutrality adjustment for FY 2005 and
FY 2006. For all 13 hospitals that
participated in the demonstration in FY
2005, the amount is $7,856,617. For the
10 hospitals with cost reporting periods
that began in FY 2006, the amount is
$4,203,947. The sum of these amounts,
or the amount by which the cost of the
demonstration program exceeded the
offset of the budget neutrality
adjustment for FY 2005 and FY 2006, is
$12,060,564.
The total budget neutrality offset
amount applied for the demonstration
for FY 2010 is the sum of these two
amounts, or $27,141,815. We discuss
the payment rate adjustment that is
required to ensure the budget neutrality
of the demonstration program for FY
2010 in section II.A.4. of the Addendum
to this final rule. This amount differs
from that proposed in the proposed rule
because we used more recent data,
including the finalized FY 2006 cost
reports of the hospitals that participated
in the second year of the demonstration
(these finalized reports enabled us to
now include the amount by which the
cost of the demonstration exceeded the
amount that was offset by the FY 2006
budget neutrality adjustment).
J. Technical Correction to Regulations
Relating to Calculation of the Federal
Rate Under the IPPS
Section 412.63 of the regulations
specifies the procedures for determining
the standardized amounts for inpatient
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operating costs for Federal fiscal years
1984 through 2004. These standardized
amounts included a ‘‘large urban area’’
standardized amount for large urban
hospitals and an ‘‘other area’’
standardized amount for hospitals
located in other areas. In the FY 1989
IPPS final rule, we established
§ 412.63(c)(5). Consistent with section
1886(d)(3)(C)(ii) of the Act,
§ 412.63(c)(5) states that, for FYs 1987
through 2004, CMS calculated the
average standardized amounts by
excluding an estimate for IME
payments. Accordingly, beginning in FY
1989, we updated the standardized
amounts using an IME adjustment factor
that excludes an estimate of IME
payments. For a complete discussion on
this adjustment factor for IME, we refer
readers to the FY 1989 IPPS final rule
(53 FR 38538 through 38539).
Section 1886(d)(3)(A)(iv) of the Act,
as amended by section 401(a) of Public
Law 108–173, requires that, beginning
with FY 2004 and thereafter, we
compute the standardized amount for
all hospitals in any area equal to the
standardized amount for the previous
fiscal year for large urban hospitals,
updated by the applicable percentage
update under section 1886(b)(3)(B)(i) of
the Act. In other words, beginning in FY
2004, we no longer computed a ‘‘large
urban area’’ standardized amount and a
separate ‘‘other area’’ standardized
amount. As a result of this statutory
change, we established new regulations
at § 412.64 to specify the computation of
the single standardized amount for FY
2005 and subsequent fiscal years (69 FR
49077). With the exception of removing
a separate standardized amount for nonlarge urban hospitals, the regulation text
at § 412.64 virtually mirrors the
regulation text at § 412.63. For FY 2005
and subsequent fiscal years, we
excluded an estimate for IME payments
from the calculation of the standardized
amount in accordance with section
1886(d)(3)(A)(iv) of the Act. However,
we inadvertently omitted from § 412.64
the language under paragraph (c)(5) of
§ 412.63 that implements the exclusion
of an estimate for IME payments from
the calculation of the standardized
amount in accordance with section
1886(d)(3)(A)(iv) of the Act. Therefore,
in the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24196 through
24197), we proposed to revise
§ 412.64(c) to include this language so
that § 412.64(c) reflects the statutory
requirement under section
1886(d)(3)(A)(iv) of the Act that
calculation of the standardized amount
excludes IME payments.
We did not receive public comment
on this technical correction; therefore,
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we are adopting our proposal without
modification.
VI. Changes to the IPPS for CapitalRelated Costs
A. Overview
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
Federal fiscal year (FY) 1992 IPPS final
rule (56 FR 43358), in which we
established a 10-year transition period
to change the payment methodology for
Medicare hospital inpatient capitalrelated costs from a reasonable costbased methodology to a prospective
methodology (based fully on the Federal
rate).
FY 2001 was the last year of the 10year 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 almost all acute care
hospitals (other than hospitals receiving
certain exception payments and certain
new hospitals). (We refer readers to the
FY 2002 IPPS final rule (66 FR 39910
through 39914) for additional
information on the methodology used to
determine capital IPPS payments to
hospitals both during and after the
transition period.) The basic
methodology for determining capital
prospective payments using the Federal
rate is set forth in § 412.312 of the
regulations. For the purpose of
calculating payments for each discharge,
currently the standard Federal rate is
adjusted as follows:
(Standard Federal Rate) × (DRG
Weight) × (Geographic Adjustment
Factor (GAF)) × (COLA for hospitals
located in Alaska and Hawaii) × (1 +
Capital DSH Adjustment Factor +
Capital IME Adjustment Factor, if
applicable).
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B. Exception Payments
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 FY 2003 IPPS
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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 the 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 are
required to submit documentation to the
fiscal intermediary or MAC indicating
the completion date of their project. (For
more detailed information regarding the
special exceptions policy under
§ 412.348(g), we refer readers to the FY
2002 IPPS final rule (66 FR 39911
through 39914) and the FY 2003 IPPS
final rule (67 FR 50102).)
C. New Hospitals
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
example, the following hospitals are not
considered new hospitals: (1) A hospital
that builds new or replacement facilities
at the same or another location, even if
coincidental with a change of
ownership, a change in management, or
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43925
a lease arrangement; (2) a hospital that
closes and subsequently reopens; (3) a
hospital that has been in operation for
more than 2 years but has participated
in the Medicare program for less than 2
years; and (4) a hospital that changes its
status from a hospital that is excluded
from the IPPS to a hospital that is
subject to the capital IPPS. For more
detailed information, we refer readers to
the FY 1992 IPPS 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,
as discussed in the FY 2003 IPPS final
rule (67 FR 50101), we believe that
special protection to new hospitals is
also appropriate even after the transition
period, 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 full prospective
payment based on 100 percent of the
Federal rate. (We refer readers to the FY
2003 IPPS final rule (67 FR 50101
through 50102) for a detailed discussion
of the special payment provisions for
new hospitals under the capital IPPS
after the 10-year transition period.)
D. Hospitals Located in Puerto Rico
Section 412.374 of the regulations
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 hospitals located in
Puerto Rico required by section 4406 of
Public Law 105–33, we revised the
methodology for computing capital IPPS
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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 capital IPPS Federal rate.
Similarly, in conjunction with the
change in operating IPPS payments to
hospitals located in Puerto Rico for FY
2005 required by section 504 of Public
Law 108–173, we again revised the
methodology for computing capital IPPS
payments to hospitals located 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.
E. Proposed and Final Changes
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1. FY 2010 MS–DRG Documentation
and Coding Adjustment
a. Background on the Prospective MS–
DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009
In the FY 2008 IPPS final rule with
comment period (72 FR 47175 through
47186), we adopted the MS–DRG
patient classification system for the
IPPS, effective October 1, 2007, to better
recognize patients’ severity of illness in
Medicare payment rates. Adoption of
the MS–DRGs resulted in the expansion
of the number of DRGs from 538 in FY
2007 to 745 in FY 2008 (currently 746,
including one additional MS–DRG
created in FY 2009). By increasing the
number of DRGs and more fully taking
into account patients’ severity of illness
in Medicare payment rates, the MS–
DRGs encourage hospitals to change
their documentation and coding of
patient diagnoses. In that same final rule
with comment period (72 FR 47183), we
indicated that we believe the adoption
of the MS–DRGs had the potential to
lead to increases in aggregate payments
without a corresponding increase in
actual patient severity of illness due to
the incentives for changes in
documentation and coding.
Accordingly, we established
adjustments to both the national
operating standardized amount and the
national capital Federal rate to eliminate
the estimated effect of changes in
documentation and coding resulting
from the adoption of the MS–DRGs that
do not reflect real changes in case-mix.
Specifically, we established prospective
documentation and coding adjustments
of ¥1.2 percent for FY 2008, ¥1.8
percent for FY 2009, and ¥1.8 percent
for FY 2010. However, to comply with
section 7(a) of Public Law 110–90,
enacted on September 29, 2007, in a
final rule published in the Federal
Register on November 27, 2007 (72 FR
66886 through 66888), we modified the
documentation and coding adjustment
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for FY 2008 to ¥0.6 percent, and
consequently revised the FY 2008 IPPS
operating and capital payment rates,
factors, and thresholds accordingly,
with these revisions effective October 1,
2007.
For FY 2009, section 7(a) of Public
Law 110–90 required a documentation
and coding adjustment of ¥0.9 percent
instead of the ¥1.8 percent adjustment
established in the FY 2008 IPPS final
rule with comment period. As discussed
in the FY 2008 IPPS final rule with
comment period (72 FR 48447 and
48733 through 48774), we applied a
documentation and coding adjustment
of ¥0.9 percent to the FY 2009 IPPS
national standardized amounts and the
capital Federal rate. The documentation
and coding adjustments established in
the FY 2009 IPPS final rule, as amended
by Public Law 110–90, are cumulative.
As a result, the ¥0.9 percent
documentation and coding adjustment
in FY 2009 was in addition to the ¥0.6
percent adjustment in FY 2008, yielding
a combined effect of ¥1.5 percent. (For
additional details on the development
and implementation of the
documentation and coding adjustments
for FY 2008 and FY 2009, we refer
readers to section II.D. of this preamble
and the following rules published in the
Federal Register: August 22, 2007 (72
FR 47175 through 47186 and 47431
through 47432); November 27, 2007 (72
FR 66886 through 66888); and August
19, 2008 (73 FR 48447 through 48450
and 48773 through 48775).)
b. Prospective MS–DRG Documentation
and Coding Adjustment to the National
Capital Federal Rate for FY 2010 and
Subsequent Years
As discussed in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
24199 through 24200), consistent with
the prospective adjustment to the
national average operating IPPS
standardized amounts (discussed in
section II.D. of this preamble), under the
capital IPPS we also continue to believe
that it is appropriate to make
adjustments to the capital IPPS rates to
eliminate the effect of any
documentation and coding changes as a
result of the implementation of the MS–
DRGs. These adjustments are intended
to ensure that future annual aggregate
IPPS payments are the same as
payments that otherwise would have
been made had the prospective
adjustments for documentation and
coding applied in FY 2008 and FY 2009
accurately reflected the change due to
documentation and coding that
occurred in those years. As noted above
in section VI.A. of this preamble, under
section 1886(g) of the Act, the Secretary
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has broad authority in establishing and
implementing the IPPS for acute care
hospital inpatient capital-related costs
(that is, the capital IPPS). We have
consistently stated since the initial
implementation of the MS–DRG system
that we do not believe it is appropriate
for Medicare expenditures under the
capital IPPS to increase due to MS–DRG
related changes in documentation and
coding. Accordingly, we believe that it
is appropriate under the Secretary’s
broad authority under section 1886(g) of
the Act, in conjunction with section
1886(d)(3)(A)(vi) of the Act and section
7(b) of Public Law 110–90, to make
adjustments to the capital Federal rate
to eliminate the full effect of the
documentation and coding changes
resulting from the adoption of the MS–
DRGs. We believe that this is
appropriate because, in absence of such
adjustments, the effect of the
documentation and coding changes
resulting from the adoption of the MS–
DRGs results in inappropriately high
capital IPPS payments because that
portion of the increase in aggregate
payments is not due to an increase in
patient severity (and costs).
We have performed a thorough
retrospective evaluation of the most
recent available claims data, and the
results of this evaluation were used by
our actuaries to determine any
necessary payment adjustments beyond
the cumulative ¥1.5 percent adjustment
applied in determining the FY 2009
capital Federal rate to ensure budget
neutrality for the implementation of
MS–DRGs. Specifically, as discussed in
greater detail in section II.D.4. of the
preamble of this final rule, for the
proposed rule, we performed a
retrospective evaluation of the FY 2008
claims data updated through December
2008. We updated that analysis for this
final rule based on the FY 2008 claims
data updated through March 2009,
which confirmed our original analysis.
Based on this evaluation, which is
described in greater detail in section
II.D.4. of this preamble, our actuaries
have determined that the
implementation of the MS–DRG system
resulted in a 2.5 percent change in casemix due to documentation and coding
that did not reflect real changes in casemix for discharges occurring during FY
2008.
The 2.5 percent change in FY 2008
case-mix due to documentation and
coding changes that did not reflect real
changes in case-mix for discharges
occurring during FY 2008 exceeds the
¥0.6 percent prospective
documentation and coding adjustment
applied to the FY 2008 capital Federal
rate (as established in the final rule
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published in the Federal Register on
November 27, 2007 (72 FR 66886
through 66888)) by 1.9 percentage
points (2.5 percent minus 0.6 percent).
Therefore, in the proposed rule, under
the Secretary’s broad authority under
section 1886(g) of the Act, in
conjunction with section
1886(d)(3)(A)(vi) of the Act and section
7(b) of Public Law 110–90, we proposed
to reduce the capital Federal rate in FY
2010 by ¥1.9 percent to account for the
amount by which the 2.5 percent change
in FY 2008 exceeds the established
¥0.6 percent adjustment. Furthermore,
consistent with our proposal under the
operating IPPS, we proposed to leave
that proposed ¥1.9 percent adjustment
in place for subsequent fiscal years to
account for the effect in FY 2010 and
subsequent years of the amount by
which the 2.5 percent change in FY
2008 exceeds the established ¥0.6
percent adjustment.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, we sought public
comment on the proposed ¥1.9 percent
prospective adjustments to address the
effect of documentation and coding
changes unrelated to changes in real
case-mix in FY 2008. In addition, as we
discussed in section II.D. of the
preamble of the proposed rule, we
sought public comment on addressing
in the FY 2011 rulemaking cycle any
differences between the increase in FY
2009 case-mix due to documentation
and coding changes that do not reflect
real changes in case-mix for discharges
occurring during FY 2009 and the ¥0.9
percent prospective documentation and
coding adjustment applied in
determining the FY 2009 capital Federal
rate established in the FY 2009 IPPS
final rule.
Comment: One commenter sought
clarification whether or not the estimate
of case-mix change related to
documentation and coding fully
considers the estimate of real case-mix
change for FYs 2009 and 2010 under the
capital IPPS.
Response: Our actuaries’ estimate of
real case-mix change under capital IPPS
for FYs 2009 and FY 2010 represents a
long-term projection of real case-mix
growth. In contrast, as described above,
our actuaries estimate of case-mix
change related to documentation and
coding changes in FY 2008 of 2.5
percent is based on a retrospective
evaluation of actual FY 2008 claims
data. Our estimate of case-mix change
related to documentation and coding in
FY 2008 does not require the
consideration of real case-mix changes
since the methodology for estimating
the FY 2008 documentation and coding
effect does not, by definition, include
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real case-mix, regardless of the actual
real case-mix level because it uses only
FY 2008 claims, as discussed in more
detail in the comment responses in
section II.D.4. of this preamble.
Comment: In addition to the
comments on the methodology and
economic impact of the proposed ¥1.9
percent documentation and coding
adjustment discussed in section II.D.4.
and section II.D.5. of this preamble, a
few commenters specifically opposed
the application of the proposed ¥1.9
percent adjustment to the capital
Federal rate. The commenters noted that
such a reduction in capital IPPS
payments, coupled with the reductions
to capital IPPS payments over the past
few years, would be difficult to sustain
in the current national economic
environment and would affect hospitals’
ability to fund much needed capital
projects. Accordingly, the commenters
recommended that the proposed
adjustment for documentation and
coding for FY 2010 not be applied to the
capital Federal rate.
Response: As explained above, we
believe that it is appropriate to make
adjustments to the capital Federal rate
to eliminate the full effect of the
documentation and coding changes
resulting from the adoption of the MS–
DRGs, which in the absence of such
adjustments, results in inappropriately
high capital IPPS payments because that
portion of the increase in aggregate
payments is not due to an increase in
patient severity of illness (and costs).
Our actuaries have determined, and
MedPAC has confirmed, that the
implementation of the MS–DRG system
resulted in a change of 2.5 percent,
which represents the documentation
and coding effect that does not reflect
real changes in case-mix for discharges
occurring during FY 2008. The impact
of these changes is greater than the ¥0.6
percent prospective documentation and
coding adjustments applied to the FY
2008 capital Federal rate. Therefore, as
described in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule, we proposed
to adjust the FY 2010 capital Federal
rate by ¥1.9 percent.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, we also discussed
our examination of the differences in
case-mix between the FY 2008 claims
data in which cases were grouped
through the FY 2008 GROUPER
(Version 25.0) and the FY 2009
GROUPER (Version 26.0). As discussed
in section II.D.5. of this preamble, this
was to help inform our analysis of the
potential for increase in the
documentation and coding effect in FY
2009. In FY 2008, we were transitioning
to the fully implemented MS–DRG
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relative weights and the fully
implemented cost-based weights. We
found that the use of the transition
weights (that is, weights that were based
on a 50/50 blend of the MS–DRG
relative weights and the CMS DRG
relative weights (72 FR 47276) mitigated
the FY 2008 documentation and coding
effect on expenditures. Specifically, our
analysis of FY 2008 claims data shows
that, even assuming no additional
changes in documentation and coding
in FY 2009, the use of the FY 2009 MS–
DRG relative weights (which no longer
were based on a blend of the MS–DRGs
and the CMS DRGs) results in an
additional 0.7 percent documentation
and coding effect in FY 2009. Based on
these analyses and other factors, our
actuaries continue to estimate that the
cumulative overall effect of
documentation and coding changes
under the MS–DRG system will be 4.8
percent. Our actuaries also estimate that
these changes will be substantially
complete by the end of FY 2009.
Therefore, our current estimate of the
MS–DRG documentation and coding
effect is 2.3 percent for discharges
occurring during FY 2009 (that is, the
4.8 percent total increase minus the 2.5
percent increase from FY 2008).
Consistent with the national operating
standardized amounts presented in
section II.D.4. of this preamble, we
proposed to address any differences
between the increase in FY 2009 casemix due to documentation and coding
that do not reflect real changes in casemix for discharges occurring during FY
2009 and the ¥0.9 percent prospective
documentation and coding adjustment
applied to the FY 2009 capital Federal
rate in a future rulemaking after a full
evaluation of the overall national
average changes in case-mix for FY 2009
can be completed.
We continue to believe it is
appropriate to make adjustments to the
capital Federal rate to eliminate the full
effect of the documentation and coding
changes resulting from the adoption of
the MS–DRGs. However, after
consideration of the public comments,
consistent with the application of the
documentation and coding adjustment
to the operating IPPS standardized
amounts discussed in section II.D.5. of
this preamble, we have determined that
it would be appropriate to postpone the
adoption of any additional
documentation and coding adjustments
to the capital IPPS rates until a full
analysis of FY 2009 case-mix changes
can be completed. Although we only
proposed to make a ¥1.9 percent
adjustment to account for the portion of
the estimated 2.5 percent change in FY
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2008 case-mix due to documentation
and coding changes that exceeds the
¥0.6 percent prospective
documentation and coding adjustment
applied to the FY 2008 capital Federal
rate (that is, 2.5 percent minus 0.6
percent = 1.9 percent), as noted above,
our current estimate of the MS–DRG
documentation and coding effect for FY
2009 is 2.3 percent (that is, the 4.8
percent total increase minus the 2.5
percent increase from FY 2008). If the
estimated documentation and coding
effect determined based on a full
analysis of FY 2009 claims data is more
or less than our current estimates, it
would change the anticipated
cumulative adjustments that we
currently estimate we would have to
make for FY 2008 and FY 2009
combined. In future rulemaking, we will
consider applying a prospective
documentation and coding adjustment
to the capital IPPS rates based on a
complete analysis of FY 2008 and FY
2009 claims data.
c. Documentation and Coding
Adjustment to the Puerto Rico-Specific
Capital Rate
As discussed in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule, under
§ 412.74, Puerto Rico hospitals are
currently paid based on 75 percent of
the national capital Federal rate and 25
percent of the Puerto Rico-specific
capital rate. In the FY 2009 IPPS final
rule (73 FR 48775), consistent with our
development of the FY 2009 Puerto
Rico-specific operating standardized
amount, we did not apply the additional
¥0.9 percent documentation and
coding adjustment (or the cumulative
¥1.5 percent adjustment) to the FY
2009 Puerto Rico-specific capital rate.
However, we discussed that the statute
gives broad authority to the Secretary
under section 1886(g) of the Act, with
respect to the development of and
adjustments to a capital PPS, and
therefore we would not be outside the
authority of section 1886(g) of the Act
in applying the documentation and
coding adjustment to the Puerto Ricospecific portion of the capital payment
rate. As we explained in that same final
rule, to date we had not yet applied a
documentation and coding adjustment
to the Puerto Rico-specific capital rate
because we have historically made
changes to the capital IPPS consistent
with those changes made to the
operating IPPS. We also stated that we
may propose to apply such an
adjustment to the Puerto Rico capital
rates in the future.
As discussed in section II.D.10. of the
preamble of the proposed rule and in
this final rule, when we performed a
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retrospective evaluation of the FY 2008
claims data of hospitals located in
Puerto Rico using the same
methodology discussed above, we found
that the change in case-mix due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008
from hospitals located in Puerto Rico
was approximately 1.1 percent. Given
this case-mix increase due to changes in
documentation and coding under the
MS–DRGs, consistent with our proposal
to adjust the FY 2010 capital Federal
rate presented above and consistent
with our proposed adjustment to the FY
2010 Puerto Rico-specific standardized
amount discussed in section II.D.10. of
the preamble of the proposed rule, in
the proposed rule, under the Secretary’s
broad authority under section 1886(g) of
the Act, we proposed to adjust the
Puerto Rico-specific capital rate by ¥1.1
percent in FY 2010 for the FY 2008
increase in case-mix due to changes in
documentation and coding under the
MS–DRGs. In addition, consistent with
our other proposals concerning
prospective MS–DRG documentation
and coding adjustments to the capital
Federal rate and operating IPPS
standardized amounts presented in the
proposed rule, we proposed to leave
that proposed ¥1.1 percent adjustment
in place for subsequent fiscal years in
order to ensure that changes in
documentation and coding resulting
from the adoption of the MS–DRGs do
not lead to an increase in aggregate
payments not reflective of an increase in
real case-mix. We proposed that the
proposed 1.1 percent adjustment would
be applied to the capital Puerto Ricospecific rate that accounts for 25 percent
of payments to hospitals located in
Puerto Rico, with the remaining 75
percent based on the national capital
Federal rate, which we proposed to
adjust as described above.
Consequently, the proposed overall
reduction to the FY 2010 payment rates
for hospitals located in Puerto Rico to
account for documentation and coding
changes would be slightly less than the
reduction for IPPS hospitals paid based
on 100 percent of the national capital
Federal rate. As noted above, the Puerto
Rico-specific capital rate was not
adjusted for the effects of
documentation and coding changes in
FY 2008 or FY 2009 as were the FY
2008 and FY 2009 national capital
Federal rates.
As stated in section II.D.10. of the
preamble of the proposed rule, we
sought public comment on the proposed
¥1.1 percent prospective adjustment to
the Puerto Rico-specific IPPS rates in FY
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2010 for the FY 2008 documentation
and coding effect, including the
methodology for determining these
adjustments. In addition, we sought
public comment on addressing in the
FY 2011 rulemaking cycle any increase
in FY 2009 case-mix due to
documentation and coding changes that
did not reflect real changes in case-mix
for discharges occurring during FY
2009. We did not receive any public
comments on the proposed ¥1.1
percent prospective adjustment to the
Puerto Rico-specific IPPS rates in FY
2010 for the FY 2008 documentation
and coding effect. However, as
discussed in greater detail above, in this
final rule, we have determined that it
would be appropriate to postpone the
adoption of any documentation and
coding adjustments to the capital IPPS
rates at this time until a full analysis of
FY 2009 case-mix changes can be
completed. Any future documentation
and coding adjustment to the capital
Puerto Rico-specific IPPS rates based on
a complete analysis of FY 2008 and FY
2009 claims data for Puerto Rico
hospitals would be established through
the notice and comment rulemaking
process.
2. Revision to the FY 2009 IME
Adjustment Factor
In the FY 2008 IPPS final rule, we
established a policy to phase out the
capital IPPS teaching adjustment over a
3-year period because of the high
positive aggregate capital IPPS Medicare
margins for teaching hospitals. Under
the regulations, as established at
§ 412.322(b), (c), and (d), teaching
hospitals would receive the full capital
IME adjustment for FY 2008, but the
adjustment would be reduced by 50
percent in FY 2009, and there would be
no capital IME adjustment for FY 2010
and thereafter.
As noted in section VI.A. of this
preamble, section 4301(b)(1) of Public
Law 111–5 requires that the phase-out
of the capital IPPS teaching adjustment
specified at § 412.322(c) of the
regulations (that is, the 50-percent
reduction for FY 2009) shall not be
applied, and the Secretary shall apply
§ 412.322 without regard to paragraph
(c) of that section. Furthermore, section
4301(b)(2) of the Public Law 111–5
specifies that the law has no effect on
§ 412.322(d), which eliminates the
capital IPPS teaching adjustment for FY
2010 and thereafter. Therefore, in order
to reflect the current statutory
requirements as specified in section
4301(b)(1) of Public Law 111–5, in the
FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we proposed to delete
§ 412.322(c) of the existing regulations.
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In the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we solicited public
comments on our proposed
implementation of section 4301(b) of
Public Law 111–5 concerning capital
IME payments.
Comment: Numerous commenters
addressed the proposal to implement
section 4301(b) of Pub. L. 111–5.
Specifically, the commenters
unanimously opposed the elimination
of the capital IME adjustment for FY
2010. Many commenters discussed the
financial impact that eliminating the
capital teaching adjustment would have
on teaching hospitals across the country
or in their States and for a particular
hospital. Some commenters pointed out
that the level of capital payments to
hospitals is already projected to
decrease in FY 2010 compared to FY
2009. The commenters advised that if
CMS reversed the cut to the capital IME
adjustment, it would mitigate what the
commenters believed to be a substantial
decrease in capital payments. A large
number of commenters also believed
any margin analysis should include
both the operating and capital payment
systems. They stated that IPPS is the
only Medicare payment system that
does not provide a single payment for
total cost (operating and capital), and
that hospitals have always used their
operating and capital payments as if
they were one payment. Therefore,
margin analysis, as well, should include
both payment systems.
The commenters indicated that
teaching hospitals are the main
providers of uncompensated care and
often act as the community safety net
and added that these responsibilities
increase costs to teaching hospitals in
addition to the more traditional sources
of higher costs such as for training
purposes. They also stated that these
safety net teaching hospitals rely
heavily upon Medicare capital
payments as a source of stable revenue
for capital improvements because it is
often difficult for these types of
hospitals to access affordable funding.
One commenter indicated that Medicare
capital payments are critical to safety
net type hospitals as uncompensated
costs have increased and that looking at
capital margins in isolation is not
indicative of the overall health of a
hospital.
Some commenters also found CMS’
proposed elimination of payment that
supports medical education
contradictory to CMS’ emphasis on
quality, preventive measures and
improved clinical outcomes as a method
of reducing cost. Several commenters
also mentioned that CMS’ proposal is at
odds with Congress’ intent when they
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established special payments for
teaching hospitals as a means of
Medicare supporting medical education
until other insurers fill that role. This
has not occurred, according to
commenters; therefore, the requisite
teaching adjustment allows Medicare to
continue in this necessary role.
Response: We recognize the
importance of hearing the opinions of
the health care industry and other
stakeholders, and we have found it
valuable to review the many comments
we received on this issue. We carefully
considered our approach to eliminating
the capital teaching adjustment and
were aware of the reaction such an
action would garner. As operators of the
Medicare program, we not only have a
responsibility to ensure quality of and
access to care for Medicare
beneficiaries, we also have a financial
responsibility to the program to create
policies that are not a detriment to its
financial viability as well as to change
or eliminate those policies that have a
negative financial effect to the program.
Consequently, we developed the policy
to eliminate the capital teaching
adjustment after conducting numerous
analyses with particular attention given
to capital Medicare costs and payments
under the capital IPPS. It is never our
intent to create financial hardship for
hospitals, nor is it our purpose to enable
some hospitals to experience
consistently large positive margins. As
we have discussed in previous
rulemakings (72 FR 47393; 73 FR
48672), the statutory history of the
capital IPPS suggests that the system in
the aggregate should not provide for
continuous, large positive margins. Our
analyses indicated that the adjustments
for teaching hospitals have been a
contributor to the excessive capital
payment levels in previous years.
While we continue to believe our
margin analyses are accurate, we also
acknowledge that the analyses covered
the period from 1996 through 2006,
using the most recently available data at
the time that we proposed and adopted
the 3-year phase-out of the capital IME
adjustment. In consideration of
numerous comments regarding the
capital expenditure cycle, as well as
commenters referencing other margin
analyses by outside sources that
indicated a decline in capital margins,
we conducted further capital margin
analysis given the availability of more
recent data. Specifically, we looked at
capital Medicare margins for FY 2007.
Our analysis indicates that while
teaching hospitals continue to
experience positive capital margins,
there is a decline in these margins in
comparison to the last year in our
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43929
previous analyses (2006). Accordingly,
we do not believe eliminating the
capital teaching adjustment is prudent
at this time. As we stated in the FY 2008
IPPS final rule (72 FR 47397), we will
continue to analyze the data concerning
the adequacy of payments under the
capital IPPS, and may propose
adjustments in the future if our analysis
indicates such adjustments are
warranted. However, in light of our
most recent analysis, and in
consideration of some of the comments
received, we are deleting the
requirement at § 412.322(d) of the
regulations, which eliminates the IPPS
capital teaching adjustment for FY 2010.
We are adopting, as final, our
proposal to delete § 412.322(c) of the
existing regulations. In the absence of
existing § 412.322(c), the capital IPPS
teaching adjustment for FY 2009 will
not be reduced by 50 percent but will
be as determined under § 412.322(b)
(that is, the full capital IME teaching
adjustment). We also are deleting
§ 412.322(d) of the existing regulations,
which eliminates the teaching
adjustment for FY 2010. Therefore, the
full capital IME teaching adjustment is
restored for FY 2010 and will be
determined under § 412.322(b). We note
that we have issued instructions
(Change Request 6444, dated March 27,
2009) to fiscal intermediaries and MACs
to implement the change to the capital
teaching adjustment for FY 2009, as
specified in section 4301(b)(1) of Public
Law 111–5.
In summary, as noted above, in this
final rule, as we proposed, we are
revising the existing regulations at
§ 412.322 by deleting the language of
paragraph (c). In addition, as discussed
above, we are deleting the language of
paragraph (d) in § 412.322. Both
paragraphs (c) and (d) will be labeled
‘‘Repealed.’’
3. Other Changes for FY 2010
The proposed and final annual update
to the capital IPPS national and Puerto
Rico-specific rates, as provided for at
§ 412.308(c), for FY 2010 is discussed in
section III. of the Addendum to this
final rule.
VII. Changes for Hospitals Excluded
From the IPPS
A. Excluded Hospitals
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
ceiling. An annual per discharge limit
(the target amount as defined in
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§ 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, which included
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 to 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.)
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24201), we
proposed that the percentage increase in
the rate-of-increase limits for cancer and
children’s hospitals and RNHCIs was
the percentage increase in the proposed
FY 2010 IPPS operating market basket.
In compliance with section 404 of the
MMA, in the proposed rule, we
proposed to replace the FY 2002-based
IPPS operating and capital market
baskets with the revised and rebased FY
2006-based IPPS operating and capital
market baskets for FY 2010. Therefore,
consistent with the current law, based
on IHS Global Insight, Inc.’s 2009 first
quarter forecast, with historical data
through the 2008 fourth quarter, we
proposed that the FY 2010 update to the
IPPS operating market basket would be
2.1 percent (that is, the current estimate
of the market basket rate-of-increase).
Consistent with our historical
approach, we calculated the proposed
IPPS operating market basket for FY
2010 using the most recent data
available. However, we proposed that if
more recent data became available for
the final rule, we would use them to
calculate the IPPS operating market
basket for FY 2010. Therefore, based on
IHS Global Insight, Inc.’s 2009 second
quarter forecast, with historical data
through the 2009 first quarter, the IPPS
operating market basket update factor
for FY 2010 is 2.1 percent. Moreover,
consistent with our proposal that the
percentage increase in the rate-ofincrease limits for cancer and children’s
hospitals and RNHCIs would be the
percentage increase in the FY 2010 IPPS
operating market basket, the FY 2010
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rate-of-increase percentage that is
applied to FY 2009 target amounts in
order to calculate the FY 2010 target
amounts for cancer and children’s
hospitals and RNHCIs is 2.1 percent, in
accordance with the applicable
regulations in 42 CFR 413.40.
We note that IRFs, IPFs, and LTCHs,
which were paid previously under the
reasonable cost methodology, now
receive payment under their own
prospective payment systems, in
accordance with changes made to the
statute. In general, the prospective
payment systems for IRFs, IPFs, and
LTCHs provided transition periods of
varying lengths during which time a
portion of the prospective payment was
based on cost-based reimbursement
rules under Part 413. (However, certain
providers do not receive a transition
period or may elect to bypass the
transition period as applicable under 42
CFR Part 412, Subparts N, O, and P.) We
note that the various transition periods
provided for under the IRF PPS, the IPF
PPS, and the LTCH PPS have ended.
The IRF PPS, the IPF PPS, and the
LTCH PPS are updated annually. We
refer readers to section IV. of the
Addendum to this final rule for the
specific update changes to the Federal
payment rates for LTCHs under the
LTCH PPS for RY 2010. The annual
updates for the IRF PPS and the IPF PPS
are issued by the agency in separate
Federal Register documents.
B. Criteria for Satellite Facilities of
Hospitals
The regulations at 42 CFR 412.22(e)
specify the criteria that a hospital that
occupies space in a building also used
by another hospital or in one or more
separate buildings located on the same
campus as buildings used by another
hospital (also known as a hospitalwithin-hospital (HwH)) must meet in
order to be excluded from the IPPS.
Section 412.22(e)(1)(i) specifies that the
HwH must have a governing body that
is separate from the governing body of
the hospital occupying space in the
same building or on the same campus.
The HwH’s governing body must not be
under the control of the hospital with
which it shares space in a building or
on a campus, nor can it be under the
control of any third entity that controls
both hospitals.
As we discussed in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24201 through 24202), it has come
to our attention that there is an
inadvertent inconsistency between the
governance and control criteria at
§ 412.22(h)(2)(iii)(A) that satellite
facilities must meet in order to be
excluded from the IPPS and the separate
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governing body criteria at
§ 412.22(e)(1)(i) that HwHs must meet in
order to be excluded from the IPPS.
Specifically, the separate governing
body requirement for satellite facilities
at § 412.22(h)(2)(iii)(A) mistakenly omits
language regarding a third entity. In
particular, it fails to indicate that the
governing body of the hospital of which
the satellite facility is a part cannot be
under the control of any third entity that
controls both the hospital of which the
satellite facility is a part and the
hospital with which the satellite facility
is co-located.
As explained in past rulemaking, we
believe satellite facilities are similar
enough to HwHs to warrant application
of more closely related criteria to both
types of facilities (67 FR 49982 and
50105 through 50106). Specifically,
satellite facilities are like HwHs in that
the satellite facilities are also physically
located in acute care hospitals that are
paid for inpatient services they furnish
under the acute care IPPS. Moreover,
both satellite facilities and HwHs
provide hospital inpatient services that
are generally paid for at higher rates
than would apply if the facilities were
treated by Medicare as part of the acute
care hospitals. In view of these facts, we
continue to believe that it is important
to establish clear criteria for ensuring
that a satellite facility is not merely a
unit of the acute care hospital with
which it is co-located, but rather is
organizationally and functionally
separate from the hospital. Therefore,
we believe the separate governing body
requirements for satellite facilities
should include requirements that are
similar to those we included at
§ 412.22(e)(1)(i) for HwHs; that is, that
the governing body of the hospital of
which the satellite facility is a part
cannot be under the control of any third
entity that controls both the hospital of
which the satellite facility is a part and
the hospital with which the satellite
facility is co-located. Accordingly, in
the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we proposed to amend
the criteria for satellite facilities at
§ 412.22(h)(2)(iii)(A) by adding language
under paragraph (1) to state that, except
as provided in proposed paragraph
(h)(2)(iii)(A)(2), the governing body of
the hospital of which the satellite
facility is a part cannot be under the
control of any third entity that controls
both the hospital of which the satellite
facility is a part and the hospital with
which the satellite facility is co-located.
We proposed that the revised criteria
would be effective with cost reporting
periods beginning on or after October 1,
2009.
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In addition, we proposed to add a
‘‘grandfathering’’ provision to the
regulations at § 412.22(h)(2)(iii)(A)(2).
Currently, an IPPS-excluded hospital
with a satellite facility that has its
governing body under the control of a
third entity that controls the hospital of
which the satellite facility is a part and
the hospital with which the satellite
facility is co-located can retain its IPPSexcluded status. An IPPS-excluded
hospital that currently has a satellite
facility already has its organizational
structure and financial systems in place.
We indicated that to require now that a
hospital that currently has a satellite
facility must meet the proposed new
separate governance criteria with
respect to that satellite facility could
create undue financial and
organizational difficulties. This could
further result in the closure of the
satellite facility and the discontinuation
of services because of the inability of the
hospital and its satellite facility to meet
the proposed new separate governance
criteria. Therefore, in proposed
§ 412.22(h)(2)(iii)(A)(2), we proposed
the following: ‘‘If a hospital and its
satellite facility were excluded from the
inpatient prospective payment system
under the provisions of this section for
the most recent cost reporting period
beginning prior to October 1, 2009, the
hospital does not have to meet the
requirements of paragraph
(h)(2)(iii)(A)(1) of this section, with
respect to that satellite facility, in order
to retain its IPPS-excluded status.’’
However, we note that the
corresponding preamble discussion of
this proposed provision included an
inadvertent error. Specifically, we stated
that ‘‘if a hospital and its satellite
facility were excluded from the IPPS
under the provision of § 412.22(h) for
the most recent cost reporting period
beginning before October 1, 2009, the
hospital would be required to meet the
new separate governance criteria at
§ 412.22(h)(2)(iii)(A)(1) with respect to
that satellite facility in order to retain its
IPPS-excluded status (proposed
§ 412.22(h)(2)(iii)(A)(2))’’ (74 FR 24202).
We inadvertently omitted the word
‘‘not’’ in the quoted sentence; therefore,
the latter portion of the sentence should
have read ‘‘* * * the hospital would
not be required to meet the new separate
governance criteria at
§ 412.22(h)(2)(iii)(A)(1) with respect to
that satellite facility in order to retain its
IPPS-excluded status’’ (emphasis
added). We note that the regulation text
presented accurately our proposed
policy.
In addition, because we proposed that
the proposed new separate governance
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criteria would be effective for cost
reporting periods beginning on or after
October 1, 2009, we indicated that a
hospital that establishes an additional
satellite facility in a cost reporting
period beginning on or after October 1,
2009, will have knowledge of the
requirements that must be met in order
to retain its IPPS-excluded status prior
to establishing the additional satellite
facility, and it will be able to plan
accordingly. Furthermore, no
organizational or financial relationship
would already be in place with respect
to the additional satellite facility. Thus,
there would not be a need for the
hospital and its additional satellite
facility to be grandfathered. This
situation is distinguishable from a
hospital with a satellite facility
established in the most recent cost
reporting period beginning prior to
October 1, 2009, as discussed above.
Therefore, in proposed
§ 412.22(h)(2)(iii)(A)(3), we stated the
following: ‘‘A hospital described in
paragraph (h)(2)(iii)(A)(2) of this section
that establishes an additional satellite
facility in a cost reporting period
beginning on or after October 1, 2009,
must meet the criteria in this section,
including the provisions of paragraph
(h)(2)(iii)(A)(1) of this section with
respect to the additional satellite
facility, in order to be excluded from the
inpatient prospective payment system.’’
Although the proposed regulation text,
the preamble discussion of our rationale
for not ‘‘grandfathering’’ such facilities,
and the example set forth in the
preamble (74 FR 24202) accurately
captured the proposed policy, we note
that a sentence in the preamble
describing the proposed policy included
an error. Specifically, the sentence
indicated that if a hospital and its
satellite facility were excluded from the
IPPS under the provision of § 412.22(h)
for the most recent cost reporting period
prior to October 1, 2009, and the
hospital establishes an additional
satellite facility in a cost reporting
period beginning on or after October 1,
2009, the hospital would not [sic] be
required to meet the proposed new
separate governance criteria at
§ 412.22(h)(2)(iii)(A)(1), with respect to
the additional satellite facility, in order
to be excluded from the IPPS. We note
that there was an inadvertent inclusion
of the word ‘‘not’’ in this sentence as the
sentence was printed in the Federal
Register. The latter portion of the
sentence should have read ‘‘* * * the
hospital would be required to meet the
new separate governance criteria at
§ 412.22(h)(2)(iii)(A)(1) with respect to
that satellite facility in order to retain its
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43931
IPPS-excluded status’’; that is, the
hospital and the new additional satellite
facility would be required to meet the
new separate governance criteria as well
as the other applicable requirements in
§ 412.22(h), consistent with our
longstanding policies.
In addition, we gave the following
example of how the amended
regulations at § 412.22(h)(2)(iii)(A)(2)
and (h)(2)(iii)(A)(3) would work.
Hospital A established a satellite facility
(s-B) at Hospital B in a cost reporting
period beginning prior to October 1,
2009, under the applicable criteria for
hospitals and satellite facilities at
§ 412.22(h), and, therefore, the hospital
and that satellite facility were excluded
from the IPPS in the most recent cost
reporting period beginning prior to
October 1, 2009. If Hospital A
establishes an additional satellite
facility (s-C) at Hospital C in a cost
reporting period beginning on or after
October 1, 2009, Hospital A and its
satellite facility at Hospital C must meet
the applicable hospital and satellite
facility criteria at § 412.22(h), including
the new separate governance criteria at
paragraph (h)(2)(iii)(A)(1), in order to be
excluded from the IPPS. Thus, the
governing body of Hospital A cannot be
under the control of any third entity that
controls both Hospital A and Hospital C.
However, Hospital A and s-B must
continue to meet the other applicable
criteria in § 412.22(h) to be excluded
from the IPPS.
Comment: One commenter pointed
out that the language in the preamble of
the proposed rule is contradictory to the
proposed regulation text with respect to
a hospital with an existing satellite
facility for the most recent cost
reporting period prior to October 1,
2009. The preamble text stated that if a
hospital and its satellite facility were
excluded from the IPPS for the most
recent cost reporting period prior to
October 1, 2009, and the hospital
establishes an additional satellite after
that date, the hospital would not be
required to meet the proposed new
separate governance criteria with
respect to the new satellite(s) (emphasis
added). However, in the proposed
regulation text, we state that this
hospital would be required to meet the
new separate governance criteria. The
commenter believed the error was made
in the preamble language and that CMS’
intent is correctly stated in the
regulation text.
Response: The commenter is correct.
We appreciate the commenter bringing
the error to our attention. As the
language in the proposed regulation text
at § 412.22(h)(2)(iii)(A)(2) stated, ‘‘If a
hospital and its satellite facility were
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excluded from the inpatient prospective
payment system under the provisions of
this section for the most recent cost
reporting period beginning prior to
October 1, 2009, the hospital does not
have to meet the requirements of
paragraph (h)(2)(iii)(A)(1) of this
section, with respect to that satellite
facility, in order to retain its IPPSexcluded status.’’ However, as the
proposed regulation text at
§ 412.22(h)(2)(iii)(A)(3) stated, ‘‘A
hospital described in paragraph
(h)(2)(iii)(A)(2) of this section that
establishes an additional satellite
facility in a cost reporting period
beginning on or after October 1, 2009,
must meet the criteria in this section,
including the provisions of paragraph
(h)(2)(iii)(A)(1) of this section with
respect to the additional satellite
facility, in order to be excluded from the
inpatient prospective payment system.’’
Comment: Two commenters
recommended that CMS withdraw the
proposed change in the satellite facility
requirements until CMS produces
evidence that the proposed requirement
is necessary in terms of the impact on
the Medicare program or the provision
of services to Medicare beneficiaries.
The commenters stated that CMS
considered this issue when the agency
established the current ‘‘separateness
criteria,’’ and that the language adopted
was sufficient for the purpose. The
commenters believed that the proposed
language is unnecessary and adds
complexity to an already complex
regulation.
Response: As we discussed in the
preamble of the proposed rule (74 FR
24201) and in other past rulemaking, we
believe satellite facilities are similar
enough to HwHs to warrant similar
regulatory criteria that must be met for
exclusion from the IPPS. Both satellite
facilities and HwHs occupy space in, or
are on the same campus as, another
hospital. As IPPS-excluded providers,
satellite facilities and HwHs receive
Medicare payments that, in general, are
higher than Medicare payments to IPPS
providers. Clearly, there is an effect on
the Medicare program if Medicare is
making higher payments to a provider
that is a satellite facility in name only.
Therefore, to avoid the HwH or satellite
facility from being, in reality, a unit of
the hospital in which it is located, while
being paid as an IPPS-excluded
provider, we established the
separateness and control criteria. Our
intent was that the criteria for satellite
facilities should be similar to the criteria
for HwHs. The fact that the language
regarding control by a third entity was
not originally included in the satellite
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facility criteria was an oversight that we
are now correcting.
Comment: Two commenters urged
CMS to exempt children’s hospitals
from the proposed separate governance
criteria for satellite facilities. They
believed that exempting children’s
hospitals is appropriate because, unlike
other IPPS-excluded types of providers,
children’s hospitals serve a small
proportion of Medicare patients that
would otherwise be patients in an acute
care hospital. Therefore, the
commenters stated that the concern over
shifting patients to maximize
reimbursement is not an issue.
In addition, according to the
commenters, the proposed criteria
would inhibit the ability of children’s
hospitals to expand in an efficient and
effective manner when responding to
community needs. The commenters
stated that an exemption from the
proposed separate governance criteria
would allow children’s hospitals to
expand into space of an affiliated
hospital for children’s hospitals that are
part of large integrated health care
systems. They believed this would be
the most ‘‘efficacious patient-centric’’
way of expansion as opposed to opening
and operating a pediatric unit in another
acute care hospital, which the
commenters claimed is ‘‘very
challenging’’ and makes it unlikely that
community needs would be met.
The commenters suggested that CMS
consider restrictions on referrals from
the hospital in which the satellite
facility is located as a means of
alleviating the issues that the proposed
separate governance criteria is intended
to address. They believed this would be
a better approach to restrict patient
shifting without compromising
expansion opportunities.
Response: While it is accurate that
exempting children’s hospitals from the
proposed separate governance criteria
would have little effect on Medicare
costs because there are few Medicare
patients in children’s hospitals, we
believe that it would have some effect
on Medicare costs because, in general,
Medicare payment for a discharge in an
IPPS-excluded hospital is greater than
Medicare payment for a discharge in an
acute care hospital under IPPS. In
addition, there are certainly
ramifications on payments under the
Medicaid program if CMS were to
exempt children’s hospitals from the
proposed criteria. CMS administers the
Medicare program and oversees the
Medicaid program, and therefore, the
agency needs to be concerned about
inappropriate patient shifting to
maximize payment. In regard to the
commenters’ portrayal that the patients
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in children’s hospitals are
predominantly very young—an
illustration uses ‘‘under age 2’’—and,
therefore, have different health care
needs and facilities, we point out that
children’s hospitals are hospitals in
which inpatients are predominantly
individuals under the age of 18.
Contrary to the commenters’ assertion,
this wide span of age makes it more
conducive to patient shifting from an
acute care hospital to a children’s
satellite facility, when that satellite
facility has an affiliation with the host
hospital. Furthermore, even without
patient shifting, it would be
inappropriate for Medicare and
Medicaid to pay a hospital differently
for treating patients in what in essence
is a pediatric unit of an acute care
hospital, rather than a ‘‘separate’’
children’s hospital.
The commenters contend that creating
and operating a children’s satellite
facility in an unrelated acute care
hospital is so challenging that
community needs could be
compromised, but that this would not
be the case if the children’s satellite
facility could operate in an acute care
hospital with which it was affiliated.
Further, the commenters believed the
proposed criteria would inhibit the
ability of children’s hospitals to expand.
We believe that establishing a satellite
facility in an affiliated hospital would
most likely be less challenging than in
an unrelated acute care hospital.
However, the ease or difficulty of
establishing a children’s satellite facility
is not the issue. Regardless of whether
a children’s hospital could establish a
satellite facility with more ease in an
affiliated hospital, we believe the rules
we have promulgated to demonstrate
separateness, including the change to
the separate governance criteria, are
necessary to demonstrate that the colocated facility is not actually a
department of the host hospital.
We also do not agree with the
commenters who suggested that putting
restrictions on referrals from the host
hospital to the satellite will alleviate our
concerns regarding patient shifting. This
idea was previously discussed in the FY
2000 proposed rule (64 FR 24743) where
we indicated that the hospital of which
the satellite facility is a part could meet
the referral restrictions, even though all
of the satellite facility’s patients could
have been referred from the hospital in
which it is located.
After consideration of the public
comments received, we are adopting as
final, with one change, the proposed
additional separate governance criteria
at § 412.22(h)(2)(iii)(A)(1), (2), and (3).
We are correcting an inadvertent error
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in the language of the provision under
§ 412.22(h)(2)(iii)(A)(1) by deleting the
phrase ‘‘the governing body of’’ directly
after the word ‘‘both’’ in the provision
in order to conform the regulation text
to the preamble. (Throughout the
proposed rule preamble discussion at 74
FR 24201 through 24202, we articulated
the provision correctly. However, the
regulation text included an inadvertent
repeat of the phrase ‘‘the governing
body of’’.) Consequently,
§ 412.22(h)(2)(iii)(A)(1) will provide the
following: ‘‘Except as provided in
paragraph (h)(2)(iii)(A)(2) of this
section, effective for cost reporting
periods beginning on or after October 1,
2009, the governing body of the hospital
of which the satellite facility is a part is
not under the control of any third party
entity that controls both the hospital of
which the satellite facility is a part and
the hospital with which the satellite
facility is co-located.’’
C. Critical Access Hospitals (CAHs)
1. Background
Section 1820 of the Act provides for
the establishment of Medicare Rural
Hospital Flexibility Programs (MRHFPs)
under which individual States may
designate certain facilities as critical
access hospitals (CAHs). Facilities that
are so designated and that meet the CAH
conditions of participation under 42
CFR part 485, Subpart F, will be
certified as CAHs by CMS. Regulations
governing payments to CAHs for
services to Medicare beneficiaries are
located in 42 CFR part 413.
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2. Payment for Clinical Diagnostic
Laboratory Tests Furnished by CAHs
Section 1834(g)(1) of the Act states
that payment for outpatient services
furnished by a CAH will be made at 101
percent of the reasonable costs to the
CAH in providing those services, except
for those CAHs that elect the optional
reimbursement method outlined at
section 1834(g)(2) of the Act. We refer
to payment under the elective
methodology described in section
1834(g)(2) of the Act as the ‘‘optional
method.’’ (We discuss changes to the
CAH optional method of payment
regulations below in section VII.C.3. of
this preamble.) Section 1834(g)(4) of the
Act provides that there is no beneficiary
cost-sharing for ‘‘clinical diagnostic
laboratory services furnished as an
outpatient critical access hospital
service.’’
Section 148 of Public Law 110–275
(MIPPA) amended section 1834(g)(4) of
the Act, effective for services furnished
on or after July 1, 2009. Specifically,
section 148(a)(1) of Public Law 110–275
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changed the heading of section
1834(g)(4) of the Act to read ‘‘Treatment
of Clinical Diagnostic Laboratory
Services.’’ Section 148(a)(2) of Public
Law 110–275 amended section
1834(g)(4) of the Act by adding, in
relevant part, that ‘‘* * * clinical
diagnostic laboratory services furnished
by a critical access hospital shall be
treated as being furnished as part of
outpatient critical access services
without regard to whether the
individual with respect to whom such
services are furnished is physically
present in the critical access hospital, or
in a skilled nursing facility or a clinic
(including a rural health clinic) that is
operated by a critical access hospital, at
the time the specimen is collected.’’
Regulations implementing section
1834(g) of the Act are set forth at
§ 413.70. Currently, the regulations at
§ 413.70(b)(2)(iii) state that payment to a
CAH for clinical diagnostic laboratory
services is made at 101 percent of
reasonable cost ‘‘only if the individuals
[for whom the tests are performed] are
outpatients of the CAH, as defined in
§ 410.2 * * * and are physically present
in the CAH, at the time the specimens
are collected.’’ Clinical diagnostic
laboratory tests performed for
individuals who are not physically
present in the CAH when the specimen
is collected generally are paid on the
basis of the Clinical Laboratory Fee
Schedule (CLFS) in accordance with the
provisions of sections 1833(a)(1)(D) and
1833(a)(2)(D) of the Act.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24202
through 24203), we proposed to amend
the regulations at § 413.70(b) in order to
implement the changes made by section
148(a)(2) of Public Law 110–275.
Section 148(a)(2) of Public Law 110–275
mandates that, effective for services
furnished on or after July 1, 2009,
individuals are no longer required to be
physically present in the CAH at the
time the specimen is collected in order
for the CAH to receive payment based
on reasonable cost for furnishing
outpatient clinical diagnostic laboratory
tests. Specifically, we believe the use of
the phrase ‘‘without regard to whether
the individual with respect to whom
such services are furnished is physically
present in the critical access hospital’’
means that as long as the tests are
performed for individuals who are CAH
outpatients as defined in § 410.2,
payment based on reasonable cost must
be made regardless of where the
specimen is collected, even if the
patient is not physically present in the
CAH at the time the specimen is
collected. Accordingly, we proposed to
implement section 148(a)(2) by revising
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43933
the existing regulations to reflect our
interpretation of the statutory change.
We proposed to amend the
regulations at § 413.70(b) by deleting
existing § 413.70(b)(2)(iii) and adding a
new § 413.70(b)(7) to state that, for
services furnished on or after July 1,
2009, in order for a CAH to be paid
based on reasonable cost for outpatient
clinical diagnostic laboratory tests, a
CAH outpatient is no longer required to
be physically present in the CAH at the
time the specimen is collected.
However, we proposed that if the
individual is not physically present in
the CAH at the time the specimen is
collected, the individual must continue
to be an outpatient of the CAH, as
defined at § 410.2. We stated that we
consider an individual to be an
outpatient of the CAH if the individual
is receiving services directly from the
CAH. This requirement is consistent
with our definition of a CAH outpatient
at § 410.2, which states that outpatient
‘‘means a person who has not been
admitted as an inpatient but who is
registered on the hospital or CAH
records as an outpatient and receives
services (rather than supplies alone)
directly from the hospital or CAH.’’
Consistent with section 1834(g)(4) of the
Act, we proposed to amend the
regulations to provide that, in order to
be receiving services directly from the
CAH, either the individual must be
receiving outpatient services in the CAH
on the same day the specimen is
collected, or the specimen must be
collected by an employee of the CAH.
Accordingly, where the individual is an
outpatient of the CAH as defined above,
the individual would not be required to
be physically present in the CAH at the
time the specimen is collected.
In addition, we stated that we do not
believe that the enactment of section
148 of Public Law 110–275 has any
effect on the applicability of the
requirements at section 1862(a)(18) of
the Act and the implementing
regulations at § 411.15(p), which set
forth requirements for payment of
services furnished to SNF patients.
Accordingly, we proposed that in cases
where Medicare rules otherwise require
consolidated billing or bundling of
payments (for example, for services
furnished to SNF patients during a
Medicare Part A covered stay), the CAH
laboratory payment provision would
only provide for separate payment to the
CAH once consolidated billing no
longer applies. Where consolidated
billing is required by Medicare rules, a
separate payment for bundled services
furnished by another provider,
including a CAH, is prohibited. For
example, for purposes of payment to a
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CAH for performing a clinical laboratory
test on a specimen collected from a SNF
patient, the proposed new CAH
payment rules would apply only once
the consolidated billing rules for SNF
payments no longer apply. Coverage
under Medicare Part A for services
furnished to a SNF patient is limited to
100 days in a benefit period. During that
period, the collection of a specimen by
a CAH employee in the SNF and the
CAH’s performance of a laboratory test
on the specimen would be bundled into
the SNF payment. Once the SNF patient
has exhausted his or her Medicare Part
A SNF days (that is, after 100 days),
payment for the specimen collection by
a CAH employee and the test
performance by the CAH would no
longer be bundled into the SNF
payment and the CAH could receive a
reasonable cost-based payment for the
collection of a specimen by a CAH
employee and the performance of the
laboratory test by the CAH.
In summary, we proposed that a CAH
may receive reasonable cost-based
payment for outpatient clinical
diagnostic laboratory tests furnished to
an individual who is an outpatient of
the CAH (and therefore receiving
services directly from the CAH) even if
the individual with respect to whom the
laboratory services are furnished is not
physically present in the CAH at the
time the specimen is collected. In order
for the individual to be determined to be
receiving services directly from the
CAH, we proposed that either the
individual must have received
outpatient services in the CAH on the
same day the specimen is collected or
the specimen must be collected by an
employee of the CAH. In either case, the
individual would not need to be
physically present in the CAH at the
time the specimen is collected. We also
noted that if the individual is physically
present in the CAH or a facility that is
provider-based to the CAH when the
specimen is collected, the CAH would
also receive a reasonable cost-based
payment. In this case, the specimen
would not need to be collected by an
employee of the CAH. (We refer readers
to section VII.D. of this preamble for
further discussion of CAH providerbased facilities.)
Comment: The majority of
commenters supported the proposal
implementing section 148 of the MIPPA.
One commenter stated that the proposal
will provide assistance to less mobile
elderly patients in rural communities.
Another commenter stated that the
proposed rule will have a positive
impact on Nebraska’s 65 CAHs and CAH
patients. A third commenter fully
supported recognizing that laboratory
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services provided by a CAH department
should be paid on the same basis as the
other departments.
However, many commenters, in
addition to supporting the proposed
policy, asked for clarification on two
aspects of the proposal. Specifically, the
commenters requested that CMS clarify:
(1) That if a patient for whom laboratory
services are performed is in a facility
that is not provider-based to the CAH,
the CAH will still receive 101 percent of
the reasonable cost for these services as
long as the patient receives outpatient
services in the CAH on the same day the
specimen is collected or an employee of
the CAH collects the specimen; and (2)
whether employees of a CAH’s providerbased facility (including a providerbased rural health clinic (RHC)) are
considered CAH employees for
purposes of this policy, such that CAHs
will receive payment at 101 percent of
the reasonable cost for furnishing
outpatient clinical diagnostic laboratory
services if the specimen is collected by
an employee of a CAH’s provider-based
facility.
Another commenter requested
clarification on what it means to be an
employee for CAHs that ‘‘contract for
laboratory services under arrangement
or hire laboratory personnel on
contract.’’ The commenter requested
that CMS clarify the definition of
employee so that it includes individuals
employed by the CAH or those who are
under contract to provide laboratory
services ‘‘either personally or under
arrangement with an independent
laboratory.’’
Another commenter agreed with CMS’
efforts to ‘‘establish applicable limits
and controls to avoid ‘gaming’ and
inequitable payments.’’ However, the
commenter suggested adding language
to the employee provision so that it
reads ‘‘* * * or the specimen must be
collected by an employee of the CAH or
an agent of the CAH through contractual
arrangement with the CAH.’’
Response: We appreciate the
commenters’ support of the proposed
policy, and we agree that it provides
increased flexibility to CAHs in
furnishing outpatient clinical diagnostic
laboratory tests. We would like to clarify
that not all services furnished by
entities that are provider-based to a
CAH are eligible to be paid based on
reasonable cost. For example,
psychiatric and rehabilitation distinct
part units are paid under their
prospective payment systems. We stated
in the proposed rule that we believe the
use of the statutory phrase ‘‘* * *
without regard to whether the
individual with respect to whom such
services are furnished is physically
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present in the critical access hospital
* * *’’ means that as long as the
individual from whom the specimen is
collected is an outpatient of the CAH, as
outpatient is defined at 42 CFR 410.2,
payment based on reasonable cost must
be made, regardless of where the
specimen is collected, even if the
patient is not physically present in the
CAH at the time the specimen is
collected. We further stated that ‘‘we
also note that if the individual is
physically present in the CAH or a
facility that is provider-based to the
CAH when the specimen is collected,
the CAH would also receive a
reasonable cost-based payment. In this
case, the specimen would not need to be
collected by an employee of the CAH’’
(74 FR 24203).
In this final rule, we are clarifying
that the individual does not need to be
physically present in the CAH or a
facility that is provider-based to the
CAH at the time the specimen is
collected for the CAH to receive
payment based on reasonable cost as
long as either: (1) the individual
receives an outpatient service in the
CAH (or facility that is provider-based
to the CAH, including a provider-based
RHC) on the same day the specimen is
collected; or (2) the specimen collection
is performed by a CAH employee. In
cases where the individual is in the
CAH or facility that is provider-based to
the CAH when the specimen is
collected, the individual does not need
to receive another outpatient service on
that same day nor does the specimen
collection need to be performed by a
CAH employee in order for the CAH to
be paid based on reasonable cost.
Furthermore, we are clarifying in this
final rule that we consider an employee
of a CAH’s provider-based department,
but not an employee of a provider-based
entity, to be an employee of the CAH for
purposes of implementing section 148
of MIPPA. A provider-based department
is integrated with the main provider and
would not function as a freestanding
provider of health care services,
whereas a provider-based entity is paid
differently than an entity that is not
CAH-based. For example, a CAH-based
RHC with 50 or more beds is a providerbased entity because it is paid based on
the RHC payment methodology at 42
CFR 405.2462. Furthermore, as defined
at § 413.65 of the regulations, a
provider-based department furnishes
the same type of health care services as
the main provider, while a providerbased entity furnishes health care
services of a different type than those
furnished by the main provider. Because
the health care services furnished by an
individual employee at a provider-based
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department are directly related to the
health care services furnished by an
individual employed at the same
campus, those employees working in a
CAH’s provider-based department will
be considered CAH employees for
purposes of this provision. Therefore,
the CAH can meet the requirement that
the specimen collection be performed
by a CAH employee, if the individual
collecting the specimen is an employee
of a department that is provider-based to
the CAH.
In response to the commenters who
suggested CMS allow for contracted
employees to be considered employees
of the CAH for purposes of this policy,
we agree that if the individual
performing the specimen collection is
not employed by any other entity to
provide services at the location where
the specimen collection is taking place,
that individual, even if a contracted
employee, could be considered a CAH
employee for purposes of this provision.
However, if the individual collecting the
specimen is employed at the facility
where the specimen collection is being
performed, other than by the CAH, to
provide other services in addition to
being contracted by the CAH to perform
the specimen collection, the CAH
cannot consider this individual an
employee of the CAH for purposes of
implementing section 148 of MIPPA.
For example, if a SNF employee is
employed at the SNF and is contracted
as a CAH employee to collect blood
samples from SNF patients, that
individual could not be considered a
CAH employee for purposes of this
provision. We are not adopting the
commenter’s proposed language because
we believe such a provision would
enable a CAH to bypass the requirement
that laboratory specimens be collected
by an employee of the CAH simply by
entering into contractual arrangements
with the employees of other entities.
Such a policy would be contrary to our
determination that an individual must
be an outpatient of the CAH, receiving
services directly from the CAH, in order
for laboratory services furnished by the
CAH to be paid based on reasonable
cost.
Comment: Several commenters asked
for clarification on how specimen
collection is defined and how the
proposed policy is applied to different
types of specimen collection. One
commenter stated that, generally, a
blood or sputum sample can be
collected by a CAH laboratory
employee, but the SNF nursing staff
member or the patient usually performs
the collection of a wound, urine, stool,
or throat culture. The commenters asked
which of these tests would be paid
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under reasonable cost-based payment.
One commenter asked whether, in the
situation where a CAH sends a CAH
employee to a SNF to collect a blood
specimen and then the CAH employee
is also given a urine sample to test,
would both the venipuncture and blood
work be included on an 851 type of bill
and the urine specimen put on a 141
type of bill or would both the blood and
urine specimens be included on an 851
type of bill.
Another commenter asserted that
although the MIPPA provided that all
laboratory tests performed in the CAH
laboratory department should be paid
based on reasonable cost, the proposed
rule has drawn a line whereby a CAH
has to establish whether it meets the
definition of collecting the specimen.
The commenter stated that a patient
may bring a urine specimen to a CAH
on a doctor’s orders: For example, while
the CAH patient is in the emergency
department, he or she may be told to
collect a urine specimen and return it to
the CAH the next day. The commenter
asked whether, in this case, the CAH or
RHC employee would meet the
requirements of collecting the urine
specimen. Commenters asked under
what circumstances can a specimen
collected in an outside HHA or SNF be
paid on a reasonable cost basis.
One commenter asked would a
Medicare beneficiary have to exhaust
his or her Part A coverage before a
specimen collected by a CAH employee
for a home health patient qualified for
reasonable cost-based payment. The
commenter also stated that allowing the
CAH to receive reasonable cost-based
payment only for SNF patients who
have exhausted their Part A services and
billing the specimen collection on a
separate bill under Part B will require
more tracking and paperwork.
Response: We believe that the intent
of section 148 of MIPPA is to pay CAHs
on a reasonable cost basis for furnishing
outpatient clinical diagnostic laboratory
tests as long as the patient is an
outpatient of a CAH. An outpatient is
defined in the regulations at 42 CFR
410.2 as receiving services (rather than
supplies alone) directly from the CAH.
We do not believe that instances where
the specimen is ‘‘picked up’’ by an
employee of the CAH rather than
collected by an employee of the CAH,
and the individual does not also receive
an outpatient service in the CAH on the
same day, qualify as receiving services
directly from the CAH. Rather, if the
individual is not physically present in
the CAH and the individual does not
also receive an outpatient service in the
CAH on the same day the specimen is
collected, a CAH employee would need
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43935
to physically perform the specimen
collection in order for the CAH to
receive payment based on reasonable
cost.
To address the commenter’s question
on how to bill for a blood specimen that
is collected by a CAH employee from a
SNF patient (assuming consolidated
billing no longer applies) and then the
CAH employee is given the urine
specimen, the individual could be
considered an outpatient for purposes of
billing for the analysis of the blood
specimen, but would be considered a
nonpatient for purposes of billing the
urine specimen in the case where he or
she does not also receive an outpatient
service in the CAH on the same day the
urine specimen is collected. Even
though collection of a specimen may be
performed by an individual (not a CAH
employee) outside of the CAH based on
a doctor’s orders, the CAH would not
receive reasonable cost-based payment
for the analysis of the specimen unless
the specimen is collected on the same
day the individual received an
outpatient service from the CAH.
Therefore, if the individual comes to the
CAH the day after the specimen
collection, the CAH would not be paid
for the analysis of the specimen based
on reasonable cost. We emphasize that
in instances where the CAH does not
qualify to receive payment based on
reasonable cost, the CAH still will
receive payment for these services, but
instead of receiving reasonable costbased payment, it will be paid for the
service under the CLFS.
In the proposed rule, we stated how
the policy would apply in cases where
an individual is located in a facility
where consolidated billing rules apply.
We stated: ‘‘Accordingly, we are
proposing that, in cases where Medicare
rules otherwise require consolidated
billing or bundling of payments (for
example, for services furnished to SNF
patients during a Medicare Part A
covered stay), the CAH laboratory
payment provision would only provide
for separate payment to the CAH once
consolidated billing no longer applies.
Where consolidated billing is required
by Medicare rules, a separate payment
for bundled services furnished by
another provider, including a CAH, is
prohibited’’ (74 FR 24203). Therefore, in
cases where a CAH employee performs
a laboratory service for a SNF patient,
the CAH would only receive reasonable
cost-based payment once the SNF
patient has exhausted his or her Part A
SNF days. For purposes of receiving
reasonable cost-based payment for an
individual receiving home health
services, we understand that home
health consolidated billing rules do not
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apply to the provision of laboratory
tests. Therefore, if a CAH employee
performs the specimen collection from a
patient who is receiving home health
services, the CAH would not be limited
by the consolidated billing rules from
billing for that service.
In response to the commenter who
stated that application of the policy to
SNF patients would require more
tracking and paperwork, the policy
permitting CAHs to receive payment
based on reasonable cost when a CAH
employee collects a specimen from a
patient of a SNF cannot be used to
circumvent the statutory requirements
for consolidated billing of SNF services.
Therefore, a CAH must take SNF
consolidated billing rules into
consideration when it bills for specimen
collection of a SNF patient.
Comment: One commenter argued
that section 148 of MIPPA clearly states
that regardless of whether or not the
individual is physically present in the
CAH, all laboratory services provided in
a CAH’s laboratory are to be viewed as
outpatient CAH services. The
commenter asserted that CMS’ proposed
policy would unnecessarily complicate
billing procedures. The commenter
stated that the intent of the legislation
is that a CAH should receive payment
based on reasonable cost for all
laboratory services performed at the
CAH as was the case when the CAH
program was first implemented and that
the MIPPA legislation was requested by
CAHs to revert back to the former policy
in which all laboratory services
performed in the CAH laboratory would
be paid based on reasonable cost. The
commenter stated that section 148 of the
MIPPA did not include any language
pertaining to specimen collection by
CAH employees or receiving another
outpatient service on the same day or
anything similar to the language that is
being used in CMS Change Request
6395, Transmittal 1729. The commenter
requested that CMS revise the proposed
rule to state that all laboratory services
performed in the CAH are paid based on
reasonable cost and not based on the
CLFS.
One commenter stated that the
proposed policy concerning providerbased status of CAH laboratories would
impact the policy implementing section
148 of the MIPPA. The commenter
stated, ‘‘We also understand that the
proposed change in the regulations
regarding the treatment of a clinical
diagnostic laboratory of a CAH under
the provider-based status of facilities
and organizations would likewise
impact this determination.’’ The
commenter also stated that ‘‘conversely,
with regard to reasonable cost payment
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to the CAH for the clinical diagnostic
laboratory service(s), it would not
matter where or by whom a specimen is
collected if it is collected on the same
date as a patient receives outpatient
services at a CAH.’’ Another commenter
stated that the proposed rule adds
complexity and confusion for CAHs and
the commenter supported ‘‘keeping
CAHs intact and consistent with what
we believe was the original
congressional intent.’’ In general, one
commenter also stated that ‘‘if you want
to improve healthcare, you must
consider access and cost. Most of the
rules limit access and increase cost.’’
Response: As stated previously, we
believe our proposal provides for
increased flexibility for CAHs to receive
payment based on reasonable cost for
furnishing outpatient clinical diagnostic
laboratory tests because existing
regulations require that an individual be
physically present in the CAH to receive
reasonable cost-based payment;
otherwise, the CAH is paid on the basis
of the CLFS. Section 148 of the MIPPA
states ‘‘* * * clinical diagnostic
laboratory services furnished by a
critical access hospital shall be treated
as being furnished as part of outpatient
critical access services without regard to
whether the individual with respect to
whom such services are furnished is
physically present in the critical access
hospital * * *’’ (emphasis added).
Therefore, we believe it is appropriate to
require that an individual still has to be
an outpatient of a CAH, that is,
receiving services directly from the
CAH, to be paid based on reasonable
cost.
We would not consider an individual
to be an outpatient of a CAH if the only
relationship the individual has with the
CAH is that his or her specimen is
processed by the CAH. We do not
believe the intent of section 148 of
MIPPA was, for example, to allow a
CAH in one State to process a laboratory
specimen it receives from an individual
in a distant State and receive payment
on a reasonable cost basis for this
service without the individual being
physically present in the CAH or having
any other direct relationship with the
CAH. Allowing such a scenario to occur
would convert a CAH into a reference
laboratory and subvert the statutory
laboratory fee schedule used to pay for
clinical laboratory services. Our policy
allows CAHs to be paid for outpatient
clinical diagnostic laboratory tests
where the individual is not physically
present in the CAH at the time the
specimen is being collected, consistent
with the purpose of the provision, and
avoids the problems that would result
from a broader interpretation of the
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statutory language. Therefore, we stated
if the individual is not physically
present in a CAH when the specimen is
collected, in order for the CAH to
receive payment based on reasonable
cost, either the individual has to receive
other outpatient services in the CAH on
the same day the specimen is collected
or the specimen collection has to be
performed by a CAH employee. If
providers have questions about whether
specific scenarios would qualify for
reasonable cost-based payment, we
encourage them to contact CMS or their
Medicare contractor.
A commenter referenced Change
Request 6395, Transmittal 1729. This
document can be accessed at the
following link: https://www.cms.hhs.gov/
Transmittals/downloads/R1729CP.pdf.
The purpose of this instruction was to
implement section 148 of MIPPA on the
statutory effective date of July 1, 2009.
Because we are finalizing the policy as
proposed, the instruction will continue
to apply for purposes of payment to
CAHs for clinical diagnostic laboratory
tests after the effective date of this final
rule. If we believe further instructions
are needed, we will issue another
change request. We stated in the
proposed rule that we believe it will be
important to develop a modifier that
could assist CMS in tracking laboratory
services paid to CAHs under this
provision. We reiterate that when a
modifier is developed, we will issue
guidance regarding its use.
In regard to the comment concerning
the impact of the proposed policy on
provider-based status of CAH
laboratories, we do not believe this
policy has a direct impact on the policy
implementing section 148 of the MIPPA
because the individual does not need to
be physically present in a facility that is
provider-based to the CAH in order for
the CAH to receive payment based on
reasonable cost.
In summary, in this final rule, we are
finalizing our proposed policy that a
CAH can receive payment based on
reasonable cost for furnishing clinical
diagnostic laboratory tests even if the
individual is not physically present in
the CAH at the time the specimen is
collected, provided either (1) the
individual receives an outpatient
service in the CAH on the same day the
specimen is collected, or (2) the
specimen collection is performed by a
CAH employee. For purposes of section
148 of the MIPPA, a facility that is
provider-based to the CAH is considered
a CAH for purposes of determining
where the specimen is collected. If the
individual is in a facility or receiving
services under which Medicare
consolidated billing rules apply when
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the specimen is collected, the CAH will
receive reasonable cost-based payment
only once the consolidated billing rules
no longer apply.
3. CAH Optional Method of Payment for
Outpatient Services
Section 1834(g) of the Act establishes
the payment rules for outpatient
services furnished by a CAH. Section
403(d) of Public Law 106–113 (BBRA)
amended section 1834(g) of the Act to
provide for two methods of payment for
outpatient services furnished by a CAH.
Specifically, section 1834(g)(1) of the
Act, as amended by Public Law 106–
113, provided that the amount of
payment for outpatient services
furnished by a CAH is equal to the
reasonable cost of providing such
services, unless the CAH made an
election, under section 1834(g)(2) of the
Act, to receive amounts that were equal
to the reasonable cost of the CAH for
facility services plus, with respect to the
professional services, the amount
otherwise paid for professional services
under Medicare, less the applicable
Medicare deductible and coinsurance
amount. The election made under
section 1834(g)(2) of the Act is
sometimes referred to as ‘‘Method II.’’
Throughout this section of this
preamble, we refer to this election as the
‘‘optional method.’’
Section 202 of Public Law 106–554
(BIPA) amended section 1834(g)(2)(B) of
the Act to increase the payment for
professional services under the optional
method to 115 percent of the amount
otherwise paid for professional services
under Medicare. In addition, section
405(a)(1) of Public Law 108–173 (MMA)
amended section 1834(g)(l) of the Act by
inserting the phrase ‘‘equal to 101
percent of’’ before the phrase ‘‘the
reasonable costs’’. However, section
405(a)(1) of Public Law 108–173 did not
amend the phrase ‘‘reasonable costs’’
under the optional method at section
1834(g)(2)(A) of the Act.
Accordingly, section 1834(g) of the
Act currently provides for two methods
of payment for outpatient CAH services.
Under the first method, as specified at
section 1834(g)(1) of the Act, a CAH will
be paid 101 percent of reasonable costs,
unless it elects to be paid under the
methodology specified at section
1834(g)(2) of the Act. Under the method
specified at section 1834(g)(1) of the
Act, facility services are paid at 101
percent of reasonable costs to the CAH
through the Medicare fiscal
intermediary or the Medicare Part A/B
MAC, while payments for physician and
other professional services are made to
the physician under the Medicare
Physician Fee Schedule (MPFS) through
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the Medicare carriers. However, under
section 1834(g)(2) of the Act (the
optional method), a CAH submits bills
for both the facility and the professional
services to its Medicare fiscal
intermediary or its Medicare Part A/B
MAC. If a CAH chooses this optional
method for outpatient services, the
physician or other practitioner must
reassign his or her billing rights to the
CAH to bill the Medicare program for
those services. In accordance with
section 1834(g)(2)(A) of the Act, under
this optional method, the CAH receives
reasonable cost payment for its facility
costs and, with respect to the
professional services, 115 percent of the
amount otherwise paid for professional
services under Medicare.
Regulations implementing section
1834(g) of the Act are set forth at
§ 413.70(b). Section 413.70(b) states
that, unless a CAH elects the optional
method, payment for outpatient CAH
services is 101 percent of the reasonable
costs of the CAH in providing CAH
services to its outpatients. However,
existing § 413.70(b)(3)(ii)(A) states that a
CAH may elect, under the optional
method, to be paid at 101 percent of the
reasonable costs for facility services. As
a result, we believe that the existing
regulation is not consistent with the
plain reading of section 1834(g)(2) of the
Act, which provides for payment under
the optional method of reasonable cost
for facility services.
In order to ensure that the regulations
are consistent with the plain reading of
section 1834(g)(2)(A) of the Act, in the
FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24203 through
24204), we proposed to revise
§ 413.70(b)(3)(ii)(A) to state that CAHs
that elect the optional method will
receive payment based on reasonable
cost for outpatient facility services. We
indicated that the proposed change
would not affect payment for the
professional component as set forth
under § 413.70(b)(3)(ii)(B).
Comment: Commenters opposed
CMS’ proposal to change payment for
outpatient facility services for CAHs
that elect the optional method of
payment from 101 percent of reasonable
cost to 100 percent of reasonable cost.
Many commenters argued that the
proposal to reduce payments to CAHs
for outpatient facility services under the
optional method is not in accordance
with the intent of Congress. The
commenters stated that section 405(a) of
the MMA actually increased CAH
payment to 101 percent of reasonable
cost for outpatient facility services,
regardless of whether or not a CAH
elects the optional method. The
commenters stated that while the
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43937
statutory language of the MMA
erroneously did not specify that CAHs
that elect the optional method should be
paid at 101 percent of reasonable cost,
the proposed change goes against the
intent of Congress as expressed in the
conference report. Commenters stated
that ‘‘the conference report references
both types of payment methods, stating
that CAHs may elect either ‘cost-based
hospital outpatient service
reimbursement or an all-inclusive rate,
which is equal to reasonable cost
reimbursement for facility services plus
115 percent of the fee schedule payment
for professional services.’ ’’ The
commenters also stated that ‘‘In
summarizing the conference agreement,
the report more generally refers to CAH
payments, stating that ‘outpatient * * *
services provided by a CAH will be
reimbursed at 101 percent of reasonable
cost’.’’ Furthermore, the commenters
asserted that the summary of present
law in the conference report
distinguishes between the traditional
method of payment and the optional
method, but the summary of the
conference agreement does not make
this distinction, which the commenters
believe makes it clear that the
conference agreement applies to both
methods.
Response: We have reviewed and
have taken into consideration the
commenters’ concerns regarding our
proposal to revise the regulatory text to
be consistent with the plain reading of
section 1834(g)(2)(A) of the Act. Despite
the commenters’ contentions that the
statutory language of the MMA is
erroneous, we continue to believe that
the statutory text takes precedent over
Conference report language. While the
conference agreement does state that
CAHs should be paid at 101 percent of
reasonable cost for inpatient, outpatient,
and covered SNF services, we believe
the language in the conference
agreement could be read not as an
explicit expression of policy for CAHs
that elect the optional method, but
rather as a summary of CAH payment
policy. We acknowledge the concerns
raised by the commenters regarding the
potential financial impact the proposal
may have on CAHs. However, we are
required to conform our payment policy
to the statutory language and must
revise the regulatory text to ensure it is
consistent with the plain reading of the
statute. If Congress makes a legislative
change to allow CAHs that elect the
optional payment method to receive 101
percent of reasonable cost for outpatient
facility services, we will revise the
regulations accordingly to implement
such a change.
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Comment: Many commenters urged
CMS to perform a detailed and thorough
impact analysis on the effect the
proposal may have on CAHs before
moving forward. The commenters stated
that CMS could have obtained
information on which CAHs elect the
optional method in a timely manner
from its Medicare contractors and
performed a thorough impact analysis.
The commenters stated that, on behalf
of the AHA, State hospital associations
contacted Medicare contractors once the
proposed rule was released and
requested from them a list of CAHs that
elect the optional method in each State.
One commenter stated that the
information received from the Medicare
contractors ‘‘indicates that the vast
majority of CAHs elect Method 2
payment. For example, 88 percent of the
CAHs in Iowa, 71 percent of the CAHs
in Kansas, and 86 percent of the CAHs
in North Dakota have elected to be paid
under Method 2.’’ Many of the
commenters believed the current
proposal to reduce payment for
outpatient facility services for CAHs
that elect the optional method may have
a significant financial impact for these
small hospitals. Several commenters
estimated that the proposal may cut
payments to CAHs nationwide by $22
million in FY 2010. Several commenters
noted estimated impacts for CAHs
located in specific States for FY 2010:
$2.4 million for CAHs in Iowa; $1.7
million for CAHs in Illinois; $700,000
for CAHs in Nebraska; $779,783 for
CAHs in Kansas; and more than $1
million for CAHs in Kentucky. Another
commenter stated that changing the
payment under the optional method for
outpatient facility services would cause
its facility to lose $33,350 in payments
for outpatient services. The commenter
stated ‘‘while not a huge amount of
money, for a rural distressed facility,
any cut in reimbursement may be
catastrophic.’’ The commenters urged
that, because a detailed impact analysis
was not performed, CMS should
withdraw the proposed policy change.
Several commenters expressed
concern over the misinterpretation the
proposed policy change may have
among Medicare contractors. One
commenter stated that the cost report, as
currently written, does not specifically
designate which costs are outpatient
facility costs for services provided
under the optional method. The
commenter expressed concern that
Medicare contractors may interpret the
change in payment for outpatient
facility services under the optional
method from 101 percent of reasonable
cost to 100 percent of reasonable cost to
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apply to all outpatient facility services.
The commenter also stated that such an
interpretation would eliminate any
benefit gained from the additional
payment for professional services under
the optional method. In addition, the
commenter stated that making the
change would defeat a CAH’s incentive
to elect the optional payment method
and discourage medical providers and
CAHs from working together. The
commenter stated that ‘‘Even if the
intent of the proposed rule is to
eliminate the additional 1%
reimbursement on only the costs
associated with the Method II outpatient
facility charges, the loss of the 1%
reimbursement via the cost report
would cut our benefit of Method II
billing by approximately 40%.’’ The
commenter stated that CAHs in Illinois
‘‘* * * operate at negative operating
margins’’ and the average operating
margin is only at about 1.25 percent.’’
The commenter asserted that the
smallest amount change in Medicare’s
payment policy for CAHs can adversely
impact CAHs and recommended that
the proposed rule language read as
follows:
‘‘Facility Fee 1834(g)(2)(A) With
respect to facility services, 101% of the
reasonable costs of the critical access
hospital in providing such services.
‘‘Fee Schedule for Professional
Services 1834(g)(2)(B) With respect to
professional services, 115 percent of
such amounts.’’
Another commenter stated that
because the Medicare cost report does
not provide for separate facility
payment under the optional method, the
commenter is concerned that Medicare
contractors will apply 100 percent
reasonable cost payment to all
outpatient CAH services.
Response: With respect to the
financial impact of the proposal, we did
not conduct an in-depth impact analysis
because our proposal is a revision to
regulatory text that currently is contrary
to the plain language of the statute. That
is, we did not have a choice as to
whether we would change payment for
outpatient facility costs for CAHs that
elect the optional method. Furthermore
we do not believe we could necessarily
estimate the impact of the proposed
provision because election of the
optional method is not permanent;
CAHs are only required to make the
election 30 days prior to the start of the
cost reporting period for which it is
effective. Therefore, we cannot estimate
how many CAHs will choose to retain
the optional method of payment if
facility services are only paid at 100
percent of reasonable cost. Furthermore,
the optional method is physician-
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specific. That is, for some physicians’
outpatient services, a CAH may elect to
be paid under the optional method and
for other physicians’ outpatient services,
it may opt to be paid only at 101 percent
of reasonable costs for facility services.
The CAH’s election is contingent on
whether the physician is willing to
reassign his or her billing rights to the
CAH. Therefore, because it is the
physician’s decision as to whether he or
she chooses to reassign billing rights to
the CAH, we believe we cannot
accurately determine which physicians
would choose to opt out of the optional
method upon implementation of the
proposed provision.
To address the commenters’ concerns
regarding possible misinterpretation of
the proposed regulatory change by
Medicare contractors, we intend to issue
instructions to ensure that contractors
properly update the Fiscal Intermediary
Share System (FISS). The instructions
will include full and complete details to
clarify that the regulatory text change is
only applicable to services for which the
CAH has elected to use the optional
method. We are not adopting the
commenter’s proposed regulatory
language because, as stated previously,
the regulations pertaining to payment
for outpatient facility services for CAHs
that elect the optional method need to
conform to the statutory text at section
1834(g)(2)(A) of the Act that references
reasonable cost payment instead of ‘‘101
percent of reasonable cost’’ payment.
Comment: Many commenters
requested that if the proposed policy is
finalized, CMS specify an effective date
for the proposed change. The
commenters urged CMS to allow CAHs
adequate time to evaluate their
circumstances and make an informed
decision as to whether or not to elect the
optional method going forward. Several
commenters recommended that, if the
proposed policy is finalized, the
effective date should be no earlier than
cost reporting periods beginning on or
after January 1, 2010.
Response: We believe we cannot
delay implementation of this proposed
policy as the regulation as currently
written is not consistent with the plain
reading of section 1834(g)(2)(A) of the
Act. However, we recognize that it may
be unfair to apply this change in the
middle of an existing cost reporting
period, when CAHs made their decision
to elect the optional method under the
existing regulatory text. Therefore,
while we are finalizing the revisions to
the regulations as proposed, the change
will be effective for cost reporting
periods beginning on or after October 1,
2009, and not in the middle of any
CAH’s cost reporting period. If a CAH
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determines that, based on the
percentage revision in the regulation,
the CAH no longer wants to elect to use
the optional method, the CAH may
change its election beginning with its
next cost reporting period that begins on
or after October 1, 2009.
Comment: Commenters expressed
concern that reducing payment for
outpatient facility services for CAHs
that elect the optional method from 101
percent of reasonable cost to 100
percent of reasonable cost would limit
access to patient care. One commenter
stated that ‘‘* * * the option to use
Method 2 billing was intended to be an
additional incentive to attract
physicians to provide services in
communities where their services might
not otherwise be available. Method 2
billing is meant to be an enhancement
to what a CAH would otherwise receive
as reimbursement, not a choice between
what is received for professional
services versus what is received for
facility services.’’ The commenter stated
that if CMS believes the language
describing payment for CAHs that elect
the optional method is ambiguous, CMS
should request clarification from
Congress so that Congress’ drafting error
can be corrected, rather than proposing
a rule that would prove harmful to the
provision of physician services in the
local community. Another commenter
stated that ‘‘This increased payment for
physician services helps bring
physicians to our areas. It would be
counterproductive to then take away the
add-on the hospital gets.’’ One
commenter stated that it would make
more sense to reduce payment under the
optional method for professional
services and leave payment for facility
services at 101 percent of reasonable
cost. The commenter stated that using
the optional method for physician
services has allowed its CAH to simplify
Medicare billing for providers’ services.
The commenter also asserted that using
the optional method for physician
services has made it easier for the
patient to understand the bill he or she
receives because the CAH can combine
the facility service and the physician
service onto one bill to the Medicare
contractor. The commenter stated that,
for example, the CAH can combine an
X ray and the radiologist reading fee
charges onto one bill to the Medicare
contractor. However, the commenter
indicated, under the proposed rule, it
would have to bill the X ray to the
Medicare contractor and the radiologist
reading fee to the Medicare carrier.
Under this scenario, the patient would
receive two explanations of benefit
forms as opposed to the one the patient
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receives under the current rules. In
addition, under the proposed provision,
the CAH would have increased billing
costs because it would have to provide
two explanations of benefits.
Response: We emphasize that the
proposed provision to reduce payment
for outpatient facility services for CAHs
that elect the optional method from 101
percent of reasonable cost to 100
percent of reasonable cost does not
affect payment to CAHs for professional
services under the optional method. As
a result, it would not be appropriate to
change payment for professional
services under the optional method of
payment because the statute clearly
states that payment for these services is
115 percent of the physician fee
schedule amount. CAHs will continue
to receive payment at 115 percent of the
applicable physician fee schedule
amount for professional services.
Therefore, we do not agree that reducing
payment for outpatient facility services
will necessarily limit the provision of
physician services. Furthermore, as
stated previously, if Congress makes a
legislative change to allow CAHs that
elect the optional payment method to
receive 101 percent of reasonable cost
for outpatient facility services, CMS will
revise the regulations accordingly to
implement such a change.
In response to the commenter’s
concern regarding the billing process,
we encourage the commenter to work
with its Medicare contractor to resolve
those concerns.
In summary, in order to ensure that
the regulations are consistent with the
plain reading of section 1834(g)(2)(A) of
the Act, we are finalizing our proposal
to revise the regulatory text at
§ 413.70(b)(3)(ii)(A) to state that CAHs
that elect the optional method will
receive payment at 100 percent of
reasonable cost for outpatient facility
services. The change is effective for cost
reporting periods beginning on or after
October 1, 2009. The change does not
affect the existing policy for payment for
the professional component as set forth
under § 413.70(b)(3)(ii)(B).
4. Continued Participation by CAHs
Located in Counties Redesignated as
Urban
Under section 1820(c)(2)(B)(i) of the
Act, a facility is eligible for designation
as a CAH only if it is located in a county
or equivalent unit of local government
in a rural area (as defined in section
1886(d)(2)(D) of the Act), or is being
treated as being located in a rural area
pursuant to section 1886(d)(8)(E) of the
Act. The regulations implementing this
location requirement are located at 42
CFR 485.610(b). Currently, several
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CAHs are located in counties that were
designated as ‘‘rural areas’’ in FY 2009
under section 1886(d)(2)(D) of the Act
but will, as of October 1, 2009, be
considered to be located in urban areas
due to the redesignation of three
Micropolitan Statistical Areas
announced by the Office of Management
and Budget (OMB) on November 20,
2008. (We refer readers to section III.C.
of this preamble for a discussion of the
changes in the three Micropolitan
Statistical Areas that now qualify as
MSAs that were announced in OMB
Bulletin No. 09–01.) A facility that is
located in an urban area cannot remain
a CAH, unless it has been deemed rural
under 42 CFR 412.103. In response to
the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule in which we discussed
the OMB changes for purposes of
determining the hospital wage index for
FY 2010 (74 FR 24139), we received a
number of public comments on this
issue.
Comment: Many commenters urged
CMS to exercise the same executive
discretion that was applied in the FY
2005 IPPS final rule (69 FR 49221), in
which CMS provided for special
treatment for CAHs that were affected
by OMB redesignations of MSAs by
amending the regulations at § 412.103
and § 485.610 to allow CAHs that were
located in counties that were considered
rural in FY 2004, but urban in FY 2005,
to maintain their CAH status through
either the earlier of FY 2006 or when the
CAH obtained a rural designation under
§ 412.103. The commenters stated that,
under the amendment, CAHs were
allowed to continue participation as a
CAH for 2 years and were not required
to convert to PPS hospitals unless they
were not able to obtain a rural
designation under § 412.103.
The commenters also requested that
CMS not only take the same approach
as it did in FY 2005, but also
recommended that CMS make the
regulation change permanent so that the
agency does not have to address this
issue each time the redesignation or
creation of MSAs affects CAH status. To
do so, the commenters recommended
that CMS revise § 485.610(b)(3) to delete
references to specific dates and instead
incorporate general language to allow
CAHs that have CAH status in one year,
but are located in counties that will be
considered urban in the next year, to
retain their CAH status for a 2-year
period. The commenters also suggested
that CMS also revise § 412.103(a)(4) to
delete references to specific dates and
instead incorporate general language
allowing CAHs that are located in
counties that are reclassified from rural
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to urban to have 2 years to obtain a rural
designation under § 412.103.
Several commenters stated that if
CMS is unwilling to take the same
approach as it afforded CAHs in FY
2005, CAHs located mainly in Kansas
and Missouri, as an unintended
consequence, will lose their CAH status
and will be forced to revert back to a
PPS hospital. The commenters stated
that if CAH participation were
terminated, these facilities would likely
need to seek State licensure and
Medicare participation as hospitals in
order to be able to continue operations.
However, the commenters argued that
this would have a profound effect on the
communities that CAHs service and
would place these facilities at
significant financial risk in excess of
more than $1 million per hospital per
year.
Response: We understand the
commenters’ concerns and agree that
providing a transition period for the
CAHs that are located in counties that
are reclassified from rural to urban to
obtain a rural redesignation will
mitigate the disruptive impact of this
change. Accordingly, we believe it is
appropriate to revise § 485.610 by
adding a new paragraph (b)(4) and to
revise § 412.103 by adding a new
paragraph (a)(5) to provide special
treatment for such facilities, as was
done in FY 2005. Under the revision
made to § 485.610(b) and § 412.103(a), a
CAH that is located in a county that, in
FY 2009, was not part of an MSA, as
defined by the OMB, but as of FY 2010
was included as part of an MSA as a
result of the most recent census data
and implementation of the new MSA
definitions announced by OMB on
November 20, 2008, would nevertheless
be considered to meet the rural location
requirement and, therefore, could
continue participating without
interruption as a CAH from October 1,
2009 through the earlier of the date on
which the CAH obtains a rural
designation under § 412.103, or
September 30, 2011. Such a facility
would be allowed to continue
participating as a CAH and would not
be required to convert back to being a
PPS hospital unless it was not able to
obtain rural designation under that
section. We also will consider whether
it is appropriate to propose, in future
IPPS rulemaking, to revise § 485.610
and § 412.103 to provide for a transition
period any time a CAH that was
formerly considered to be located in a
rural area is designated as being located
in an urban area as a result of the
redesignation of its county from rural to
urban.
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D. Provider-Based Status of Facilities
and Organizations: Policy Changes
1. Background
Since the beginning of the Medicare
program, some providers, which we
refer to as ‘‘main providers,’’ have
functioned as a single entity while
owning and operating multiple
provider-based departments, locations,
and facilities that were treated as part of
the main provider for Medicare
purposes. Therefore, we have
maintained that having clear criteria for
provider-based status is important
because by failing to properly
distinguish between a provider-based
facility and a freestanding facility, we
risk additional program payments and
increased beneficiary coinsurance
liability with no commensurate benefit
to the Medicare program or its
beneficiaries. In addition, we jeopardize
the delivery of safe and appropriate
health care services to beneficiaries.
The Medicare policies regarding
provider-based status of facilities and
organizations are set forth at 42 CFR
413.65. The regulations at § 413.65 have
been revised and updated on numerous
occasions since they were originally
issued on April 7, 2000 (65 FR 18504).
We note that the implementation of the
April 7, 2000 regulations was delayed
by Public Law 106–554 (BIPA) for many
providers. Public Law 106–554 also
made changes in the criteria for
determining provider-based status,
which we implemented in a final rule
published in the Federal Register on
November 30, 2001 (66 FR 59956). The
most recent revisions of § 413.65 were
included in the FY 2006 IPPS final rule
(70 FR 47457 through 47461 and 47487
through 47488) when we updated the
rules with respect to the facilities for
which provider-based determinations
will not be made and clarified some of
the provider-based definitions and
requirements.
Currently, § 413.65(a) specifies the
facilities and organizations for which
provider-based status may be sought
and lists those facilities for which
determinations of provider-based status
for Medicare payment purposes are not
made. Section 413.65(b) describes the
procedures for making provider-based
determinations, and § 413.65(c) explains
the requirements for reporting material
changes in relationships between main
providers and provider-based facilities
and organizations. In § 413.65(d), we
specify all of the requirements that any
facility or organization for which
provider-based status is sought must
meet, whether located on or off the
campus of a potential main provider.
Section 413.65(e) specifies additional
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requirements applicable to off-campus
facilities or organizations. These
requirements include: Operation under
the ownership and control of the main
provider; administration and
supervision; and location. Sections
413.65(f) through (o) set forth the
policies regarding provider-based status
for joint ventures, obligations of hospital
outpatient departments and hospitalbased entities, management contracts,
furnishing of all services under
arrangement, inappropriate treatment of
a facility or organization as providerbased, temporary treatment as providerbased, correction of errors, status of
Indian Health Service and Tribal
facilities and organizations, FQHCs and
‘‘look alikes,’’ and effective dates of
provider-based status.
2. Changes to the Scope of the ProviderBased Status Regulations for CAHs
(a) CAH-Based Clinical Diagnostic
Laboratory Facilities
As we discussed in the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24204 through 24205), the providerbased status rules generally apply to
situations where there is a financial
incentive for a facility or organization to
claim affiliation with a main provider.
The provider-based status rules
establish criteria for a facility or
organization to demonstrate that it is
integrated with the main provider for
payment purposes. However, the
regulation at § 413.65(a)(1)(ii) lists
specific types of facilities and
organizations for which CMS will not
make provider-based determinations.
Included on this list of facilities exempt
from provider-based determinations are
facilities that furnish only clinical
diagnostic laboratory services
(§ 413.65(a)(1)(ii)(G)).
As we have stated previously (that is,
the FY 2006 IPPS final rule (70 FR
47457)), the list at § 413.65(a)(1)(ii) was
created after we had concluded that
‘‘provider-based determinations should
not be made for these facilities because
the outcome of the determination (that
is, whether a facility, unit, or
department is found to be freestanding
or provider-based) would not affect the
methodology used to make Medicare or
Medicaid payment, the scope of benefits
available to a Medicare beneficiary in or
at the facility, or the deductible or
coinsurance liability of a Medicare
beneficiary in or at the facility.’’ We
note that we included a facility that
furnishes only clinical diagnostic
laboratory services in the list of facilities
for which a determination of providerbased status is not made in
§ 413.65(a)(1)(ii)(G) because these
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facilities are generally paid under the
Clinical Laboratory Fee Schedule
(CLFS), regardless of the setting in
which the services are furnished.
Consequently, we believed that whether
a clinical diagnostic laboratory was
freestanding or provider-based would
not affect the amount of Medicare
payment.
However, upon further review of
existing § 413.65(a)(1)(ii), we believe
that a clinical diagnostic laboratory,
when operated as part of a CAH,
generates a higher Medicare payment
than when operating as a freestanding
facility. When a clinical diagnostic
laboratory is part of a CAH, the services
furnished by the laboratory are generally
paid 101 percent of reasonable cost.
Otherwise, clinical diagnostic laboratory
services provided by a freestanding
diagnostic laboratory are paid under the
CLFS. Currently, because the services of
a clinical diagnostic laboratory of a CAH
are paid at a higher rate by virtue of
being provided by a CAH department,
we believe they should be subject to the
rules under the provider-based status
regulations at § 413.65.
Therefore, in the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule (74 FR
24205), we proposed to exclude a
clinical diagnostic laboratory facility
that operates as part of a CAH from the
list of facilities for which we do not
make provider-based determinations.
That is, we proposed to revise the
regulations to require facilities
furnishing only clinical diagnostic
laboratory tests that operate as part of
CAHs to meet the applicable providerbased criteria in § 413.65 in order for the
CAHs to receive payments for the
services furnished at those facilities
based on reasonable cost. Specifically,
we proposed to revise the language of
§ 413.65(a)(1)(ii)(G) to state that CMS
will not make a determination of
provider-based status for payment
purposes as to whether the following
facilities are provider-based:
‘‘Independent diagnostic testing
facilities that furnish only services paid
under a fee schedule, such as facilities
that furnish only screening
mammography services, facilities that
furnish only clinical diagnostic
laboratory tests, other than those
clinical diagnostic laboratory facilities
operating as parts of CAHs, or facilities
that furnish only some combination of
these services’’ (emphasis added). In
addition, we proposed to specify that
‘‘Clinical diagnostic laboratories
operating as parts of CAHs must meet
the applicable provider-based
requirements.’’
Comment: One commenter questioned
whether there is a financial incentive for
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a clinical diagnostic laboratory facility
to be part of a CAH compared to a
freestanding clinical diagnostic
laboratory facility or a clinical
diagnostic laboratory facility that is part
of a hospital. The commenter
questioned whether payment under
reasonable cost for clinical diagnostic
laboratory services is higher than
payment under the CLFS. The
commenter requested that CMS provide
data that demonstrate that there is, in
fact, a payment differential between a
freestanding clinical diagnostic
laboratory facility and a CAH-owned
clinical diagnostic laboratory facility.
Response: CAHs are, by definition,
limited-service facilities located in rural
areas. CAH services are paid under 101
percent of reasonable cost (or, in some
cases, reasonable cost) in order to
ensure that these isolated, high-cost,
rural hospitals are able to furnish
critical health care services. Thus, it is
reasonable to assume that the reasonable
cost-based payment for clinical
diagnostic laboratory services is, in
some cases, higher than payment under
the CLFS. As such, we believe that there
is a financial incentive for clinical
diagnostic laboratory facilities to be part
of a CAH rather than a freestanding
facility or a part of a hospital. Because
of this financial incentive, we believe
that a CAH-owned clinical diagnostic
laboratory facility should demonstrate
integration with the CAH under the
provider-based status rules in order to
receive the higher CAH payment rate.
Comment: Several commenters
opposed the proposal to require that
facilities that furnish only clinical
diagnostic laboratory services as part of
a CAH meet the provider-based status
rules. The commenters were opposed to
the proposal because they believed that
CAH-based clinical diagnostic
laboratory facilities would be unable to
meet all of the provider-based rules at
§ 413.65. In addition, the commenters
were concerned that these facilities
would not be able to meet the distance
requirement applicable to CAHs that
requires that CAHs and their providerbased locations established after January
1, 2008, must be more than 35 miles
from a hospital or another CAH (or more
than 15 miles in areas with
mountainous terrain or only secondary
roads) in accordance with § 485.610(e).
Another commenter requested that
currently operating CAH-based clinical
diagnostic laboratory facilities or those
under development should be
grandfathered to have provider-based
status. Another commenter suggested
that currently operating CAH-based
clinical diagnostic laboratory facilities
or those under development should be
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granted provider-based status if they
meet the applicable provider-based
status rules with the exception of the
distance requirement.
Response: The intent of the providerbased status rules is to ensure that
higher levels of Medicare payment are
limited to situations where the facility
or organization is clearly an integral and
subordinate part of the main provider.
Therefore, we believe it is reasonable for
a CAH-owned clinical diagnostic
laboratory facility to meet the providerbased status rules to demonstrate that
the facility is fully integrated with the
main provider in order for the clinical
diagnostic laboratory services provided
in the facility to be paid based on
reasonable cost.
We understand the commenters’
concerns that clinical diagnostic
facilities that are currently operating as
part of CAHs may not be able to meet
the provider-based status rules.
However, we do not agree that, because
existing facilities cannot meet the
provider-based rules, they should be
exempt from those rules. We believe
that these facilities should meet all of
the requirements, including the
provider-based status location
requirement at § 413.65(e)(3) under
which an off-campus provider-based
department must be within 35 miles of
the main provider or must meet other
location requirements. In addition,
under this policy, CAH-owned clinical
diagnostic laboratory facilities would be
required to meet the requirement at
§ 485.610(e)(2) that specifies that, for a
CAH or a necessary provider CAH that
operates an off-campus provider-based
location that was created or acquired by
the CAH on or after January 1, 2008, the
off-campus provider-based location
must be more than a 35-mile drive from
a hospital or another CAH (or more than
a 15-mile drive, in areas with
mountainous terrain or only secondary
roads). This regulation applies to the
off-campus provider-based locations of
CAHs created or acquired on or after
January 1, 2008. If a CAH-owned
clinical diagnostic laboratory facility
cannot meet the location requirement,
we believe the CAH-owned clinical
diagnostic laboratory facility does not
warrant the higher CAH payment rate.
Accordingly, we are not amending the
proposal to grandfather existing
arrangements of CAH-owned clinical
diagnostic laboratory facilities.
However, in this final rule, we are
allowing additional time, until October
1, 2010, for CAH-owned clinical
diagnostic laboratory facilities to meet
the provider-based status rules. If the
CAH-based clinical diagnostic
laboratory facility cannot meet the
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provider-based status rules by that date,
the clinical diagnostic laboratory
services furnished at the facility will be
paid under the CLFS.
Comment: One commenter believed
that the proposal to require a clinical
diagnostic laboratory facility that is part
of the four walls of the CAH to meet the
provider-based status rules was
illogical. The commenter believed the
proposal would be similar to requiring
a radiology department of a CAH to
meet the provider-based status rules so
that the CAH could receive reasonable
cost-based payment.
Response: The provider-based status
rules were established to address main
providers that function as a single entity
while owning and operating multiple
departments, locations, and facilities.
We do not agree with the assertion that
just because a department is within the
four walls of a hospital or CAH, that the
department should be exempt from the
provider-based status rules. Hospitals
can and have leased space on their
campuses to physicians and other
providers or suppliers of health
services, and these providers or
suppliers may have no connection to or
integration with the hospital’s
operations other than a lease agreement
and physical proximity. For example,
under our existing regulations, a CAH
can lease some of its space to a clinical
diagnostic laboratory facility, and that
facility could be paid more significantly
for services as a provider-based
department to the CAH than as a
freestanding facility. Because of this
payment difference, we believe that a
clinical diagnostic laboratory facility
must meet the provider-based status
rules at § 413.65, even if it is located
within the CAH, to demonstrate that it
is fully integrated with the operations of
the CAH and warrants the higher CAH
payment rate. Therefore, in order for
services to be paid under reasonable
cost, a clinical diagnostic laboratory
facility that is part of a CAH must meet
the appropriate provider-based status
rules, regardless of whether it is on or
off the campus of the CAH.
Comment: Some commenters
expressed concern about how the
proposal would affect ‘‘necessary
provider’’ CAHs. The commenters
believed that clinical diagnostic
laboratory facilities that are part of
CAHs that received the ‘‘necessary
provider’’ designation would not be able
to meet the provider-based status rules.
The commenters stated that necessary
provider CAHs did not have to meet the
mileage requirement; therefore, by
requiring their clinical diagnostic
laboratory facilities to meet the
provider-based status rules, the facilities
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would not meet the distance
requirement which would threaten the
CAHs’ status. The commenters were
concerned that, as a result of this
proposal, facilities may close,
decreasing beneficiary access to these
essential services.
Response: Under § 485.610(c) of the
regulations, CAHs with the necessary
provider designation are CAHs that,
before January 1, 2006, were ‘‘certified
by the State as being a necessary
provider of health care services to
residents in the area’’ and are exempt
from the distance requirement that it is
more than a 35-mile drive (or in the case
of mountainous terrain or in areas with
only secondary roads available, more
than a 15-mile drive) from a hospital or
another CAH. Designations for
necessary provider CAHs were made
until December 31, 2005, and these
necessary provider CAHs were
grandfathered and allowed to maintain
that designation after January 1, 2006.
Section 485.610(e) of the regulations
requires that an off-campus providerbased location of a CAH or a necessary
provider CAH that is created or acquired
on or after January 1, 2008, must be
more than a 35-mile drive (or in the case
of mountainous terrain or in areas with
only secondary roads available, more
than a 15-mile drive) from another CAH
or hospital. Because the regulation at
§ 485.610(e) did not exempt providerbased departments of necessary
provider CAHs from the distance
requirement, we do not believe that
necessary provider CAHs that own offcampus clinical diagnostic laboratory
facilities should be exempt from the
distance requirement now that these
clinical diagnostic laboratory facilities
must meet the provider-based status
rules. We note that § 485.610(e)(2) only
applies the distance requirement to
CAH-based, off-campus provider-based
locations created or acquired on or after
January 1, 2008. Therefore, only CAHbased, off-campus facilities furnishing
clinical diagnostic laboratory services
acquired or created on or after January
1, 2008, must meet the distance
requirement at § 485.610(e)(2), which
requires the off-campus provider-based
location to be more than a 35-mile drive
from another hospital or CAH. In
contrast, CAH-based clinical diagnostic
laboratory facilities acquired or created
prior to January 1, 2008, must meet the
location requirements at § 413.65 to be
considered provider-based to the CAH,
but are exempt from the distance
requirement at § 485.610(e)(2).
Regarding the concern that clinical
diagnostic laboratory facilities may
close, decreasing beneficiary access to
these essential services as a result of this
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policy, we believe this is an incorrect
assumption. If a CAH owns a clinical
diagnostic laboratory facility that does
not meet the provider-based status rules
at § 413.65 or the CAH distance
requirements at § 485.610, the services
provided in the clinical diagnostic
laboratory facility will still be paid
under the CLFS.
Comment: Commenters requested that
CMS specify an effective date for the
proposal to require CAH-owned
facilities furnishing diagnostic
laboratory tests to meet the providerbased rules. The commenters requested
that CMS set an effective date no earlier
than October 1, 2010, so that CAHs have
adequate time to ensure that their
clinical diagnostic laboratory facilities
meet provider-based status rules and to
allow for CAHs to attest to obtaining
provider-based status.
Response: We agree with the
commenters that CAHs may require
time to ensure that their clinical
diagnostic laboratory facilities meet the
provider-based status rules at § 413.65
in order for services furnished in those
facilities to be paid under reasonable
cost. In addition, we understand that
CAHs may want to file an attestation,
although voluntary, with their CMS
Regional Office to get a provider-based
status determination. We encourage
CAHs to work with their CMS Regional
Office and contractor on how to file an
attestation and request a provider-based
determination. To allow CAHs the time
they need to make organizational
changes, if necessary, to comply with
the provider-based status rules and to
ensure that the CMS Regional Offices
and contractors are able to process
requests for provider-based
determinations, we are delaying the
effective date of our policy so that
clinical diagnostic laboratory facilities
that are part of a CAH will have to meet
the provider-based status rules as of
October 1, 2010. Beginning October 1,
2010, a clinical diagnostic laboratory
facility will be considered as providerbased to a CAH only if it meets all of
the requirements at § 413.65, and if, on
that date, it either has a written
determination from CMS that it is
provider-based or is billing and being
paid as a provider-based department or
entity of the CAH. In this final rule, we
are modifying our proposal to revise
§ 413.65(a)(1)(ii)(G) to reflect an
effective date of October 1, 2010. In
addition, the CAH distance requirement
at § 485.610(e)(2) provides that offcampus provider-based locations of a
CAH or a necessary provider CAH that
were created or acquired on or after
January 1, 2008, must be more than a
35-mile drive from a hospital or another
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CAH as of October 1, 2010. Existing
CAH-based clinical diagnostic
laboratory facilities that were created on
or after January 1, 2008, will also have
to satisfy the CAH distance
requirements for the CAH to retain its
CAH certification, as well as meet the
provider-based status rules in order to
be paid based on reasonable cost.
Comment: One commenter asked
whether the policy to require CAHowned clinical diagnostic laboratory
facilities to meet the provider-based
rules would apply to open cost reports.
In addition, the commenter asked
whether Medicare contractors had to
audit the facilities to determine
provider-based status.
Response: As discussed above, we are
specifying that the CAH-owned clinical
diagnostic laboratory facilities must
meet the provider-based status rules by
October 1, 2010, in order for their
services to be paid at reasonable cost.
The policy will not apply to open cost
reports; rather, CAH-based clinical
diagnostic laboratory facilities will have
to meet the provider-based status rules
by October 1, 2010. Medicare
contractors should use their standard
audit procedures to review CAH cost
reports for periods beginning on or after
October 1, 2010, to ensure that their
facilities furnishing clinical diagnostic
laboratory tests meet the provider-based
rules and are billing appropriately. In
addition, Medicare contractors and CMS
Regional Offices can expect to receive
attestations for provider-based
determinations of CAH-based clinical
diagnostic laboratory facilities.
In adopting this change to the
provider-based status rules, we
recognize that there may be confusion
between this provision that a clinical
diagnostic laboratory facility that is part
of a CAH must meet provider-based
status rules in order to receive the
higher reasonable cost-based payment
and the provision discussed in section
VII.C.2. of this preamble to implement
section 148 of Public Law 110–275. In
section VII.C.2. of this preamble, we are
adopting as final our proposal to revise
the regulations at § 413.70 to specify
that CAHs can bill for outpatient
clinical diagnostic laboratory services
furnished to patients who are
outpatients of the CAH, regardless of
whether they are physically present in
the CAH at the time the specimen is
collected. Under the revision to
§ 413.70, in order for a CAH to bill
based on the reasonable costs of
outpatient clinical diagnostic laboratory
services furnished to an individual, the
individual must be an outpatient of the
CAH, as defined at § 410.2, that is, be
receiving services directly from the
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CAH. As a result, either the individual
must be receiving outpatient services in
the CAH on the same day that the
specimen is collected or the specimen
must be collected by an employee of the
CAH. Under the final policy changes to
the provider-based status rules under
§ 413.65 in this section of this final rule,
if a CAH operates a provider-based
clinical diagnostic laboratory facility,
the facility must meet the providerbased status requirements under
§ 413.65 in order for the facility to be
considered part of the CAH and in order
for the CAH to be eligible to be paid
based on reasonable cost for the clinical
diagnostic laboratory services furnished
by the laboratory facility. According to
our finalized policy in section VII.C.2.
of the preamble of this final rule, a CAH
will have the option to bill for
outpatient clinical diagnostic laboratory
services based on reasonable cost for
patients where the specimen was
collected at non-CAH-based facilities as
long as the patients are outpatients of
the CAH, as defined above, and
therefore, either the specimen is
collected by an employee of the CAH or
the individual is receiving outpatient
services in the CAH on the same day
that the specimen is collected. In
addition, under our provider-based
status finalized policy in this final rule,
a CAH can also bill for clinical
diagnostic laboratory services on a
reasonable cost basis for patients who
are furnished services in a clinical
diagnostic laboratory facility that is
owned and operated by the CAH as long
as the clinical diagnostic laboratory
facility meets the provider-based status
requirements at § 413.65.
In summary, after consideration of the
public comments we received, we still
believe that clinical diagnostic
laboratory facilities could generate an
increase in Medicare payments when
they are part of a CAH compared to
when they are freestanding. Therefore,
we are finalizing our proposal that these
facilities, which are currently exempt
from provider-based determinations,
must meet the applicable providerbased status requirements at § 413.65 in
order for the CAH to receive payment
for their clinical diagnostic laboratory
services based on reasonable cost. This
requirement will apply to facilities that
furnish clinical diagnostic laboratory
services beginning on or after October 1,
2010. It is important to note that, in
addition to meeting the provider-based
status requirements at § 413.65, these
provider-based facilities will also have
to meet other requirements for providerbased facilities operated by CAHs,
including the distance requirements
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43943
under § 485.610(e). Generally, the
regulations at § 485.610(e)(2) provide
that off-campus provider-based
locations of a CAH that were created or
acquired on or after January 1, 2008,
must be more than a 35-mile drive from
a hospital or another CAH if the CAH
is to continue meeting the location
requirements under § 485.610(e)(2).
b. CAH-Based Ambulance Services
The existing regulations at
§ 413.70(b)(5) provide that ambulance
services are paid at reasonable cost if
the services are furnished by a CAH or
by an entity owned and operated by a
CAH, but only if the CAH or entity is
the only supplier or provider of
ambulance service within a 35-mile
drive of the CAH or entity. In the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule (74 FR 24205 and 24206), we
solicited public comments regarding
whether an ambulance service that is
owned and operated by a CAH, and is
eligible to receive reasonable cost-based
payment, should be required to meet the
provider-based status rules. It is
important to consider that the regulation
at § 413.70(b)(5) already specifies the
proximity criteria that CAH-owned and
operated ambulance services must meet
in order to be paid at reasonable cost.
However, these proximity requirements
are used to ensure that CAH-owned and
operated ambulance services do not
receive higher payments in relation to a
competing ambulance service that is not
owned and operated by a CAH. It can
be argued that CAH-owned and
operated ambulance suppliers or
providers should also be required to
meet the provider-based status
requirements to demonstrate that the
ambulance services are integrated with
the CAH because the CAH ambulance
services are paid at a higher Medicare
payment level when they are owned and
operated by a CAH compared to when
they are freestanding.
Comment: Several commenters
disagreed that CAH-owned and operated
ambulance services that are eligible to
be paid at reasonable cost should be
required to meet applicable providerbased rules. The commenters generally
cited the unique role that CAHs serve in
regions with limited medical service
options. The commenters claimed that
requiring ambulance services to meet
provider-based status rules would result
in an unnecessary administrative
burden and would result in the loss of
service in some areas. The commenters
specifically cited the cases of ‘‘necessary
provider CAHs,’’ which would be
unable to meet the requirements that
provider-based departments or facilities
be located beyond 35 miles (15 miles if
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located in mountainous terrain) from
another CAH or hospital.
Response: While commenters may be
concerned that an ambulance service
based to a necessary provider CAH may
not be able to meet the requirements set
forth in § 485.610(e)(2) if we required
CAH-based ambulances to meet the
provider-based status rules, we point
out that there are existing regulations at
§ 413.70(b)(5) that prohibit CAHs from
receiving a cost-based payment for
ambulance services if another provider
or supplier of ambulance services is
located within a 35-mile drive of the
CAH. The main campus of a necessary
provider CAH is not subject to CAH
distance requirements and may be
within 35 miles of another CAH or
hospital. However, that distance
exception does not apply to off-campus
provider-based departments of
necessary provider CAHs that were
created or acquired on or after January
1, 2008. Under § 485.610(e)(2), offcampus, provider-based locations of
CAHs and necessary provider CAHs that
were created or acquired on or after
January 1, 2008, must be more than a
35-mile drive from another CAH or
hospital. We agree that a proposal to
subject CAH-based ambulance services
paid based on reasonable cost to
provider-based determinations may
result in some ambulance services not
being able to meet the CAH distance
requirements for provider-based
facilities at § 485.610(e) and, as a result,
ambulance services provided by the
necessary provider CAH could not be
paid under reasonable cost.
With respect to the unnecessary
administrative burden that may be
placed upon CAH-owned and operated
ambulance services, we reiterate that
any regulatory proposal would only
apply to those ambulance services that
are eligible to receive a reasonable cost
payment, in accordance with
§ 413.70(b)(5); that is, ambulance
services furnished by a CAH or an entity
that is owned and operated by a CAH,
where the CAH or the entity is the only
provider or supplier of ambulance
services within a 35-mile radius.
Ambulance services that are paid under
the fee schedule would not be subject to
provider-based determinations.
Furthermore, we are aware that some of
the provider-based requirements at
§ 413.65 include required provisions
that may not be applicable to ambulance
services (for example, clinical privileges
for professional staff, medical record
retrieval system integration, among
others). If, in the future, we propose to
require that CAH-owned and operated
ambulance services meet the providerbased status rules, we would propose
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the applicable provider-based status
requirements that the ambulance
services would need to meet for
provider-based status.
In summary, while we still believe
that it may be appropriate to require any
part of a CAH to meet the providerbased rules in order to be paid at
reasonable cost, we are not at this time
proposing or adopting any changes to
the regulations at § 413.65 to require
CAH-owned and operated ambulance
services that are eligible to be paid at
reasonable cost to meet the providerbased status rules. We thank those
commenters that responded to our
solicitation of public comments.
3. Technical Correction to Regulations
Section 413.65(a)(1)(ii)(H) of the
regulations specifies, among the
facilities for which CMS does not make
provider-based determinations for
payment purposes, ‘‘Facilities, other
than those operating as parts of CAHs,
furnishing only physical, occupational,
or speech therapy to ambulatory
patients, for as long as the $1,500
annual cap on coverage of physical,
occupational, or speech therapy, as
described in section 1833(g)(2) of the
Act, remains suspended by the action of
the subsequent legislation.’’ In the FY
2010 IPPS/RY 2010 LTCH proposed rule
(74 FR 24206), we proposed to make
two basic changes to the language of
§ 413.65(a)(1)(ii)(H). First, we proposed
to delete the phrase ‘‘$1,500 annual
cap’’ and replace it with the generic
phrase ‘‘annual financial cap amount’’.
We proposed to make this change
because we need to update our
regulations to reflect that the $1,500
annual financial cap is no longer
applicable and has been replaced with
the cap amount described in section
1833(g)(2)(B) of the Act. Specifically,
the $1,500 cap amount described in
section 1833(g)(2)(A) of the Act was
limited to 3 years (1999 through 2001).
For years after 2001, in general, the
amount of the annual cap on payment
of physical, occupational, or speech
therapy is the amount specified in the
preceding year increased by the
percentage increase in the Medicare
economic index for the current year
(section 1833(g)(2)(B) of the Act).
However, we note that the annual cap
amount did not apply to expenses
incurred with respect to such therapy
services during various years as set forth
in the statute.
Second, we proposed to replace the
phrase ‘‘for as long as’’ with the phrase
‘‘throughout any period during which’’
and to replace the phrase ‘‘remains
suspended by the action of subsequent
legislation’’ with the phrase ‘‘is
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suspended by legislation’’. We proposed
to make this change because
§ 413.65(a)(1)(ii)(H), as currently
written, may incorrectly suggest that the
annual financial cap amounts on the
therapy services described in sections
1833(g)(1) and 1833(g)(3) of the Act
continue to be suspended. Although the
financial caps on such services were
suspended when the provision was
added originally, they ceased to be
suspended for a portion of 2003 and
then beginning January 1, 2006. We
indicated that we believe the proposed
change would eliminate any confusion
about whether the therapy caps were or
were not currently suspended, as well
as accomplish our goal of exempting
facilities, other than those operating as
parts of CAHs, that furnish only
physical, occupational, or speech
therapy to ambulatory patients from
complying with the provider-based
status requirements any time the annual
financial cap amount as described in
section 1883(g)(2) of the Act is
suspended by legislation. In conclusion,
we maintain that we would not make
provider-based determinations for nonCAH operated facilities furnishing only
physical, occupational, or speech
therapy to ambulatory patients when the
therapy cap is suspended.
We also are further clarifying a
proposed regulation text change not
fully detailed in the proposed rule. The
term ‘‘payment for’’ was inserted
between ‘‘annual financial cap amount
on’’ and ‘‘coverage of physical,
occupational, or speech therapy’’ in the
regulatory text to more accurately
describe the referenced financial cap on
therapy services.
We did not receive any public
comments on our proposals for
correction of the regulatory language.
Therefore, in this final rule, we are
adopting the proposals as final.
E. Report of Adjustment (Exceptions)
Payment
Section 4419(b) of Public Law 105–33
requires the Secretary to publish
annually in the Federal Register a
report describing the total amount of
adjustment payments made to excluded
hospitals and units, by reason of section
1886(b)(4) of the Act, during the
previous fiscal year.
The process of requesting,
adjudicating, and awarding an
adjustment payment is likely to occur
over a 2-year period or longer. First,
generally, an excluded hospital or
excluded unit of a hospital must file its
cost report for a fiscal year in
accordance with § 413.24(f)(2). The
fiscal intermediary or MAC reviews the
cost report and issues a Notice of
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Reimbursement (NPR). Once the
hospital receives the NPR, if its
operating costs are in excess of the
ceiling, the hospital may file a request
for an adjustment payment. After the
fiscal intermediary or MAC receives the
hospital’s request in accordance with
applicable regulations, the fiscal
intermediary or MAC or CMS,
depending on the type of adjustment
requested, reviews the request and
determines if an adjustment payment is
warranted. This determination is
sometimes not made until more than 6
43945
intermediaries or MACs and CMS on
adjustment payments that were
adjudicated during FY 2008. As
indicated above, the adjustments made
during FY 2008 only pertain to cost
reporting periods ending in years prior
to FY 2007. Total adjustment payments
given to excluded hospitals and units
during FY 2008 are $9,780,846. The
table depicts for each class of hospitals,
in the aggregate, the number of
adjustment requests adjudicated, the
excess operating cost over ceiling, and
the amount of the adjustment payments.
months after the date the request is filed
because there are times when the
applications are incomplete and
additional information must be
requested in order to have a completed
application. However, in an attempt to
provide interested parties with data on
the most recent adjustments for which
we do have data, we are publishing data
on adjustment payments that were
processed by the fiscal intermediary or
CMS during FY 2008.
The table below includes the most
recent data available from the fiscal
Class of hospital
Excess cost
over ceiling
Number
Adjustment
payments
Psychiatric ....................................................................................................................................
Children’s .....................................................................................................................................
Cancer .........................................................................................................................................
Religious Nonmedical Health Care Institution .............................................................................
14
3
3
1
$12,585,567
1,326,989
28,656,569
40,961
$3,429,244
1,183,486
5,136,202
31,914
Total ......................................................................................................................................
........................
........................
9,780,846
VIII. Changes to the Long-Term Care
Hospital Prospective Payment System
(LTCH PPS) for RY 2010
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A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
Section 123 of the Medicare,
Medicaid, and SCHIP (State Children’s
Health Insurance Program) Balanced
Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106–113) as amended by
section 307(b) of the Medicare,
Medicaid, and SCHIP Benefits
Improvement and Protection Act of
2000 (BIPA) (Pub. L. 106–554) provides
for payment for both the operating and
capital-related costs of hospital
inpatient stays in long-term care
hospitals (LTCHs) under Medicare Part
A based on prospectively set rates. The
Medicare prospective payment system
(PPS) for LTCHs applies to hospitals
that are described in section
1886(d)(1)(B)(iv) of the Social Security
Act (the Act), effective for cost reporting
periods beginning on or after October 1,
2002.
Section 1886(d)(1)(B)(iv)(I) of the Act
defines a LTCH as ‘‘a hospital which has
an average inpatient length of stay (as
determined by the Secretary) of greater
than 25 days.’’ Section
1886(d)(1)(B)(iv)(II) of the Act also
provides an alternative definition of
LTCHs: specifically, a hospital that first
received payment under section 1886(d)
of the Act in 1986 and has an average
inpatient length of stay (LOS) (as
determined by the Secretary of Health
and Human Services (the Secretary)) of
greater than 20 days and has 80 percent
or more of its annual Medicare inpatient
discharges with a principal diagnosis
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that reflects a finding of neoplastic
disease in the 12-month cost reporting
period ending in FY 1997.
Section 123 of the BBRA requires the
PPS for LTCHs to be a ‘‘per discharge’’
system with a diagnosis-related group
(DRG) based patient classification
system that reflects the differences in
patient resources and costs in LTCHs.
Section 307(b)(1) of the BIPA, among
other things, mandates that the
Secretary shall examine, and may
provide for, adjustments to payments
under the LTCH PPS, including
adjustments to DRG weights, area wage
adjustments, geographic reclassification,
outliers, updates, and a disproportionate
share adjustment.
In the August 30, 2002 Federal
Register, we issued a final rule that
implemented the LTCH PPS authorized
under the BBRA and BIPA (67 FR
55954). This system currently uses
information from LTCH patient records
to classify patients into distinct MSlong-term care diagnosis-related groups
(MS–LTC–DRGs) based on clinical
characteristics and expected resource
needs. Payments are calculated for each
MS–LTC–DRG and provisions are made
for appropriate payment adjustments.
Payment rates under the LTCH PPS are
updated annually and published in the
Federal Register.
The LTCH PPS replaced the
reasonable cost-based payment system
under the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA)
(Pub. L. 97–248) for payments for
inpatient services provided by a LTCH
with a cost reporting period beginning
on or after October 1, 2002. (The
regulations implementing the TEFRA
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reasonable cost-based payment
provisions are located at 42 CFR part
413.) With the implementation of the
PPS for acute care hospitals authorized
by the Social Security Amendments of
1983 (Pub. L. 98–21), which added
section 1886(d) to the Act, certain
hospitals, including LTCHs, were
excluded from the PPS for acute care
hospitals and were paid their reasonable
costs for inpatient services subject to a
per discharge limitation or target
amount under the TEFRA system. For
each cost reporting period, a hospitalspecific ceiling on payments was
determined by multiplying the
hospital’s updated target amount by the
number of total current year Medicare
discharges. (Generally, in section VIII. of
this preamble, when we refer to
discharges, the intent is to describe
Medicare discharges.) The August 30,
2002 final rule further details the
payment policy under the TEFRA
system (67 FR 55954).
In the August 30, 2002 final rule, we
provided for a 5-year transition period.
During this 5-year transition period, a
LTCH’s total payment under the PPS
was based on an increasing percentage
of the Federal rate with a corresponding
decrease in the percentage of the LTCH
PPS payment that is based on
reasonable cost concepts. However,
effective for cost reporting periods
beginning on or after October 1, 2006,
total LTCH PPS payments are based on
100 percent of the Federal rate.
In addition, in the August 30, 2002
final rule, we presented an in-depth
discussion of the LTCH PPS, including
the patient classification system,
relative weights, payment rates,
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additional payments, and the budget
neutrality requirements mandated by
section 123 of the BBRA. The same final
rule that established regulations for the
LTCH PPS under 42 CFR part 412,
Subpart O also contained LTCH
provisions related to covered inpatient
services, limitation on charges to
beneficiaries, medical review
requirements, furnishing of inpatient
hospital services directly or under
arrangement, and reporting and
recordkeeping requirements. We refer
readers to the August 30, 2002 final rule
for a comprehensive discussion of the
research and data that supported the
establishment of the LTCH PPS (67 FR
55954).
In the June 6, 2003 Federal Register,
we published a final rule that set forth
the FY 2004 annual update of the
payment rates for the Medicare PPS for
inpatient hospital services furnished by
LTCHs (68 FR 34122). It also changed
the annual period for which the
payment rates were to be effective, such
that the annual updated rates were
effective from July 1 through June 30
instead of from October 1 through
September 30. We refer to the July
through June time period as a ‘‘longterm care hospital rate year’’ (LTCH PPS
rate year). In addition, we changed the
publication schedule for the annual
update to allow for an effective date of
July 1. The payment amounts and
factors used to determine the annual
update of the LTCH PPS Federal rate are
based on a LTCH PPS rate year. While
the LTCH payment rate updates were to
be effective July 1, the annual update of
the DRG classifications and relative
weights for LTCHs continued to be
linked to the annual adjustments of the
acute care hospital inpatient DRGs and
were effective each October 1.
As discussed in detail in section
VIII.A.1. of the May 9, 2008 RY 2009
LTCH PPS final rule (73 FR 26788), we
again changed the schedule for the
annual updates of the LTCH PPS
Federal payment rates beginning with
RY 2010. We consolidated the
rulemaking cycle for the annual update
of the LTCH PPS Federal payment rates
and description of the methodology and
data used to calculate these payment
rates with the annual update of the MS–
LTC–DRG classifications and associated
weighting factors for LTCHs so that the
updates to the rates and the weights
now occur on the same schedule and
appear in the same publication. As a
result, the updates to the rates and the
weights are now effective on October 1
(on a Federal fiscal year schedule), and
the annual updates to the LTCH PPS
Federal rates will no longer be
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published with a July 1 effective date
(73 FR 26797 through 26798).
Public Law 110–173 (MMSEA),
enacted on December 29, 2007, included
provisions that have various effects on
the LTCH PPS. In addition to amending
section 1861 of the Act to add a
subsection (ccc) which provided an
additional definition of LTCHs and
facility criteria, Public Law 110–173
also required that no later than 18
months after the date of enactment of
the law, the Secretary conduct a study
and submit a report to Congress that
included ‘‘recommendations for such
legislation and administrative actions,
including timelines for the
implementation of LTCH patient criteria
or other actions, as the Secretary
determines appropriate.’’ The payment
policy provisions under Public Law
110–173 also have varying timeframes
of applicability. First, we note that
certain provisions of Public Law 110–
173 provided that the Secretary shall
not apply, for cost reporting periods
beginning on or after the date of the
enactment of Public Law 110–173
(December 29, 2007) for a 3-year period:
The extension of payment adjustments
at § 412.534 to ‘‘grandfathered LTCHs’’
(a long-term care hospital identified by
the amendment made by section 4417(a)
of Pub. L. 105–33); and the payment
adjustment at § 412.536 to
‘‘freestanding’’ LTCHs. In addition,
Public Law 110–173 provided that the
Secretary shall not apply, for the 3-year
period beginning on the date of
enactment of the Act, the revision to the
short-stay outlier (SSO) policy that was
finalized in the RY 2008 LTCH PPS final
rule (72 FR 26904 and 26992) and the
one-time adjustment to the payment
rates provided for in § 412.523(d)(3).
The statute also provided that the base
rate for RY 2008 be the same as the base
rate for RY 2007 (the revised base rate,
however, does not apply to discharges
occurring on or after July 1, 2007, and
before April 1, 2008); for a 3-year
moratorium (with specified exceptions)
on the establishment of new LTCHs,
LTCH satellites, and on the increase in
the number of LTCH beds. Public Law
110–173 also revised the threshold
percentages for certain co-located
LTCHs and LTCH satellites governed
under § 412.534. Finally, Public Law
110–173 provided for an expanded
review of medical necessity for
admission and continued stay at LTCHs.
In the RY 2009 LTCH PPS final rule
(73 FR 26801 through 26812), we
established the applicable Federal rates
for RY 2009 consistent with section
1886(m)(2) of the Act as amended by
Public Law 110–173. We also revised
the regulations at § 412.523(d)(3) to
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change the methodology for the onetime budget neutrality adjustment and
to comply with section 114(c)(4) of
Public Law 110–173. Other policy
revisions necessitated by the statutory
changes of Public Law 110–173 were
addressed in separate interim final
rulemaking documents with comment
periods (73 FR 24871 and 73 FR 29699).
First, in the May 6, 2008 interim final
rule with comment period (73 FR
24871), we implemented changes made
by section 114(c)(3) and (e) of the
MMSEA that affected payments to
LTCHs for inpatient hospital services as
follows:
• Modification of payment
adjustments to certain SSO cases.
Section 114(c)(3) of the MMSEA
specified that the refinement of the SSO
policy implemented in RY 2008 shall
not apply for a 3-year period beginning
with discharges occurring on or after
December 29, 2007. Specifically, the
fourth SSO payment option under
§ 412.529(c)(3)(i) shall not apply for a
3-year period.
• Revision to the RY 2008 payment
rate provision. Section 114(e)(1) of the
MMSEA provided that the base rate for
RY 2008 ‘‘shall be the same as the base
rate for discharges for the hospital
occurring during the rate year ending in
2007.’’ Furthermore, in accordance with
section 114(e)(2) of the MMSEA, the
revised payment rate will not be
applicable to discharges occurring on or
after July 1, 2007 and before April 1,
2008.
The May 22, 2008 interim final rule
with comment (73 FR 29699)
implemented changes made by section
114(c)(1) and (c)(2) and section 114(d) of
the MMSEA as follows:
• Modification of payment
adjustments to LTCHs and LTCH
satellite facilities for discharges of
patients who were admitted from
specific referring hospitals and that
exceed various percentage thresholds.
Sections 114(c)(1) and (c)(2) of the
MMSEA mandated specific changes for
3 years, beginning with cost reporting
periods beginning on or after December
29, 2007, with respect to § 412.534 in
existence as that time, which governs
the ‘‘25 percent threshold’’ payment
adjustment to LTCH hospitals-withinhospitals (HwHs) and LTCH satellite
facilities for discharges of patients who
were admitted from their co-located
hosts (established in the FY 2005 IPPS
final rule and amended in the RY 2008
LTCH PPS final rule), and § 412.536 in
existence at that time, which applies a
payment adjustment policy (that was in
transition to 25 percent prior to the
enactment of this law) to LTCH and
LTCH satellite facilities for discharges of
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patients who were admitted from any
individual hospital not co-located with
the LTCH or LTCH satellite facility
(established in the RY 2008 LTCH PPS
final rule).
• Moratorium on new LTCHs, LTCH
satellite facilities, and on increase in
beds in existing LTCHs and LTCH
satellite facilities. Section 114(d) of the
MMSEA established a 3-year
moratorium, beginning on December 29,
2007, on the establishment and
classification of new LTCHs, LTCH
satellite facilities, and on any increase
in beds in existing LTCHs and LTCH
satellite facilities, with certain
exceptions.
We received 6 timely pieces of
correspondence in response to the May
6, 2008 interim final rule with comment
period and 30 timely pieces of
correspondence on the May 22, 2008
interim final rule with comment period.
We are finalizing these two interim final
rules with comment period in this
Federal Register document and
addressing the public comments that we
received under section X. of the
preamble of this document.
Section 4302 of the ARRA, Public
Law 111–5, enacted on February 17,
2009, included several amendments to
the provisions set forth in section 114 of
Public Law 110–173 (the MMSEA). We
have issued instructions to the fiscal
intermediaries and MACs interpreting
the provisions of section 4302 of Public
Law 111–5 (Change Request 6444). As
we stated in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule, we are
implementing the provisions of section
4302 of Public Law 111–5 through an
interim final rule with comment period
in this Federal Register document
under section XI. of this preamble.
2. Criteria for Classification as a LTCH
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a. Classification as a LTCH
Under the existing regulations at
§ 412.23(e)(1) and (e)(2)(i), which
implement section 1886(d)(1)(B)(iv)(I) of
the Act, to qualify to be paid under the
LTCH PPS, a hospital must have a
provider agreement with Medicare and
must have an average Medicare
inpatient length of stay (LOS) of greater
than 25 days. Alternatively,
§ 412.23(e)(2)(ii) states that for cost
reporting periods beginning on or after
August 5, 1997, a hospital that was first
excluded from the PPS in 1986 and can
demonstrate that at least 80 percent of
its annual Medicare inpatient discharges
in the 12-month cost reporting period
ending in FY 1997 have a principal
diagnosis that reflects a finding of
neoplastic disease must have an average
inpatient length of stay for all patients,
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including both Medicare and nonMedicare inpatients, of greater than 20
days.
b. Hospitals Excluded From the LTCH
PPS
The following hospitals are paid
under special payment provisions, as
described in § 412.22(c), and therefore,
are not subject to the LTCH PPS rules:
• Veterans Administration hospitals.
• Hospitals that are reimbursed under
State cost control systems approved
under 42 CFR part 403.
• Hospitals that are reimbursed in
accordance with demonstration projects
authorized under section 402(a) of the
Social Security Amendments of 1967
(Pub. L. 90–248) (42 U.S.C. 1395b–1) or
section 222(a) of the Social Security
Amendments of 1972 (Pub. L. 92–603)
(42 U.S.C. 1395b–1 (note)) (Statewide
all-payer systems, subject to the rate-ofincrease test at section 1814(b) of the
Act).
• Nonparticipating hospitals
furnishing emergency services to
Medicare beneficiaries.
3. Limitation on Charges to Beneficiaries
In the August 30, 2002 final rule, we
presented an in-depth discussion of
beneficiary liability under the LTCH
PPS (67 FR 55974 through 55975). In the
RY 2005 LTCH PPS final rule (69 FR
25676), we clarified that the discussion
of beneficiary liability in the August 30,
2002 final rule was not meant to
establish rates or payments for, or define
Medicare-eligible expenses. Under
§ 412.507, if the Medicare payment to
the LTCH is the full LTC–DRG payment
amount, as consistent with other
established hospital prospective
payment systems, a LTCH may not bill
a Medicare beneficiary for more than the
deductible and coinsurance amounts as
specified under § 409.82, § 409.83, and
§ 409.87 and for items and services as
specified under § 489.30(a). However,
under the LTCH PPS, Medicare will
only pay for days for which the
beneficiary has coverage until the SSO
threshold is exceeded. Therefore, if the
Medicare payment was for a SSO case
(§ 412.529) that was less than the full
LTC–DRG payment amount because the
beneficiary had insufficient remaining
Medicare days, the LTCH could also
charge the beneficiary for services
delivered on those uncovered days
(§ 412.507).
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43947
4. Administrative Simplification
Compliance Act (ASCA) and Health
Insurance Portability and
Accountability Act (HIPAA)
Compliance
Claims submitted to Medicare must
comply with both the Administrative
Simplification Compliance Act (ASCA)
(Pub. L. 107–105), and the Health
Insurance Portability and
Accountability Act of 1996 (HIPAA)
(Pub. L. 104–191). Section 3 of the
ASCA requires that the Medicare
Program deny payment under Part A or
Part B for any expenses incurred for
items or services ‘‘for which a claim is
submitted other than in an electronic
form specified by the Secretary.’’
Section 1862(h) of the Act (as added by
section 3(a) of the ASCA) provides that
the Secretary shall waive such denial in
two specific types of cases and may also
waive such denial ‘‘in such unusual
cases as the Secretary finds appropriate’’
(68 FR 48805). Section 3 of the ASCA
operates in the context of the HIPAA
regulations, which include, among other
provisions, the transactions and code
sets standards requirements codified as
45 CFR parts 160 and 162, subparts A
and I through R (generally known as the
Transactions Rule). The Transactions
Rule requires covered entities, including
covered health care providers, to
conduct certain electronic healthcare
transactions according to the applicable
transactions and code sets standards.
B. Medicare Severity Long-Term Care
Diagnosis-Related Group (MS–LTC–
DRG) Classifications and Relative
Weights
1. Background
Section 123 of the BBRA requires that
the Secretary implement a PPS for
LTCHs (that is, a per discharge system
with a diagnosis-related group (DRG)based patient classification system
reflecting the differences in patient
resources and costs). Section 307(b)(1)
of the BIPA modified the requirements
of section 123 of the BBRA by requiring
that the Secretary examine ‘‘the
feasibility and the impact of basing
payment under such a system [the longterm care hospital (LTCH) PPS] on the
use of existing (or refined) hospital
DRGs that have been modified to
account for different resource use of
LTCH patients, as well as the use of the
most recently available hospital
discharge data.’’
When the LTCH PPS was
implemented for cost reporting periods
beginning on or after October 1, 2002,
we adopted the same DRG patient
classification system (that is, the CMS
DRGs) that was utilized at that time
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under the IPPS. As a component of the
LTCH PPS, we refer to this patient
classification system as the ‘‘long-term
care diagnosis-related groups (LTC–
DRGs).’’ As discussed in greater detail
below, although the patient
classification system used under both
the LTCH PPS and the IPPS are the
same, the relative weights are different.
The established relative weight
methodology and data used under the
LTCH PPS result in relative weights
under the LTCH PPS that reflect ‘‘the
differences in patient resource use
* * *’’ of LTCH patients (section
123(a)(1) of the BBRA (Pub. L. 106–
113)).
As part of our efforts to better
recognize severity of illness among
patients, in the FY 2008 IPPS final rule
with comment period (72 FR 47130), the
MS–DRGs and the Medicare severity
long-term care diagnosis-related groups
(MS–LTC–DRGs) were adopted under
the IPPS and the LTCH PPS,
respectively, effective beginning
October 1, 2007 (FY 2008). For a full
description of the development and
implementation of the MS–DRGs and
MS–LTC–DRGs, we refer readers to the
FY 2008 IPPS final rule with comment
period (72 FR 47141 through 47175 and
47277 through 47299). (We note that, in
that same final rule, we revised the
regulations at § 412.503 to specify that
for LTCH discharges occurring on or
after October 1, 2007, when applying
the provisions of 42 CFR part 412,
Subpart O applicable to LTCHs for
policy descriptions and payment
calculations, all references to LTC–
DRGs would be considered a reference
to MS–LTC–DRGs. For the remainder of
this section, we present the discussion
in terms of the current MS–LTC–DRG
patient classification system unless
specifically referring to the previous
LTC–DRG patient classification system
that was in effect before October 1,
2007.) We believe the MS–DRGs (and by
extension, the MS–LTC–DRGs)
represent a substantial improvement
over the previous CMS DRGs in their
ability to differentiate cases based on
severity of illness and resource
consumption.
The MS–DRGs adopted in FY 2008
represent an increase in the number of
DRGs by 207 (that is, from 538 to 745)
(72 FR 47171). In FY 2009, an additional
MS–DRG was adopted for a total of 746
distinct groupings (73 FR 48497). In
addition to improving the DRG system’s
recognition of severity of illness, we
believe the MS–DRGs are responsive to
the public comments that were made on
the FY 2007 IPPS proposed rule with
respect to how we should undertake
further DRG reform. The MS–DRGs use
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the CMS DRGs as the starting point for
revising the DRG system to better
recognize resource complexity and
severity of illness. We have generally
retained 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.
Consistent with section 123 of the
BBRA, as amended by section 307(b)(1)
of the BIPA, and § 412.515, we use
information derived from LTCH PPS
patient records to classify LTCH
discharges into distinct MS–LTC–DRGs
based on clinical characteristics and
estimated resource needs. We then
assign an appropriate weight to the MS–
LTC–DRGs to account for the difference
in resource use by patients exhibiting
the case complexity and multiple
medical problems characteristic of
LTCHs.
In a departure from the IPPS, and as
discussed in greater detail below in
section VIII.B.3.e. of this preamble, we
use low-volume MS–LTC–DRGs (that is,
MS–LTC–DRGs with less than 25 LTCH
cases) in determining the MS–LTC–DRG
relative weights because LTCHs do not
typically treat the full range of
diagnoses as do acute care hospitals. For
purposes of determining the relative
weights for the large number of lowvolume MS–LTC–DRGs, we group all of
the low-volume MS–LTC–DRGs into
five quintiles based on average charge
per discharge. (A detailed discussion of
the application of the Lewin Group
‘‘quintile’’ model that was used to
develop the LTC–DRGs appears in the
August 30, 2002 LTCH PPS final rule
(67 FR 55978).) We also account for
adjustments to payments for SSO cases
(that is, cases where the covered LOS at
the LTCH is less than or equal to fivesixths of the geometric ALOS for the
MS–LTC–DRG). Furthermore, we make
adjustments to account for
nonmonotonically increasing weights,
when necessary. That is, theoretically,
cases under the MS–LTC–DRG system
that are more severe require greater
expenditure of medical care resources
and will result in higher average charges
such that, in the severity levels within
a base MS–LTC–DRG, the weights
should increase monotonically with
severity from the lowest to highest
severity level. (We discuss
nonmonotonicity in greater detail and
our methodology to adjust the RY 2010
MS–LTC–DRG relative weights to
account for nonmonotonically
increasing relative weights in section
VIII.B.3.f. (Step 6) of this preamble.)
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2. Patient Classifications Into MS–LTC–
DRGs
a. Background
The MS–DRGs (used under the IPPS)
and the MS–LTC–DRGs (used under the
LTCH PPS) are based on the CMS DRG
structure. As noted above in this
section, we refer to the DRGs under the
LTCH PPS as MS–LTC–DRGs although
they are structurally identical to the
DRGs used under the IPPS.
The MS–DRGs are organized into 25
major diagnostic categories (MDCs),
most of which are based on a particular
organ system of the body; the remainder
involve multiple organ systems (such as
MDC 22, Burns). Within most MDCs,
cases are then divided into surgical
DRGs and medical DRGs. Surgical DRGs
are assigned based on a surgical
hierarchy that orders operating room
(O.R.) procedures or groups of O.R.
procedures by resource intensity. The
GROUPER software program does not
recognize all ICD–9–CM procedure
codes as procedures affecting DRG
assignment. That is, procedures that are
not surgical (for example, EKG), or
minor surgical procedures (for example,
biopsy of skin and subcutaneous tissue
(code 86.11)) do not affect the MS–LTC–
DRG assignment based on their presence
on the claim.
Generally, under the LTCH PPS, a
Medicare payment is made at a
predetermined specific rate for each
discharge and that payment varies by
the MS–LTC–DRG to which a
beneficiary’s stay is assigned. Cases are
classified into MS–LTC–DRGs for
payment based on the following six data
elements:
• Principal diagnosis.
• Up to eight additional diagnoses.
• Up to six procedures performed.
• Age.
• Sex.
• Discharge status of the patient.
Upon the discharge of the patient
from an LTCH, the LTCH must assign
appropriate diagnosis and procedure
codes from the most current version of
the International Classification of
Diseases, Ninth Revision, Clinical
Modification (ICD–9–CM). HIPAA
Transactions and Code Sets Standards
regulations at 45 CFR parts 160 and 162
require that no later than October 16,
2003, all covered entities must comply
with the applicable requirements of
Subparts A and I through R of Part 162.
Among other requirements, those
provisions direct covered entities to use
the ASC X12N 837 Health Care Claim:
Institutional, Volumes 1 and 2, Version
4010, and the applicable standard
medical data code sets for the
institutional health care claim or
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equivalent encounter information
transaction (45 CFR 162.1002 and 45
CFR 162.1102). For additional
information on the ICD–9–CM Coding
System, we refer readers to the FY 2008
IPPS final rule with comment period (72
FR 47241 through 47243 and 47277
through 47281). We also refer readers to
the detailed discussion on correct
coding practices in the August 30, 2002
LTCH PPS final rule (67 FR 55981
through 55983). Additional coding
instructions and examples are published
in the Coding Clinic for ICD–9–CM, a
product of the American Hospital
Association.
To create the MS–DRGs (and by
extension, the MS–LTC–DRGs),
individual DRGs were subdivided
according to the presence of specific
secondary diagnoses designated as
complications or comorbidities (CCs)
into three, two, or one level, depending
on the impact of the CCs on resources
used for those cases. Specifically, there
are sets of MS–DRGs that are split into
2 or 3 subgroups based on the presence
or absence of a CC or a major
complication and comorbidity (MCC).
The original discussion about the
creation of MS–DRGs and their severity
levels is described in detail in the FY
2008 IPPS final rule with comment
period (72 FR 47169). However, to
reiterate the development of the CCs
and MCCs, 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. In
designating an MS–DRG as one that will
be divided into subgroups based on the
presence of a CC or MCC, we developed
a set of criteria to facilitate the
decisionmaking process. The subgroup
was required to meet all criteria, which
are described in detail in the FY 2008
IPPS final rule with comment period (72
FR 47169). As a first step, each of the
base MS–DRGs was subdivided into
three subgroups: Non-CC, CC, and MCC.
Each subgroup was then analyzed in
relation to the other two subgroups, and
the criteria were applied in the
following hierarchical manner.
• If a three-way subdivision met the
criteria, we divided the base MS–DRG
into three CC subgroups.
• 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.
• 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 two-
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way subdivision with the highest R2
(most explanatory power to explain the
difference in average charges).
• 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 sufficient 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 subgroups.
Based on this methodology, a base
MS–DRG may be subdivided according
to the following three alternatives:
• DRGs with three subgroups (MCC,
CC, and non-CC).
• DRGs with two subgroups
consisting of an MCC subgroup but with
the CC and non-CC subgroups
combined. These are referred to as
‘‘with MCC’’ and ‘‘without MCC.’’
• 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.’’
For example, under the MS–LTC–
DRG system, multiple sclerosis and
cerebellar ataxia with MCC is MS–LTC–
DRG 58; multiple sclerosis and
cerebellar ataxia with CC is MS–LTC–
DRG 59; and multiple sclerosis and
cerebellar ataxia without CC/MCC is
MS–LTC–DRG 60. For purposes of
discussion in this section, the term
‘‘base DRG’’ is used to refer to the DRG
category that encompasses all levels of
severity for that DRG. For example,
when referring to the entire DRG
category for multiple sclerosis and
cerebellar ataxia, which includes the
above three severity levels, we would
use the term ‘‘base DRG.’’ (As noted
above in this section, further
information on the development and
implementation of the MS–DRGs and
MS–LTC–DRGs can be found in the FY
2008 IPPS final rule with comment
period (72 FR 47138 through 47175 and
47277 through 47299).)
In developing the first MS–DRG
GROUPER program (that is, Version
25.0 effective for FY 2008), the
diagnoses comprising the CC list were
completely redefined. The revised CC
list is primarily comprised of significant
acute disease, acute exacerbations of
significant chronic diseases, advanced
or end stage chronic diseases, and
chronic diseases associated with
extensive debility. In general, most
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43949
chronic diseases were not included on
the revised CC list. For a patient with a
chronic disease, a significant acute
manifestation of the chronic disease was
required to be present and coded for the
patient to be assigned a CC. In addition
to the revision of the CC list, each CC
was also categorized as an MCC or a CC
based on relative resource use.
Approximately 12 percent of all
diagnoses codes were classified as an
MCC, 24 percent as a CC, and 64 percent
as a non-CC. Diagnoses closely
associated with mortality (ventricular
fibrillation, cardiac arrest, shock, and
respiratory arrest) were assigned as an
MCC if the patient lived, but as a nonCC if the patient died. The MCC, CC,
and non-CC categorization was used to
subdivide the surgical and medical
DRGs into up to three levels, with a case
being assigned to the most resource
intensive level (for example, a case with
two secondary diagnoses that are
categorized as an MCC and a CC is
assigned to the MCC level).
Medicare contractors (that is, fiscal
intermediaries and MACs) enter the
clinical and demographic information
submitted by LTCHs into their claims
processing systems and subject this
information to a series of automated
screening processes called the Medicare
Code Editor (MCE). These screens are
designed to identify cases that require
further review before assignment into a
MS–LTC–DRG can be made. During this
process, the following types of cases are
selected for further development:
• Cases that are improperly coded.
(For example, diagnoses are shown that
are inappropriate, given the sex of the
patient. Code 68.69 (Other and
unspecified radical abdominal
hysterectomy) would be an
inappropriate code for a male.)
• Cases including surgical procedures
not covered under Medicare. (For
example, organ transplant in a
nonapproved transplant center.)
• Cases requiring more information.
(For example, ICD–9–CM codes are
required to be entered at their highest
level of specificity. There are valid 3digit, 4-digit, and 5-digit codes. That is,
code 262 (Other severe protein-calorie
malnutrition) contains all appropriate
digits, but if it is reported with either
fewer or more than 3 digits, the claim
will be rejected by the MCE as invalid.)
After screening through the MCE,
each claim is classified into the
appropriate MS–LTC–DRG by the
Medicare LTCH GROUPER software on
the basis of diagnosis and procedure
codes and other demographic
information (age, sex, and discharge
status). The GROUPER software used
under the LTCH PPS is the same
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GROUPER software program used under
the IPPS. Following the MS–LTC–DRG
assignment, the Medicare contractor
determines the prospective payment
amount by using the Medicare PRICER
program, which accounts for hospitalspecific adjustments. Under the LTCH
PPS, we provide an opportunity for
LTCHs to review the MS–LTC–DRG
assignments made by the Medicare
contractor and to submit additional
information within a specified
timeframe as provided in § 412.513(c).
The GROUPER software is used both
to classify past cases to measure relative
hospital resource consumption to
establish the 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 MS–DRG and
MS–LTC–DRG classification changes
and to recalibrate the MS–DRG and MS–
LTC–DRG relative weights during our
annual update under both the IPPS
(§ 412.60(e)) and the LTCH PPS
(§ 412.517), respectively.
Although the LTCH PPS RYs 2004
through 2009 annual payment rate
update cycles were effective July 1
through June 30 instead of October 1
through September 30 (with the
exception of the 15-month RY 2009
payment rate update cycle, which is
effective July 1, 2008 through September
30, 2009), because the patient
classification system utilized under the
LTCH PPS uses the same DRGs as those
used under the IPPS for acute care
hospitals, the annual update of the
LTC–DRG classifications and relative
weights continued to remain linked to
the annual reclassification and
recalibration of the DRGs used under
the IPPS. Therefore, the payment rate
update to the MS–LTC–DRG
classifications and relative weights are
effective for discharges occurring on or
after October 1 through September 30 of
each year (RYs 2004 through 2009), and
we published the annual proposed and
final update of the MS–LTC–DRGs in
the same notice as the proposed and
final update for the IPPS (69 FR 34122
through 34125).
In the RY 2009 LTCH PPS final rule,
we amended the regulations at § 412.503
and § 412.535 in order to consolidate
the rate year and fiscal year rulemaking
cycles, effective October 1, 2009 (73 FR
26797 through 26798). Specifically, we
revised the regulations to shift the
payment rate update from a July 1
through June 30 cycle to an October 1
through September 30 cycle. We
extended the 2009 rate year period to
September 30, 2009, so that RY 2009 is
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15 months; that is, July 1, 2008, through
September 30, 2009. Consequently, after
the conclusion of the 15-month RY
2009, both the annual update of the
LTCH PPS payment rates (and the
description of the methodology and data
used to calculate these payment rates)
and the annual update of the MS–LTC–
DRG classifications and associated
weighting factors for LTCHs will be
updated on an October 1 through
September 30 cycle and, thus, be
effective on October 1 of each Federal
fiscal year beginning October 1, 2009.
Beginning with the RY 2010 LTCH PPS
update, both the annual update of the
LTCH PPS payment rate, including the
annual update of the MS–LTC–DRGs,
and policy changes will be presented
along with the annual IPPS payment
rate and policy changes in a single
combined rulemaking document
published in the Federal Register as
was done in the proposed rule and in
this final rule.
Prior to FY 2004, the annual update
to the DRGs used under the IPPS had
been based on the annual revisions to
the ICD–9–CM codes and was effective
each October 1. As discussed in past
LTCH PPS and IPPS proposed and final
rules (most recently in the FY 2009 IPPS
final rule (73 FR 48530)), section 503(a)
of Public Law 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 DRGs in the middle of the
Federal fiscal year, on April 1.
Therefore, there is the possibility that
one feature of the GROUPER software
program may be updated twice during a
Federal fiscal year (that is, October 1
and April 1). However, we note that, as
the statute permits, the DRG relative
weights in effect for that fiscal year will
continue to be updated only once a year
(October 1).
The patient classification system used
under the LTCH PPS is the same patient
classification system that is used under
the IPPS. Therefore, the ICD–9–CM
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codes currently used under both the
IPPS and the LTCH PPS have the
potential of being updated twice a year
due to the implementation of section
503(a) of Public Law 108–173 for the
IPPS (as explained above). Because we
do not publish a midyear IPPS rule, any
April 1 ICD–9–CM coding update will
not be published in the Federal
Register. Rather, consistent with the
policy under the IPPS (discussed in
section II.G.7. of the preamble of this
final rule), we assign any new diagnosis
or procedure codes to the same DRG in
which its predecessor code was
assigned, so that there is no impact on
the DRG assignments. Any coding
updates will be available through the
Web sites provided in section II.G.7. of
the preamble of this final rule and
through the Coding Clinic for ICD–9–
CM. Publishers and software vendors
currently obtain code changes through
these sources in order to update their
code books and software system. If new
codes are implemented on April 1,
revised code books and software
systems, including the GROUPER
software program, will be necessary
because the most current ICD–9–CM
codes must be reported. Therefore, for
purposes of the LTCH PPS, because
each ICD–9–CM code must be included
in the GROUPER algorithm to classify
each case under the correct LTCH PPS,
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
Public Law 108–173, there will only be
an April 1 update if new technology
diagnosis and procedure code revisions
are requested and approved. We note
that any new codes created for April 1
implementation will be limited to those
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.7. of the
preamble of this final rule).
There were no mid-year codes added
to the ICD–9–CM coding system as a
result of the September 24–25, 2008
meeting of the ICD–9–CM Coordination
and Maintenance Committee. The next
update to the ICD–9–CM coding system
will occur on October 1, 2009 (FY 2010),
and the ICD–9–CM coding set
implemented on October 1, 2009, will
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continue through September 30, 2010
(FY 2010). The ICD–9–CM Coordination
and Maintenance Committee met again
on March 11–12, 2009. Because this
meeting was for the purpose of
informing the public of proposed
changes to the ICD–9–CM code set as
well as for requesting comment from the
public, no decisions regarding coding
changes were made at this meeting.
Commenters were requested to submit
comments by April 3, 2009, concerning
the proposed code revisions discussed
at the March 11–12, 2009 meeting. Any
new codes or other revisions created as
a result of this meeting were not
included in the proposed rule because
of the short turnaround time required
for the publication of the proposed rule.
However, new codes and any other
revisions appear in this final rule in
Tables 6A through 6F of the Addendum.
The codes appearing for the first time in
this final rule are identified with an
asterisk leading to the following
notation: ‘‘These codes were discussed
at the March 11–12, 2009 ICD–9–CM
Coordination and Maintenance
Committee meeting and were not
finalized in time to include in the
proposed rule. However, they will be
implemented on October 1, 2009.’’ The
update to the ICD–9–CM coding system
that is effective on October 1, 2009, is
discussed in section II.G.7. of the
preamble of this final rule.
b. Changes to the MS–LTC–DRGs for RY
2010
As we proposed, consistent with our
historical practice of using the same
patient classification system under the
LTCH PPS as is used under the IPPS, in
this final rule, we are modifying and
revising the MS–LTC–DRG
classifications effective October 1, 2009,
through September 30, 2010 (RY 2010)
consistent with the changes to specific
MS–DRG classifications presented
above in section II.G. of this final rule
(that is, GROUPER Version 27.0).
Therefore, the MS–LTC–DRGs for RY
2010 presented in this final rule are the
same as the MS–DRGs that will be used
under the IPPS for FY 2010 (that is,
GROUPER Version 27.0 as described in
section II.G. of the preamble of this final
rule). In addition, because the MS–LTC–
DRGs for RY 2010 are the same as the
MS–DRGs for FY 2010, the other
changes that will affect MS–DRG (and
by extension MS–LTC–DRG)
assignments under Version 27.0 of the
GROUPER discussed in section II.G. of
the preamble of this final rule, including
the changes to the MCE software and
changes to the ICD–9–CM coding
system, will also be applicable under
the LTCH PPS for RY 2010.
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Comment: A few commenters
supported the proposed revisions to the
MS–DRG classifications and, by
extension, the MS–LTC–DRG
classifications that would apply under
the LTCH PPS for RY 2010.
Response: We appreciate the
commenters’ support as we continue to
refine the MS–DRG classifications and,
by extension, the MS–LTC–DRG
classifications. As stated above, in this
final rule, we are adopting Version 27.0
of the MS–DRG GROUPER (as described
in section II.G. of the preamble of this
final rule) for use under the LTCH PPS
for RY 2010.
3. Development of the RY 2010 MS–
LTC–DRG Relative Weights
a. General Overview of the Development
of the MS–LTC–DRG Relative Weights
As we stated in the August 30, 2002
LTCH PPS final rule (67 FR 55984), 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 relative
weight in determining payment to
LTCHs for each case. (As we have noted
above, we adopted the MS–LTC–DRGs
for the LTCH PPS beginning in FY 2008.
However, this 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.)
Although the adoption of the MS–
LTC–DRGs resulted in some
modifications of existing procedures for
assigning weights in cases of zero
volume and/or nonmonotonicity, as
discussed in the FY 2008 IPPS final rule
with comment period (72 FR 47289
through 47295) and the FY 2009 IPPS
final rule (73 FR 48542 through 48550)
and as detailed in the following
sections, the basic methodology for
developing the RY 2010 MS–LTC–DRG
relative weights in this final rule
continues to be determined in
accordance with the general
methodology established in the August
30, 2002 LTCH PPS final rule (67 FR
55989 through 55991). Under the LTCH
PPS, relative weights for each MS–LTC–
DRG are a primary element used to
account for the variations in cost per
discharge and resource utilization
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43951
among the payment groups (§ 412.515).
To ensure that Medicare patients
classified to each MS–LTC–DRG have
access to an appropriate level of services
and to encourage efficiency, we
calculate a relative weight for each MS–
LTC–DRG that represents the resources
needed by an average inpatient LTCH
case in that MS–LTC–DRG. For
example, cases in an MS–LTC–DRG
with a relative weight of 2 will, on
average, cost twice as much to treat as
cases in an MS–LTC–DRG with a weight
of 1.
b. Development of the Proposed MS–
LTC–DRG Relative Weights for RY 2010
Beginning with the FY 2008 update,
we established a budget neutral
requirement for the annual update to the
MS–LTC–DRG classifications and
relative weights at 42 CFR 412.517(b) (in
conjunction with § 412.503), 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 classification and relative
weight changes. (See the May 11, 2007
LTCH PPS final rule (72 FR 26882
through 26884).)
Consistent with § 412.517(b), we
apply a two-step budget neutrality
methodology, which is based on the
current year MS–LTC–DRG
classifications and relative weights. (For
additional information on the
established two-step budget neutrality
methodology, refer to the FY 2008 IPPS
final rule (72 FR 47295 through 47296).)
Thus, the annual update to the MS–
LTC–DRG classifications and relative
weights for RY 2010 is based on the FY
2009 MS–LTC–DRG classifications and
relative weights. In the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24218 through 24227), we proposed
RY 2010 MS–LTC–DRG relative weights
based on the FY 2009 MS–LTC–DRG
relative weights published in the FY
2009 IPPS final rule (73 FR 48528
through 48551 and 49041 through
49062). Through an interim final rule
with comment period published in the
Federal Register on June 3, 2009 (74 FR
26546 through 26569), we revised the
published FY 2009 MS–LTC–DRG
relative weights based on the
appropriate application of the FY 2009
budget neutrality factor determined
consistent with our established
methodology. In section IX. of the
preamble of this final rule, we respond
to the public comments we received on
that interim final rule with comment
period and finalize the revised FY 2009
MS–LTC–DRG relative weights that are
applicable for the period of June 3, 2009
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through September 30, 2009. Based on
the revised FY 2009 MS–LTC–DRG
relative weights published in the June 3,
2009 interim final rule with comment
period, in the RY 2010 LTCH PPS
supplemental proposed rule published
in the Federal Register on June 3, 2009
(74 FR 26600 through 26635), we
presented both proposed RY 2010 MS–
LTC–DRG relative weights and a
proposed RY 2010 high-cost outlier
(HCO) fixed-loss amount.
Comment: In response to the RY 2010
LTCH PPS supplemental proposed rule,
a few commenters asserted that CMS
did not establish good cause for
deviating from the required ‘‘notice and
comment’’ rulemaking procedures
required by the Social Security Act (the
Act) and the Administrative Procedures
Act (APA). The commenters stated that,
in order to submit meaningful
comments, the public should have been
given the full 60 days to evaluate the
proposals contained in the RY 2010
LTCH PPS supplemental proposed rule,
and asserted that there was sufficient
time before the October 1, 2009 effective
date to provide for the full 60-day
comment period.
Response: We do not agree with the
commenters that we did not establish
good cause for deviating from the
‘‘notice and comment’’ rulemaking
procedures required by section 1871 of
the Act and section 553(d) of the APA.
As discussed in the RY 2010 LTCH PPS
supplemental proposed rule (74 FR
26603), we ordinarily publish a
proposed rule and provide a 60-day
period for public comment in
accordance with section 1871(b)(1) of
the Act and section 553(d) of the APA.
However, section 1871(b)(2)(C) of the
Act provides that this period may be
shortened when the Secretary, for good
cause, finds that such a comment period
would be impracticable, unnecessary, or
contrary to the public interest and
incorporates a statement of the finding
and its reasons in the notice issued. In
this instance, we believe that a 60-day
comment period would have been both
impracticable and contrary to the public
interest because it would not have
allowed for coordinated consideration
of the public comments on the RY 2010
LTCH PPS supplemental proposed rule
with those on the FY 2010 IPPS/RY
2010 LTCH PPS proposed rule. Because
the proposals presented in the RY 2010
LTCH PPS supplemental proposed rule
were integral to our consideration of
public comments on certain other LTCH
PPS proposals presented in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule,
we believe that it was necessary and
appropriate to review public comments
received on the proposals presented in
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the RY 2010 LTCH PPS supplemental
proposed rule in conjunction with the
public comments received on the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule.
With respect to the commenters’
assertion that there was sufficient time
before the October 1, 2009 effective date
of the RY 2010 LTCH PPS annual
update to provide for the full 60-day
comment period, as we stated in the RY
2010 LTCH PPS supplemental proposed
rule (74 FR 26603), a 60-day comment
period would have been both
impracticable and contrary to the public
interest because it would not allow for
coordinated consideration of the public
comments on the RY 2010 LTCH PPS
supplemental proposed rule with those
on the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule. Because the
proposals contained in the RY 2010
LTCH PPS supplemental proposed rule
were integral to our consideration of
public comments on certain proposals
in the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we do not believe it
would have been appropriate to review
public comments on the proposals
contained in the RY 2010 LTCH PPS
supplemental proposed rule in isolation
from the public comments received on
the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule. We also do not agree that
the less than 60-day comment period
deprived the public of an opportunity to
submit meaningful comments on the
proposals presented in the RY 2010
LTCH PPS supplemental proposed rule.
We note that the proposed RY 2010 MS–
LTC–DRG relative weights and the RY
2010 HCO fixed-loss threshold amount
presented in the RY 2010 LTCH PPS
supplemental proposed rule were
developed consistent with the
methodology described in the original
FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24080), which had
been available to the public for over 3
weeks at the time the supplemental
proposed rule was published. For the
reasons set forth above, we believe we
provided the necessary and required
timeframes for meaningful public
comment on the proposals presented in
the RY 2010 LTCH PPS supplemental
proposed rule.
c. Data
In this final rule, to calculate the MS–
LTC–DRG relative weights for RY 2010,
we obtained total Medicare allowable
charges from FY 2008 Medicare LTCH
bill data from the March 2009 update of
the MedPAR file, which are the best
available data at this time, and used the
finalized Version 27.0 of the GROUPER
to classify LTCH cases (as discussed
above). For the proposed rule, we used
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data from the December 2008 update of
the MedPAR file, which was the best
available we had at the time of
publication of the proposed rule.
Consistent with our historical
methodology, we excluded the data
from LTCHs that are all-inclusive rate
providers and LTCHs that are
reimbursed in accordance with
demonstration projects authorized
under section 402(a) of Public Law 90–
248 or section 222(a) of Public Law 92–
603. (We refer readers to the FY 2009
IPPS final rule (73 FR 48532).)
Therefore, in the development of the RY
2010 MS–LTC–DRG relative weights in
this final rule, we excluded the data of
15 all-inclusive rate providers and the 2
LTCHs that are paid in accordance with
demonstration projects that had claims
in the FY 2008 MedPAR file.
c. Hospital-Specific Relative Value
(HSRV) 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 nonrandom
distribution of cases with relatively high
(or low) charges in specific MS–LTC–
DRGs has the potential to
inappropriately distort the measure of
average charges. As we proposed, to
account for the fact that cases may not
be randomly distributed across LTCHs,
in this final rule, we used a hospitalspecific relative value (HSRV)
methodology to calculate the MS–LTC–
DRG relative weights instead of the
methodology used to determine the MS–
DRG relative weights under the IPPS
described in section II.H. of the
preamble of this final rule. We believe
this method removed this hospitalspecific source of bias in measuring
LTCH average charges. Specifically, we
reduced the impact of the variation in
charges across providers on any
particular MS–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 methodology, we
standardized charges for each LTCH by
converting its charges for each case to
hospital-specific relative charge values
and then adjusted 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
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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).
Comment: One commenter believes
that it is inconsistent to utilize the
HSRV methodology under the LTCH
PPS when it is not utilized under the
IPPS and recommended that the HSRV
methodology not be used under either
the LTCH PPS or the IPPS.
Response: Because different types of
LTCH cases may not be randomly
distributed across all LTCHs due to the
specialized nature of LTCHs, as
discussed above, we believe the HSRV
methodology is appropriate to use under
the LTCH PPS in order to remove this
hospital-specific source of bias in
measuring the LTCH average charges
that are used in determining the relative
weights for the MS–LTC–DRGs under
the LTCH PPS. Therefore, we are not
adopting the commenter’s
recommendation and, as proposed, have
continued to utilize the HSRV
methodology under the LTCH PPS to
determine the MS–LTC–DRG relative
weights for RY 2010. As discussed
above in sections II.C. and II.E. of this
preamble, we have evaluated the use of
the HSRV methodology under the IPPS
for future consideration and continue to
explore refinement to the relative
weight methodology used under the
IPPS.
In accordance with the methodology
established 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 SSOs under § 412.529
as described in section VIII.B.3.f. (step
3) of the preamble of this final rule) by
the average adjusted charge for all cases
at the LTCH in which the case was
treated. SSO cases are cases with a
length of stay that is less than or equal
to five-sixths the average length of stay
of the MS–LTC–DRG (§ 412.529 and
§ 412.503). 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
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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. Treatment of Severity Levels in
Developing the MS–LTC–DRG Relative
Weights
For purposes of determining the MS–
LTC–DRG relative weights, as we
discussed in the FY 2009 IPPS final rule
(73 FR 48532 through 48533), there are
three different categories of DRGs based
on volume of cases within specific MS–
LTC–DRGs. MS–LTC–DRGs with at least
25 cases are each assigned a unique
relative weight; low-volume MS–LTC–
DRGs (that is, MS–LTC–DRGs that
contain between 1 and 24 cases based
on a given year’s claims data) are
grouped into quintiles (as described
below) and assigned the relative weight
of the quintile. No-volume MS–LTC–
DRGs (that is, no cases in the given
year’s claims data were assigned to
those MS–LTC–DRGs) are crosswalked
to other MS–LTC–DRGs based on the
clinical similarities and assigned the
relative weight of the crosswalked MS–
LTC–DRG (as described in greater detail
below). (We provide in-depth
discussions of our policy regarding
weight-setting for low-volume MS–
LTC–DRGs in section VIII.B.3.e. of the
preamble of this final rule and for novolume MS–LTC–DRGs, under Step 5 in
section VIII.B.3.f. of the preamble of this
final rule.)
As noted above, in response to the
need to account for severity and pay
appropriately for cases, we developed a
severity-adjusted patient classification
system that we adopted for both the
IPPS and the LTCH PPS in FY 2008. As
described in greater detail above, the
MS–LTC–DRG system can accommodate
three severity levels: ‘‘with MCC’’ (most
severe); ‘‘with CC,’’ and ‘‘without CC/
MCC’’ (the least severe), 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’’
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43953
and ‘‘without MCC.’’ For example,
under the MS–LTC–DRG system,
multiple sclerosis and cerebellar ataxia
with MCC is MS–LTC–DRG 58; multiple
sclerosis and cerebellar ataxia with CC
is MS–LTC–DRG 59; and multiple
sclerosis and cerebellar ataxia without
CC/MCC is MS–LTC–DRG 60. For
purposes of discussion in this section,
the term ‘‘base DRG’’ is used to refer to
the DRG category that encompasses all
levels of severity for that DRG. For
example, when referring to the entire
DRG category for multiple sclerosis and
cerebellar ataxia, which includes the
above three severity levels, we would
use the term ‘‘base DRG.’’
As also noted above, while the LTCH
PPS and the IPPS use the same patient
classification system, the methodology
that is used to set the DRG relative
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,
consistent with the methodology
established when we adopted the MS–
LTC–DRGs in the FY 2008 IPPS final
rule with comment period (72 FR 47278
through 47281), we determined the RY
2010 relative weights for the MS–LTC–
DRGs using the following steps: (1) If an
MS–LTC–DRG had at least 25 cases, it
was assigned its own relative weight; (2)
if an MS–LTC–DRG had between 1 and
24 cases, it was assigned to a quintile for
which we computed a relative weight
for all of the MS–LTC–DRGs assigned to
that quintile; and (3) if an MS–LTC–
DRG had no cases, it was crosswalked
to another MS–LTC–DRG based upon
clinical similarities to assign an
appropriate relative weight (as
described below in detail in Step 5 of
section VIII.B.3.f. of this preamble).
Furthermore, in determining the RY
2010 MS–LTC–DRG relative weights,
when necessary, we made adjustments
to account for nonmonotonicity, as
explained in greater detail below in Step
6 of section VIII.B.3.f. of this preamble.
Our methodology for determining
relative weights for the MS–LTC–DRGs
included an adjustment for
nonmonotonicity because, theoretically,
cases under the 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 relative weight methodology
outlined above, the MS–LTC–DRG with
MCC would have a lower relative
weight than one with CC, or the MS–
LTC–DRG without CC/MCC would have
a higher relative weight than either of
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the others), there is a problem with
monotonicity. Since the start of the
LTCH PPS for FY 2003 (67 FR 55990),
when determining the LTC–DRG
relative weights, we have made
adjustments in order to maintain
monotonicity by grouping both sets of
cases together and establishing a new
relative weight for both LTC–DRGs. We
continue to believe that utilizing
nonmonotonic relative weights to adjust
Medicare payments would result in
inappropriate payments because, in a
nonmonotonic system, cases that are
more severe and require greater
expenditure of medical care resources
would be paid based on a lower relative
weight than cases that are less severe
and require lower resource use. The
adopted methodology for making
adjustments because of
nonmonotonicity in determining the RY
2010 MS–LTC–DRG relative weights is
discussed in greater detail below in
section VIII.B.3.f. (Step 6) of the
preamble of this final rule.
e. Low-Volume MS–LTC–DRGs
In order to account for MS–LTC–
DRGs with low volume (that is, with
fewer than 25 LTCH cases), consistent
with the methodology we established
when we implemented the LTCH PPS
(67 FR 55984 through 55995) and the
methodology that we established when
we implemented the MS–LTC–DRGs in
the FY 2008 IPPS final rule with
comment period (72 FR 47283 through
47288), for purposes of determining the
MS–LTC–DRG relative weights, we
group those ‘‘low-volume MS–LTC–
DRGs’’ (that is, MS–LTC–DRGs that
contained between 1 and 24 cases
annually) into one of five categories
(quintiles) based on average charges. In
determining the RY 2010 MS–LTC–DRG
relative weights in this final rule,
consistent with the methodology
described above and the methodology
we used to establish the FY 2009 MS–
LTC–DRG relative weights in the FY
2009 IPPS final rule (73 FR 48533
through 48540), we continue to employ
this quintile methodology for lowvolume MS–LTC–DRGs. In addition, in
cases where the initial assignment of a
low-volume MS–LTC–DRG to quintiles
results in nonmonotonicity within a
base-DRG, in order to ensure
appropriate Medicare payments,
consistent with our historical
methodology, we made adjustments to
the treatment of low-volume MS–LTC–
DRGs to preserve monotonicity, as
discussed in detail below in section
VIII.B.3.f. (Step 6) in this preamble.
In this final rule, using LTCH cases
from the March 2009 update of the FY
2008 MedPAR file, we identified 281
MS–LTC–DRGs that contained between
1 and 24 cases. This list of MS–LTC–
DRGs was then divided into one of the
5 low-volume quintiles, each containing
a minimum of 56 MS–LTC–DRGs (281/
5 = 56 with 1 MS–LTC–DRG as the
remainder). We assigned a low-volume
MS–LTC–DRG to a specific low-volume
quintile by sorting the low-volume MS–
LTC–DRGs in ascending order by
average charge in accordance with our
established methodology. Furthermore,
because the number of MS–LTC–DRGs
with less than 25 cases was not evenly
divisible by 5, the average charge of the
low-volume quintile was used to
determine which of the low-volume
quintiles would contain the 1 additional
low-volume MS–LTC–DRG.
Specifically, after sorting the 281 lowvolume MS–LTC–DRGs by ascending
order by average charge, we assigned the
first fifth (1st through 56th) of lowvolume MS–LTC–DRGs (with the lowest
average charge) into Quintile 1. The
MS–LTC–DRGs with the highest average
charge cases were assigned into Quintile
5. Because the average charge of the
57th low-volume MS–LTC–DRG in the
sorted list was closer to the average
charge of the 56th low-volume MS–
LTC–DRG (assigned to Quintile 1) than
to the average charge of the 58th lowvolume MS–LTC–DRG (assigned to
Quintile 2), we placed it into Quintile
1 (such that Quintile 1 contains 57 lowvolume MS–LTC–DRGs before any
adjustments for nonmonotonicity, as
discussed below). This process was
repeated through the remaining lowvolume MS–LTC–DRGs so that 1 of the
5 low-volume quintiles contain 57 MS–
LTC–DRGs (Quintile 1) and the other 4
low-volume quintiles contain 56 MS–
LTC–DRGs (Quintiles 2, 3, 4, and 5).
Accordingly, in order to determine
the RY 2010 relative weights for the
MS–LTC–DRGs with low volume, we
used the five low-volume quintiles
described above. The composition of
each of the five low-volume quintiles
shown in the chart below was used in
determining the RY 2010 MS–LTC–DRG
relative weights (as shown in Table 11
of the Addendum to this final rule). We
determined a relative weight and
(geometric) average length of stay for
each of the 5 low-volume quintiles
using the methodology that we applied
to the MS–LTC–DRGs (25 or more
cases), as described in section VIII.B.3.f.
of the preamble of this final rule. We
assigned the same relative weight and
average length of stay to each of the lowvolume MS–LTC–DRGs that make up an
individual 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 lowvolume MS–LTC–DRGs and to calculate
the relative weights based on our
methodology.
COMPOSITION OF LOW-VOLUME QUINTILES FOR RY 2010
MS–LTC–DRG
MS–LTC–DRG description
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Quintile 1
26 ..........................................................
53 ..........................................................
60 ..........................................................
66 ..........................................................
68 ..........................................................
69 ..........................................................
72 ..........................................................
78 ..........................................................
81 ..........................................................
89 ..........................................................
90 ..........................................................
93 ..........................................................
103 ........................................................
115 ........................................................
139 ........................................................
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Craniotomy & endovascular intracranial procedures w CC.
Spinal disorders & injuries w/o CC/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/o MCC.
Transient ischemia.
Nonspecific cerebrovascular disorders w/o CC/MCC.
Hypertensive encephalopathy w CC.
Nontraumatic stupor & coma w/o MCC.
Concussion w CC.
Concussion w/o CC/MCC.
Other disorders of nervous system w/o CC/MCC.
Headaches w/o MCC.
Extraocular procedures except orbit.
Salivary gland procedures.
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COMPOSITION OF LOW-VOLUME QUINTILES FOR RY 2010—Continued
MS–LTC–DRG
149
184
198
201
203
284
310
313
350
370
376
387
437
440
443
446
534
536
544
547
556
578
601
645
667
694
696
725
726
730
746
816
869
880
881
883
895
897
918
964
965
976
MS–LTC–DRG description
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Dysequilibrium.
Major chest trauma w CC.
Interstitial lung disease w/o CC/MCC.
Pneumothorax w/o CC/MCC.
Bronchitis & asthma w/o CC/MCC.
Circulatory disorders w AMI, expired w CC.*
Cardiac arrhythmia & conduction disorders w/o CC/MCC.
Chest pain.
Inguinal & femoral hernia procedures w MCC.
Major esophageal disorders w/o CC/MCC.
Digestive malignancy w/o CC/MCC.
Inflammatory bowel disease w/o CC/MCC.
Malignancy of hepatobiliary system or pancreas w/o CC/MCC.
Disorders of pancreas except malignancy w/o CC/MCC.
Disorders of liver except malig, cirr, alc hepa w/o CC/MCC.
Disorders of the biliary tract w/o CC/MCC.
Fractures of femur w/o MCC.
Fractures of hip & pelvis w/o MCC.
Pathological fractures & musculoskelet & conn tiss malig w/o CC/MCC.
Connective tissue disorders w/o CC/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.
Non-malignant breast disorders w/o CC/MCC.
Endocrine disorders w/o CC/MCC.
Prostatectomy w/o CC/MCC.
Urinary stones w/o esw lithotripsy w/o MCC.
Kidney & urinary tract signs & symptoms w/o MCC.
Benign prostatic hypertrophy w MCC.
Benign prostatic hypertrophy w/o MCC.
Other male reproductive system diagnoses w/o CC/MCC.
Vagina, cervix & vulva procedures w CC/MCC.
Reticuloendothelial & immunity disorders w/o CC/MCC.
Other infectious & parasitic diseases diagnoses w/o CC/MCC.
Acute adjustment reaction & psychosocial dysfunction.
Depressive neuroses.
Disorders of personality & impulse control.*
Alcohol/drug abuse or dependence w rehabilitation therapy.
Alcohol/drug abuse or dependence w/o rehabilitation therapy w/o MCC.
Poisoning & toxic effects of drugs w/o MCC.
Other multiple significant trauma w CC.
Other multiple significant trauma w/o CC/MCC.
HIV w major related condition w/o CC/MCC.
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Quintile 2
032
033
042
067
080
083
087
088
096
102
125
156
159
182
183
188
257
259
282
284
285
294
311
379
384
386
390
........................................................
........................................................
........................................................
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Ventricular shunt procedures w CC.
Ventricular shunt procedures w/o CC/MCC.
Periph & cranial nerve & other nerv syst proc w/o CC/MCC.
Nonspecific cva & precerebral occlusion w/o infarct w MCC.
Nontraumatic stupor & coma w MCC.
Traumatic stupor & coma, coma >1 hr w CC.*
Traumatic stupor & coma, coma <1 hr w/o CC/MCC.***
Concussion w MCC.
Bacterial & tuberculous infections of nervous system w/o CC/MCC.
Headaches w MCC.
Other disorders of the eye w/o MCC.
Nasal trauma & deformity w/o CC/MCC.***
Dental & Oral Diseases w/o CC/MCC.
Respiratory neoplasms w/o CC/MCC.***
Major chest trauma w MCC.
Pleural effusion w/o CC/MCC.
Upper limb & toe amputation for circ system disorders w/o CC/MCC.
Cardiac pacemaker device replacement w/o MCC.
Circulatory disorders w AMI, discharged alive w/o CC/MCC.***
Circulatory disorders w AMI, expired w CC.**
Circulatory disorders w AMI, expired w/o CC/MCC.
Deep vein thrombophlebitis w CC/MCC.
Angina pectoris.
G.I. hemorrhage w/o CC/MCC.***
Uncomplicated peptic ulcer w/o MCC.
Inflammatory bowel disease w CC.
G.I. obstruction w/o CC/MCC.
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MS–LTC–DRG
418
433
436
479
497
517
535
553
598
600
644
663
675
685
697
700
722
723
747
759
803
808
815
837
842
864
882
894
922
986
023
029
030
058
075
083
084
099
121
124
158
241
290
327
331
348
381
382
383
424
472
476
493
499
511
555
562
563
581
582
584
597
620
643
656
660
666
668
669
687
693
695
MS–LTC–DRG description
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Laparoscopic cholecystectomy w/o c.d.e. w CC.
Cirrhosis & alcoholic hepatitis w CC.
Malignancy of hepatobiliary system or pancreas w CC.
Biopsies of musculoskeletal system & connective tissue w/o CC/MCC.
Local excision & removal int fix devices exc hip & femur w/o CC/MCC.
Other musculoskelet sys & conn tiss O.R. proc w/o CC/MCC.
Fractures of hip & pelvis w MCC.
Bone diseases & arthropathies w MCC.
Malignant breast disorders w CC.
Non-malignant breast disorders w CC/MCC.
Endocrine disorders w CC.
Minor bladder procedures w CC.
Other kidney & urinary tract procedures w/o CC/MCC.
Admit for renal dialysis.
Urethral stricture.
Other kidney & urinary tract diagnoses w/o CC/MCC.
Malignancy, male reproductive system w MCC.
Malignancy, male reproductive system w CC.
Vagina, cervix & vulva procedures w/o CC/MCC.
Infections, female reproductive system w/o CC/MCC.
Other O.R. proc of the blood & blood forming organs w CC.
Major hematol/immun diag exc sickle cell crisis & coagul w MCC.***
Reticuloendothelial & immunity disorders w CC.
Chemo w acute leukemia as sdx or w high dose chemo agent w MCC.
Lymphoma & non-acute leukemia w/o CC/MCC.
Fever of unknown origin.
Neuroses except depressive.
Alcohol/drug abuse or dependence, left ama.
Other injury, poisoning & toxic effect diag w MCC.*
Prostatic O.R. procedure unrelated to principal diagnosis w/o CC/MCC.
Craniotomy w major device implant or acute complex CNS PDX w MCC.
Spinal procedures w CC.
Spinal procedures w/o CC/MCC.
Multiple sclerosis & cerebellar ataxia w MCC.
Viral meningitis w CC/MCC.
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.***
Acute major eye infections w CC/MCC.
Other disorders of the eye w MCC.
Dental & Oral Diseases w CC.
Amputation for circ sys disorders exc upper limb & toe w/o CC/MCC.
Acute & subacute endocarditis w/o CC/MCC.
Stomach, esophageal & duodenal proc w CC.
Major small & large bowel procedures w/o CC/MCC.
Anal & stomal procedures w CC.
Complicated peptic ulcer w CC.
Complicated peptic ulcer w/o CC/MCC.
Uncomplicated peptic ulcer w MCC.
Other hepatobiliary or pancreas O.R. procedures w CC.
Cervical spinal fusion w CC.
Amputation for musculoskeletal sys & conn tissue dis w/o CC/MCC.
Lower extrem & humer proc except hip, foot, femur w CC.
Local excision & removal int fix devices of hip & femur w/o CC/MCC.
Shoulder, elbow or forearm proc, exc major joint proc w CC.
Signs & symptoms of musculoskeletal system & conn tissue w MCC.
Fx, sprn, strn & disl except femur, hip, pelvis & thigh w MCC.
Fx, sprn, strn & disl except femur, hip, pelvis & thigh w/o MCC.
Other skin, subcut tiss & breast proc w/o CC/MCC.
Mastectomy for malignancy w CC/MCC.
Breast biopsy, local excision & other breast procedures w CC/MCC.
Malignant breast disorders w MCC.
O.R. procedures for obesity w CC.
Endocrine disorders w MCC.
Kidney & ureter procedures for neoplasm w MCC.
Kidney & ureter procedures for non-neoplasm w CC.
Prostatectomy w CC.
Transurethral procedures w MCC.
Transurethral procedures w CC.
Kidney & urinary tract neoplasms w CC.
Urinary stones w/o esw lithotripsy w MCC.
Kidney & urinary tract signs & symptoms w MCC.
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749
755
760
781
809
821
835
843
858
866
896
903
905
906
933
941
028
077
082
084
131
133
157
168
237
243
244
254
286
287
304
338
344
347
353
354
369
380
423
466
469
471
480
487
488
490
502
503
505
510
513
514
516
537
624
642
671
691
711
800
814
829
834
844
855
909
917
927
928
958
963
983
MS–LTC–DRG description
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Other female reproductive system O.R. procedures w CC/MCC.
Malignancy, female reproductive system w CC.
Menstrual & other female reproductive system disorders w CC/MCC.
Other antepartum diagnoses w medical complications.
Major hematol/immun diag exc sickle cell crisis & coagul w CC.***
Lymphoma & leukemia w major O.R. procedure w CC.
Acute leukemia w/o major O.R. procedure w CC.
Other myeloprolif dis or poorly diff neopl diag w MCC.***
Postoperative or post-traumatic infections w O.R. proc w/o CC/MCC.
Viral illness w/o MCC.
Alcohol/drug abuse or dependence w/o rehabilitation therapy w MCC.
Wound debridements for injuries w/o CC/MCC.
Skin grafts for injuries w/o CC/MCC.
Hand procedures for injuries.
Extensive burns or full thickness burns w MV 96+ hrs w/o skin graft.
O.R. proc w diagnoses of other contact w health services w/o CC/MCC.
Spinal procedures w MCC.
Hypertensive encephalopathy w MCC.
Traumatic stupor & coma, coma >1 hr w MCC.
Traumatic stupor & coma, coma >1 hr w/o CC/MCC.*
Cranial/facial procedures w CC/MCC.
Other ear, nose, mouth & throat O.R. procedures w CC/MCC.
Dental & Oral Diseases w MCC.
Other resp system O.R. procedures w/o CC/MCC.
Major cardiovascular procedures w MCC.
Permanent cardiac pacemaker implant w CC.
Permanent cardiac pacemaker implant w/o CC/MCC.
Other vascular procedures w/o CC/MCC.***
Circulatory disorders except AMI, w card cath w MCC.
Circulatory disorders except AMI, w card cath w/o MCC.
Hypertension w MCC.
Appendectomy w complicated principal diag w MCC.
Minor small & large bowel procedures w MCC.
Anal & stomal procedures w MCC.
Hernia procedures except inguinal & femoral w MCC.
Hernia procedures except inguinal & femoral w CC.
Major esophageal disorders w CC.***
Complicated peptic ulcer w MCC.
Other hepatobiliary or pancreas O.R. procedures w MCC.
Revision of hip or knee replacement w MCC.*
Major joint replacement or reattachment of lower extremity w MCC.*
Cervical spinal fusion w MCC.
Hip & femur procedures except major joint w MCC.*
Knee procedures w pdx of infection w/o CC/MCC.
Knee procedures w/o pdx of infection w CC/MCC.
Back & neck procedures except spinal fusion w CC/MCC or disc devices.
Soft tissue procedures w/o CC/MCC.***
Foot procedures w MCC.
Foot procedures w/o CC/MCC.***
Shoulder, elbow or forearm proc, exc major joint proc w MCC.
Hand or wrist proc, except major thumb or joint proc w CC/MCC.
Hand or wrist proc, except major thumb or joint proc w/o CC/MCC.
Other musculoskelet sys & conn tiss O.R. proc w CC.
Sprains, strains, & dislocations of hip, pelvis & thigh w CC/MCC.
Skin grafts & wound debrid for endoc, nutrit & metab dis w/o CC/MCC.***
Inborn errors of metabolism.
Urethral procedures w CC/MCC.
Urinary stones w esw lithotripsy w CC/MCC.
Testes procedures w CC/MCC.
Splenectomy w CC.
Reticuloendothelial & immunity disorders w MCC.
Myeloprolif disord or poorly diff neopl w other O.R. proc w CC/MCC.
Acute leukemia w/o major O.R. procedure w MCC.
Other myeloprolif dis or poorly diff neopl diag w CC.***
Infectious & parasitic diseases w O.R. procedure w/o CC/MCC.
Other O.R. procedures for injuries w/o CC/MCC.
Poisoning & toxic effects of drugs w MCC.
Extensive burns or full thickness burns w MV 96+ hrs w skin graft.
Full thickness burn w skin graft or inhal inj w CC/MCC.
Other O.R. procedures for multiple significant trauma w CC.
Other multiple significant trauma w MCC.
Extensive O.R. procedure unrelated to principal diagnosis w/o CC/MCC.
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COMPOSITION OF LOW-VOLUME QUINTILES FOR RY 2010—Continued
MS–LTC–DRG
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011
025
031
037
038
135
148
164
222
226
227
242
245
250
260
326
330
335
405
406
414
417
420
453
454
456
457
459
466
467
469
470
480
481
485
486
492
498
507
619
659
662
709
713
717
776
802
823
824
827
848
876
922
923
957
969
970
984
985
989
MS–LTC–DRG description
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Tracheostomy for face, mouth & neck diagnoses w MCC.
Craniotomy & endovascular intracranial procedures w MCC.
Ventricular shunt procedures w MCC.
Extracranial procedures w MCC.
Extracranial procedures w CC.
Sinus & mastoid procedures w CC/MCC.
Ear, nose, mouth & throat malignancy w/o CC/MCC.***
Major chest procedures w CC.
Cardiac defib implant w cardiac cath w AMI/HF/shock w MCC.
Cardiac defibrillator implant w/o cardiac cath w MCC.
Cardiac defibrillator implant w/o cardiac cath w/o MCC.
Permanent cardiac pacemaker implant w MCC.
AICD generator procedures.
Perc cardiovasc proc w/o coronary artery stent or AMI w MCC.
Cardiac pacemaker revision except device replacement w MCC.
Stomach, esophageal & duodenal proc w MCC.
Major small & large bowel procedures w CC.
Peritoneal adhesiolysis w MCC.
Pancreas, liver & shunt procedures w MCC.
Pancreas, liver & shunt procedures w CC.
Cholecystectomy except by laparoscope w/o c.d.e. w MCC.
Laparoscopic cholecystectomy w/o c.d.e. w MCC.
Hepatobiliary diagnostic procedures w MCC.
Combined anterior/posterior spinal fusion w MCC.
Combined anterior/posterior spinal fusion w CC.
Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w MCC.
Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w CC.
Spinal fusion except cervical w 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.
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 pdx of infection w CC.
Lower extrem & humer proc except hip, foot, femur w MCC.
Local excision & removal int fix devices of hip & femur w CC/MCC.
Major shoulder or elbow joint procedures w CC/MCC.
O.R. procedures for obesity w MCC.
Kidney & ureter procedures for non-neoplasm w MCC.
Minor bladder procedures w MCC.
Penis procedures w CC/MCC.
Transurethral prostatectomy w CC/MCC.
Other male reproductive system O.R. proc exc malignancy w CC/MCC.
Postpartum & post abortion diagnoses w/o O.R. procedure.
Other O.R. proc of the blood & blood forming organs w MCC.
Lymphoma & non-acute leukemia w other O.R. proc w MCC.
Lymphoma & non-acute leukemia w other O.R. proc w CC.
Myeloprolif disord or poorly diff neopl w maj O.R. proc w CC.
Chemotherapy w/o acute leukemia as secondary diagnosis w/o CC/MCC.***
O.R. procedure w principal diagnoses of mental illness.
Other injury, poisoning & toxic effect diag w MCC.**
Other injury, poisoning & toxic effect diag w/o 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.
Prostatic O.R. procedure unrelated to principal diagnosis w CC.
Non-extensive O.R. proc unrelated to principal diagnosis w/o CC/MCC.***
* One of the original 281 low-volume MS–LTC–DRGs initially assigned to this low-volume quintile but moved to a different low-volume quintile
in addressing nonmonotonicity (refer to step 6 in section VIII.B.3.f. of the preamble of this final rule).
** One of the original 281 low-volume MS–LTC–DRGs initially assigned to a different low-volume quintile but moved to this low-volume quintile
in addressing nonmonotonicity (refer to step 6 in section VIII.B.3.f. of the preamble of this final rule).
*** One of the original 281 low-volume MS–LTC–DRGs initially assigned to this low-volume quintile, but removed from this low-volume quintile
in addressing nonmonotonicity (refer to step 6 in section VIII.B.3.f.of the preamble of this final rule).
We note that we will continue to
monitor the volume (that is, the number
of LTCH cases) in the low-volume
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quintiles to ensure that our quintile
assignments used in determining the
MS–LTC–DRG relative weights result in
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appropriate payment for such cases and
do not result in an unintended financial
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incentive for LTCHs to inappropriately
admit these types of cases.
f. Steps for Determining the RY 2010
MS–LTC–DRG Relative Weights
In general, as we proposed, we
determined the RY 2010 MS–LTC–DRG
relative weights based on the
methodology established in the August
30, 2002 LTCH PPS final rule (67 FR
55989 through 55995) and consistent
with the methodology we used to
determine the FY 2009 MS–LTC–DRG
relative weights in the FY 2009 IPPS
final rule (73 FR 48540 through 48551).
(We note that, for FY 2009, we made a
modification to our methodology for
determining relative weights for MS–
LTC–DRGs with no LTCH cases (73 FR
48542 through 48543), which is
reflected in the adopted methodology
for determining the RY 2010 MS–LTC–
DRG relative weights presented below.)
In summary, for RY 2010, we grouped
LTCH cases to the appropriate MS–
LTC–DRG, while taking into account the
low-volume MS–LTC–DRGs (as
described above), in order to determine
the RY 2010 MS–LTC–DRG relative
weights. After grouping the cases to the
appropriate MS–LTC–DRG (or lowvolume quintile), we calculated the
relative weights for RY 2010 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 adjusted the number of cases
in each MS–LTC–DRG (or low-volume
quintile) for the effect of SSO cases (as
also discussed in greater detail below).
The SSO adjusted discharges and
corresponding charges are then used to
calculate ‘‘relative adjusted weights’’ for
each MS–LTC–DRG (or low-volume
quintile) using the HSRV method
(described above).
Below we discuss in detail the steps
for calculating the RY 2010 MS–LTC–
DRG relative weights. We note that, as
we stated above in section VIII.B.3.c. of
the preamble of this final rule, we
excluded the data of all-inclusive rate
LTCHs and LTCHs that are paid in
accordance with demonstration projects
that had claims in the FY 2008 MedPAR
file.
Step 1—Remove statistical outliers.
The first step in the calculation of the
RY 2010 MS–LTC–DRG relative weights
is to remove statistical outlier cases.
Consistent with our historical relative
weight methodology, we continue to
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 MS–LTC–DRG. These
statistical outliers are removed prior to
calculating the relative weights because
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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 relative weights could
result in an inaccurate relative weight
that does not truly reflect relative
resource use among the MS–LTC–DRGs.
Step 2—Remove cases with a length
of stay of 7 days or less.
The 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. If we were to
include stays of 7 days or less in the
computation of the RY 2010 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. Therefore, consistent
with our historical relative weight
methodology, in determining the RY
2010 MS–LTC–DRG relative weights, we
removed LTCH cases with a length of
stay of 7 days or less.
Step 3—Adjust charges for the effects
of SSOs.
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. As the next step
in the calculation of the RY 2010 MS–
LTC–DRG relative weights, consistent
with our historical relative weight
methodology, we adjusted each LTCH’s
charges per discharge for those
remaining cases for the effects of SSOs
(as defined in § 412.529(a) in
conjunction with § 412.503).
We made this adjustment by counting
an SSO case 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 MS–LTC–DRG for non-SSO
cases. This has the effect of
proportionately reducing the impact of
the lower charges for the SSO cases in
calculating the average charge for the
MS–LTC–DRG. This process produces
the same result as if the actual charges
per discharge of an SSO 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
MS–LTC–DRG.
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43959
Counting SSO cases as full discharges
with no adjustment in determining the
RY 2010 MS–LTC–DRG relative weights
would lower the RY 2010 MS–LTC–
DRG relative weight for affected MS–
LTC–DRGs because the relatively lower
charges of the SSO cases would bring
down the average charge for all cases
within an MS–LTC–DRG. This would
result in an ‘‘underpayment’’ for nonSSO cases and an ‘‘overpayment’’ for
SSO cases. Therefore, we adjusted for
SSO cases under § 412.529 in this
manner because it results in more
appropriate payments for all LTCH
cases.
Step 4—Calculate the RY 2010 MS–
LTC–DRG relative weights on an
iterative basis.
Consistent with our historical relative
weight methodology, we calculate the
RY 2010 MS–LTC–DRG relative weights
using the HSRV methodology, which is
an iterative process. First, for each
LTCH case, we calculate a hospitalspecific relative charge value by
dividing the SSO 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 hospitalspecific relative charge value for the
case. An initial case-mix index value of
1.0 is used for each LTCH.
For each MS–LTC–DRG, the RY 2010
relative weight was calculated by
dividing the average of the adjusted
hospital-specific relative charge values
(from above) for the MS–LTC–DRG by
the overall average hospital-specific
relative charge value across all cases for
all LTCHs. Using these recalculated
MS–LTC–DRG relative weights, each
LTCH’s average relative weight for all of
its cases (that is, its case-mix) was
calculated by dividing the sum of all the
LTCH’s MS–LTC–DRG relative weights
by its total number of cases. The LTCHs’
hospital-specific relative charge values
above was multiplied by these hospitalspecific case-mix indexes. These
hospital-specific case-mix adjusted
relative charge values were then used to
calculate a new set of MS–LTC–DRG
relative weights across all LTCHs. This
iterative process was continued until
there was convergence between the
weights produced at adjacent steps, for
example, when the maximum difference
was less than 0.0001.
Step 5—Determine a RY 2010 relative
weight for MS–LTC–DRGs with no
LTCH cases.
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As we stated above, we determined
the RY 2010 relative weight for each
MS–LTC–DRG using total Medicare
allowable charges reported in the best
available LTCH claims data (that is, the
March 2009 update of the FY 2008
MedPAR file for this final rule). Of the
RY 2010 MS–LTC–DRGs, we identified
a number of MS–LTC–DRGs for which
there were no LTCH cases in the
database. That is, based on data from the
FY 2008 MedPAR file used for this final
rule, no patients who would have been
classified to those MS–LTC–DRGs were
treated in LTCHs during FY 2008 and,
therefore, no charge data were available
for these MS–LTC–DRGs. Thus, in the
process of determining the MS–LTC–
DRG relative weights, we were unable to
calculate relative weights for the MS–
LTC–DRGs with no LTCH cases using
the methodology described in Steps 1
through 4 above. However, because
patients with a number of the diagnoses
under these MS–LTC–DRGs may be
treated at LTCHs, consistent with our
historical methodology, we assigned a
relative weight to each of the no-volume
MS–LTC–DRGs based on clinical
similarity and relative costliness (with
the exception of ‘‘transplant’’ MS–LTC–
DRGs and ‘‘error’’ MS–LTC–DRGs, as
discussed below). In general, we
determined RY 2010 relative weights for
the MS–LTC–DRGs with no LTCH cases
in the FY 2008 MedPAR file used in this
final rule (that is, ‘‘no-volume’’ MS–
LTC–DRGs) by crosswalking each novolume MS–LTC–DRG to another MS–
LTC–DRG with a calculated relative
weight (determined in accordance with
the methodology described above).
Then, the ‘‘no-volume’’ MS–LTC–DRG
was assigned the same relative weight of
the MS–LTC–DRG to which it was
crosswalked (as described in greater
detail below).
Specifically, in this final rule, as
stated above, we determined the relative
weight for each MS–LTC–DRG using
total Medicare allowable charges
reported in the March 2009 update of
the FY 2008 MedPAR file. Of the 746
MS–LTC–DRGs for RY 2010, we
identified 218 MS–LTC–DRGs for which
there were no LTCH cases in the
database (including the 8 ‘‘transplant’’
MS–LTC–DRGs and 2 ‘‘error’’ MS–LTC–
DRGs). As stated above, we assigned
relative weights for each of the 218 novolume MS–LTC–DRGs (with the
exception of the 8 ‘‘transplant’’ MS–
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LTC–DRGs and the 2 ‘‘error’’ MS–LTC–
DRGs, which are discussed below)
based on clinical similarity and relative
costliness to one of the remaining 528
(746 ¥ 218 = 528) MS–LTC–DRGs for
which we were able to determine
relative weights based on FY 2008
LTCH claims data using the steps
described above. (For the remainder of
this discussion, we refer to one of the
528 MS–LTC–DRGs for which we were
able to determine a relative weight as
the ‘‘crosswalked’’ MS–LTC–DRG.)
Then, we assigned the no-volume MS–
LTC–DRG the relative weight of the
crosswalked MS–LTC–DRG. (As
explained below in Step 6, when
necessary, we made adjustments to
account for nonmonotonicity.)
In this final rule, as proposed, we
used the following methodology for
determining the RY 2010 relative
weights for the no-volume MS–LTC–
DRGs: We crosswalked the no-volume
MS–LTC–DRG to an MS–LTC–DRG for
which there were LTCH cases in the FY
2008 MedPAR file and to which it was
similar clinically in intensity of use of
resources and relative costliness as
determined by criteria such as 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. As we explained in the
FY 2009 IPPS final rule (73 FR 48543),
we evaluated the relative costliness in
determining the applicable MS–LTC–
DRG to which a no-volume MS–LTC–
DRG was crosswalked in order to assign
an appropriate relative weight for the
no-volume MS–LTC–DRGs in RY 2010.
In general, most of the no-volume MS–
LTC–DRGs historically have not had
any cases in the LTCH claims data.
Therefore, we typically are unable to
evaluate relative costliness based on
prior years’ LTCH claims data. In
evaluating the relative costliness for
most of the no-volume MS–LTC–DRGs,
a group of CMS medical officers who
have extensive knowledge and
familiarity with both the IPPS and
LTCH DRG-based payment systems used
their DRG experience to evaluate the
relative costliness of the no-volume
MS–LTC–DRGs. Specifically, the
relative costliness of each of the novolume MS–LTC–DRGs for RY 2010 was
assessed by taking into consideration
factors such as relative resource use,
clinical cohesiveness, and the
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comparableness of services provided
based on the collective IPPS and LTCH
PPS experience of those medical
officers. We also note, as discussed
above, the no-volume MS–LTC–DRG
crosswalks are based on both clinical
similarity and relative costliness,
including such factors as 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. We believe in the rare
event that there would be a few LTCH
cases grouped to one of the no-volume
MS–LTC–DRGs in RY 2010, the relative
weights assigned based on the
crosswalked MS–LTC–DRGs will result
in an appropriate LTCH PPS payment
because the crosswalks, which are based
on similar clinical similarity and
relative costliness, generally require
equivalent relative resource use.
We then assigned the relative weight
of the crosswalked MS–LTC–DRG as the
relative weight for the no-volume MS–
LTC–DRG such that both of these MS–
LTC–DRGs (that is, the no-volume MS–
LTC–DRG and the crosswalked MS–
LTC–DRG) would have the same relative
weight for RY 2010. We note that if the
crosswalked MS–LTC–DRG had 25
cases or more, its relative weight, which
was calculated using the methodology
described in Steps 1 through 4 above,
was assigned to the no-volume MS–
LTC–DRG as well. Similarly, if the MS–
LTC–DRG to which the no-volume MS–
LTC–DRG was crosswalked had 24 or
less cases and, therefore, was designated
to one of the low-volume quintiles for
purposes of determining the relative
weights, we assigned the relative weight
of the applicable low-volume quintile to
the no-volume MS–LTC–DRG such that
both of these MS–LTC–DRGs (that is,
the no-volume MS–LTC–DRG and the
crosswalked MS–LTC–DRG) have the
same relative weight for RY 2010. (As
we noted above, in the infrequent case
where nonmonotonicity involving a novolume MS–LTC–DRG results,
additional measures as described in
Step 6 are required in order to maintain
monotonically increasing relative
weights.)
For this final rule, a list of the novolume MS–LTC–DRGs and the MS–
LTC–DRG to which it was crosswalked
(that is, the crosswalked MS–LTC–DRG)
for RY 2010 is shown in the chart
below.
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MS–LTC–DRG
MS–LTC–DRG description
9 ......................................................
12 ....................................................
13 ....................................................
20 ....................................................
21 ....................................................
22 ....................................................
24 ....................................................
27 ....................................................
34 ....................................................
35 ....................................................
36 ....................................................
39 ....................................................
61 ....................................................
62 ....................................................
63 ....................................................
76 ....................................................
79 ....................................................
113 ..................................................
114 ..................................................
116 ..................................................
117 ..................................................
122 ..................................................
123 ..................................................
129 ..................................................
130 ..................................................
132 ..................................................
134 ..................................................
136 ..................................................
137 ..................................................
138 ..................................................
150 ..................................................
151 ..................................................
165 ..................................................
185 ..................................................
215 ..................................................
216 ..................................................
217 ..................................................
218 ..................................................
219 ..................................................
220 ..................................................
221 ..................................................
223 ..................................................
224 ..................................................
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Bone marrow transplant .....................................................................................................
Tracheostomy for face, mouth & neck diagnoses w CC ...................................................
Tracheostomy for face, mouth & neck diagnoses w/o CC/MCC .......................................
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/o MCC ....................
Craniotomy & endovascular intracranial procedures w/o CC/MCC ...................................
Carotid artery stent procedure w MCC ..............................................................................
Carotid artery stent procedure w CC .................................................................................
Carotid artery stent procedure w/o CC/MCC .....................................................................
Extracranial procedures 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 ....................................
Viral meningitis w/o CC/MCC .............................................................................................
Hypertensive encephalopathy w/o CC/MCC ......................................................................
Orbital procedures w CC/MCC ...........................................................................................
Orbital procedures w/o CC/MCC ........................................................................................
Intraocular procedures w CC/MCC ....................................................................................
Intraocular procedures w/o CC/MCC .................................................................................
Acute major eye infections w/o CC/MCC ...........................................................................
Neurological eye disorders .................................................................................................
Major head & neck procedures w CC/MCC or major device ............................................
Major head & neck procedures w/o CC/MCC ....................................................................
Cranial/facial procedures w/o CC/MCC .............................................................................
Other ear, nose, mouth & throat O.R. procedures w/o CC/MCC ......................................
Sinus & mastoid procedures w/o CC/MCC ........................................................................
Mouth procedures w CC/MCC ...........................................................................................
Mouth procedures w/o CC/MCC ........................................................................................
Epistaxis w MCC ................................................................................................................
Epistaxis w/o MCC .............................................................................................................
Major chest procedures w/o CC/MCC ...............................................................................
Major chest trauma w/o CC/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 ........................
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/o AMI/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 .....................................................................
Major cardiovascular procedures w/o MCC .......................................................................
Percutaneous cardiovascular proc w drug-eluting stent w MCC .......................................
Percutaneous cardiovascular proc w drug-eluting stent w/o MCC ....................................
Percutaneous cardiovasc proc w non-drug-eluting stent w MCC ......................................
Percutaneous cardiovasc proc w non-drug-eluting stent w/o MCC ...................................
Perc cardiovasc proc w/o coronary artery stent or AMI w/o MCC ....................................
Cardiac pacemaker device replacement w MCC ...............................................................
Cardiac pacemaker revision except device replacement w CC ........................................
Cardiac pacemaker revision except device replacement w/o CC/MCC ............................
Vein ligation & stripping ......................................................................................................
AICD lead procedures ........................................................................................................
Deep vein thrombophlebitis w/o CC/MCC .........................................................................
Cardiac arrest, unexplained w MCC ..................................................................................
Cardiac arrest, unexplained w CC .....................................................................................
Cardiac arrest, unexplained w/o CC/MCC .........................................................................
Stomach, esophageal & duodenal proc w/o CC/MCC .......................................................
Rectal resection w MCC .....................................................................................................
Rectal resection w CC ........................................................................................................
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MS–LTC–DRG description
Rectal resection w/o CC/MCC ...........................................................................................
Peritoneal adhesiolysis w CC .............................................................................................
Peritoneal adhesiolysis w/o CC/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 CC ....................................................................
Minor small & large bowel procedures w/o CC/MCC ........................................................
Anal & stomal procedures w/o CC/MCC ............................................................................
Inguinal & femoral hernia procedures w CC ......................................................................
Inguinal & femoral hernia procedures w/o CC/MCC ..........................................................
Hernia procedures except inguinal & femoral w/o CC/MCC .............................................
Other digestive system O.R. procedures w/o CC/MCC .....................................................
Pancreas, liver & shunt procedures w/o CC/MCC .............................................................
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 ...........................................
Biliary tract proc except only cholecyst w or w/o c.d.e. w/o CC/MCC ..............................
Cholecystectomy w c.d.e. w MCC .....................................................................................
Cholecystectomy w c.d.e. w CC ........................................................................................
Cholecystectomy w c.d.e. w/o CC/MCC ............................................................................
Cholecystectomy except by laparoscope w/o c.d.e. w CC ................................................
Cholecystectomy except by laparoscope w/o c.d.e. w/o CC/MCC ....................................
Laparoscopic cholecystectomy w/o c.d.e. w/o CC/MCC ...................................................
Hepatobiliary diagnostic procedures w CC ........................................................................
Hepatobiliary diagnostic procedures w/o CC/MCC ............................................................
Other hepatobiliary or pancreas O.R. procedures w/o CC/MCC .......................................
Cirrhosis & alcoholic hepatitis w/o CC/MCC ......................................................................
Combined anterior/posterior spinal fusion w/o CC/MCC ...................................................
Spinal fusion exc cerv w spinal curv, malig or 9+ fusions w/o CC/MCC ..........................
Spinal fusion except cervical w/o MCC ..............................................................................
Bilateral or multiple major joint procs of lower extremity w MCC ......................................
Bilateral or multiple major joint procs of lower extremity w/o MCC ...................................
Revision of hip or knee replacement w/o CC/MCC ...........................................................
Cervical spinal fusion w/o CC/MCC ...................................................................................
Hip & femur procedures except major joint w/o CC/MCC .................................................
Major joint & limb reattachment proc of upper extremity w CC/MCC ...............................
Major joint & limb reattachment proc of upper extremity w/o CC/MCC ............................
Knee procedures w/o pdx of infection w/o CC/MCC .........................................................
Back & neck procedures except spinal fusion w/o CC/MCC .............................................
Lower extrem & humer proc except hip, foot, femur w/o CC/MCC ...................................
Major thumb or joint procedures ........................................................................................
Major shoulder or elbow joint procedures w/o CC/MCC ...................................................
Arthroscopy .........................................................................................................................
Shoulder, elbow or forearm proc, exc major joint proc w/o CC/MCC ...............................
Fractures of femur w MCC .................................................................................................
Sprains, strains, & dislocations of hip, pelvis & thigh w/o CC/MCC ..................................
Mastectomy for malignancy w/o CC/MCC .........................................................................
Breast biopsy, local excision & other breast procedures w/o CC/MCC ............................
Malignant breast disorders w/o CC/MCC ...........................................................................
Adrenal & pituitary procedures w CC/MCC .......................................................................
Adrenal & pituitary procedures w/o CC/MCC ....................................................................
Amputat of lower limb for endocrine, nutrit, & metabol dis w/o CC/MCC .........................
O.R. procedures for obesity w/o CC/MCC .........................................................................
Thyroid, parathyroid & thyroglossal procedures w MCC ...................................................
Thyroid, parathyroid & thyroglossal procedures w CC ......................................................
Thyroid, parathyroid & thyroglossal procedures w/o CC/MCC ..........................................
Other endocrine, nutrit & metab O.R. proc w/o CC/MCC ..................................................
Major bladder procedures w MCC .....................................................................................
Major bladder procedures w CC ........................................................................................
Major bladder procedures w/o CC/MCC ............................................................................
Kidney & ureter procedures forneoplasm w CC ................................................................
Kidney & ureter procedures for neoplasm w/o CC/MCC ...................................................
Kidney & ureter procedures for non-neoplasm w/o CC/MCC ............................................
Minor bladder procedures w/o CC/MCC ............................................................................
Prostatectomy w MCC ........................................................................................................
Transurethral procedures w/o CC/MCC .............................................................................
Urethral procedures w/o CC/MCC .....................................................................................
Kidney & urinary tract neoplasms w/o CC/MCC ................................................................
Urinary stones w esw lithotripsy w/o CC/MCC ..................................................................
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Crosswalked
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MS–LTC–DRG description
Major male pelvic procedures w CC/MCC .........................................................................
Major male pelvic procedures w/o CC/MCC ......................................................................
Penis procedures w/o CC/MCC .........................................................................................
Testes procedures w/o CC/MCC .......................................................................................
Transurethral prostatectomy w/o CC/MCC ........................................................................
Other male reproductive system O.R. proc for malignancy w CC/MCC ...........................
Other male reproductive system O.R. proc for malignancy 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 ........................................................
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 .................................................
D&C, conization, laparascopy & tubal interruption w CC/MCC .........................................
D&C, conization, laparascopy & tubal interruption w/o CC/MCC ......................................
Female reproductive system reconstructive procedures ...................................................
Other female reproductive system O.R. procedures w/o CC/MCC ...................................
Malignancy, female reproductive system w/o CC/MCC .....................................................
Menstrual & other female reproductive system disorders w/o CC/MCC ...........................
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 ........................................................
Postpartum & post abortion diagnoses w O.R. procedure ................................................
Abortion w D&C, aspiration curettage or hysterotomy .......................................................
Vaginal delivery w complicating diagnoses ........................................................................
Vaginal delivery w/o complicating diagnoses .....................................................................
Ectopic pregnancy ..............................................................................................................
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/o CC/MCC .................................................................................................
Other O.R. proc of the blood & blood forming organs w/o CC/MCC ................................
Major hematol/immun diag exc sickle cell crisis & coagul w/o CC/MCC ..........................
Lymphoma & leukemia w major O.R. procedure w MCC ..................................................
Lymphoma & leukemia w major O.R. procedure w/o CC/MCC ........................................
Lymphoma & non-acute leukemia w other O.R. proc w/o CC/MCC .................................
Myeloprolif disord or poorly diff neopl w maj O.R. proc w MCC .......................................
Myeloprolif disord or poorly diff neopl w maj O.R. proc w/o CC/MCC ..............................
Myeloprolif disord or poorly diff neopl w other O.R. proc w/o CC/MCC ............................
Acute leukemia w/o major O.R. procedure w/o CC/MCC ..................................................
Chemo w acute leukemia as sdx or w high dose chemo agent w CC .............................
Chemo w acute leukemia as sdx or w high dose chemo agent w/o CC/MCC .................
Other myeloprolif dis or poorly diff neopl diag w/o CC/MCC .............................................
Other mental disorder diagnoses .......................................................................................
Allergic reactions w MCC ...................................................................................................
Allergic reactions w/o MCC ................................................................................................
Full thickness burn w skin graft or inhal inj w/o CC/MCC .................................................
Craniotomy for multiple significant trauma .........................................................................
Limb reattachment, hip & femur proc for multiple significant trauma ................................
Other O.R. procedures for multiple significant trauma w/o CC/MCC ................................
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Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations
To illustrate this methodology for
determining the relative weights for the
RY 2010 MS–LTC–DRGs with no LTCH
cases, we are providing the following
example, which refers to the no-volume
MS–LTC–DRGs crosswalk information
for RY 2010 provided in the chart above.
Example: There were no cases in the
FY 2008 MedPAR file used for this final
rule for MS–LTC–DRG 61 (Acute
Ischemic Stroke with Use of
Thrombolytic Agent with MCC). We
determined that MS–LTC–DRG 70
(Nonspecific Cebrovascular Disorders
with MCC) was similar clinically and
based on resource use to MS–LTC–DRG
61. Therefore, we assigned the same
relative weight of MS–LTC–DRG 70 of
0.8439 for RY 2010 to MS–LTC–DRG 61
(we refer readers to Table 11 of the
Addendum to this final rule).
Furthermore, for RY 2010, consistent
with our historical relative weight
methodology, we established MS–LTC–
DRG relative weights of 0.0000 for the
following transplant MS–LTC–DRGs:
Heart Transplant or Implant of Heart
Assist System with MCC (MS–LTC–DRG
1); Heart Transplant or Implant of Heart
Assist System without MCC (MS–LTC–
DRG 2); Liver Transplant with MCC or
Intestinal Transplant (MS–LTC–DRG 5);
Liver Transplant without MCC (MS–
LTC–DRG 6); Lung Transplant (MS–
LTC–DRG 7); Simultaneous Pancreas/
Kidney Transplant (MS–LTC–DRG 8);
Pancreas Transplant (MS–LTC–DRG 10);
and Kidney Transplant (MS–LTC–DRG
652). This is because Medicare will 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 more than 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
MS–LTC–DRGs affected. At the present
time, we only include these eight
transplant MS–LTC–DRGs in the
GROUPER program for administrative
purposes only. Because we use the same
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GROUPER program for LTCHs as is used
under the IPPS, removing these MS–
LTC–DRGs would be administratively
burdensome. Again, we note that, as this
system is dynamic, it is entirely possible
that the number of 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
MS–LTC–DRGs and to determine the
relative weights in this final rule.
Step 6—Adjust the RY 2010 MS–
LTC–DRG relative weights to account
for nonmonotonically increasing
relative weights.
As discussed above in this section,
the MS–DRGs (used under the IPPS) and
the MS–LTC–DRGs (used under the
LTCH PPS) provide a significant
improvement in the DRG system’s
recognition of severity of illness and
resource usage. The 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 (that
is, major complication or comorbidity).
The next lower severity level contains
cases with at least one code that is a CC
(that is, complication or comorbidity).
Those cases without an MCC or a CC are
referred to as ‘‘without CC/MCC.’’ When
data do not support the creation of three
severity levels, the base DRG is
subdivided into either two levels or the
base DRG is not subdivided. The twolevel subdivisions could consist of the
with CC/MCC and the without CC/MCC.
Alternatively, the other type of twolevel subdivision may consist of the
MCC and without MCC.
In those base MS–LTC–DRGs that are
split into either two or three severity
levels, cases classified into the ‘‘without
CC/MCC’’ MS–LTC–DRG are expected
to have a lower resource use (and lower
costs) than the ‘‘with CC/MCC’’ MS–
LTC–DRG (in the case of a two-level
split) or both the ‘‘with CC’’ and the
‘‘with MCC’’ MS–LTC–DRGs (in the
case of a three-level split). 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 relative weights
decrease as severity decreased (that is,
if within a base MS–LTC–DRG, an MS–
LTC–DRG with CC has a higher relative
weight than one with MCC, or the 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
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Medicare payments would result in
inappropriate payments because the
payment for the cases in the higher
severity level in a base MS–LTC–DRG
(which are generally expected to have
higher resource use and costs) would be
lower than the payment for cases in a
lower severity level within the same
base MS–LTC–DRG (which are generally
expected to have lower resource use and
costs). Consequently, in general,
consistent with our historical
methodology, we combined MS–LTC–
DRG severity levels within a base MS–
LTC–DRG for the purpose of computing
a relative weight when necessary to
ensure that monotonicity was
maintained. Specifically, in determining
the RY 2010 MS–LTC–DRG relative
weights in this final rule, we used the
same methodology to adjust for
nonmonotonicity that we used to
determine the RY 2009 MS–LTC–DRG
relative weights in the FY 2009 IPPS
final rule (73 FR 48549 through 48550).
In determining the RY 2010 MS–LTC–
DRG relative weights in this final rule,
under each of the example scenarios
provided below, we combined severity
levels within a base MS–LTC–DRG as
follows:
The first example of
nonmonotonically increasing relative
weights for an MS–LTC–DRG pertains to
a base MS–LTC–DRG with a three-level
split and each of the three levels has 25
or more LTCH cases and, therefore,
none of those MS–LTC–DRGs were
assigned to one of the five low-volume
quintiles. In this final rule, if
nonmonotonicity was detected in the
relative weights of the MS–LTC–DRGs
in adjacent severity levels (for example,
the relative weight of the ‘‘with MCC’’
(the highest severity level) was less than
the ‘‘with CC’’ (the middle level), or the
relative weight ‘‘with CC’’ was less than
the ‘‘without CC/MCC’’ (lowest severity
level)), we combined the nonmonotonic
adjacent MS–LTC–DRGs and
redetermined a relative weight based on
the case-weighted average of the
combined LTCH cases of the
nonmonotonic MS–LTC–DRGs. The
case-weighted average charge was
calculated by dividing the total charges
for all LTCH cases in both severity
levels by the total number of LTCH
cases for both MS–LTC–DRGs. The same
relative weight was assigned to both
affected levels of the base MS–LTC–
DRG. If nonmonotonicity remained an
issue because the above process resulted
in a relative weight that was still
nonmonotonic to the relative weight of
the remaining MS–LTC–DRG within the
base MS–LTC–DRG, we combined all
three of the severity levels to
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redetermine the relative weights based
on the case-weighted average charge of
the combined severity levels. This same
relative weight was then assigned to
each of the MS–LTC–DRGs in that base
MS–LTC–DRG.
A second example of
nonmonotonically increasing relative
weights for a base MS–LTC–DRG
pertains to the situation where there are
three severity levels and one or more of
the severity levels within a base MS–
LTC–DRG has less than 25 LTCH cases
(that is, low volume). If
nonmonotonicity occurred in the case
where either the highest or lowest
severity level (‘‘with MCC’’ or ‘‘without
CC/MCC’’) had 25 LTCH cases or more
and the other two severity levels were
low volume (and, therefore, the other
two severity levels were otherwise
assigned the relative weight of the
applicable low-volume quintile(s)), we
combined the data for the cases in the
two adjacent low-volume MS–LTC–
DRGs for the purpose of determining a
relative weight. If the combination
resulted in at least 25 cases, we
redetermined one relative weight based
on the case-weighted average charge of
the combined severity levels and
assigned this same relative weight to
each of the severity levels. If the
combination resulted in less than 25
cases, based on the case-weighted
average charge of the combined lowvolume MS–LTC–DRGs, both MS–LTC–
DRGs were assigned to the appropriate
low-volume quintile (discussed above in
section VIII.B.3.e. of this preamble)
based on the case-weighted average
charge of the combined low-volume
MS–LTC–DRGs. Then the relative
weight of the affected low-volume
quintile was redetermined and that
relative weight was assigned to each of
the affected severity levels (and all of
the MS–LTC–DRGs in the affected lowvolume quintile). If nonmonotonicity
persisted, we combined all three
severity levels and redetermined one
relative weight based on the caseweighted average charge of the
combined severity levels and this same
relative weight was assigned to each of
the three levels within that base MS–
LTC–DRG.
Similarly, in nonmonotonic cases
where the middle level had 25 cases or
more but either or both of the lowest or
highest severity level had less than 25
cases (that is, low volume), we
combined the nonmonotonic lowvolume MS–LTC–DRG with the middle
severity-level MS–LTC–DRG (the ‘‘with
CC’’) of the base MS–LTC–DRG. We
redetermined one relative weight based
on the case-weighted average charge of
the combined severity levels, and
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assigned this same relative weight to
each of the affected MS–LTC–DRGs. If
nonmonotonicity persisted, we
combined all three levels for the
purpose of redetermining a relative
weight based on the case-weighted
average charge of the combined severity
levels, and assigned that relative weight
to each of the three severity levels
within the base MS–LTC–DRG.
In the case where all three severity
levels in the base-MS–LTC–DRGs were
low-volume MS–LTC–DRGs and two of
the severity levels were nonmonotonic
in relation to each other, we combined
the two adjacent nonmonotonic severity
levels. If that combination resulted in
less than 25 cases, both low-volume
MS–LTC–DRGs were assigned to the
appropriate low-volume quintile
(discussed above in section VIII.B.3.e. of
this preamble) based on the caseweighted average charge of the
combined low-volume MS–LTC–DRGs.
Then the relative weight of the affected
low-volume quintile was redetermined,
and that relative weight was assigned to
each of the affected severity levels (and
all of the MS–LTC–DRGs in the affected
low-volume quintile). If the
nonmonotonicity persisted, we
combined all three levels of that base
MS–LTC–DRG for the purpose of
redetermining a relative weight based
on the case-weighted average charge of
the combined severity levels, and
assigned that relative weight to each of
the three severity levels. If that
combination of all three severity levels
resulted in less than 25 cases, we
assigned that ‘‘combined’’ base MS–
LTC–DRG to the appropriate lowvolume quintile based on the caseweighted average charge of the
combined low-volume MS–LTC–DRGs.
Then the relative weight of the affected
low-volume quintile was redetermined,
and that relative weight was assigned to
each of the affected severity levels (and
all of the MS–LTC–DRGs in the affected
low-volume quintile). If the
combination of all three severity levels
resulted in 25 or more cases, we
redetermined one relative weight based
on the case-weighted average charge of
the combined severity levels, and
assigned this same relative weight to all
three of the severity levels within the
base MS–LTC–DRG.
Similarly, in the case where all three
severity levels in the base MS–LTC–
DRGs were low-volume MS–LTC–DRGs
and two of the severity levels were
nonmonotonic in relation to each other,
we combined the two adjacent
nonmonotonic severity levels. If the
combination resulted in at least 25
cases, we then redetermined one
relative weight based on the case-
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weighted average charge of the
combined severity levels, and assigned
this same relative weight to both of the
affected adjacent severity levels within
the base MS–LTC–DRG. If the
nonmonotonicity persisted, we
combined all three levels of that base
MS–LTC–DRG for the purpose of
redetermining a relative weight based
on the case-weighted average charge of
the combined severity levels, and
assigned that relative weight to each of
the three severity levels within the base
MS–LTC–DRG.
Another example of nonmonotonicity
involved a base MS–LTC–DRG with
three severity levels where at least one
of the severity levels had no LTCH
cases. As discussed above in Step 5, we
crosswalked a no-volume MS–LTC–DRG
to an MS–LTC–DRG that had at least
one case based on resource use intensity
and clinical similarity. The no-volume
MS–LTC–DRG was assigned the same
relative weight as the MS–LTC–DRG to
which it was crosswalked. For many novolume MS–LTC–DRGs, as shown in the
chart above in Step 5, the application of
our methodology resulted in a
crosswalked MS–LTC–DRG that was the
adjacent severity level in the same base
MS–LTC–DRG. Consequently, in most
instances, the no-volume MS–LTC–DRG
and the adjacent MS–LTC–DRG to
which it was crosswalked did not result
in nonmonotonicity because both of
these severity levels would have the
same relative weight. (In this final rule,
under our methodology for the
treatment of no-volume MS–LTC–DRGs,
in the case where the no-volume MS–
LTC–DRG was either the highest or
lowest severity level, the crosswalked
MS–LTC–DRG was typically the middle
level (‘‘with CC’’) within the same base
MS–LTC–DRG, and, therefore, the novolume MS–LTC–DRG (either the ‘‘with
MCC’’ or the ‘‘without CC/MCC’’) and
the crosswalked MS–LTC–DRG (the
‘‘with CC’’) have the same relative
weight. Consequently, no adjustment for
monotonicity was necessary.) However,
if our methodology for determining
relative weights for no-volume MS–
LTC–DRGs resulted in nonmonotonicity
with the third severity level in the base
MS–LTC–DRG, all three severity levels
were combined in order to redetermine
one relative weight based on the caseweighted average charge of the
combined severity levels. This same
relative weight was assigned to each of
the three severity levels in the base MS–
LTC–DRG.
Thus far in the discussion, we have
presented examples of nonmonotonicity
in a base MS–LTC–DRG that has three
severity levels. Under our methodology
for the treatment of nonmonotonicity,
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we applied the same process where the
base MS–LTC–DRG contained only two
severity levels. For example, if
nonmonotonicity occurred in a base
MS–LTC–DRG with two severity levels
(that is, the relative weight of the higher
severity level was less than the lower
severity level), where both of the MS–
LTC–DRGs had at least 25 cases or
where one or both of the MS–LTC–DRGs
were low volume (that is, less than 25
cases), we combined the two MS–LTC–
DRGs of that base MS–LTC–DRG for the
purpose of redetermining a relative
weight based on the combined caseweighted average charge for both
severity levels. This same relative
weight was assigned to each of the two
severity levels in the base MS–LTC–
DRG. Specifically, if the combination of
the two severity levels resulted in at
least 25 cases, we redetermined one
relative weight based on the caseweighted average charge, and assigned
that relative weight to each of the two
MS–LTC–DRGs. If the combination
resulted in less than 25 cases, we
assigned both MS–LTC–DRGs to the
appropriate low-volume quintile
(discussed above in section VIII.B.3.e. of
this preamble) based on their combined
case-weighted average charge. Then the
relative weight of the affected lowvolume quintile was redetermined, and
that relative weight was assigned to
each of the two severity levels within
the base MS–LTC–DRG (and all of the
MS–LTC–DRGs in the affected lowvolume quintile).
Step 7—Calculate the RY 2010 budget
neutrality factor.
As we established in the RY 2008
LTCH PPS final rule (72 FR 26882),
under the broad authority conferred
upon the Secretary under section 123 of
Public Law 106–113, as amended by
section 307(b) of Public Law 106–554, to
develop the LTCH PPS, beginning with
the MS–LTC–DRG update for FY 2008,
the annual update to the MS–LTC–DRG
classifications and relative weights is
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 MS–LTC–DRG classification
and relative weight changes.
Specifically, in that same final rule, we
established a requirement under
§ 412.517(b) that the annual update to
the MS–LTC–DRG classifications and
relative weights be done in a budget
neutral manner. (For a detailed
discussion on the establishment of the
budget neutrality requirement to update
the MS–LTC–DRG classifications and
relative weights, we refer readers to the
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RY 2008 LTCH PPS final rule (72 FR
26880 through 26884).) The MS–LTC–
DRG classifications and relative weights
are updated annually based on the most
recent available LTCH claims data to
reflect changes in relative LTCH
resource use. Under the budget
neutrality requirement, for each annual
update, the MS–LTC–DRG relative
weights are uniformly adjusted to
ensure that estimated aggregate
payments under the LTCH PPS would
not be affected (that is, decreased or
increased). Consistent with that
provision, we updated the MS–LTC–
DRG classifications and relative weights
for RY 2010 based on the most recent
available LTCH data, and included a
budget neutrality adjustment that was
applied in determining the RY 2010
MS–LTC–DRG relative weights.
To ensure budget neutrality in the
update to the MS–LTC–DRG
classifications and relative weights
under § 412.517(b), consistent with the
budget neutrality methodology we
established in the FY 2008 IPPS final
rule with comment period (72 FR 47295
through 47296), in determining the
budget neutrality adjustment for RY
2010 in this final rule, as we proposed,
we used a method that is similar to the
methodology used under the IPPS.
Specifically, for RY 2010, after
recalibrating the MS–LTC–DRG relative
weights as we do under the
methodology as described in detail in
Steps 1 through 6 above, we calculated
and applied a normalization factor to
those recalibrated relative weights to
ensure that estimated payments were
not influenced by changes in the
composition of case types or the
changes to the classification system.
That is, the normalization adjustment is
intended to ensure that the recalibration
of the MS–LTC–DRG relative weights
(that is, the process itself) neither
increases nor decreases the average CMI.
To calculate the normalization factor
for RY 2010, we used the following
steps: (1) We used the most recent
available LTCH claims data (FY 2008)
and grouped them using the RY 2010
GROUPER (Version 27.0) and the RY
2010 MS–LTC–DRG relative weights
(determined above in Steps 1 through 6
above) to calculate the average CMI; (2)
we grouped the same LTCH claims data
(FY 2008) using the FY 2009 GROUPER
(Version 26.0) and FY 2009 MS–LTC–
DRG relative weights (presented in
Table 11 of the interim final rule with
comment period published on June 3,
2009 in the Federal Register (74 FR
26550 through 26569)) and calculated
the average CMI; and (3) we computed
the ratio of these average CMIs by
dividing the average CMI for FY 2009
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(determined in Step 2) by the average
CMI for RY 2010 (determined in Step 1).
In determining the MS–LTC–DRG
relative weights for RY 2010, each
recalibrated MS–LTC–DRG relative
weight is multiplied by 1.07341 in the
first step of the budget neutrality
methodology, which produces
‘‘normalized relative weights.’’
In the second step of the proposed RY
2010 budget neutrality methodology, we
determined a budget neutrality factor to
ensure that estimated aggregate LTCH
PPS payments (based on the most recent
available LTCH claims data) after
reclassification and recalibration (the
RY 2010 MS–LTC–DRG classifications
and relative weights) are equal to
estimated aggregate LTCH PPS
payments (for the same most recent
available LTCH claims data) before
reclassification and recalibration (the
RY 2009 MS–LTC–DRG classifications
and relative weights). Therefore, similar
to the methodology used to determine
the IPPS DRG reclassification and
recalibration budget neutrality factor
discussed in section II.A.4.a. of the
Addendum to this final rule, we used
FY 2008 discharge data to simulate
payments and compared estimated
aggregate LTCH PPS payments using the
FY 2009 MS–LTC–DRGs and relative
weights to estimate aggregate LTCH PPS
payments using the RY 2010 MS–LTC–
DRGs and relative weights. Consistent
with our historical policy of using the
best available data, we used the most
recently available claims data (that is,
LTCH claims data from the March 2009
update of the FY 2008 MedPAR file) for
determining the budget neutrality
adjustment factor in this final rule.
Specifically, we determined the RY
2010 budget neutrality adjustment factor
in this final rule using the following
steps: (1) We simulated estimated total
LTCH PPS payments using the
normalized relative weights for RY 2010
and GROUPER Version 27.0 (as
described above in this section); (2) we
simulated estimated total LTCH PPS
payments using the FY 2009 GROUPER
(Version 26.0) and the revised FY 2009
MS–LTC–DRG relative weights shown
in Table 11 of the June 3, 2009 interim
final rule with comment period (74 FR
26550 through 26569)); and (3) we
calculated the ratio of these estimated
total LTCH PPS payments by dividing
the estimated total LTCH PPS payments
using the FY 2009 GROUPER (Version
26.0) and the revised FY 2009 MS–LTC–
DRG relative weights (determined in
Step 2) by the estimated total LTCH PPS
payments using the RY 2010 GROUPER
(Version 27.0) and the normalized MS–
LTC–DRG relative weights for RY 2010
(determined in Step 1). In determining
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the final RY 2010 MS–LTC–DRG
relative weights, each normalized
relative weight was multiplied by a
budget neutrality factor of 0.9940041 in
the second step of the budget neutrality
methodology to determine the final
budget neutral RY 2010 relative weight
for each MS–LTC–DRG.
Accordingly, in determining the RY
2010 MS–LTC–DRG relative weights in
this final rule, we applied a
normalization factor of 1.07341 and a
budget neutrality factor of 0.9940041, as
described above. The final RY 2010 MS–
LTC–DRG relative weights in Table 11
in the Addendum to this final rule
reflect both the normalization factor of
1.07341 and the budget neutrality factor
of 0.9940041. Table 11 in the
Addendum to this final rule lists the
MS–LTC–DRGs and their respective
relative weights, geometric mean length
of stay, and five-sixths of the geometric
mean length of stay (used in
determining SSO payments under
§ 412.529) for RY 2010.
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C. Changes to the LTCH Payment Rates
and Other Changes to the RY 2010
LTCH PPS
1. Overview of Development of the
LTCH Payment Rates
The LTCH PPS was effective
beginning with a LTCH’s first cost
reporting period beginning on or after
October 1, 2002. Effective beginning
with that cost reporting period, LTCHs
were paid, during a 5-year transition
period, a total LTCH prospective
payment that is comprised of an
increasing proportion of the LTCH PPS
Federal rate and a decreasing proportion
based on reasonable cost-based
principles, unless the hospital makes a
one-time election to receive payment
based on 100 percent of the Federal rate,
as specified in § 412.533. New LTCHs
(as defined at § 412.23(e)(4)) are paid
based on 100 percent of the Federal rate,
with no phase-in transition payments.
The basic methodology for
determining LTCH PPS Federal
prospective payment rates is set forth at
§ 412.515 through § 412.536. In this
section, we discuss the factors that were
used to update the LTCH PPS standard
Federal rate for the 2010 LTCH PPS rate
year that will be effective for LTCH
discharges occurring on or after October
1, 2009 through September 30, 2010.
For further details on the
development of the FY 2003 standard
Federal rate, we refer readers to the
August 30, 2002 LTCH PPS final rule
(67 FR 56027 through 56037), and for
subsequent updates to the LTCH PPS
Federal rate we refer readers to the
following final rules: RY 2004 LTCH
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PPS final rule (68 FR 34134 through
34140), RY 2005 LTCH PPS final rule
(69 FR 25682 through 25684), RY 2006
LTCH PPS final rule (70 FR 24179
through 24180), RY 2007 LTCH PPS
final rule (71 FR 27819 through 27827),
RY 2008 LTCH PPS final rule (72 FR
26870 through 27029), and RY 2009
LTCH PPS final rule (73 FR 26800
through 26804). The update to the LTCH
PPS standard Federal rate for RY 2010
is presented in section V.A. of the
Addendum to this final rule. Two of the
components of the update to the LTCH
PPS standard Federal rate for RY 2010
are discussed below.
2. Market Basket for LTCHs Reimbursed
Under the LTCH PPS
a. Overview
Historically, the Medicare program
has used a market basket to account for
price increases in the services furnished
by providers. The market basket used
for the LTCH PPS includes both
operating and capital-related costs of
LTCHs because the LTCH PPS uses a
single payment rate for both operating
and capital-related costs. The
development of the initial LTCH PPS
standard Federal rate for FY 2003, using
the excluded hospital with capital
market basket, is discussed in further
detail in the August 30, 2002 LTCH PPS
final rule (67 FR 56027 through 56033).
In that final rule (67 FR 56016
through 56017 and 56030), which
implemented the LTCH PPS, we
established the use of the excluded
hospital with capital market basket as
the LTCH PPS market basket. The
excluded hospital with capital market
basket was also used to update the
limits on LTCHs’ operating costs for
inflation under the TEFRA reasonable
cost-based payment system. We
explained that we believe the use of the
excluded hospital with capital market
basket to update LTCHs’ payments for
inflation was appropriate because the
excluded hospital market basket (with a
capital component) measures price
increases of the services furnished by
excluded hospitals, including LTCHs.
For further details on the development
of the excluded hospital with capital
market basket, we refer readers to the
RY 2004 LTCH PPS final rule (68 FR
34134 through 34137).
As discussed in the RY 2007 LTCH
PPS final rule (71 FR 27810), based on
our research, we did not develop a
market basket specific to LTCH services.
We were unable to create a separate
market basket specifically for LTCHs at
that time due to the small number of
facilities and the limited amount of data
that was reported (for instance, only
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approximately 15 percent of LTCHs
reported contract labor cost data for
2002). In that same final rule, under the
broad authority conferred upon the
Secretary by section 123 of the BBRA as
amended by section 307(b) of the BIPA,
we adopted the rehabilitation,
psychiatric, long-term care (RPL) market
basket as the appropriate market basket
of goods and services under the LTCH
PPS for discharges occurring on or after
July 1, 2006. Specifically, beginning
with the 2007 LTCH PPS rate year, for
the LTCH PPS, we adopted the use of
the RPL market basket which is based
on FY 2002 cost report data. We chose
to use the FY 2002 Medicare cost report
data because those data were the most
recent, relatively complete cost data for
IRFs, IPFs, and LTCHs available at the
time of rebasing.
The RPL market basket was
determined based on the operating and
capital costs of freestanding IRFs,
freestanding IPFs, and LTCHs. As we
explained in the RY 2007 LTCH PPS
final rule, we believed a market basket
based on the data of IRFs, IPFs, and
LTCHs was appropriate to use under the
LTCH PPS because those data were the
best available data that reflect the cost
structures of LTCHs. For further details
on the development of the RPL market
basket, including the methodology for
determining the operating and capital
portions of the RPL market basket, we
refer readers to the RY 2007 LTCH PPS
final rule (71 FR 27810 through 27817).
b. Market Basket Under the LTCH PPS
for RY 2010
When we initially created the FY
2002-based RPL market basket, we were
unable to create a separate market
basket specifically for LTCHs due, in
part, to the small number of facilities
and the limited data that were provided
in the Medicare cost reports. Over the
last several years, however, the number
of LTCH facilities submitting valid
Medicare cost report data has increased.
Based on this development, as well as
our desire to move from one RPL market
basket to three stand-alone and
provider-specific market baskets (for
IRFs, IPFs, and LTCHs, respectively), we
plan to begin exploring the viability of
creating these market baskets for future
use. However, as we discussed in the FY
2010 IRF PPS proposed rule, we are
conducting further research to assist us
in understanding the reasons for the
variations in costs and cost structure
between freestanding IRFs and hospitalbased IRFs. We also are researching the
reasons for similar variations in costs
and cost structure between freestanding
IPFs and hospital-based IPFs. Therefore,
as we continue to explore the
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development of stand-alone market
baskets for LTCHs, IRFs and IPFs,
respectively, we believe that it is
appropriate to continue to use the FY
2002-based RPL market basket for
LTCHs, IRFs and IPFs under their
respective PPSs. Accordingly, as we
proposed in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule (74 FR 24228),
in this final rule, we are continuing to
use the FY 2002-based RPL market
basket under the LTCH PPS for RY 2010
because we continue to believe it is the
best available data that reflect the cost
structure of LTCHs. We are hopeful that
progress can be made in the near future
with respect to creating stand-alone
market baskets for LTCHs, IRFs, and
IPFs and, as a result, may propose to
rebase the appropriate market basket(s)
for subsequent updates in the future.
Comment: Several commenters agreed
with the original application of the RPL
market basket due to the lack of data
available for LTCHs. However, the
commenters now believe that there are
sufficient LTCH-specific cost data to
develop a separate LTCH market basket
that will accurately reflect the costs of
providing LTCH goods and services.
One commenter stated that a standalone LTCH market basket is necessary
and warranted due to the unique nature
of the patient populations served by
LTCHs and the differences in care
settings among LTCHs, IRFs, and IPFs.
Response: We appreciate the
commenters’ thoughts concerning the
possible development of a stand-alone
LTCH market basket. While the number
of LTCHs submitting cost report data
has increased, we believe that further
research is required to determine the
feasibility of developing stand-alone
market baskets for LTCHs, IRFs, and
IPFs. Therefore, we believe that it is
appropriate to continue to use the FY
2002-based RPL market basket for
LTCHs for RY 2010. However, as stated
above, we will be exploring the viability
and technical appropriateness of a
stand-alone LTCH market basket.
c. Market Basket Update for LTCHs for
RY 2010
Consistent with our historical
practice, we estimate the RPL market
basket update based on IHS Global
Insight, Inc.’s forecast using the most
recent available data. IHS Global
Insight, Inc. is a nationally recognized
economic and financial forecasting firm
that contracts with CMS to forecast the
components of the hospital market
baskets. Based on IHS Global Insight,
Inc.’s first quarter 2009 forecast, we
proposed that the RY 2010 market
basket estimate for the LTCH PPS using
the FY 2002-based RPL market basket
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was 2.4 percent. Consistent with our
historical practice of using market
basket estimates based on the most
recent available data, for this final rule,
we used IHS Global Insight, Inc.’s
second quarter 2009 forecast of the RY
2010 market basket estimate for the
LTCH PPS using the FY 2002-based RPL
market basket, which is 2.5 percent.
This includes increases in both the
operating section and the capital section
of the FY 2002-based RPL market
basket. (As discussed in greater detail in
section V. of the Addendum to this final
rule, for RY 2010, we updated the LTCH
PPS standard Federal rate by 2.0
percent. The update reflects an
adjustment based on the most recent
market basket estimate (currently 2.5
percent as discussed above) and
adjustments to account for the increase
in case-mix in the prior periods (FYs
2007 through 2009) that resulted from
changes in documentation and coding
practices rather than increases in
patients’ severity of illness.)
d. Labor-Related Share Under the LTCH
PPS for RY 2010
As discussed in section V.B. of the
Addendum to this final rule, under the
authority of section 123 of the BBRA as
amended by section 307(b) of the BIPA,
we established an adjustment to the
LTCH PPS Federal rate to account for
differences in LTCH area wage levels at
§ 412.525(c). The labor-related portion
of the LTCH PPS Federal rate, hereafter
referred to as the labor-related share, is
adjusted to account for geographic
differences in area wage levels by
applying the applicable LTCH PPS wage
index.
The labor-related share is determined
by identifying the national average
proportion of operating and capital costs
that are related to, influenced by, or
vary with the local labor market. We
continue to classify a cost category as
labor-related if the costs are laborintensive and vary with the local labor
market. In addition, as discussed above,
we continued to use the FY 2002-based
RPL market basket under the LTCH PPS
for RY 2010. Given this, we continue to
define the labor-related share as the
national average proportion of operating
costs that are attributable to wages and
salaries, employee benefits, contract
labor, professional fees, labor-intensive
services, and a labor-related portion of
capital based on the FY 2002-based RPL
market basket. (Additional information
on the development of the FY 2002based RPL market basket used under the
LTCH PPS can be found in the RY 2007
LTCH PPS final rule (71 FR 27809
through 27818).)
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As we proposed (74 FR 24228 through
24229), the labor-related share for RY
2010 is the sum of the RY 2010 relative
importance of each labor-related cost
category, and reflects the different rates
of price change for these cost categories
between the base year (FY 2002) and RY
2010. Based on IHS Global Insight, Inc.’s
first quarter 2009 forecast of the RY
2010 relative importance, we proposed
that the RY 2010 labor-related share
using the FY 2002-based RPL market
basket would be 75.904 percent. For this
final rule, we used more recent data, the
IHS Global Insight, Inc.’s second quarter
2009 forecast of the RY 2010 relative
importance, to determine the laborrelated share. The sum of the relative
importance for RY 2010 for operating
costs (wages and salaries, employee
benefits, professional fees, and all other
labor-intensive services) is 71.841
percent. The portion of capital that is
influenced by the local labor market is
estimated to be 46 percent. Because the
relative importance for capital in RY
2010 is 8.560 percent of the FY 2002based RPL market basket, we took 46
percent of 8.560 percent to determine
the labor-related share of capital for RY
2010. The result is 3.938 percent, which
we added to 71.841 percent for the
operating cost amount to determine the
total labor-related share for RY 2010.
Thus, the labor-related share that we are
using for the LTCH PPS in RY 2010 is
75.779 percent.
The chart below shows the RY 2010
relative importance labor-related share
using the FY 2002-based RPL market
basket.
RY 2010 LABOR-RELATED SHARE
BASED ON THE FY 2002–BASED
RPL MARKET BASKET
Cost category
FY 2002–
based RPL
market basket
labor-related
share relative
importance
(percent) RY
2010
Wages and Salaries .............
Employee Benefits ................
Professional Fees: ................
All Other Labor-Intensive
Services .........................
52.892
13.949
2.873
Subtotal .........................
Labor-Related Share of Capital Costs (46 percent) ......
71.841
Total Labor-Related
Share .........................
2.127
3.938
75.779
We did not receive any public
comments on the proposed labor-related
share for the LTCH PPS for RY 2010.
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3. Adjustment for Changes in LTCHs’
Case-Mix Due to Changes in
Documentation and Coding Practices
That Occurred in a Prior Period
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a. Background
Beginning in RY 2007, in updating the
standard Federal rate for the LTCH PPS,
we have accounted for increases in
payments from a past period that were
due to changes in documentation and
coding practices. Specifically, in the RY
2007 LTCH PPS final rule (71 FR
27820), we explained that rather than
solely using the most recent estimate of
the LTCH PPS market basket increase as
the basis of the update factor for the
standard Federal rate for RY 2007, we
believed that based on our ongoing
monitoring of LTCHs’ case mix, it was
appropriate to also adjust the standard
Federal rate to account for the changes
in documentation and coding practices
(rather than patients’ severity of illness),
in addition to the estimated increase in
the LTCH PPS market basket.
Accordingly, we established at
§ 412.523(c)(3)(iii) of the regulations
that the update to the standard Federal
rate for the 2007 LTCH PPS rate year
was zero percent, based on the most
recent estimate of the LTCH PPS market
basket increase of 3.4 percent and an
equivalent negative adjustment to
account for changes in case-mix due to
changes in documentation and coding
practices in a prior period (FY 2004).
In the RY 2008 LTCH PPS final rule
(72 FR 26880 through 26890), we
continued to monitor and analyze
LTCHs’ case-mix and applied an update
to the standard Federal rate of 0.71
percent, based on the most recent
estimate of the market basket increase
(3.2 percent) and an adjustment to
account for changes in documentation
and coding practices (¥2.49 percent) in
a prior period (FY 2005). Similarly, for
RY 2009, as discussed in the RY 2009
final rule (73 FR 26805 through 26812),
the standard Federal rate was updated
using an update factor of 2.7 percent,
based on the most recent estimate of the
market basket increase (3.6 percent) and
an adjustment to account for changes in
case-mix due to documentation and
coding practices (¥0.9 percent) in a
prior period (FY 2006).
b. Evaluation of FY 2007 Claims Data
For RY 2010, we continue to believe
that changes in the LTCH PPS payment
rates should accurately reflect changes
in LTCHs’ true cost of treating patients,
and should not be influenced by
changes in documentation and coding
that do not reflect increases in patients’
severity of illness. Accordingly,
consistent with previous years, and as
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we stated in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule (74 FR 24229
through 24230), we analyzed LTCHs’
case-mix index (CMI) changes in the
prior period, FY 2007, and if applicable,
determined an appropriate adjustment
to account for changes in
documentation and coding practices. As
we explained in the RY 2007 final rule
(71 FR 27819 through 27823), an
LTCH’s CMI is defined as its caseweighted average LTC–DRG relative
weight for all its discharges in a given
period. Changes in CMI consist of two
components: ‘‘real’’ CMI changes and
‘‘apparent’’ CMI changes. Real CMI
increase is defined as the increase in the
average LTC–DRG relative weights
resulting from the hospital’s treatment
of more resource intensive patients.
Apparent CMI increase is defined as the
increase in CMI due to changes in
documentation and coding practices
(including better documentation of the
medical record, for example, by
physicians and more complete coding of
the medical record by coders). In
previous years, analysis of the most
recent available LTCH CMI data focused
on quantifying the portion of CMI
change in a prior period that is
attributable to apparent CMI change.
However, beginning in RY 2010, we
proposed to revise our methodology to
determine the documentation and
coding adjustment, consistent with the
proposed methodology for case-mix
analysis under the IPPS, which is
discussed in detail in section II.D.4 of
the preamble of this final rule. We note
that section II.D.4 of the preamble of
this final rule discusses the analysis in
the context of the MS–DRG
documentation and coding adjustments
for FY 2008 and FY 2009 authorized by
Public Law 110–90 for the IPPS, and we
note that the requirements of Public
Law 110–90 do not apply to the LTCH
PPS. However, section 123(a)(1) of
Public Law 106–113 (BBRA), as
amended by section 307(b) of Public
Law 106–554 (BIPA), provides broad
authority to the Secretary in developing
the LTCH PPS, including the authority
for establishing appropriate
adjustments. The stated purpose of the
CMI analysis for the IPPS is to measure
and corroborate the extent of the overall
national average changes in case-mix
since the adoption of the MS–DRGs,
which we believe is also relevant in
determining appropriate adjustments to
account for changes in documentation
and coding under the LTCH PPS
because, as stated above, the same DRGbased patient classification system is
used under both the LTCH PPS and the
IPPS (referred to as the MS–LTC–DRGs
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43969
and MS–DRGs, respectively).
Accordingly, under the broad authority
afforded by the statute to make
appropriate adjustments for the LTCH
PPS, we believe it is appropriate to use
the same methodology under the LTCH
PPS that we use under the IPPS as
described in section II.D.4. of the
preamble of this final rule and which is
discussed in further detail below in this
section.
Accordingly, consistent with the IPPS
CMI analysis methodology, we
conducted a thorough evaluation of
LTCH claims data in order to assess the
case-mix changes that do not reflect real
changes in patients’ severity of illness.
The results of this evaluation were used
by our actuaries to determine if any
payment adjustments are necessary to
ensure appropriate payments under the
LTCH PPS. Specifically, to evaluate the
FY 2007 LTCH claims data, for the
proposed rule, we performed the
analysis in the following manner. We
first divided the CMI obtained by
grouping the FY 2007 LTCH claims data
from the December 2007 update of the
MedPAR files through the FY 2007
GROUPER (Version 24.0) by the CMI
obtained by grouping these same FY
2007 LTCH claims through the FY 2006
GROUPER (Version 23.0). This resulted
in a value of 0.974. Because these are
the same FY 2007 LTCH cases grouped
using the two GROUPERs, we attributed
this change primarily to two factors: (1)
The effect of changes in documentation
and coding; and (2) the measurement
effect from the calibration of the
GROUPER. We estimated the
measurement effect from the calibration
of the GROUPER by dividing the CMI
obtained by grouping the FY 2006 LTCH
claims through the FY 2007 GROUPER
by the CMI obtained by grouping these
same LTCH claims through the FY 2006
GROUPER. This resulted in a value of
0.969. In order to isolate the
documentation and coding effect, we
then divided the combined effect of the
changes in documentation and coding
and measurement (0.974) by the
measurement effect (0.969) to yield
1.005. Therefore, our estimate of the
documentation and coding increase that
occurred in FY 2007 is 0.5 percent. We
now have data available from the March
2009 update of the MedPAR files.
Applying this analytical methodology to
the FY 2008 LTCH claims data from the
March 2009 update of the MedPAR files
confirms the documentation and coding
increase that occurred in FY 2007 was
0.5 percent.
As in prior years, the FY 2006 and FY
2007 MedPAR files are available to the
public to allow independent analysis of
the documentation and coding effect in
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FY 2007. In the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule, we invited
public comment on our proposed
methodology and analysis. A summary
of the public comments we received on
the proposed adjustment for changes in
LTCHs’ CMI due to changes in
documentation and coding practices
that occurred in a prior period based on
our evaluation of FY 2007 LTCH claims
data, including any public comments on
our proposed methodology and analysis,
and our responses, as well as a
statement of our final policy can be
found in section VIII.C.3.d. of this
preamble.
c. Evaluation of FY 2008 Claims Data
In prior years, we based
documentation and coding adjustments
on an analysis of the most recent
available LTCH data and have
established the adjustments in a timely
manner, as the data became available, to
account for each prior period where
LTCHs were paid based on case-mix
changes that do not reflect increased
patients’ severity of illness. Most
recently, in updating the LTCH PPS
payment rates for RY 2009, we
accounted for the effects of
documentation and coding
improvements that occurred in FY 2006.
Due to the change in the LTCH update
cycle in RY 2010, we now have data
available to analyze case-mix changes
for FY 2008, as well as FY 2007.
Accordingly, analogous to our
evaluation of the FY 2007 LTCH claims
data as discussed above, for the
proposed rule (74 FR 24230), we
analyzed the FY 2008 LTCH claims data
from the December 2008 update of the
MedPAR files as well. That is, we first
divided the CMI obtained by grouping
the FY 2008 LTCH claims through the
FY 2008 GROUPER (Version 25.0) by
the CMI obtained by grouping these
same FY 2008 LTCH claims through the
FY 2007 GROUPER (Version 24.0). This
resulted in a value of 1.011. We
estimated the measurement effect from
the calibration of the GROUPER by
dividing the CMI obtained by grouping
the FY 2007 LTCH claims through the
FY 2008 GROUPER by the CMI obtained
by grouping these same LTCH claims
through the FY 2007 GROUPER. This
resulted in a value of 0.999. We then
divided the combined effect of the
changes in documentation and coding
measurement (1.011) by the
measurement effect (0.999) to yield
1.013. Therefore, based on the results of
the analysis discussed in the proposed
rule, the documentation and coding
increase that occurred in FY 2008 was
1.3 percent. We now have data available
from the March 2009 update of the
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MedPAR files. Applying this analytical
methodology to the FY 2008 LTCH
claims data from the March 2009 update
of the MedPAR files confirms the
documentation and coding increase that
occurred in FY 2008 is 1.3 percent.
As noted above, the FY 2007 and FY
2008 MedPAR files are available to the
public to allow independent analysis of
the documentation and coding effect in
FY 2008. In the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule, we invited
public comment on our methodology
and analysis. A summary of the public
comments we received on the proposed
adjustment for changes in LTCHs’ CMI
due to changes in documentation and
coding practices that occurred in a prior
period based on our evaluation of FY
2008 LTCH claims data, including any
public comments on our proposed
methodology and analysis, and our
responses, as well as a statement of our
final policy can be found in section
VIII.C.3.d. of this preamble.
d. RY 2010 Documentation and Coding
Adjustment
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, based on analysis of
the most recent available LTCH claims
data as described above, we proposed to
apply a cumulative adjustment for
changes in documentation and coding
that do not reflect an increase in
patients’ severity of illness of ¥1.8
percent (that is, ¥0.5 percent for FY
2007 plus ¥1.3 percent for FY 2008).
Accordingly, as discussed in section
V.A.2. of the Addendum to that
proposed rule, we proposed to update
the RY 2010 LTCH PPS standard
Federal rate by 0.6 percent based on the
most recent estimate of the market
basket increase at that time (2.4 percent)
and an adjustment to account for
changes in documentation and coding
practices (¥1.8 percent). We note that
an analysis of data from the March 2009
update of the FY 2007 and FY 2008
MedPAR files confirmed the cumulative
effect of changes in documentation and
coding that do not reflect an increase in
patients’ severity of illness of 1.8
percent (that is, 0.5 percent for FY 2007
and 1.3 percent for FY 2008.). In this
final rule, as we discuss in greater detail
below in this section, in determining the
RY 2010 update to the LTCH PPS
standard Federal rate, we are applying
an adjustment for changes in
documentation and coding that do not
reflect an increase in patients’ severity
of illness of ¥0.5 percent. That is, we
are are finalizing our proposal to apply
an adjustment of ¥0.5 percent to
account for the documentation and
coding increase that occurred in FY
2007. However, after consideration of
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Fmt 4701
Sfmt 4700
the public comments, and consistent
with the decision to postpone the
application of the prospective
adjustment for estimated FY 2008
documentation and coding increases
under the IPPS (discussed in section
II.D.5. of this preamble), we have
decided to delay the application of the
FY 2008 documentation and coding
adjustment of ¥1.3 percent that was
proposed under the LTCH PPS for RY
2010. We intend to address any future
documentation and coding adjustment
to the LTCH PPS standard Federal rate
based on our analysis of the FY 2008
LTCH claims data in the FY 2011
rulemaking cycle through the noticeand-comment rulemaking process.
Below we present a summary of the
public comments received on our
proposed documentation and coding
adjustment for RY 2010 and our
responses to those comments.
Comment: Some commenters stated
that section 7(b)(1) of Pub. L. 110–90
provides authority for CMS to impose
adjustments for documentation and
coding changes for hospitals subject to
the IPPS but does not specifically refer
to hospitals under the LTCH PPS. The
commenters argued that the absence of
any reference to the LTCH PPS in Public
Law 110–90 suggests that CMS does not
have the authority to make such
adjustments, despite the broad authority
under section 123(a)(1) of Pub. L. 106–
113, as amended by section 307(b) of
Public Law 1106–554.
Response: As we noted in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
(74 FR 24229 through 24230), beginning
in RY 2007 and for every annual update
to the LTCH PPS standard Federal rate
since RY 2007, we have accounted for
increases in payments from a past
period due to changes in documentation
and coding practices that have occurred
since we first implemented the LTCH
PPS in 2003. As we have stated
previously, section 123(a)(1) of Public
Law 106–113 (BBRA), as amended by
section 307(b) of Public Law 106–554
(BIPA), provides broad authority to the
Secretary in developing the LTCH PPS,
including the authority for establishing
appropriate adjustments. Consequently,
we did not need additional authority
provided under Public Law 110–90 in
order to make these adjustments for
documentation and coding practices. In
the discussion in the proposed rule, we
included a reference to Public Law 110–
90, which specifies the MS–DRG
documentation and coding adjustments
for the IPPS for FY 2008, FY 2009, and
FY 2010. However, we did not apply the
documentation and coding adjustments
as prescribed in Public Law 110–90 to
the LTCH PPS for RY 2009 and RY 2010
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because we believed Public Law 110–90
did not apply to the LTCH PPS. Instead,
we adhered to our historical practice of
basing documentation and coding
adjustments on an analysis of the most
recent available LTCH data to account
for each prior period where LTCHs were
paid, based on case-mix changes that do
not reflect increased patients’ severity of
illness. We noted in the proposed rule
that due to the change in the LTCH
update cycle in RY 2010, the data to
analyze case-mix changes for FY 2008 as
well as FY 2007 were available to us at
the time we were proposing LTCH PPS
rates for RY 2010 (74 FR 24230).
Comment: Several commenters
questioned the proposed methodology
for the evaluation of the FY 2007 and
FY 2008 claims data which resulted in
the adjustments due to documentation
and coding changes. The commenters
raised concerns that the calculations of
the documentation and coding effect
were unsupported and did not fully
consider other potential causes for the
observed increases in CMI. Specifically,
the commenters noted that the
methodology used in the proposed rule
assumed that the calculated CMI
contains both a measurement effect from
calibrating the GROUPER and the effect
of coding and documentation changes.
That is, to derive the coding and
documentation effect, the proposed rule
subtracted (1) the measurement effect
from (2) the combined effects of
measurement and coding and
documentation.
One commenter protested that the
methodology assumed that real case-mix
changes are not included in the
calculated CMI. In addition, the
commenter asserted that the
methodology assumed that no real casemix changes occurred during the period
prior to the implementation of the MS–
LTC–DRG in FY 2008. The commenter
commissioned an analysis of the period
prior to the implementation of MS–
LTC–DRGs, stating that ‘‘expanding the
years of reviewed claims data is
important because it expands the period
of time analyzed during which there
was, by CMS’ own admission, no
incentive for LTCHs to improve the
coding of claims.’’ In referring to this
study that employed a different
methodology to consider coding
behavior over a longer period of time,
the commenter believed this study was
able to capture real case mix changes
before and after the introduction of the
MS–LTC–DRG. Specifically, the
commenter stated that the study applied
two different GROUPERs for claims data
from 2005 through 2008 and observed
that in the pre-implementation period
(2005 through 2007) ‘‘the [CMI] rate of
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increase for the 2005–2007 period using
v25 [Version 25] GROUPER is sharper
than the rate of increase for these years
derived from running claims data
through the v24 [Version 24]
GROUPER.’’ From this observation, the
commenter concluded that ‘‘the two
GROUPERs measure claims data
differently, which is what one would
expect due to implementation of a
newer, more refined GROUPER.’’
Response: Although the commenters
argued that the methodology made
assumptions that were unsupported, we
note that the methodology was also
validated by MedPAC’s independent
analysis of claims data. In response to
the commenter who protested that the
methodology assumed that real case-mix
changes was not included in the
calculated CMI, we note that, although
overall case-mix growth is
predominately comprised of three
factors (real case-mix growth, a
documentation and coding effect, and a
measurement effect), the methodology
we have used to quantify the
documentation and coding adjustment
negates the need to consider the
confounding effect of real case-mix
growth in the calculated CMI
differences. Because the same year of
claims data is utilized in the
comparisons, there is no component of
real case-mix that needs to be identified.
That is, there can be no case-mix growth
measured if the same year’s claims are
used. We note that while commenters
disagreed with the use of the more
refined methodology for deriving the
documentation and coding effect
presented in the proposed rule, the
commenters did not provide specific
alternatives to use in the final rule.
Instead, one commenter attempted to
compare the effects of applying the
Version 24 (FY 2007) and Version 25
(FY 2008) GROUPERs to claims data
from 2005 through 2008, believing that
this methodology would show real casemix changes over the years. Using this
methodology, the commenter observed
that, in the period before MS–LTC–
DRGs were implemented (2005–2007),
‘‘the [CMI] rate of increase for the 2005–
2007 period using v25 GROUPER is
sharper than the rate of increase for
these years derived from running claims
data through the v24 GROUPER.’’ We
believe what the commenter is actually
observing is the measurement effect
between grouping claims in the two
different GROUPERs, which is
accounted for in our more refined
methodology that was presented in the
proposed rule. Indeed, we do not
disagree with the commenters’
conclusion that ‘‘the two GROUPERs
measure claims data differently, which
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43971
is what one would expect due to
implementation of a newer, more
refined GROUPER [that is, Version 25],’’
and we believe this supports our
implementation of the MS–LTC–DRG
classification system because it better
captures patient severity of illness.
Contrary to the commenters’
statement that we have asserted that
there were no financial incentives for
documentation and coding
improvements prior to the change to
MS–LTC–DRGs, CMS never asserted
that LTCHs had no financial incentives
to improve documentation and coding
prior the introduction of the MS–LTC–
DRGs in 2008. In fact, to the contrary,
analyses conducted by both CMS and
MedPAC have found evidence of
apparent case-mix increases during this
period. It is for this reason that we have
historically adjusted for CMI increases
due to documentation and coding
changes, including adjustments to
account for apparent CMI increases that
were found in FY 2004 (4.0 percent), FY
2005 (2.49 percent), and 2006 (0.9
percent). Consequently, we believe that
the evidence does not support the
commenters’ assumption that the
increases in CMI found when claims
were grouped to Version 25 GROUPER
were due solely to real case-mix
increases. We continue to believe that
the CMI increases over that period are
attributable to both real case-mix
changes due to increased patient
severity of illness and documentation
and coding changes and that the more
refined methodology utilized in the
proposed rule, and finalized in this final
rule, accurately and appropriately
quantifies the appropriate
documentation and coding adjustments
that should be applied to account for the
effects of documentation and coding
that occurred in FY 2007 and FY 2008.
Comment: Many commenters were
disappointed that CMS was unable to
obtain relevant findings based on CDAC
data to quantify real case-mix change.
Response: As we stated in the
proposed rule, when we attempted to
use the CDAC data to distinguish real
increase in case-mix growth from
documentation and coding in the
overall case-mix number, we found
aberrant data and significant variation
across the FY 1999 through FY 2007
analysis period. It was not possible to
distinguish changes in documentation
and coding from changes in real casemix in the CDAC data. Therefore, we
concluded that the CDAC data would
not support analysis of real case-mix
growth that could be used in our
retrospective evaluation of the FY 2008
claims data. While we acknowledge the
disappointment of the commenters, we
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note that we did not receive any public
comments suggesting an alternative
analysis directly measuring real casemix growth that did not rely on
assumptions with respect to the other
factors that influence overall case-mix
growth.
Comment: Several commenters stated
that CMS premised the documentation
and coding adjustment on the existence
of changes in severity level within each
MS–LTC–DRG family. The commenters
indicated that two-thirds of the case-mix
change was attributable to changes
across MS–LTC–DRGs. The commenters
believed that these across MS–LTC–
DRG changes refute CMS’
documentation and coding analysis.
Response: Neither our MS–DRG nor
our MS–LTC–DRG documentation and
coding analysis was premised on the
existence of changes in severity level
within each DRG family. For the MS–
DRGs, the analysis of changes in
severity level was supplemental to the
primary analysis and methodology
described in the proposed rule. As we
stated in the proposed rule concerning
the MS–DRG analysis: ‘‘We sought to
corroborate (emphasis added) this 2.5
percent estimate by examining the
increases in the within-base DRGs as
compared to the increases in the across
base DRGs * * *’’ (74 FR 24094).
The fact that within MS–DRG changes
are supportive of the MS–DRG
documentation and coding analysis
does not mean that lesser within MS–
LTC–DRG changes refute the MS–LTC–
DRG documentation and coding
analysis. Across MS–LTC–DRG changes
can occur for a variety of reasons,
including documentation and coding. A
higher proportion of across MS–LTC–
DRG changes does not imply that
documentation and coding increases
were nonexistent. We note that the FY
2008 documentation and coding
estimate for MS–LTC–DRGs was less
than half of the FY 2008 estimate for
MS–DRGs. This is entirely consistent
with the differences in within and
across base DRG changes observed
under the two systems. Furthermore, we
note that our analysis has found
examples of across MS–LTC–DRG
changes that would contribute to the
documentation and coding increases.
For example, documentation and coding
changes that involve moving respiratory
failure, pneumonia, and complicated
heart failure from principal to secondary
diagnosis slots would result in higher
payments because each of these would
serve as an MCC and would be assigned
to the highest severity group. That is,
this resequencing will not only change
the base DRG assignment, but it will
also frequently change the Major
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Diagnosis Category (MDC) assignment.
Accordingly, given that across MS–
LTC–DRG changes can occur for a
variety of reasons, including
documentation and coding, we disagree
with commenters that the across MS–
LTC–DRG changes observed between FY
2007 and FY 2008 refute our
documentation and coding analysis.
Comment: Several commenters noted
that the proposed rule did not account
for DRG validations performed by CMS
agents, such as QIOs, MACs, and RACs.
During the validation process, these
agents can make revisions to coding and
recover funds. The commenters also
expressed concerns that the proposed
adjustments for coding and
documentation would subject LTCHs to
additional recovery of funds in cases
where the DRG validation process
resulted in a redesignation of the case to
a lower MS–LTC–DRG severity level.
Response: We recognize that DRG
validation reviews by the CMS
contractors can identify cases that
require changes in DRG assignment,
which may ultimately reduce a
hospital’s average case-mix. However,
these validations are performed on a
sample basis and are not done for all
LTCH claims. More significantly, they
are done primarily to capture fraudulent
coding activities, not to address changes
in documentation and coding practices
that skew the data, resulting in increases
in the average MS–LTC–DRG relative
weights that are not reflective of
hospitals’ treatment of more resource
intensive patients. As we have noted
previously, apparent CMI increase is
defined as the increase in CMI due to
changes in documentation and coding
practices (including better
documentation of the medical record by
physicians and more complete coding of
the medical record by coders). These
types of changes in documentation and
coding practices would not be
addressed in the validations performed
by the CMS contractors.
Comment: A number of commenters
presented concern, in general, with the
proposal to apply a documentation and
coding adjustment in determining the
update to the LTCH PPS rate for RY
2010. The commenters expressed
concern that such an adjustment would
reduce LTCH PPS payments and
compound the economic woes that
LTCHs are experiencing in the current
economy.
Response: As discussed above, we
fully understand that this
documentation and coding adjustment
would reduce the increased level of
LTCH PPS payments that affected
LTCHs are receiving in absence of the
adjustment. As discussed above, we
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believe that it is appropriate to make
adjustments to the LTCH PPS standard
Federal rate to account for the changes
in documentation and coding practices
(rather than patients’ severity of illness
and costs). Therefore, we are finalizing
our proposal to apply an adjustment of
¥0.5 percent in determining the RY
2010 update to the LTCH PPS standard
Federal rate to account for the
documentation and coding increase that
occurred in FY 2007. In FY 2007, the
CMS LTC–DRGs was the patient
classification system used under the
LTCH PPS. Making an adjustment to
account for the documentation and
coding increase that occurred in FY
2007 is consistent with our historical
approach in accounting for increases in
payments from a past period due to
changes in documentation and coding
practices that have occurred under the
CMS LTC–DRGs since we first
implemented the LTCH PPS in 2003.
After consideration of the public
comments received and consistent with
the decision to postpone the application
of the prospective adjustment for
estimated FY 2008 documentation and
coding increases under the IPPS
(discussed in section II.D.5. of this
preamble), we have decided to delay the
application of the FY 2008
documentation and coding adjustment
that was proposed under the LTCH PPS
for RY 2010. We intend to address any
future documentation and coding
adjustment to the LTCH PPS standard
Federal rate based on our analysis of the
FY 2008 LTCH claims data in the FY
2011 rulemaking cycle through the
notice-and-comment rulemaking
process.
In this final rule, we are applying an
adjustment for changes in
documentation and coding that do not
reflect an increase in patients’ severity
of illness of ¥0.5 percent to account for
the documentation and coding increase
that occurred in FY 2007. Accordingly,
as discussed in section V.A.2. of the
Addendum to this final rule, we are
updating the RY 2010 LTCH PPS
standard Federal rate by 2.0 percent,
which is based on the most recent
estimate of the market basket increase
(2.5 percent) and an adjustment to
account for changes in documentation
and coding practices (¥0.5 percent).
D. Technical Corrections of LTCH PPS
Regulations
While we did not propose any new
payment policy changes in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule,
we took the opportunity to propose two
technical corrections to regulation text
that we believe will clarify our existing
policy at § 412.525 relating to
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adjustments to the Federal prospective
payment to LTCHs (74 FR 24232).
First, at § 412.525(a)(2), the
regulations currently state that ‘‘The
fixed-loss amount is determined for the
long-term care hospital rate year using
the LTC–DRG relative weights that are
in effect on July 1 of the rate year.’’ As
stated earlier, in the RY 2009 LTCH PPS
final rule, we revised the LTCH PPS
payment rate update cycle in order to
consolidate the timing of the annual
update of the payment rates with the
update of the MS–LTC–DRG
classifications to October 1, beginning
October 1, 2009 (73 FR 26792 through
26798). At that time, at § 412.503, we
specified a new definition for ‘‘longterm care hospital prospective payment
system rate year.’’ Under § 412.503, the
term ‘‘long-term care hospital
prospective payment system rate year’’
means: (1) From July 1, 2003, and
ending on or before June 30, 2008, the
12-month period of July 1 through June
30; (2) from July 1, 2008, and ending on
September 30, 2009, the 15-month
period of July 1, 2008, through
September 30, 2009; and (3) beginning
on or after October 1, 2009, the 12month period of October 1 through
September 30. At §§ 412.535(b) and (c),
we described the resulting new
publication schedule of Federal
prospective payment rates. However, we
neglected to make a conforming change
to the regulations at § 412.525(a)(2) to
reflect this new schedule. Currently, the
language of § 412.525(a)(2) still links the
determination of the fixed-loss amount
to a July 1 effective date. The annual
calculation of the fixed-loss amount,
which is the amount used to limit the
loss that a hospital will incur under the
outlier policy for a case with unusually
high costs, is directly linked to the
calculation of the annual update of the
Federal prospective payment rate (73 FR
26821). When we changed the annual
update of the LTCH PPS rate year to
coincide with the update in the MS–
LTC–DRG relative weights to October 1,
we should have changed the language at
§ 412.525(a)(2) regarding the calculation
of the fixed-loss amount to conform
with this new schedule.
We did not receive any public
comments on our proposal to make this
technical correction. Therefore, we are
finalizing, without modification, our
proposal to revise § 412.525(a)(2) to
accurately reflect the basis (effective
LTC–DRG relative weights) for
calculating the annual fixed-loss
amount for high-cost outlier payments,
in order to cover the various update
cycles that have been in effect under the
LTCH PPS. Specifically, we are revising
§ 412.525(a)(2) to specify that the fixed-
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loss amount is determined for the LTCH
rate year using the MS–LTC–DRG
relative weights that are in effect at the
start of the applicable LTCH PPS rate
year, as defined in § 412.503. (We note
that the regulation text at § 412.525(a)(2)
uses the term ‘‘LTC–DRG’’ rather than
‘‘MS–LTC–DRG’’ because the term
‘‘LTC–DRG’’ includes ‘‘MS–LTC–DRG’’
generally applicable to any year.
Specifically, in our regulations at
§ 412.503, we state that ‘‘[a]ny reference
to the term ‘LTC–DRG’ shall be
considered a reference to the term ‘MS–
LTC–DRG’ when applying the
provisions of this subpart for policy
descriptions and payment calculations
for discharges from a long-term care
hospital occurring on or after October 1,
2007.’’)
We also proposed in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
a clarification of our existing policy at
§ 412.525(d) that would more accurately
reflect existing policy regarding
payment adjustments under the LTCH
PPS. In paragraph (d) of § 412.525, we
provide that CMS adjusts the Federal
prospective payment to account for—(1)
short-stay outliers at § 412.529; (2) a 3day or less interruption of stay and a
greater than 3-day interruption of stay,
as provided for in § 412.531; (3) patients
who are transferred to onsite providers
and readmitted to a LTCH as provided
for in § 412.532; and (4) long-term care
HwHs and satellite facilities of LTCHs
as provided in § 412.534.
We finalized the policy at
§ 412.525(d)(4), which refers to the
percentage threshold payment
adjustment for co-located long-term care
HwHs and satellite facilities in the FY
2005 IPPS final rule (69 FR 49191
through 49214), and it was codified in
the FY 2007 IPPS final rule (71 FR
48122). We adopted a similar policy in
the RY 2008 LTC PPS final rule (72 FR
26910 through 26944) that provides for
an adjustment to the LTCH PPS
payment for LTCHs and satellite
facilities of LTCHs that discharge
Medicare patients admitted from
hospitals not located in the same
building or on the same campus as the
LTCH or the satellite facility of the
LTCH, as specified at § 412.536. We
inadvertently omitted the inclusion of
this policy in the regulation text at
§ 412.525(d).
We did not receive any public
comments on our proposed clarification.
Therefore, in order to ensure that the
applicable regulatory text reflects
existing policy, we are finalizing,
without modification, our proposal to
make this technical correction by
adding a paragraph (d)(5) to § 412.525 to
specifically provide that CMS adjusts
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43973
the Federal LTCH PPS payment amount
for LTCHs and satellite facilities of
LTCHs that discharged Medicare
patients admitted from a hospital not
located in the same building or on the
same campus as the LTCH or the
satellite facility of the LTCH, as
provided in § 412.536.
IX. Revisions to the FY 2009 Medicare
Severity-Long-Term Care DiagnosisRelated Group (MS–LTC–DRG) Relative
Weights: Finalization of an Interim
Final Rule With Comment Period
A. Overview
On June 3, 2009, we published in the
Federal Register (74 FR 26546), an
interim final rule with comment period
that implemented revised MS–LTC–
DRG relative weights for payment under
the LTCH PPS for FY 2009. We revised
the MS–LTC–DRG relative weights for
FY 2009 due to the misapplication of
our established methodology in the
calculation of the budget neutrality
factor. The revised FY 2009 MS–LTC–
DRG relative weights are effective for
the remainder of FY 2009 (that is, from
June 3, 2009, through September 30,
2009). Below we summarize the
provisions of the June 3, 2009 interim
final rule with comment period, present
a summary of the public comments
received on the interim final rule with
comment period and our responses, and
state our final policy.
B. Changes to the FY 2009 MS–LTC–
DRG Relative Weights
Beginning with the FY 2008 update,
we established a budget neutrality
requirement for the annual update to the
MS–LTC–DRG classifications and
relative weights at § 412.517(b) of our
regulations (in conjunction with
§ 412.503), 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
classification and relative weight
changes. (We refer readers to the May
11, 2007 LTCH PPS final rule (72 FR
26882 through 26884).)
Consistent with § 412.517(b), in the
FY 2009 IPPS final rule (73 FR 48550
through 48551), using the most recent
data available at that time (FY 2007
LTCH claims data from the March 2008
update of the MedPAR files), we
established the MS–LTC–DRG
classifications and relative weights for
FY 2009 based on the application of
budget neutrality adjustment factors
determined using the two-step
methodology of calculating and
applying a normalization factor and a
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budget neutrality factor, as initially
established in the FY 2008 IPPS final
rule (August 22, 2007, (72 FR 47295
through 47296)). Specifically, for FY
2009, under the first step of the
established two-step budget neutrality
methodology, after recalibrating the
MS–LTC–DRG relative weights, we
calculated and applied a normalization
factor of 1.03887 to those relative
weights to ensure that the average casemix index (CMI) is not influenced by
changes in the composition of case
types or the changes to the classification
system, such that the recalibration
process itself neither increases nor
decreases the average CMI. In doing so,
each (recalibrated) MS–LTC–DRG
relative weight was multiplied by
1.03887 to produce ‘‘normalized relative
weights.’’
Under the second step of the
established two-step budget neutrality
methodology, we calculated and applied
a ‘‘budget neutrality adjustment factor’’
to ensure that estimated aggregate LTCH
PPS payments after reclassification and
recalibration would be equal to
estimated aggregate LTCH PPS
payments before reclassification and
recalibration. Specifically, as described
in the FY 2009 IPPS final rule (73 FR
48551), we calculated a budget
neutrality factor of 1.04186 by
comparing estimated total payments
using the normalized FY 2009 relative
weights under GROUPER Version 26.0
to estimated total payments using the
FY 2008 GROUPER (Version 25.0) and
FY 2008 MS–LTC–DRG relative weights.
Then, each of the normalized relative
weights was multiplied by that budget
neutrality factor to determine the budget
neutral relative weight for each MS–
LTC–DRG for FY 2009. Thus, the FY
2009 MS–LTC–DRG relative weights
established in Table 11 of the
Addendum of the FY 2009 IPPS final
rule reflect the application of both the
normalization factor of 1.03887 and the
budget neutrality factor of 1.04186.
As we stated in the June 3, 2009
interim final rule with comment period,
we discovered that, in determining the
published FY 2009 MS–LTC–DRG
relative weights, we did not properly
apply the established methodology for
calculating the budget neutrality factor
(the second step of the budget neutrality
methodology, as set forth in the FY 2009
IPPS final rule (73 FR 48550 through
48551). Specifically, upon recent review
of the calculation of the budget
neutrality factor of 1.04186, we found
that it was determined using the
unadjusted recalibrated relative weights
rather than using the normalized
relative weights. This is inconsistent
with our stated methodology for the
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calculation of the FY 2009 budget
neutrality factor (that is, the second step
of the budget neutrality methodology).
As described above and as we stated in
the FY 2009 IPPS final rule (73 FR
48551), the FY 2009 budget neutrality
factor is to be determined based on
estimated total payments using the
normalized (recalibrated) relative
weights under GROUPER Version 26.0
(not the unadjusted recalibrated relative
weights as were used in calculating the
budget neutrality factor of 1.04186
published in the FY 2009 IPPS final
rule). This misapplication of the rule’s
established methodology for calculating
the budget neutrality factors resulted in
relative weights that are higher, by
approximately 3.9 percent. We estimate
aggregate annualized LTCH PPS
payments in FY 2009 (that is, for
discharges occurring on or after October
1, 2008 through September 30, 2009)
based on the MS–LTC–DRG relative
weights published in the FY 2009 IPPS
final rule to be approximately $130
million greater than what the increase
would have been had the FY 2009
budget neutrality factor been calculated
consistent with the established
methodology described in that final
rule. Thus, the FY 2009 MS–LTC–DRG
relative weights shown in Table 11 of
the FY 2009 IPPS final rule (73 FR
49041 through 49062) were inconsistent
with the established budget neutrality
methodology used for the annual update
to the MS–LTC–DRG classifications and
relative weights.
Consistent with our general and
longstanding policy in PPS contexts, we
do not make retroactive changes to
correct past errors in PPS ratesetting,
regardless of whether an error resulted
in higher payments to providers (as in
this situation) or lower payments to
providers. We also do not make
prospective adjustments to PPS rates to
account for errors that occurred in prior
periods, regardless of whether an error
resulted in higher payments or lower
payments to providers. In this instance,
in the June 3, 2009 interim final rule
with comment period, we revised the
FY 2009 MS–LTC–DRG relative weights
to ensure proper application of the
established budget neutrality
methodology in updating the FY 2008
MS–LTC–DRG relative weights to FY
2009 during the fiscal year that will be
effective for the remainder of the fiscal
year. We note that this prospective
revision to the FY 2009 MS–LTC–DRG
relative weights does not reflect a
change in the established budget
neutrality methodology itself but, rather,
reflects the proper calculation of the
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relative weights under the rule’s stated
methodology.
In the June 3, 2009 interim final rule
with comment period, we calculated
revised FY 2009 MS–LTC–DRG relative
weights (effective prospectively for the
remainder of FY 2009) based on the
proper application of the established
budget neutrality methodology.
Specifically, using the same data (FY
2007 LTCH claims data from the March
2008 update of the MedPAR files) and
methodology presented in the FY 2009
IPPS final rule (73 FR 48551) described
above, we determined a budget
neutrality factor of 1.0030401, which
was applied to the normalized relative
weights (that is, the recalibrated relative
weights adjusted by the normalization
factor of 1.03887, as described above).
As a result, we established revised FY
2009 MS–LTC–DRG relative weights
(shown in Table 11 of the June 3, 2009
interim final rule with comment period)
that are effective for LTCH PPS
discharges occurring on or after June 3,
2009, through September 30, 2009. The
revised FY 2009 MS–LTC–DRG relative
weights in Table 11 of the June 3, 2009
interim final rule with comment period
reflect the application of the revised FY
2009 budget neutrality factor 1.0030401
and the FY 2009 normalization factor of
1.03887 (established in the FY 2009
IPPS final rule (73 FR 48551)). (For the
convenience of the reader, in addition to
the revised budget neutral FY 2009 MS–
LTC–DRG relative weights effective June
3, 2009 through September 30, 2009, we
also included in Table 11 the geometric
mean length of stay and five-sixths of
the geometric mean length of stay (SSO
threshold for payments under § 412.529)
for each MS–LTC–DRG for FY 2009. The
revision to the FY 2009 budget
neutrality factor did not affect the
calculations of the geometric mean
length of stay and the SSO threshold for
FY 2009 that were presented in Table 11
of the FY 2009 IPPS final rule.) (As
noted previously in section VII.C. of this
preamble, the revisions to the published
FY 2009 MS–LTC–DRG relative weights
discussed in the June 3, 2009 interim
final rule with comment period affected
the determination of the proposed RY
2010 MS–LTC–DRG relative weights
and the proposed RY 2010 HCO fixedloss amount that were presented in the
FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule. Therefore, we also
presented proposed RY 2010 MS–LTC–
DRG relative weights and the proposed
RY 2010 HCO fixed-loss amount in the
RY 2010 LTCH PPS supplemental
proposed rule published in the Federal
Register on June 3, 2009 (74 FR 26600
through 26635).)
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C. Summary of Public Comments
Received on the June 3, 2009 Interim
Final Rule With Comment Period and
Our Responses
We received 11 timely pieces of
correspondence in response to the June
3, 2009 interim final rule with comment
period. A summary of those public
comments and our responses follow:
Comment: Several commenters
objected to our revision of the FY 2009
MS–LTC–DRG relative weights. The
commenters asserted that the revision
that CMS made to the MS–LTC–DRG
relative weights for the remainder of RY
2009 (June 3, 2009 through September
30, 2009) constituted ‘‘impermissible
retroactive rulemaking’’ which is
contrary to the principles underlying
prospective payments as well as to
quoted preamble language in the 1983
and 2007 IPPS final rules. One
commenter questioned CMS’ authority
in establishing a ‘‘retrospective
evaluation and correction to a LTCH–
PPS rate year,’’ citing case law from the
D.C. Circuit that the commenter
suggested restricts CMS from making
‘‘retroactive’’ correction to published
rates because of the prospective nature
of a PPS.
Response: First, the revision to the FY
2009 MS–LTC–DRG relative weights is
not retroactive in application. Rather,
the revision is effective prospectively,
based on the date of publication of the
interim final rule with comment period
in the Federal Register, that is, June 3,
2009 through September 30, 2009.
Moreover, the revision does not reflect
a correction to LTCH PPS payment rates
in a previous year. Second, as provided
for in section 1886(m) of the Act
(discussing the statutory authority for
the LTCH PPS), CMS has broad legal
authority with respect to the LTCH PPS.
We note that, as explained in the
interim final rule with comment period,
the prospective revision of the FY 2009
MS–LTC–DRG relative weights does not
reflect a change in the established
budget neutrality methodology itself,
but rather reflects the proper calculation
of the relative weights under the
established methodology set forth in the
FY 2009 IPPS final rule (73 FR 48550
through 48551).
Third, the principles underlying
prospective payment systems often
reflect competing considerations (for
example, prospectivity, finality,
certainty, and accuracy). We agree that,
generally, mid-year revisions should be
disfavored in a PPS. However, balancing
the competing considerations under the
unique circumstances presented in this
situation, we believe that a mid-year
prospective revision to the FY 2009
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MS–LTC–DRG relative weights to
ensure the proper application of the
established budget neutrality
methodology in updating the FY 2009
MS–LTC–DRG classifications and
relative weights to FY 2009 is
appropriate. For these reasons, we
believe that the court decisions cited by
the commenter are not on point.
Comment: Several commenters
questioned CMS’ use of the March 2008
update of the FY 2007 data in our
recalculation of the budget neutrality
factor to determine the revised FY 2009
MS–LTC–DRG relative weights. Citing
section 307(b) of the BIPA of 2000, the
commenters stated that CMS was
required by statute to use ‘‘the best
available data’’ and that because newer
hospital discharge data, from the
December 2008 update of the FY 2008
claims data, were available for our
revised calculations, CMS was in
violation of the statutory mandate by
continuing to use the March 2008
update of the FY 2007 data. Data from
FY 2008, the commenters asserted,
capture changes in case-mix that
occurred in 2008 and, therefore, more
accurately reflect increases in patient
resource use related to an increase in
patient case-mix severity. Moreover, the
commenters noted that use of the more
recent data would result in estimated
RY 2009 LTCH payments ‘‘not
significantly different than what RY
2009 LTCH payments are estimated to
be without correcting the budget
neutrality error’’ for the remainder of FY
2009. The commenters state that using
these FY 2008 data, therefore, would
render the revision to the FY 2009 MS–
LTC–DRG relative weights presented in
the June 3, 2009 interim final rule with
comment period unnecessary.
Response: We do not agree that we are
violating section 307(b) of the BIPA of
2000 in using the March 2008 update of
the FY 2007 MedPAR files in our
revised calculation of the FY 2009 MS–
LTC–DRG relative weights when FY
2008 claims data from the December
2008 update of the LTCH files were
available at the time the misapplication
of our established budget neutrality
methodology was discovered. Section
307(b) of the BIPA of 2000 did indeed
require that in developing the LTCH
PPS system, in addition to accounting
for ‘‘different resource use of long-term
care hospital patients,’’ in setting DRG
weights, we use the ‘‘most recently
available hospital discharge data.’’
Consistent with our historical policy of
using the best available data, our annual
updates to each data-driven element of
the LTCH PPS, such as relative weights,
payment rates, market basket
percentages, and HCO thresholds, are
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based on the most recently available
hospital discharge data at the time those
elements are developed. Thus, when we
revised the FY 2009 MS–LTC–DRG
relative weights in the interim final rule
with comment period, the calculations
were based on the specific data set used
at the time the FY 2009 MS–LTC–DRG
relative weights were initially
established (73 FR 48550 through
48551). As noted in the interim final
rule with comment period, we failed to
follow our established methodology at
that time, and we believe it is
appropriate in revising the FY 2009
MS–LTC–DRG relative weights
prospectively, to apply the correct
methodology to the same data set.
Therefore, we are not adopting the
commenters’ suggestion to utilize the
December 2008 update of the FY 2008
MedPAR claims in determining the
revised FY 2009 MS–LTC–DRG relative
weights, as that was not the most
recently available set of data used at the
time the FY 2009 MS–LTC–DRG relative
weights were established. However, we
note that any changes in patient
resource that may exist based on the FY
2008 LTCH claims data will be reflected
in the RY 2010 MS–LTC–DRG relative
weights, which were determined based
upon those data, as discussed in section
VIII.B.3. of this final rule.
Comment: Several commenters
asserted that the June 3, 2009 interim
final rule with comment period violated
‘‘notice and comment’’ rulemaking
procedures as required by the Social
Security Act and the Administrative
Procedure Act (APA). A number of these
commenters maintained that without
notice and comment rulemaking, the
public has not been given a sufficient
opportunity to review the new
methodology and determine if CMS’
most recent effort to calculate budget
neutrality for FY 2009 is correct. The
commenters disagreed with the waiver
of proposed rulemaking, the delay of the
effective date, and the 60-day comment
period and were not convinced that
good cause was present in order to
justify the use of emergency rulemaking
procedures. In light of these concerns,
two commenters suggested that CMS
withdraw the interim final rule with
comment period or at least convert it to
a proposed rule which would serve as
appropriate ‘‘notice and comment.’’
Response: We do not agree with the
commenters that we have violated the
‘‘notice and comment’’ rulemaking
requirements of section 553(d) of the
APA and section 1871 of the Social
Security Act. As we noted in the June
3, 2009 interim final rule with comment
period, we ordinarily publish a
proposed rule and provide a period for
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public comment before the effective
date of the rule. We also typically
provide a 30-day delay in the effective
date of a rule in accordance with section
553(d) of the APA, and section 1871 of
the Act. However, both the prior noticeand-comment procedure and the delay
in the effective date can be waived if the
Secretary, for good cause, finds that it is
impracticable, unnecessary, or contrary
to the public interest and incorporates a
statement of the finding and its reasons
in the notice issued. In the instant case,
we believe that it was unnecessary to
undertake prior notice-and-comment
rulemaking or provide a delay in the
effective date because the June 3, 2009
interim final rule with comment simply
reflected the appropriate application of
the established methodology set forth in
the FY 2009 IPPS final rule (73 FR
48550 through 48551). Because section
307(b)(1) of the BIPA of 2000 authorizes
the Secretary to provide for an annual
update of the LTCH PPS MS–LTC–DRG
relative weights, and the methodology
used to update the MS–LTC–DRG
relative weights have been previously
subject to public comment, we do not
believe that an additional comment
period or a delay in the effective date
was necessary. (We also note that,
historically, our annual proposed
update of the LTCH PPS proposed
payment rates and MS–LTC–DRG
relative weights are based upon
established methodology, and it is
expected that these numbers will be
updated in the final rule based on more
recent data, without being subject to
additional public comment.) We
continue to believe that an interim final
rule with comment period was the
appropriate vehicle for establishing the
revised FY 2009 MS–LTC–DRG relative
weights.
As noted in earlier responses, our
revision of these relative weights was
necessitated by a recently discovered
misapplication of our established
budget neutrality methodology. In
response to the commenters who
express concern that the absence of a
60-day comment period deprived them
of an opportunity to review the new
application of the methodology to
determine if CMS’ most recent effort to
calculate the budget neutral FY 2009
MS–LTC–DRG relative weights is
correct, we note that the methodology
used to calculate budget neutrality for
the MS–LTC–DRGs was originally
established in the FY 2008 IPPS final
rule (72 FR 26882 through 26884).
In addition, we continue to believe
that it is impracticable to undertake
prior notice-and-comment rulemaking
or provide a delay in the effective date
because, as stated above, the June 3,
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period makes a prospective revision to
the FY 2009 MS–LTC–DRG relative
weights to reflect proper application of
the applicable established methodology
and, therefore, should be applied in as
timely a manner as possible. Therefore,
we believe that we have good cause to
waive notice-and-comment rulemaking
procedures, as well as the 30-day delay
in the effective date.
Comment: One commenter requested
that CMS consider phasing in the
revised MS–LTC–DRG relative weights
over a 3-year period, given the
anticipated impact on LTCHs of the
estimated reduction in Medicare
payments.
Response: We do not believe that a
phase-in of the revised FY 2009 MS–
LTC–DRG relative weights is either
necessary or appropriate. For the first
two-thirds of FY 2009, Medicare
payments to LTCHs were higher than
what they would have been had the
misapplication of the budget neutrality
methodology not occurred. In revising
the FY 2009 MS–LTC–DRG relative
weights, Medicare payments will be
based on our established methodology
and data analysis, and we believe that
we will be properly making payments
reflecting the actual LTCH resource use
for LTCH cases for each MS–LTC–DRG.
Therefore, we are not adopting the
commenters’ suggestion to phase in the
revised MS–LTC–DRG relative weights.
We note that the public comments
that we received on the RY 2010 LTCH
PPS supplemental proposed rule, which
was published on June 3, 2009 in the
Federal Register, regarding the
proposed RY 2010 MS–LTC–DRG
relative weights and the proposed HCO
fixed-loss amount for RY 2010 are
addressed in section VIII.C.3 of the
preamble and section V. of the
Addendum to this final rule.
D. Finalization of the June 3, 2009
Interim Final Rule With Comment
Period
After consideration of the public
comments we received on the June 3,
2009 interim final rule with comment
period, we are finalizing, without
modification, the FY 2009 MS–LTC–
DRG relative weights presented in that
interim final rule with comment period,
which are currently in effect.
E. Regulatory Impact Analysis for the
June 3, 2009 Interim Final Rule With
Comment Period
As we stated in the June 3, 2009
interim final rule with comment period,
we examined the impacts of that interim
final rule with comment period as
required by Executive Order 12866
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(September 1993, Regulatory Planning
and Review), the Regulatory Flexibility
Act (RFA) (September 19, 1980, Pub. L.
96–354), section 1102(b) of the Social
Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104–4),
Executive Order 13132 on Federalism,
and the Congressional Review Act (5
U.S.C. 804 (2)).
The regulatory impact analysis
presented in the June 3, 2009 interim
final rule with comment period remains
the same. Therefore, we are not
reprinting it in this document. We refer
readers to that interim final rule with
comment period (74 FR 26549 through
24950) for the details of that analysis.
In accordance with the provisions of
Executive Order 12866, this regulation
was reviewed by the Office of
Management and Budget.
X. Finalization of Two Interim Final
Rules With Comment Period That
Implemented Certain Provisions of
Section 114 of the Medicare, Medicaid,
and SCHIP Extension Act of 2007 (Pub.
L. 110–173) Relating to Payments to
LTCHs and LTCH Satellite Facilities
A. Background
On May 6, 2008, we published in the
Federal Register (73 FR 24871) an
interim final rule with comment period
to implement certain provisions of
section 114 of the Medicare, Medicaid,
and SCHIP Extension Act of 2007
(MMSEA) (Pub. L. 110–173) relating to
LTCHs. Specifically, the May 6, 2008
interim final rule with comment period
(CMS–1493–IFC) implemented section
114(c)(3) and sections 114(e)(1) and
(e)(2) of the MMSEA. Section 114(c)(3)
of the MMSEA established a 3-year
delay in the application of certain
provisions regarding the payment
adjustment for short-stay outliers.
Sections 114(e)(1) and (e)(2) of the
MMSEA made revisions to the RY 2008
standard Federal rate.
On May 22, 2008, we published in the
Federal Register (73 FR 29699) another
interim final rule with comment period
to implement other provisions of section
114 of the MMSEA relating to LTCHs
and LTCH satellite facilities.
Specifically, the May 22, 2008 interim
final rule with comment period (CMS–
1493–IFC2) implemented sections
114(c)(1) and (c)(2) and section 114(d) of
the MMSEA. Sections 114(c)(1) and
(c)(2) of the MMSEA established a 3year delay in the application of certain
payment policies that apply payment
adjustments for discharges from LTCHs
and LTCH satellites that were admitted
from certain referring hospitals in
excess of various percentage thresholds.
Section 114(d) of the MMSEA
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established a 3-year moratorium on the
establishment of new LTCHs and LTCH
satellite facilities; and on increases in
beds in existing LTCHs and LTCH
satellite facilities, with certain
exceptions.
The American Recovery and
Reinvestment Act of 2009 (ARRA) (Pub.
L. 111–5) modified several of the LTCHrelated provisions set forth in sections
114(c) and (d) of the MMSEA
implemented in the May 22, 2008
interim final rule with comment period.
Specifically, section 4302 of the ARRA
amended sections 114(c)(1), (c)(2), and
(d)(3) of the MMSEA. We have issued
instructions to the fiscal intermediaries
and MACs interpreting the ARRA
amendments (Change Request 6444).
Section XI. of this document contains an
interim final rule that addresses the
specific modifications that section 4302
of the ARRA made to sections 114(c)(1),
(c)(2) and (d)(3) of the MMSEA.
In this section of this final rule, we
respond to comments and finalize
policies implemented in the May 6 and
the May 22, 2008 interim final rules
with comment period relating to those
provisions of sections 114(c), (d), and (e)
of the MMSEA that were not otherwise
modified by section 4302 of the ARRA.
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B. May 6, 2008 Interim Final Rule With
Comment Period Provisions
Implementing Section 114(c)(3) of the
MMSEA Regarding Certain Short-Stay
Outlier Cases
1. Background
In the RY 2003 LTCH PPS final rule
(67 FR 55995), we established at
§ 412.529 a special payment policy for
short-stay outlier (SSO) cases. SSO cases
are cases with a covered LOS that is less
than or equal to five-sixths of the
geometric average LOS for each LTC–
DRG (67 FR 55995 through 56000).
Under the SSO policy, we adjusted the
per discharge payment for SSO cases
under the LTCH PPS by the least of the
following three options: (1) 120 percent
of the estimated cost of the case; (2) 120
percent of the LTC–DRG specific per
diem amount multiplied by the covered
LOS of that discharge; or (3) the full
LTC–DRG payment. Since the
implementation of the LTCH PPS, we
have continued to collect and evaluate
data from the LTCH PPS claims, which
revealed that a large percentage of SSO
cases had a covered LOS of 14 days or
less. Based on these findings, we further
revised our payment policy for SSO
cases in the RY 2007 LTCH PPS final
rule for LTCHs defined by section
1886(d)(1)(B)(iv)(I) of the Act. (We refer
the reader to the LTCH PPS final rule for
RY 2007 (71 FR 27845 through 27870)
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for a detailed description of the
revisions to our SSO policy for RY
2007.)
In the RY 2008 LTCH PPS final rule,
we further revised the SSO policy based
upon additional analysis of FY 2005
MedPAR data. At that time, we stated
that LTCH SSO cases with LOS that are
equal to or less than the IPPS average
LOS plus one standard deviation for the
same DRGs under the IPPS appeared to
be comparable to typical stays at acute
care hospitals (72 FR 26904 through
26918). Accordingly, in the RY 2008
LTCH PPS final rule we established an
additional payment option for SSO
cases under the LTCH PPS for
discharges occurring on or after July 1,
2007. Specifically, the covered LOS of a
SSO case which has been assigned to a
particular MS–LTC–DRG is compared to
the average LOS plus one standard
deviation for the same DRG under the
IPPS, which we call the ‘‘IPPS
comparable threshold’’ (72 FR 26870
and 26906). Thus, for a LTCH SSO case
that is within the ‘‘IPPS comparable
threshold,’’ we added an additional
payment option based on an amount
comparable to the hospital IPPS per
diem amount determined under
§ 412.529(d)(4). (For a detailed
discussion of the RY 2008 revision to
the SSO policy, we refer the reader to
the RY 2008 LTCH PPS final rule (72 FR
26904 through 26918).
In summary, as established in
§ 412.529, for LTCH discharges
occurring on or after July 1, 2008 from
a LTCH defined under section
1886(d)(1)(B)(iv)(I), Medicare pays the
least of the following:
• 100 percent of the estimated cost of
the case;
• 120 percent of the LTC–DRG
specific per diem amount multiplied by
the covered LOS of the particular case;
• The full LTC–DRG payment; or by
• Comparing the covered LOS for a
SSO case and the ‘‘IPPS comparable
threshold’’ in one of the following
manners:
• The blend of the 120 percent of the
LTC–DRG specific per diem amount and
an amount comparable to the IPPS per
diem amount specified in
§ 412.529(c)(2)(iv) for cases where the
covered LOS for a SSO case is greater
than the ‘‘IPPS comparable threshold’’;
or
• An amount comparable to the
hospital IPPS per diem amount
determined under § 412.529(d)(4) for
cases where the covered LOS for a SSO
is less than or equal to the ‘‘IPPS
comparable threshold.’’
Revisions to the SSO policy payment
options that were finalized in RY 2007
and RY 2008 were not applied to the
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43977
unique situation of a hospital
designated as a LTCH by Congress
under section 1886(d)(1)(B)(iv)(II) of the
Act, that is, (a ‘‘subclause (II)’’ LTCH)
(71 FR 27863 and 72 FR 26907).
2. Public Comments Received on the
May 6, 2008 Interim Final Rule With
Comment Period Provisions
Implementing Sections 114(e)(1) and
(e)(2) of the MMSEA
Section 114(c)(3) of the MMSEA
provides that ‘‘[t]he Secretary shall not
apply, for the 3-year period beginning
on the date of the enactment of this Act,
the amendments finalized on May 11,
2007 (72 FR 26904, 26992) made to the
short-stay outlier payment provision for
long-term care hospitals contained in
section 412.529(c)(3)(i) of title 42, Code
of Federal Regulations, or any similar
provision.’’ Accordingly, we stated in
the May 6, 2008 interim final with
comment period that, ‘‘for discharges
beginning on or after December 29, 2007
and before December 29, 2010, the
fourth SSO payment option based on
the ‘IPPS comparable threshold’ as
discussed above shall not apply’’ (73 FR
24875).
Specifically, in that interim final with
comment period we noted that, ‘‘during
the 3-year period specified above, for
each SSO case treated as a LTCH
defined under section
1886(d)(1)(B)(iv)(I) of the Act, Medicare
will pay the least of: (1) 100 percent of
the estimated cost of the case; (2) 120
percent of the LTC–DRG specific per
diem amount multiplied by the covered
LOS of the particular case; (3) the full
LTC–DRG payment; or (4) the blend of
the 120 percent of the LTC–DRG
specific per diem amount and an
amount comparable to the IPPS per
diem amount specified in
§ 412.529(c)(2)(iv)’’ (73 FR 24875).
Comment: All of the commenters
strongly supported our implementation
of the modification to the SSO policy
required by section 114(c)(3) of the
MMSEA.
Response: We appreciate these
comments.
Accordingly, we are finalizing our
changes at §§ 412.529(c) and (f) of the
regulations pertaining to the payment of
SSO cases that implemented section
114(c)(3) of the MMSEA. Specifically,
we are finalizing the following changes
to our regulation text made in the May
6, 2008 interim final rule with comment
period: revising paragraphs (c)(1)
through (c)(3), redesignating paragraph
(c)(4) as paragraph (f), and revising
newly redesignated paragraph (f).
In the May 6, 2008 interim final rule
with comment period, we also noted
that we had not made any substantive
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changes to the policy for reconciliation
of SSO payment (other than those
associated with implementing section
114(c)(3) of the MMSEA) and that the
redesignation of the paragraph (c)(4) as
paragraph (f), in addition the heading
changes, are simply reorganizational
changes intended to make the
regulations in this section more
accessible.
In the May 6, 2008 interim final rule
with comment period, we also noted
that in amending the regulations, we
discovered that several citations under
existing paragraph (c)(4) were incorrect,
originating from the RY 2008 final rule
when we redesignated this paragraph
from (c)(3) to (c)(4) (which was also an
organizational change and not a
substantive policy change to the policy
on reconciliation of SSO payment) but
inadvertently did not change the
citations to correspond to the
redesignation. We are therefore
finalizing the corrected citations in the
redesignated paragraph (f) (73 FR
24875).
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C. May 6, 2008 Interim Final Rule With
Comment Period Provisions
Implementing Sections 114(e)(1) and
(e)(2) of the MMSEA Regarding the
Standard Federal Rate for the 2008
LTCH PPS Rate Year
1. Background
Section 114(e)(1) of the MMSEA
provides that the base rate for RY 2008
‘‘shall be the same as the base rate for
discharges for the hospital occurring
during the rate year ending in 2007.’’
Furthermore, section 114(e)(2) of the
MMSEA provides that section
1886(m)(2) shall not be applicable to
discharges occurring on or after July 1,
2007, and before April 1, 2008. We
implemented this provision in the May
6, 2008 interim final rule with comment
period at which time we also solicited
public comments.
In the RY 2009 LTCH PPS proposed
rule (73 FR 5362), we noted that
consistent with our historical practice,
we proposed to update the standard
Federal rate for RY 2009 from the
previous year based on our
interpretation of section 114(e) of the
MMSEA, as discussed in the interim
final rule with comment period (73 FR
24871 through 24875). This proposed
rate was finalized in the RY 2009 LTCH
PPS final rule (73 FR 26804 through
26807). (For a description and
chronology of our ratesetting policy
under the LTCH PPS, we refer readers
to section V.A.1. of the Addendum to
this final rule.)
Section 114(e)(1) of the MMSEA
revises the base rate for RY 2008.
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Specifically, section 114(e)(1) of the
MMSEA adds a new section 1886(m)(2)
to the Act, which provides that the base
rate for RY 2008 ‘‘shall be the same as
the base rate for discharges for the
hospital occurring during the rate year
ending in 2007.’’ In addition, section
114(e)(2) of the MMSEA indicates that
section 1886(m)(2) of the Act ‘‘shall not
apply to discharges occurring on or after
July 1, 2007, and before April 1, 2008’’
(that is, the first 9 months of RY 2008).
In the May 6, 2008 interim final rule
with comment period, we noted that the
statute uses the term ‘‘base rate,’’ which
is not a defined term in either section
1886(m) of the Act or in 42 CFR part
412, Subpart O. As we explained in the
LTCH PPS RY 2009 final rule (73 FR
26805), we interpret that term to refer to
the standard Federal rate.
Under this interpretation, the
standard Federal rate for RY 2008 would
be the same as the standard Federal rate
for RY 2007, that is, the 0.71 percent
update finalized in the RY 2008 LTCH
PPS final rule would be reversed. (In the
RY 2008 LTCH PPS final rule (72 FR
26887 through 26890), we established
(at § 412.523(c)(3)(iv) of the regulations)
the revised standard Federal rate for RY
2008 at $38,086.04, the same as it had
been for RY 2007.) As specified by
section 114(e)(2) of the MMSEA,
Medicare payments beginning on and
after July 1, 2007, and before April 1,
2008 would be calculated based on the
standard Federal rate that we
established, in the RY 2008 LTCH PPS
final rule, effective from July 1, 2007,
through June 30, 2008, at $38,356.45 (72
FR 26890).
As we stated in the May 6, 2008
interim final rule with comment period,
we do not believe that the term ‘‘base
rate’’ could refer to the ‘‘unadjusted
rate’’ because the unadjusted rate for RY
2008 would be updated by the current
year’s update factor in order to
determine the standard Federal rate for
RY 2008 (that is, to determine the
standard Federal rate for any given rate
year, the previous year’s standard
Federal rate, which we refer to as the
‘‘unadjusted rate,’’ is updated by the
current year’s update factor), and doing
so would result in the same Federal rate
for RY 2008 as was adopted in the RY
2008 LTCH PPS final rule. To illustrate
this scenario mathematically, if ‘‘base
rate’’ is interpreted to mean ‘‘unadjusted
rate,’’ the ‘‘unadjusted rate’’ for RY 2008
($38,086.04) would be the same as the
RY 2007 ‘‘unadjusted rate’’ ($38,086.04).
The RY 2008 ‘‘unadjusted rate’’ of
$38,086.04 would subsequently be
updated by the 0.71 percent update
factor finalized in the RY 2008 final
rule, resulting in a standard Federal rate
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for RY 2008 of $38,356.45, which is the
same standard Federal rate that was
originally finalized in the RY 2008 final
rule. If we adopted this interpretation,
we believe that LTCH PPS payments
would be unaffected by section 114(e)(1)
of the MMSEA. Therefore, we believe
that the term ‘‘base rate’’ used in section
114(e)(1) of the MMSEA refers to the
standard Federal rate.
In the RY 2008 LTCH PPS final rule
(72 FR 26890), we originally established
a standard Federal rate of $38,356.45 for
the 2008 LTCH PPS rate year that was
based on the best available data and
policies established in that final rule. As
discussed above, section 114(e) of the
MMSEA revised the standard Federal
rate for RY 2008. Specifically, section
114(e)(1) of the MMSEA provides that
under the new section 1886(m)(2) of the
Act, the standard Federal rate for RY
2008 shall be the same as the standard
Federal rate for RY 2007. The standard
Federal rate for RY 2007 was $38,086.04
(71 FR 27818). Thus, to implement
114(e)(1) of the MMSEA, in the May 6,
2008 interim final rule with comment
period, we established that the RY 2008
standard Federal rate is $38,086.04 (the
same as the standard Federal rate for
2007).
However, section 114(e)(2) of the
MMSEA expressly delays the
application of the revised RY 2008
standard Federal rate. Specifically,
section 114(e)(2) of the MMSEA states
that the revised RY 2008 standard
Federal rate ‘‘shall not apply to
discharges occurring on or after July 1,
2007, and before April 1, 2008.’’
Therefore, we stated that LTCH
payments for discharges occurring on or
after July 1, 2007 through March 31,
2008, would continue to include an
adjustment of 0.71 percent, that is,
payments would be based on the
standard Federal rate in
§ 412.523(c)(3)(iii), updated by 0.71
percent. Accordingly, for discharges
occurring on or after April 1, 2008
through June 30, 2008, we would apply
the revised RY 2008 standard Federal
rate of $38,086.04, while payments for
discharges occurring from July 1, 2007,
through March 31, 2008 would be
determined based on the standard
Federal rate in § 412.523(c)(3)(iii)
increased by 0.71 percent, that is,
$38,356.45. In the May 6, 2008 interim
final rule with comment period, we
revised § 412.523(c)(iv) to conform to
the revision of the standard Federal rate
for RY 2008 under section 114(e) of the
MMSEA and to specify how payments
are determined during RY 2008.
In the May 6, 2008 interim final rule
with comment period, we also noted
that section 114(e) of the MMSEA
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affected the HCO fixed-loss amount
currently in effect since it revises the
standard Federal rate for RY 2008 and
the standard Federal rate is used to
determine the fixed-loss amount.
Specifically, the fixed-loss amount that
was applied when the MMSEA was
enacted (December 29, 2007) was
determined based on a standard Federal
rate of $38,356.45. (See the RY 2008
LTCH PPS final rule (72 FR 26896
through 26899), as amended by the RY
2008 correction notice (72 FR 36613) for
a discussion of the methodology and
data used to determine the current
fixed-loss amount for RY 2008.) In that
interim final rule with comment period,
we stated that since payment for
discharges occurring on or after April 1,
2008, through June 30, 2008, will be
based on the revised RY 2008 standard
Federal rate of $38,086.04, consistent
with the existing regulations at
§ 412.525(a), in order to maintain
estimated total payments for HCO cases
at 8 percent of the estimated total
payments, we were also revising the
HCO fixed-loss amount. Accordingly,
under the broad authority conferred
upon the Secretary by section 123 of the
BBRA, as amended by section 307(b) of
the BIPA, to make appropriate
adjustments to the LTCH PPS, the
revised HCO fixed-loss amount effective
for discharges occurring on or after
April 1, 2008, through June 30 2008,
was set at $20,707. This revised fixedloss amount was determined using the
same data and methodology presented
in the RY 2008 LTCH PPS final rule and
takes into account the revised RY 2008
standard Federal rate as provided for in
the MMSEA (discussed above).
2. Public Comments Received on the
May 6, 2008 Interim Final Rule With
Comment Period Provisions
Comment: Several commenters
disagreed with our interpretation of
section 114(e)(2) of the MMSEA, which
specifies that ‘‘for discharges occurring
during the rate year ending in 2008 for
a hospital, the base rate for such
discharges for the hospital shall be the
same as the base rate for discharges for
the hospital occurring during the rate
year ending in 2007.’’ The commenters
urged CMS to base the RY 2009
standard Federal rate update on the
original RY 2008 rate when it finalizes
the MMSEA provisions. The
commenters further noted that section
114(e) of the MMSEA provides that the
RY 2007 base rate only be utilized for
the last three months of RY 2008, and
that the initial RY 2008 base rate be
utilized for July 1, 2007, through April
1, 2008. The commenters asserted that
there is no statutory requirement that
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the RY 2009 standard Federal rate be
calculated based on the RY 2007 rate. In
fact, the commenters noted, that the
language of the provision indicates that
the RY 2007 standard Federal rate is to
be applied only to ‘‘discharges occurring
during the rate year ending in 2008.’’
They contended that when CMS used
the ‘‘revised’’ RY 2008 standard Federal
rate, this policy determination affected
not only the RY 2009 standard Federal
rate but every rate year thereafter and
that Congress did not intend this.
Therefore, the commenters asserted that
our interpretation of section 114(e)(1) of
the MMSEA constitutes retroactive
rulemaking. Furthermore, the
commenters stated that our
interpretation of section 114(e)(2) of the
MMSEA violates our existing
regulations at §§ 412.523(a)(1) and (a)(2)
that state that CMS uses the ‘‘best
Medicare data available’’ to adjust the
‘‘most recent estimate’’ of increases in
the market basket when computing the
standard Federal rate, which is based on
using data from the previous rate year.
Response: We disagree with the
commenters that updating the RY 2008
standard Federal rate based on the
MMSEA revised RY 2008 standard
Federal rate of $38,086.04 represents a
misinterpretation of section 114(e)(1) of
the MMSEA. As we noted in response
to similar comments that we received on
this issue after we published the RY
2009 LTCH PPS proposed rule (73 FR
3560 through 3562), we continue to
believe that the approach that we
finalized in the RY 2009 LTCH PPS final
rule (73 FR 26805) for calculating the
RY 2009 standard Federal rate is
appropriate, and consistent with a plain
reading of the statute and our historic
methodology for calculating the
standard Federal rate.
Section 114(e)(1) of the MMSEA adds
section 1886(m)(2) to the Act, which
specifies the standard Federal rate for
RY 2008. Specifically, section
1886(m)(2) provides that ‘‘for discharges
occurring during the rate year ending in
2008 for a hospital, the base rate for
such discharges for the hospital shall be
the same as the base rate for discharges
for the hospital occurring during the
rate year ending in 2007.’’ Section
1886(m)(2) of the Act, on its face,
explicitly provides for a single revised
RY 2008 standard Federal rate. With
respect to section 114(e)(2) of the
MMSEA, this section provides that
section 1886(m)(2) of the Act shall not
apply to discharges occurring on or after
July 1, 2007, and before April 1, 2008.
When read together, we believe that
section 1886(m)(2) of the Act and
section 114(e)(2) of the MMSEA provide
that the revised RY 2008 standard
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Federal rate (which is the same as the
RY 2007 standard Federal rate) is the
standard Federal rate for all of RY 2008.
However, for payment purposes,
discharges occurring on or after July 1,
2007, and before April 1, 2008 simply
will not be paid based on that revised
RY 2008 standard Federal rate.
In contrast to the commenters’ belief
that section 114(e)(2) of the MMSEA
limits the reduced standard Federal rate
in section 1886(m)(2) of the Act to
merely a 3-month period (that is, the
part of RY 2008 not included in ‘‘on or
after July 1, 2007, and before April 1,
2008’’), this section provides that the
standard Federal rate specified in
section 1886(m)(2) of the Act ‘‘shall not
apply to discharges occurring on or after
July 1, 2007, and before April 1, 2008.’’
To the extent the MMSEA directs that
the revised standard Federal rate in
section 1886(m)(2) of the Act shall not
apply during a specified period, it also
necessarily means that the standard
Federal rate in section 1886(m)(2) of the
Act would otherwise apply for the
entire RY 2008. We note that section
1886(m)(2) of the Act could have been
explicitly revised to state this result.
However, the actual structure of section
114(e) of the MMSEA contained two
distinct provisions: at section
1886(m)(1) of the Act, an express
indication of the statutory authority that
established and implemented the LTCH
PPS; and at section 1886(m)(2) of the
Act, the establishment of the ‘‘Update
for Rate Year 2008’’, which the statute
specifically mandates ‘‘shall be the same
as the base rate for discharges for the
hospital occurring during the rate year
ending 2007.’’ Following that statutory
amendment at sections 1886(m)(1) and
(m)(2) of the Act, specified in section
114(e)(1) of the MMSEA, section
114(e)(2) of the MMSEA (not included
in the new subsection (m) of the Act)
merely prohibits application of the
revised RY 2008 standard Federal rate to
discharges occurring prior to April 1,
2008. Therefore, contrary to the
commenters’ assertion, we believe a
plain reading of the statute provides that
the standard Federal rate for the longterm care hospital prospective payment
system rate year beginning July 1, 2007
and ending June 30, 2008 (that is, RY
2008) is the same as the standard
Federal rate for the previous long-term
care hospital prospective payment
system rate year updated by zero
percent (that is, the same as the
standard Federal rate for RY 2007).
In addition, Congress is aware that we
determine the standard Federal rate for
a given year by taking the standard
Federal rate from the previous year and
updating it. Our calculation of the
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proposed (and final) RY 2009 standard
Federal rate is consistent with our longstanding practice of calculating the
standard Federal rate. Since Congress
did not expressly direct us to deviate
from that historical practice, the natural
presumption is that we would take the
revised RY 2008 standard Federal rate
specified in section 1886(m)(2) of the
Act and update it in order to calculate
the RY 2009 standard Federal rate. In
response to the comment that the
MMSEA did not specifically grant CMS
the authority to update the RY 2009
standard Federal rate based on the
revised RY 2008 standard Federal rate
specified in the MMSEA, we note that
granting such authority was
unnecessary. Congress had already
conferred broad discretionary authority
to the Secretary under § 307(b)(1) of
Public Law 106–554 (also referenced
under new section 1886(m)(1) of the
Act) to provide for appropriate
adjustment to the LTCH PPS, including
updates.
We also disagree with commenters’
assertions that the proposed RY 2009
standard Federal rate would produce a
retroactive effect and is tantamount to
retroactive rulemaking. We note that the
RY 2009 standard Federal rate will be
prospectively applied to discharges
beginning on July 1, 2008.
In response to the commenters’
statements that we are violating our own
existing regulations at § 412.523(a)(1)
which sets forth the methodology for
calculating the annual Federal
prospective payment rates based on the
‘‘best Medicare data available,’’ and
utilizing ‘‘the most recent estimate of
increases in the prices of an appropriate
market basket * * *,’’ we note that the
revised RY 2008 standard Federal rate,
which we are required to use under
section 1886(m)(2) of the Act for
‘‘discharges occurring during the rate
year ending in 2008’’ was originally
calculated based on those regulatory
principles. Furthermore, the
determination of $39,114.36 as the RY
2009 standard Federal rate was also
established in full compliance with the
established methodology set forth in our
regulations at § 412.523, using, as
Congress required, a RY 2008 rate which
is ‘‘* * * the same as the base rate for
discharges * * * occurring during the
rate year ending in 2007’’ as set forth in
the RY 2009 LTCH PPS final rule (73 FR
26812).
After consideration of these
comments, we are finalizing the
regulatory changes implementing
sections 114(e)(1) and (e)(2) of the
MMSEA made in the May 6, 2008
interim final rule with comment period
without modification. Specifically, we
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are amending § 412.500 by revising
paragraph (a) and § 412.523 by revising
paragraph (c)(3).
D. May 22, 2008 Interim Final Rule With
Comment Period Implementing Sections
114(c)(1) and (c)(2) of the MMSEA
Regarding Payment Adjustment to
LTCHs and LTCH Satellite Facilities
1. Background
Our regulations at § 412.534,
implemented for cost reporting periods
beginning on or after FY 2005, address
our concern that the co-location of
LTCHs with other hospital-level
providers (in particular, acute care
hospitals) as HwHs and as satellites
provide an incentive for early
discharges from the acute care hospital
immediately followed by admissions to
the on-site LTCH, resulting in two
Medicare payments for what was
essentially one episode of treatment.
Specifically, at § 412.534 of the
regulations, we established the
percentage threshold payment
adjustment under which Medicare
payments for discharges of patients from
LTCHs who are admitted from the
LTCHs’ co-located hosts that exceeded a
specified percentage would be paid the
lesser of the amount otherwise payable
under the LTCH PPS or an amount
payable under the LTCH PPS that was
equivalent to the amount that would be
otherwise determined under the IPPS.
At that time we provided for a 4-year
transition to the full percentage
payment threshold and also established
higher percentage thresholds for certain
LTCHs, that is, those located with rural,
MSA-dominant or urban single
hospitals. (For a thorough discussion of
the regulations at § 412.534, see the FY
2005 IPPS final rule (69 FR 49292
through 49214).)
In the LTCH PPS RY 2008 final rule,
we extended the percentage threshold
payment adjustment to all LTCHs that
had not already been governed under
the original policy at § 412.534 (72 FR
26919 through 26944), including
grandfathered LTCH HwHs and LTCH
satellites at § 412.534(h), and non-colocated LTCHs. The policy also
governed Medicare discharges from
LTCH HwHs and satellites that were
admitted from referral sources other
than their co-located hosts at
§ 412.536(a)(1)(ii) and (iii). When we
extended the policy in § 412.534 to
grandfathered LTCH HwHs and LTCH
satellite facilities in the RY 2008 LTCH
PPS final rule, we provided for a
parallel 3-year transition to the full
percentage threshold for cost reporting
periods beginning on or after July 1,
2007 at § 412.534(h) for ‘‘grandfathered’’
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LTCHs and LTCH satellite facilities
discharging patients admitted from their
host hospitals and at § 412.536(f) for
discharges that were admitted to a
LTCH or LTCH satellite facility from
any referring hospital with which they
were not co-located (72 FR 26944).
2. Payment Adjustment to LTCHs and
LTCH Satellite Facilities Specified by
Section 114(c) of the MMSEA
The enactment of section 114(c) of the
MMSEA required several modifications
to payment provisions applicable to
various types of LTCHs under the
regulations at §§ 412.534 and 412.536.
(Throughout this section, ‘‘LTCH’’ or
‘‘LTCH satellite facility’’ refers
exclusively to ‘‘subclause (I)’’ LTCHs
and LTCH satellite facilities, that is,
LTCHs defined by section
1886(d)(1)(B)(iv)(I) of the Act. This is
the case because the policies established
at §§ 412.534 and 412.536 do not apply
to a ‘‘subclause (II)’’ LTCH defined
under section 1886(d)(1)(B)(iv)(II) (69
FR 49205 and 72 FR 26924).)
In the May 22, 2008 interim final rule
with comment period, we revised our
regulations at §§ 412.534 and 412.536 to
implement the requirements of sections
114(c)(1) and (c)(2) of the MMSEA (73
FR 29699 through 29704).
On February 17, 2009, the ARRA of
2009 was enacted, which affected
several of the policies established by the
MMSEA that we implemented in the
May 22, 2008 interim final rule with
comment period. In the following
discussion, we review the policies that
we implemented in the May 22, 2008
interim final with comment period, note
changes made by section 4302 of the
ARRA, and respond to public comments
that we received on our implementation
of the MMSEA provisions that were not
otherwise revised by the ARRA. In
section XI. of this document, we have
implemented the amendments made by
section 4302 of the ARRA to certain
provisions of section 114(c) and (d) of
the MMSEA in an interim final rule
with comment period.
We note that the modifications to our
regulations at §§ 412.534 and 412.536
made by section 114(c) of the MMSEA
were originally effective for cost
reporting periods beginning on or after
December 29, 2007, for a 3-year period.
As discussed in greater detail in the
interim final rule with comment period
for the ARRA in section XI. of this
document, sections 4302 (a)(1)(B) and
(a)(2)(B) of the ARRA changed this
effective date to cost reporting periods
beginning on July 1, 2007 or October 1,
2007, as applicable. Therefore, the
discussion below focuses on policy
changes made by section 114(c) of the
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MMSEA to our regulations at §§ 412.534
and 412.536, implemented in the May
22, 2008 interim final rule with
comment period, that were otherwise
unaffected by the amendments in
section 4302 of the ARRA. (For a
detailed description of each provision
originally promulgated in section 114(c)
of the MMSEA, the reader is directed to
the May 22, 2008 interim final rule with
comment period (73 FR 29699, 29701
through 29704).)
Section 114(c) of the MMSEA
provided the following changes
affecting our regulations at §§ 412.534
and 412.536:
• Section 114(c)(1)(A) of the MMSEA
generally exempted ‘‘freestanding’’
LTCHs (that is, as newly defined in
§ 412.23(e)(5), from the percentage
threshold payment adjustment at
412.536 (or any similar provision) for a
3-year period;
• Section 114(c)(1)(B) of the MMSEA
exempted ‘‘grandfathered’’ LTCH HwHs
(that is, ‘‘a long-term care hospital
identified by the amendment made by
section 4417(a) of the Balanced Budget
Act of 1997 (Pub L. 105–33)’’) from the
applicable percentage threshold policy
established at § 412.536 or § 412.534, or
any similar provision for a 3-year
period;
• Section 114(c)(2)(A) of the MMSEA
exempts certain LTCH HwHs and LTCH
satellite facilities located in a rural area
or which are co-located with an urban
single or MSA-dominant hospital under
§ 412.534(d)(1), (e)(1), and (e)(4) that
meet the definition of an ‘‘applicable
long-term care hospital or satellite
facility,’’ from certain payment
adjustments if no more than 75 percent
of the hospital’s Medicare discharges
(other than discharges described in
§ 412.534(d)(2) or (e)(3), for example,
HCO cases at the referring hospital) are
admitted from a co-located hospital for
a 3-year period; and
• Section 114(c)(2)(B)(i) of the
MMSEA exempts an applicable longterm care hospital or satellite facility
which is co-located with another
hospital from certain payment
adjustments under § 412.534, if no more
than 50 percent of the hospital’s
Medicare discharges (other than
discharges described in paragraph (c)(3)
of such section, for example, HCO cases
at the referring hospital) are admitted
from a co-located hospital. Section
114(c)(2)(B)(ii) defined an ‘‘applicable
long-term care hospital or satellite
facility’’ as a hospital or satellite facility
that is subject to the transition rules
under § 412.534(g). We direct the reader
to the May 22, 2008 interim final rule
with comment period, which included a
detailed description of those aspects of
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our regulations at §§ 412.534 and
412.536 that were unaffected by the
MMSEA changes and specifies which
LTCHs and LTCH satellites remain
subject to the existing regulations (73 FR
29701 through 29704). (We note,
however, that this description predated
the amendments made by section 4302
of the ARRA to section 114(c) of the
MMSEA, discussed in section XI. of this
document.)
As noted above, section 4302(a)(1)(B)
of the ARRA modified this provision by
separating the establishment of the 3year exemption from the
implementation of the percentage
threshold payment adjustments at
§ 412.534 and § 412.536 from the date of
enactment of the MMSEA, that is,
December 19, 2007. Specifically, section
4302(a)(1)(B) strikes ‘‘the date of
enactment of this Act * * *’’ from
section 114(c)(1) of the MMSEA, and
inserts ‘‘* * * July 1, 2007.’’ This
change is discussed in greater detail in
the interim final rule with comment
period on section 4302 of the ARRA, at
section XI. of this document. Therefore,
while regulations describing the 3-year
delay in application of the 25 percent
patient threshold payment adjustment
for ‘‘freestanding’’ LTCHs and
‘‘grandfathered’’ LTCH HwHs
implemented in the May 22, 2008
interim final rule with comment period
are being finalized at this time, the
change in the effective date of this
provision is being implemented through
the mechanism of the interim final rule
with comment period found in section
XI. of this document.
3. Public Comments Received on the
May 22, 2008 Interim Final Rule With
Comment Period Implementing Section
114(c)(1) and (c)(2) of the MMSEA
Regarding Payment Adjustment to
LTCHs and LTCH Satellite Facilities
We received a number of comments
on the provisions of the May 22, 2008
interim final rule with comment period
implementing sections 114(c)(1) and
(c)(2) of the MMSEA, some of which
were mooted by the subsequent
enactment of the ARRA. For example,
we received several public comments
expressing concern that linking the
MMSEA modifications to the percentage
threshold payment adjustment (both the
exemption from the policy at section
114(c)(1) of the MMSEA and the
percentage increase at 114(c)(2) of the
MMSEA) to cost reporting periods
beginning on or after the December 29,
2007 date of enactment of the MMSEA
forestalled relief to a significant number
of LTCHs. Specifically, freestanding
LTCHs and ‘‘grandfathered’’ LTCH
HwHs with cost reporting periods
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43981
beginning between October 1, 2007 and
December 29, 2007 and to ‘‘applicable’’
LTCH HwHs and satellites with cost
reporting periods beginning between
July 1, 2007 and December 29, 2007
would become eligible for the MMSEA
relief at only the start of their next cost
reporting period. Sections 4302(a)(1)(B)
and (a) (2)(B) of the ARRA amended
sections 114(c)(1) and (c)(2) of the
MMSEA, respectively, modifying the
effective dates of the changes to the
percentage threshold payment
adjustment. Therefore, comments on
this issue and others noted throughout
this section that were addressed by the
ARRA modifications of the MMSEA will
not be addressed in this final rule. The
ARRA provisions will be discussed and
implemented through the interim final
rule with comment period in section XI.
of this document.
Comment: MedPAC indicated that it
was aware that the percentage threshold
payment policy was established ‘‘to
help ensure that LTCHs do not function
as units of acute care hospitals, and that
decisions about admission, treatment,
and discharge in both acute care
hospitals and LTCHs are made for
clinical rather than financial reasons.’’
MedPAC continued: ‘‘[s]ome LTCHs—
both freestanding and those with formal
ties to other hospitals—may function as
de facto step-down units of acute care
hospitals. Research by MedPAC and
others has found that patients who use
LTCHs have shorter acute care hospital
lengths of stay than similar patients who
do not use these facilities, suggesting
that LTCHs substitute for at least part of
the acute care hospital stay.’’ The
Commission expressed concerns about
the impact of such behavior on
Medicare costs. Describing the
percentage threshold policy as a ‘‘useful
but blunt tool’’ until criteria can be
developed, the commenter further stated
that ‘‘MedPAC favors using criteria to
define the level of care typically
furnished in LTCHs (as well as in stepdown units of many acute-care
hospitals, and some specialized skilled
nursing and inpatient rehabilitation
facilities) and to help ensure that
beneficiaries receive appropriate, highquality care in the least costly setting
consistent with their clinical
conditions.’’
Response: We thank MedPAC for their
clear description of the rationale for our
development of the percentage
threshold payment adjustment and for
endorsing its underlying principle. We
also appreciate MedPAC’s restatement
of our two-fold mandate: our
responsibility both to establish payment
systems to pay providers for appropriate
and high quality beneficiary care as well
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as to ensure that Medicare funds are
spent wisely and appropriately. In
establishing payment adjustments, such
as the ‘‘25 percent’’ threshold policy, we
are responding to the same data cited by
the commenter above regarding the
phenomenon of shortened acute care
hospital stays followed by admissions to
on-site or near-by LTCHs, resulting in
two separate Medicare payments for
what, in effect, was one episode of
treatment.
We are aware that MedPAC
recommended the development of
criteria for LTCH patients and facilities,
as a more effective way to ensure that
LTCHs meeting certain criteria treat a
particular level of patients, specifically
as set forth in its June 2004 Report to
Congress. In response to MedPAC’s
recommendations, we awarded a
contract to Research Triangle
International (RTI) for a comprehensive
evaluation of the feasibility of
developing patient and facility level
criteria for LTCHs that could distinguish
LTCH patients from those treated in
other hospitals. (Reports on this
research are posted on our Web site at
https://www.cms.hhs.gov/LongTerm Care
Hospital PPS/
02a_RTIReports.asp#TopOfPage.)
We also refer readers to the comment
that MedPAC submitted on the RY 2009
LTCH PPS proposed rule which
explained the rationale behind its June
2004 recommendation—‘‘beneficiaries
treated in LTCHs cost Medicare more
than those treated in alternative settings;
however, the cost differences narrowed
considerably if LTCH care was targeted
to patients who appeared most suitable
for this level of care. That leads us to
conclude that Medicare should ensure
that LTCHs treat only appropriate
patients.’’ At that time, MedPAC took
the significant step of amending its June
2004 recommendation by stating that:
‘‘The types of cases treated by LTCHs
can be (and are) treated in other settings,
particularly in step-down units of many
acute-care hospitals. Therefore, it is not
possible (nor desirable) to develop
criteria defining patients who can be
cared for exclusively in LTCHs. Rather,
CMS should seek to define the level of
care typically furnished in LTCHs, stepdown units of many acute-care
hospitals, and some specialized skilled
nursing facilities (SNFs) and inpatient
rehabilitation facilities (IRFs).’’ (73 FR
26829)
A review of the annual proposed and
final rules since 2005 indicates that
RTI’s research led it to similar
conclusions (71 FR 4704 through 4726,
71 FR 27884, 72 FR 4818, 72 FR 4884
through 4886, 72 FR 26947 through
26948, 73 FR 5374 through 5376, 73 FR
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26829). In this light, we would also note
that section 114(b) of the MMSEA
directs the Secretary to conduct a study
and submit a report to the Congress on
the establishment of national LTCH
facility and patient criteria. The statute
stipulates that in conducting the study
and preparing the report, the Secretary
shall consider the recommendations
made by MedPAC in its June 2004
report as well as ongoing work by the
Secretary to evaluate and determine the
feasibility of such recommendations. In
accord with this requirement, a report to
Congress which takes into consideration
MedPAC’s original recommendations as
well as both RTI’s and the Commission’s
further analyses and findings is being
prepared for submission by our Office of
Research, Development, and
Information by early Fall.
Comment: Six commenters challenged
our implementation of the MMSEA
changes to the percentage payment
threshold policy presented in the May
22, 2008 interim final rule with
comment period. A number of the
commenters argued that we have
interpreted the statutory language in the
‘‘narrowest way possible’’ with the
result being the creation of ‘‘different
classes of LTCHs,’’ only some of which
benefit from the MMSEA provisions.
Three commenters urged the Secretary
to use discretion to apply both elements
of sections 114(c)(1)(A) and (c)(2)(B) of
the MMSEA to all LTCHs such that
there would be a 3-year delay in any
application of the regulations at
§ 412.536 to any type of LTCH and that
for 3 years the percentage threshold
increase would apply to all co-located
LTCHs and LTCH satellites governed
under the regulations at § 412.534.
Several commenters urged CMS to use
its discretionary authority to extend the
percentage increase policy established
by section 114(c)(2) to ‘‘grandfathered’’
satellites as described in our regulations
at § 412.22(h)(3)(i). One commenter
opined that the establishment of
different classes of LTCHs by section
114(c) of the MMSEA was both
inequitable and administratively
burdensome for CMS. This commenter
suggested that if CMS believed that the
Secretary did not have the authority to
interpret the relief provided by section
114(c) of the MMSEA to other LTCHs
not addressed by the statute, that a
legislative proposal be submitted to
Congress urging passage of a more
equitable and administratively
reasonable policy. Two commenters also
recommended that after 3 years the
regulations at § 412.536 should not be
‘‘reimposed’’ and that § 412.534 should
also be retired once criteria were
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developed. One of these commenters
further suggested that once the 3-year
exemption for LTCH HwHs and
‘‘freestanding’’ LTCHs sunsets, even if
we reinstate the percentage threshold
payment policy, we should also
reinstate the 3-year transition period to
the full 25 percent threshold for these
groups.
Response: We believe that the
regulations that we published in the
May 22, 2008 interim final rule with
comment period represented an
accurate reading and appropriate
interpretation of section 114(c) of the
MMSEA. In that provision, Congress
targeted specific types of LTCHs for
particular sorts of relief. Specifically,
the language at section 114(c)(1) of the
MMSEA clearly provided a 3-year delay
in application of §§ 412.534 and 412.536
to only two categories of LTCHs in
section 114(c)(1)(A) of the MMSEA to
freestanding LTCHs; and in section
114(c)(1)(B) to ‘‘grandfathered’’ LTCH
HwHs.
Similarly, the 3-year relief from the
full implementation of § 412.534 that
Congress granted in section 114(c)(2) in
the form of increased thresholds from 50
percent to 75 percent for LTCHs or
LTCH satellites co-located with a rural,
urban single, or MSA-dominant hospital
and from 25 percent to 50 percent for
LTCHs and LTCH satellites was
narrowly targeted to only those
‘‘applicable’’ LTCHs and LTCH
satellites, that is, those ‘‘subject to the
transition rules under section
§ 412.534(g) of title 42 Code of Federal
Regulations.’’ The percentage threshold
payment adjustment policies were
established to provide disincentives for
LTCH and LTCH satellites to admit
patients from referring hospitals with
which they were either co-located in the
case of § 412.534 or separate from, as in
the case of § 412.536, for financial rather
than clinical benefit. We continue to
believe that it is inappropriate for
Medicare to generate two payments, one
to the referring (typically) acute care
hospital and one to the LTCH, for what
is essentially one episode of treatment.
Congress was specific in providing areas
and timeframes for relief. We have
implemented those statutory provisions
based on the plain language of the
statute. The statutory directives parallel
our existing policies.
In addition, section 4302 of the ARRA
amended section 114(c) of the MMSEA.
These amendments extended both types
of relief, that is, the 3-year delay in
implementation and the increase in the
percentage threshold, to two additional
specific categories of LTCHs.
Specifically, section 4302(a)(1)(C) of the
ARRA amended section 114(c)(1)(A) of
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the MMSEA to provide a 3-year delay in
the application of § 412.536 of the
regulations, that is the 25 percent
patient threshold payment adjustment
to ‘‘* * * a long-term care hospital, or
satellite facility, that as of December 29,
2007, was co-located with an entity that
is a provider-based, off-campus location
of a subsection (d) hospital which did
not provide services payable under
section 1886(d) of the Social Security
Act at the off-campus location * * *,’’
as well as freestanding LTCHs.
Additionally, section 4302(a)(2)(A) of
the ARRA specifies that section
114(c)(2) of the MMSEA, regarding the
increase of the percentage threshold
established by the regulations at
§ 412.534, shall also apply to a hospital
or satellite facility described in
§ 412.22(h)(3)(i) of the regulations (that
is, grandfathered satellites). (Section
4302 of the ARRA is being implemented
through the interim final rule with
comment period in section XI. of this
document.) These amendments to the
MMSEA once again demonstrated
Congress’ ability to act in a clear and
deliberate manner in providing relief for
particular categories of LTCHs and
LTCH satellites while leaving other
aspects of §§ 412.534 and 412.536 in
place.
For these reasons, we do not believe
that a legislative proposal to Congress
urging further expansion of either the 3year delay in implementation or the 3year increase in the percentage
threshold is either necessary or
appropriate. Furthermore, at present, we
do not believe that the MMSEA policy
changes or the ARRA amendments
constitute an additional administrative
burden for us. In response to the
commenters’ recommendations that
both §§ 412.534 and 412.536 be retired
once LTCH criteria are established, we
are not considering such an action at
this time. As noted above, the study on
‘‘the establishment of national long-term
care hospital facility and patient criteria
* * *’’ and the resulting report to
Congress required by section 114(b) of
the MMSEA is presently under way by
our Office of Research, Development,
and Information.
Finally, with regard to the suggestion
that once the 3-year exemption from
§§ 412.534 and 412.536 sunsets, that we
reinstate the 3-year transition period to
the full 25 percent threshold payment
adjustment for freestanding LTCHs and
‘‘grandfathered’’ LTCH HwHs, we
would note that we typically provide
phase-ins or transitions to the full
implementation of new or revised
payment policies in order to give
providers more time than the 60-day (or
in some cases, 30-day) period between
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publication of our final rule and the
implementation date of the new policies
in order to fully understand them and
to make whatever administrative and
financial adjustments that are required.
‘‘Freestanding’’ LTCHs and
‘‘grandfathered’’ LTCH HwHs have had
notice of our policies at § 412.534(h)
and § 412.536 of the regulations since
they were implemented for cost
reporting periods beginning on or after
July 1, 2007. Despite the fact that these
policies were suspended for these types
of LTCHs until cost reporting periods
beginning on or after July 1, 2010
(resulting from the amendments made
by section 4302(a)(1)(B) of the ARRA to
section 114(c)(1) of the MMSEA), the
LTCH industry has full knowledge and
understanding of the percentage
threshold payment adjustment.
Therefore, we do not intend to propose
such an action as we do not believe it
is either necessary or appropriate.
Comment: Two commenters asserted
that we incorrectly interpreted the
increase in percentage thresholds for
LTCHs or LTCH satellites co-located
with MSA-dominant hospitals in
section 114(c)(2)(A) of the MMSEA. The
commenters argued that the statute sets
the threshold percentage at 75 percent,
but that under the policy that we set
forth in the May 22, 2008 interim final
rule with comment period, we inserted
the 75 percent specified by the statute
into the existing payment formula for
LTCHs or LTCH satellites co-located
with MSA-dominant hospitals in the
regulations at § 412.534. In the interim
final rule with comment period, we
revised § 412.534(e)(2)(ii), which stated:
‘‘(ii) Payments for long-term care
hospitals and long-term care hospital
satellite facilities subject to paragraph
(g) of this section are determined using
the methodology specified in paragraph
(e)(1) of this section except that 75
percent is substituted for 50 percent.’’
The methodology for setting the
threshold for LTCHs HwHs or LTCH
satellites co-located with MSAdominant hospitals, as set forth in the
regulations at § 412.534(e)(1), states, in
pertinent part:
‘‘(ii) For purposes of paragraph
(e)(1)(i) of this paragraph, the percentage
used is the percentage of total Medicare
discharges in the Metropolitan
Statistical Area in which the hospital is
located that are from the co-located
hospital for the cost reporting period for
which the adjustment was made, but in
no case is less than 25 percent or more
than 50 percent.’’
The commenters urged us to revisit
our interpretation of section 114(c)(2)(A)
of the MMSEA and to revise our
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regulations at § 412.534(e)(1)(ii)
accordingly.
Response: We agree with the
commenters’ reading of the statute. The
way in which we revised the regulations
would appear to indicate that
establishing the appropriate percentage
threshold for LTCHs HwH or LTCH
satellites co-located with a MSAdominant hospitals set by the regulatory
language at § 412.534 (e)(2)(ii) of the
regulations referencing (e)(1)(ii) after the
enactment of the MMSEA, would be
based on the percentage ‘‘* * * of total
Medicare discharges in the Metropolitan
Statistical Area in which the hospital is
located that are from the co-located
hospital for the cost reporting period for
which the adjustment was made, but in
no case is less than 25 percent or more
than 50 percent.’’ We agree that the
section 114(c)(2)(A) of the MMSEA
establishes the threshold for such LTCH
facilities at 75 percent for 3-years, and
we are making an appropriate technical
correction to the regulations at
§ 412.534(e)(2)(ii). (We also note that
section 4302(a)(2)(B) of the ARRA,
discussed in our interim final rule with
comment period in section XI. of this
document, modified the effective date of
this provision from cost reporting
periods beginning on or after December
29, 2007, to cost reporting periods
beginning on or after October 1, 2007, or
July 1, 2007 in the case of satellite
facilities described in § 412.22(h)(3)(i) of
the regulations, that is grandfathered
satellite facilities.)
Comment: Two commenters
challenged our interpretation of section
114(c)(1)(A) of the MMSEA, which
suspends the application of the
percentage threshold payment
adjustment at § 412.536 of the
regulations (or any similar provision) to
‘‘freestanding’’ LTCHs for 3 years. The
commenters asserted that this provision
should also apply to discharges from
LTCHs and LTCH satellites that were
admitted from hospitals which are colocated with another LTCH or LTCH
satellite. One commenter additionally
rejects ‘‘CMS’ assertion’’ that a LTCH
located on a different campus from a
referring hospital is functioning as a
step-down unit. This commenter argues
that our regulations at § 412.534 were
directed at movement of patients
between co-located LTCHs admitted
from their host hospitals and our
regulations at § 412.536 were developed
to address the relationship between
LTCH hospitals that were
‘‘freestanding’’ and their referring
hospitals. This commenter additionally
rejects ‘‘CMS’ assertion’’ that a LTCH
located on a different campus from a
referring hospital can function as ‘‘a
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step-down unit’’ of the referring
hospital. One of the commenters
requested that even if CMS does not
exempt LTCH facilities co-located with
a different host from the regulations at
§ 412.536 for 3 years, that CMS include
LTCHs that are located on hospital
campuses where there is no inpatient
acute care hospital in the 3-year
exemption from the regulations under
§ 412.536. Another commenter urged
CMS to revisit our definition of
‘‘freestanding’’ at § 412.23(e)(5) of our
regulations so that a LTCH or LTCH
satellite that was co-located with a
provider that did not offer inpatient care
in the building or campus where the
LTCH was located, could still be
considered ‘‘freestanding’’, and
therefore, covered by the 3-year
exemption from the regulations at
§ 412.536, maintaining that this was
Congress’ intent in section 114(c)(1)(A)
of the MMSEA.
Response: We disagree with the
commenters’ assertion that LTCH HwHs
that are co-located with another
hospital, as defined in our regulations at
§ 412.22(e) should be considered
‘‘freestanding’’ regarding patients
admitted from referring hospitals with
which they are not co-located. We
believe that our existing regulations at
§ 412.22(e) which identify a HwH as
‘‘* * * a hospital that occupies space in
a building also used by another hospital,
or in one or more separate buildings
located on the same campus as
buildings used by another hospital
* * *’’ are clear and unambiguous.
Section 114(c)(1)(A) of the MMSEA is
directed at ‘‘freestanding long-term care
hospitals,’’ and is equally clear and
unambiguous. Although we initially
focused on the movement of patients
between ‘‘host’’ acute care hospitals and
the co-located LTCH HwHs or satellites
when we implemented the regulations
at § 412.534 in the FY 2005 IPPS final
rule (69 FR 48916), a comment that we
received from MedPAC at that time,
discussed previously in this section,
identified similar problems between
acute care hospitals and LTCHs with
which they were not co-located (69 FR
49211).
We first expressed our concerns in the
RY 2006 LTCH PPS final rule (71 FR
27798) that some LTCHs and referring
hospitals (typically, acute care
hospitals) with which they were not colocated had ‘‘arrangements’’ that, in
effect, allowed both facilities to benefit
financially from an early acute care
discharge and admission to the LTCH.
We recognized that these
‘‘arrangements’’ were strikingly similar
to what we knew occurred between a
‘‘host’’ acute care hospital and its on-
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site LTCH, that is, as a step-down unit
(71 FR 27878). At that time, we noted
that we ‘‘* * * had become increasingly
aware that the intent of our existing
policy is being thwarted by creative
patient-shifting in some communities
where there is more than one LTCH
HwH or LTCH satellite. We have come
to understand, based upon specific
inquiries from LTCHs, and their
attorneys or agents, and also from
questions posed by our fiscal
intermediaries (FIs), that some host
hospitals within the same community
are arranging to cross-refer to another’s
co-located LTCH * * *.’’ (71 FR 27878).
It was with these concerns in mind, that
in the RY 2008 LTCH PPS proposed and
final rules, our preamble discussion was
entitled ‘‘Expansion of Special Payment
Provisions for LTCH Hospitals Within
Hospitals (HwHs) and LTCH Satellites:
Expansion of the 25 Percent Rule to
Certain Situations Not Currently
Covered Under Existing § 412.534’’ (72
FR 4809; 72 FR 26919). Furthermore,
when we developed our regulation at
§ 412.536 in the RY 2007 LTCH PPS
final rule (72 FR 26870), we entitled the
regulation, ‘‘Special payment provisions
for long-term care hospitals and
satellites of long-term care hospitals that
discharged Medicare patients admitted
from a hospital not located in the same
building or on the same campus as the
long-term care hospital or satellite of the
long-term care hospital.’’ Clearly, it was
always our intention for § 412.536 to
apply the percentage threshold payment
adjustment to patient shifting between
LTCHs and LTCH satellites and
referring hospitals with which they
were not co-located, a fact that further
supports our implementation of section
114(c)(1) of the MMSEA.
In response to the commenter who
requested that even if we were not
willing to exempt LTCHs co-located
with a different host from the
percentage threshold payment
adjustment at § 412.536, we should
include co-located LTCHs that are
situated on hospital campuses where
there is no inpatient acute care hospital
in the 3-year exemption from regulation
under § 412.536, we would note section
4302(a)(1)(C) of the ARRA addressed
this concern and amended section
114(c)(1)(A) of the MMSEA to specify
that LTCHs and LTCH satellites meeting
this description be exempted from the
percentage threshold payment
adjustment at § 412.536 or any similar
provision. (We discuss this provision in
the interim final rule with comment
period for section 4203 of the ARRA, in
section XI. of this document.)
Finally, in response to the commenter
that urged us to revisit our definition of
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‘‘freestanding’’ at § 412.23(e)(5) so that a
LTCH or LTCH satellite facility that was
co-located with a provider that did not
offer inpatient care in the building or
campus where the LTCH was located,
could still be considered ‘‘freestanding,’’
so that it would be exempted from
compliance with § 412.536, we would
note that such a change would directly
contradict our long-standing, existing
definitions of HwHs and satellites at
§ 412.22(e) and § 412.22(h), respectively.
At § 412.22(e), we define a HwH as
‘‘* * * a hospital that occupies space in
a building also used by another hospital,
or in one or more separate buildings
located on the same campus as
buildings used by another hospital
* * *’’ At § 412.22(h),we define a
satellite as ‘‘* * * a part of a hospital
that provides inpatient services in a
building also used by another hospital,
or in one or more entire buildings
located on the same campus as
buildings used by another hospital.’’
Neither of these definitions limits the
buildings with which a HwH or a
satellite is co-located to solely providing
inpatient services.
When Congress enacted the ARRA, it
amended section 114(a)(1)(A) of the
MMSEA to delay the application of the
percentage threshold payment
adjustments at §§ 412.534 and 412.536
to certain LTCHs for 3-years.
Specifically, at section 4302(a)(1)(C), the
statute includes the following type of
facility: ‘‘* * *. a LTCH or satellite
facility, that as of December 29, 2007,
was co-located with an entity that is a
provider-based, off campus location of a
subsection (d) hospital which did not
provide services payable under section
1886(d) of the Social Security Act at the
off-campus location * * *’’ The statute
expressly targets ‘‘services payable
under section 1886(d) of the Act,’’ not
‘‘inpatient services,’’ in general and the
plain language of the statute does not
indicate that such a LTCH or satellite
facility would be considered
‘‘freestanding.’’ Rather, the amendment
identifies another category of LTCH or
satellite facility that would be exempt
from the percentage threshold payment
adjustment for 3 years. Therefore, we
believe that, in amending section
114(c)(1)(A) of the MMSEA through
section 4302(a)(1)(C) of the ARRA,
Congress expanded the 3-year
exemption from the percentage
threshold payment adjustment to a
narrow category of LTCHs, while still
maintaining the policy for LTCHs
otherwise meeting the definition of
either a HwH at § 412.22(e) or a satellite
at § 412.22(h) of the regulations.
Because Congress did not further
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expand this exemption by way of
statutory amendment, we do not believe
that it would be appropriate for us to do
so through the regulatory process.
Comment: Several commenters
requested guidance regarding the
procedures that CMS has in place to
implement the changes to the
percentage threshold payment
adjustment required by the MMSEA. In
particular, some of these commenters
asked how CMS would recommend that
they get information regarding the
discharge percentages of MSA-dominant
referring hospitals if the LTCH is
serviced by a different fiscal
intermediary/MAC than the referring
hospital.
Response: We have provided our
fiscal intermediaries/MACs with
guidance on the actual implementation
of this payment adjustment, which takes
place upon cost report settlement, when
all of the LTCHs data from a particular
cost reporting period has been
submitted and is being evaluated.
Regarding the question of how a LTCH
or satellite can acquire information
about its MSA-dominant referring
hospital’s ‘‘market share’’ of Medicare
patients if the facilities are serviced by
a different fiscal intermediary/MAC, we
have been informed that portals to
communicate this figure, and much
more, are typically open on an ongoing
basis among hospitals that have referral
arrangements, and therefore, we would
encourage the sharing of such
information for the benefit of both the
discharging and the admitting hospitals.
In compliance with section 114(c) of
the MMSEA and section 4302 of the
ARRA, we have revised §§ 412.534 and
412.536 of the regulations to implement
the 3-year delay in the application of the
percentage patient threshold payment
adjustment to ‘‘freestanding and
grandfathered LTCHs’’ and the 3-year
revision in the percentage payment
thresholds adjustments for ‘‘applicable’’
LTCHs and satellite facilities. We have
also revised the regulations at
§ 412.534(b) in order to clarify the
effective dates of the percentage patient
threshold policy for discharges from a
LTCH HwH or from a LTCH satellite
that were admitted from the hospital
with which it is co-located.
We are finalizing the regulatory
changes made in the May 22, 2008
interim final rule with comment period
at §§ 412.534 and 412.536, which
implemented the provisions of section
114(c) of the MMSEA that were
otherwise unchanged by section 4302 of
the ARRA. We also are implementing
section 4302 of the ARRA through an
interim final rule with comment period
in section XI. of this document.
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43985
E. May 22, 2008 Interim Final Rule With
Comment Period Implementing Section
114(d) of the MMSEA Regarding
Moratorium on the Establishment of
LTCHs, LTCH Satellite Facilities, and on
the Increase in Number of Beds in
Existing LTCHs or LTCH Satellite
Facilities
2. Provisions of the May 22, 2008
Interim Final Rule With Comment
Period Implementing Section 114(d) of
the MMSEA That Established Moratoria
on New LTCHs and LTCH Satellite
Facilities and on Bed Increases in
Existing LTCHs and LTCH Satellite
Facilities
1. Background
Section 114(d)(1)(A) of the MMSEA
provides for a 3-year moratorium
effective beginning on the date of
enactment of the MMSEA, December 29,
2007, through December 28, 2010, on
the establishment and classification of a
long-term care hospital or satellite
facility, other than an existing LTCH or
facility. (The term ‘‘existing,’’ with
respect to a hospital or satellite facility,
is defined in section 114(d)(4) of the
MMSEA as ‘‘a hospital or satellite
facility that received payment under the
provisions of subpart O of part 412 of
title 42, Code of Federal Regulations, as
of the date of the enactment of this
Act.’’) Section 114(d)(2) of the MMSEA
specified that the moratorium on the
establishment and classification of a
LTCH or LTCH satellite facility does not
apply to a LTCH that, as of December
29, 2007, met one of the following three
exceptions:
• The LTCH began ‘‘its qualifying
period for payment as a long-term care
hospital under section 412.23(e) of title
42, Code of Federal regulations, on or
before the date of enactment of this Act’’
(section 114(d)(2)(A) of the MMSEA).
• The LTCH has a binding written
agreement with an outside, unrelated
party for the actual construction,
renovation, lease, or demolition for a
LTCH and has expended before
December 29, 2007, at least 10 percent
of the estimated cost of the project or,
if less, $2,500,000 (section 114(d)(2)(B)
of the MMSEA).
• The LTCH has obtained an
approved certificate of need in a State
where one is required on or before
December 29, 2007 (section 114(d)(2)(C)
of the MMSEA).
In the May 22, 2008 interim final rule
with comment period, we noted that in
implementing the provisions of section
114(d) of the MMSEA, we found that, in
light of the unique nature of LTCHs as
a category of Medicare providers, some
of the terminology in the provision was
internally inconsistent. Therefore, in
that interim final rule with comment
period, we included a comprehensive
description of inconsistent terminology
and our interpretations of the provisions
in a way we believed reasonably
reconciled seemingly inconsistent
provisions and that resulted in an
application of the provisions that is
logical and workable and we would
Section 114(d) of the MMSEA
provides a 3-year moratorium with two
distinct aspects, one regarding the
establishment of new LTCHs and LTCH
satellite facilities, and the other
regarding the increase of hospital beds
in existing LTCHs and LTCH satellite
facilities. Specifically, section
114(d)(1)(A) of the MMSEA provides
that the Secretary shall impose a
moratorium ‘‘subject to paragraph (2),
on the establishment and classification
of a long-term care hospital or satellite
facility, other than an existing long-term
care hospital or facility.’’ Section
114(d)(1)(B) of the MMSEA provides
that, the Secretary shall impose a
moratorium ‘‘subject to paragraph (3),
on an increase of long-term care hospital
beds in existing long-term care hospitals
or satellite facilities.’’
Sections 114(d)(2) and (d)(3) of the
MMSEA provide for exceptions to both
moratoria imposed by section 114(d)(1)
of the MMSEA. The three exceptions
specified in section 114(d)(2) of the
MMSEA apply exclusively to the
establishment and classification of
certain LTCHs or LTCH satellite
facilities while the exception at section
114(d)(3)(A) of the MMSEA only applies
to the moratorium on increases in beds
at certain existing LTCHs or LTCH
satellites facilities. In the May 22, 2008
interim final rule with comment period,
we implemented section 114(d) of the
MMSEA.
Section 4302(b) of the ARRA
amended section 114(d)(3)(A) of the
MMSEA to establish an additional
exception to the moratorium on
increases in beds at LTCHs and LTCH
satellite facilities at section 114(d)(3)(A)
by stating that ‘‘* * * if the hospital or
facility obtained a certificate of need for
an increase in beds that is in a State for
which certificate of need is required and
that was issued on or after April 1, 2005,
and before December 29, 2007’’. This
additional exception is being
implemented through the interim final
rule with comment period that is found
in section XI. of this document.
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direct the reader to that discussion (73
FR 29705).
The first exception to the moratorium
at section 114(d)(2)(A) of the MMSEA
addressed the circumstance of an
existing hospital that was already in its
qualifying period for LTCH designation,
as governed by our regulations at
§ 412.23(e) on or before December 29,
2007 (73 FR 29705).
At section 114(d)(2)(B) of the
MMSEA, a second exception to the
moratorium was made for a long-term
care hospital that, as of the date of the
enactment of the MMSEA (December 29,
2007), satisfied the two prongs of the
exception: (1) it has a binding written
agreement with an outside, unrelated
party for the actual construction,
renovation, lease, or demolition for a
long-term care hospital; and (2) it has
expended, before the date of enactment
of this Act, at least 10 percent of the
estimated cost of the project (or, if less,
$2,500,000).’’
In the May 22, 2008 interim final rule
with comment period, we implemented
this provision in the following manner:
With regard to the first prong, we
believe that the use of the term ‘‘actual’’
in the context of the, ‘‘actual
construction, renovation, lease, or
demolition,’’ indicates that the
provision focused only on the specific
accomplishments cited in the MMSEA
and did not include those that were
contemplated or had not yet been
executed. We noted that, although we
were aware that a hospital or entity
could have entered into binding written
agreements regarding services and items
(for example, feasibility studies or land
purchase) and incur costs for those
services and items prior to actual
construction, renovation, lease or
demolition, Congress did not include
those services or items in the statute as
a basis for the exception (73 FR 29706).
With respect to the second prong, we
understood the statute to specify that
the hospital or entity must have
expended before December 29, 2007, at
least 10 percent of the estimated cost of
the project (or, if less, $2.5 million). By
‘‘cost of the project,’’ we believe the
statute refers to the activities
enumerated in the first prong: ‘‘The
actual construction, renovation, lease, or
demolition for a long-term care
hospital.’’ The statute requires that the
hospital or entity spend the amount
specified in the statute on the actual
construction, renovation, lease, or
demolition for the contemplated LTCH.
Furthermore, because the statute uses
the phrase ‘‘has expended’’ we believe
that the statute required that a hospital
or entity would have actually
transferred funds as payment for the
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project as opposed to merely obligating
capital and posting the cost of the
project on its books as of December 29,
2007. We believe that the provision
addressed the concept of ‘‘obligate’’ in
the first prong of the test where the
statute specifies ‘‘a binding written
agreement * * * for the actual
construction, renovation, lease, or
demolition of the long-term care
hospital* * *’’ and there is no reason to
believe that the second prong of the test,
which requires the ‘‘expenditure’’ of 10
percent of the project or if less,
$2,500,000, was intended as a
redundancy. We noted that the ability to
post the expense on the hospital’s or
entity’s books could be satisfied by
merely having a binding written
agreement under the first prong of
section 114(d)(2)(B) of the MMSEA. The
fact that a second requirement was
included that involved an expenditure
indicated to us that an additional
threshold had to be met.
Finally, in the May 22, 2008 interim
final rule with comment period, we
stated that we believed that section
114(d)(2)(C) of the MMSEA provided an
exception for a long-term care hospital
that, as of the date of the enactment of
the MMSEA, ‘‘has obtained an approved
certificate of need, in a State where one
is required, on or before the date of the
enactment of this Act.’’ We do not
believe that the provision limited the
exception to only an existing long-term
care hospital that had obtained an
approved certificate of need to create a
new satellite of the LTCH. We noted
that in many instances, prior to being
classified as a LTCH, a hospital is built
by an entity with the express intention
of making it into a LTCH as soon as
possible. In those instances, it is not
uncommon for the entity to obtain a
certificate of need from the State prior
to the development of the hospital (73
FR 29706).
We understood the certificate of need
exception to apply to a hospital or entity
that was actively engaged in developing
a LTCH, as evidenced by the fact that
either an entity that wanted to create a
LTCH but did not exist as a hospital as
of December 29, 2007, had obtained a
certificate of need for a hospital by the
date of enactment, or that an existing
hospital had obtained a certificate of
need to convert the hospital into a new
LTCH by that date. However, this
exception would not apply to a hospital
that was already in existence prior to
the date of enactment and that had
previously obtained an approved
certificate of need for a hospital (other
than a LTCH) on or before December 29,
2007. The fact that a hospital may have
had a certificate of need issued to it
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years before December 29, 2007, to
operate a hospital (other than a LTCH)
would not be a reason to grant it an
exception, unless that certificate of need
was specifically for a LTCH. Since the
certificate of need process is controlled
at the State level, in determining
whether the hospital or entity has
obtained an approved certificate of need
on or before December 29, 2007, we
stated that we would look to the State
for that determination (73 FR 29706).
3. Public Comments Received on the
May 22, 2008 Interim Final Rule With
Comment Period Provisions
Implementing the Exception to the
Moratorium on the Increase in Number
of LTCHs Beds in Existing LTCHs and
LTCH Satellite Facilities
In the May 22, 2008 interim final rule
with comment period, we implemented
section 114(d)(1)(B) of the MMSEA,
which imposed a moratorium on
existing LTCHs or LTCH satellite
facilities for the 3-year period beginning
December 29, 2007, through December
28, 2010. The moratorium was on an
increase of LTCH beds in existing
LTCHs or LTCH satellite facilities.
Therefore, during the 3-year
moratorium, an existing LTCH or LTCH
satellite facility would not be able to
increase the number of beds in excess of
the number of Medicare-certified beds at
the hospital on December 29, 2007.
Section 114(d)(3) of the MMSEA
provided one exception to the
moratorium on an increase of beds.
Specifically, section 114(d)(3)(A) of the
MMSEA states that the moratorium on
an increase in beds shall not apply if an
existing LTCH or LTCH satellite facility
is ‘‘located in a State where there is only
one other long-term care hospital; and
requests an increase in beds following
the closure or the decrease in the
number of beds of another long-term
care hospital in the State.’’
Section 114(d)(3)(B) of the MMSEA
also specified that the exception to the
moratorium on the increase in bed
numbers for existing LTCHs or LTCH
satellite facilities did not apply to the
existing limit on the number of beds in
‘‘grandfathered’’ LTCH HwHs as
specified at § 412.22(f), and LTCH
satellite facilities, as specified at
§ 412.22(h)(3) of the regulations. Under
§ 412.22(f) and § 412.22(h)(3),
respectively, ‘‘grandfathered’’ LTCH
HwHs and LTCH satellite facilities, (that
is, HwHs that were in existence on or
before September 30, 1995, and LTCH
satellite facilities that were in existence
on or before September 30, 1999, and
that meet certain specified conditions)
are exempted from compliance with
‘‘separateness and control’’ policies as
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long as they do not increase their bed
numbers. (See the FY 2007 IPPS final
rule (71 FR 48106 through 48115).)
Therefore, even if a ‘‘grandfathered’’
LTCH HwH or LTCH satellite facility
was located in a State where there was
only one other LTCH and it requests an
increase in beds following the closure or
the decrease in the number of beds of
another long-term care hospital in the
State, it would not be able to maintain
its grandfathered status if it would
increase the number of beds at the
LTCH under this exception.
We noted in the May 22, 2008 interim
final rule with comment period that
decisions regarding whether a specific
situation would be considered to meet
the exceptions to the establishment and
classification of new LTCHs or new
LTCH satellite facilities or the
exceptions on increasing the number of
beds in existing LTCHs or LTCH
satellite facilities will be made on a
case-by-case basis by the applicant’s
fiscal intermediary/MAC and the CMS
Regional Office (RO). After the
publication of the May 22, 2008 interim
final rule with comment period, we
issued specific instructions on
implementing the moratorium in the
form of memoranda to State Survey
Agency Directors, CMS ROs, and fiscal
intermediaries/MACs, the policy was
added to the manual in Pub. 100–20 as
change request (CR) 6172, and we
provided specific policy interpretations
and guidance to the regional offices.
As discussed more fully in section XI.
of this document, section 4302(b) of the
ARRA amended section 114(d)(3)(A) of
the MMSEA by establishing an
additional exception to the moratorium
on the increase in beds at certain LTCHs
and LTCH satellites. Specifically, this
exception allows an existing LTCH to
expand the number of beds at the
hospital or satellite facility if it had
obtained a certificate of need (CON) for
an increase in beds in a State for which
such a certificate of need is required and
that was issued on or after April 1, 2005,
and before December 29, 2007. This
additional exception is being
implemented through the interim final
rule with comment period in section XI.
of this document by amending
§ 412.23(e)(7) of the regulations.
Accordingly, we will not address those
comments that urged us to establish this
exception through regulation.
In the May 22, 2008 interim final rule
with comment period, we revised our
regulations at § 412.23 to include a
description of the moratorium on the
establishment of new LTCHs and LTCH
satellites and the moratorium on
increasing the number of beds in
existing LTCHs and existing LTCH
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satellites and statutory exceptions at
§§ 412.23(e)(5) and (e)(6). Additionally,
in § 412.23(e)(5), we defined a
freestanding LTCH.
Comment: Two commenters requested
that CMS clarify its interpretation of
section 114(d)(2)(C) of the MMSEA,
which allowed the CON exception to
apply to the development of a satellite.
The particular circumstance described
by the commenters involved issues of
relocation of a planned satellite, for
which a CON had been issued prior to
December 29, 2007, but the planned
host hospital had since been closed.
Since the original CON had been issued
prior to the enactment of the MMSEA,
the commenters asked for an advance
determination to allow the development
of the planned satellite located in a
hospital that has not as yet been
determined.
Response: In the May 22, 2008 interim
final rule with comment period,
regarding the CON exception for the
establishment of new LTCHs and LTCH
satellites we stated ‘‘[s]ince the
certificate of need process is controlled
at the State level, in determining
whether the hospital or entity has
obtained an approved certificate of need
on or before December 29, 2007, we will
look to the State for that determination’’
(73 FR 29706). Regarding the specific
situation presented by the commenters,
we would note that when we were first
made aware of this problem, we were in
contact with the State agency and were
informed that the LTCH that had
obtained the CON for the planned
satellite had not yet found a new ‘‘host’’
for its planned satellite. We have
evaluated the situation that the
commenters described in concert with
the State agency responsible for issuing
the CON and have instructed State
agencies that if a CON has been
modified, revised, amended or
otherwise altered, the State Survey
Agency would need to indicate to CMS
whether it considered this modified,
revised, amended or otherwise altered
CON to be the ‘‘same’’ CON for purposes
of meeting the requirements for the
exception to the moratorium. The CMS
RO will review and evaluate the CON
documentation and determine whether
it qualifies for the exception.
Comment: Two commenters endorsed
CMS’ interpretation of the statutory
language in section 114(d) of the
MMSEA, which included applying the
provisions of the section to satellite
facilities and/or to ‘‘an entity that will
develop a hospital that will ultimately
become a LTCH.’’
Response: We thank the commenters
for their support.
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Comment: One commenter stated that
the exception to the moratorium
stipulated in section 114(d)(2)(A) of the
MMSEA for a LTCH in ‘‘ * * *
qualifying period for payment under
section 412.23(e) * * * on or before the
date of enactment of this Act’’ should be
extended to include satellite facilities if
it can be demonstrated that the satellite
was under development prior to
December 29, 2007.
Response: The exception to the
moratorium specified at section
114(d)(2)(A) of the MMSEA is not
applicable to a LTCH satellite because
there is no qualifying period for the
establishment of a satellite (73 FR
29705). Although there are delineated
requirements that a LTCH must meet
regarding the establishment of a satellite
at § 412.22(h)(2) of the regulations, the
‘‘qualifying period’’ for a LTCH, is
established in our regulations at
§ 412.23(e). Specifically, in order for to
be designated as a LTCH, a facility must
have a ‘‘provider agreement under Part
489 [of the Medicare regulations] to
participate as a hospital’’ and the
hospital must have a Medicare average
length of stay greater than 25 days based
on data for the hospital’s most recent
complete cost report. Once length of
stay data are submitted to the hospital’s
fiscal intermediary or MAC and verified,
(unless the hospital is co-located with
another hospital, and then it must also
meet the HwH criteria at § 412.22(e) of
the regulations), it will be designated as
a LTCH and paid under the LTCH PPS
beginning with its next cost reporting
period. The period of time beginning
when a hospital begins participation in
the Medicare program as a hospital and
when it is designated as an LTCH is the
‘‘qualifying’’ period. A LTCH (or other
excluded hospital) may establish a
satellite if it demonstrates to its fiscal
intermediary/MAC that it
independently meets the regulatory
requirements for the provider-type of
the hospital of which it is a part at
§ 412.22(h)(ii) and also meets the
separateness and control requirements
set forth in § 412.22(h)(iii). Because the
LTCH of which the satellite is a part has
met the regulatory requirements at
§ 412.23(e), there would be no
‘‘qualifying period’’ for a LTCH satellite.
A new LTCH satellite, however, could
qualify for an exception to the
moratorium if it meets either of the
exceptions established at section
114(d)(2)(B) or section 114(d)(2)(C) of
the MMSEA and implemented in our
regulations at §§ 412.23(e)(6)(ii)(B) and
412.23(e)(6)(ii)(C), respectively. Either
of these exceptions could be applicable
to a LTCH satellite. The regulations at
§ 412.23(e)(6)(ii)(B) specify that the
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moratorium is not applicable if on or
before December 29, 2007, the LTCH
‘‘[h]as a binding written agreement with
an outside, unrelated party for the
actual construction, renovation, lease or
demolition for a long-term care hospital;
and [h]as expended, before December
29, 2007, at least 10 percent (or, if less,
$2.5 million) of the estimated cost of the
project specified in paragraph (ii)(B)(1)
of this paragraph.’’ At
§ 412.23(e)(6)(ii)(C) of our regulations,
we specify that the moratorium is not
applicable if on or before December 29,
2007, the LTCH ‘‘[h]ad obtained an
approved certificate of need from the
State, when required by State law.’’
Therefore, although the ‘‘qualifying
period’’ exception at section
114(d)(2)(A) to the moratorium is not
relevant to the development of a LTCH
satellite, it is possible that a new
satellite could be completed under the
moratorium if either of the above
described exceptions were met.
Comment: Five commenters disagreed
with CMS’ interpretation of section
114(d)(2)(B) of the MMSEA. This
section provides for an exception to the
moratorium that specifies that the
moratorium shall not apply to a LTCH
(or satellite) that as of the date of
enactment of the MMSEA (December 29,
2007) ‘‘has a binding written agreement
with an outside, unrelated party for the
actual construction, renovation, lease, or
demolition for a long-term care hospital,
and has expended before the date of the
enactment of this Act, at least 10
percent of the estimated cost of the
project (or if less, $2,500,000). * * *’’
Three commenters argued that the
sentence structure indicates that the two
prongs of this exception are separate
and that the second prong is not
dependent upon the first. Under their
interpretation, the ‘‘binding contract’’
clause is entirely separate from the ‘‘has
expended’’ clause. Furthermore, the
commenters stated that when Congress
chose the term ‘‘expended’’ to describe
the level of financial commitment
required on the ‘‘project’’ in order to
meet the second prong’s test, the
commenters believed that Congress
meant to use the word ‘‘obligated.’’
Additionally, the five commenters
stated that under their ‘‘correct’’
interpretation, Congress intended that
the ‘‘* * * at least 10 percent of the
estimated cost of the project (or, if less,
$2,500,000)’’ refers to the entire costs of
developing the planned LTCH, not the
four activities specified in the first
prong, that is, ‘‘the actual construction,
renovation, lease, or demolition for a
long-term care hospital * * *.’’ Several
commenters argued that feasibility
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studies, land purchase, architectural
fees, attorneys fees, appraisals, purchase
of right-of-way, as well as other
activities that occur during the
development of a hospital, should be
included in this definition. Several
members of Congress urged CMS to
extend the moratorium exceptions to
several LTCHs in their districts that
would otherwise not meet the second
prong of the exception under our
interpretation and note that opening
these additional LTCHs is in the public
interest. Two hospitals in a partnership
to develop a LTCH and their
Congressional representatives stated
that, unless CMS revises its
interpretation to include the purchase of
land, these partnered hospitals would
be subject to a great financial burden
and their community would be deprived
of a needed service.
Response: We continue to believe that
our interpretation of section 114(d)(2)(B)
of the MMSEA, as implemented in the
May 22, 2008 interim final rule with
comment period, accurately implements
the statute in establishing an exception
to the moratorium on new LTCHs and
satellites. The policy takes into
consideration, as of the date of
enactment of the statute, the ‘‘actual’’
level of financial expenditures on the
four specific, verifiable activities taken
in preparation of the development of a
LTCH or satellite that are cited in the
statute. This exception states that the
moratorium shall not apply to ‘‘a longterm care hospital that as of the date of
the enactment of this Act—* * *. (B)
has a binding written agreement with an
outside, unrelated party for the actual
construction, renovation, lease, or
demolition for a long-term care hospital,
and has expended, before the date of the
enactment of this Act, at least 10
percent of the estimated cost of the
project (or, if less, $2,500,000).* * *’’
We described this exception in the
May 22, 2008 interim final rule with
comment period, as having two prongs.
The first prong is the clause prior to the
‘‘and,’’ that is, the ‘‘binding written
agreement with an outside, unrelated
party for the ‘actual’ construction,
renovation, lease, or demolition * * *.’’
The second prong is the ‘‘has
expended’’ clause and its limit,
following the term ‘‘and.’’ We disagree
with the commenters’ assertions that in
the second prong the ‘‘has expended’’
clause (following the ‘‘and’’ in the above
statutory text) is separate from the first
prong and not dependent upon it. The
conjunctive ‘‘and’’ clearly makes
meeting both prongs a requirement to
qualify for this exception to the
moratorium. We further disagree with
the commenters’ hypothetical
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arguments that the ‘‘cost of the project’’
in the second prong does not refer to the
cost of the four activities Congress
specified in the first prong (‘‘actual
construction, renovation, lease, or
demolition * * *’’).
We note again that Congress expressly
specified only four ‘‘actual’’ activities in
the statute. We also believe, as we stated
in the May 22, 2008 interim final rule
with comment period, that that the use
of the term ‘‘actual’’ in the context of the
phrase, ‘‘actual construction,
renovation, lease, or demolition,’’
limited the activities that Congress
considered to represent a significant
benchmark in that particular project of
developing a LTCH or a LTCH satellite
facility.
With respect to the second prong, we
also continue to understand the statute
to specify that the hospital or entity
must have expended before December
29, 2007, at least 10 percent of the
estimated cost of the project (or, if less,
$2,500,000). By ‘‘cost of the project,’’ we
believe the statute refers to the activities
enumerated in the first prong: ‘‘the
actual construction, renovation, lease, or
demolition for a long-term care
hospital.’’ We believe the statute
requires that the hospital or entity
‘‘* * * has expended * * *;’’ the
amount specified in the statute on the
actual construction, renovation, lease, or
demolition for the contemplated LTCH,
not just that both prongs are met, with
no intended interdependence. In other
words, we believe that the two prongs
of the exception at section 114(d)(2)(B)
of the MMSEA are linked together, with
the second clause detailing the
conditions under which the first one
would qualify.
Furthermore, because the statute uses
the phrase ‘‘has expended’’ we continue
to believe, as we indicated in the May
22, 2008 interim final rule with
comment period, that the statute
requires that a hospital or entity would
have actually transferred funds as
payment for the project as opposed to
merely obligating capital and posting
the cost of the project on its books as of
December 29, 2007. As we noted, the
ability to post the expense on the
hospital’s or entity’s books could be
satisfied by merely having a binding
written agreement under the first prong
of section 114(d)(2)(B) of the MMSEA.
Had Congress allowed merely
‘‘obligated’’ funds to be included in the
calculation of the 10 percent of the
estimated cost of the project (or, if less,
$2,500,000) we believe that the term
‘‘obligated’’ would have been chosen
rather than the term ‘‘expended.’’
We understand the concerns
expressed by several commenters,
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including Congressional representatives,
that our interpretation of the exception
to the moratorium at section
114(d)(2)(B) may cause hardship to
LTCHs under development that could
not meet the ‘‘expenditure’’ prong
unless cost of the purchase of land is
included. However, as explained earlier,
we continue to believe the statute
clearly indicates what costs may be
included. Furthermore, we note that the
ARRA made several changes to the
language in section 114 of the MMSEA.
If Congress intended that other costs,
such as the cost of the land should be
considered, it could have amended the
MMSEA accordingly.
Comment: One commenter urged
CMS to use its discretion to authorize its
fiscal intermediaries and MACs to
evaluate and potentially approve other
LTCH projects that do not fit perfectly
within one of the enumerated
exceptions to the moratorium but that
‘‘meet the intent of the moratorium.’’
Response: When we implemented the
moratorium provision in the May 22,
2008 interim final rule with comment
period, we noted that Congress was very
specific in enumerating the conditions
under which it granted exceptions to the
moratorium on the development of new
LTCHs and LTCH satellites and on the
increase in the number of beds in
existing LTCHs, in sections 114(d)(2)
and (d)(3) of the MMSEA. The ARRA
amended section 114(d)(3)(A) of the
MMSEA, and established an additional
CON exception for bed increases in
LTCHs and LTCH satellites. (We discuss
this amendment in detail in an interim
final rule with comment period in
section XI. of this document.) Congress
made only the single change specified
in the ARRA when it amended the
moratorium provision in section 114(d)
of the MMSEA. Because this was the
sole change made by Congress in the
exceptions to the moratorium
established under section 114(d) of the
MMSEA, we do not believe that it is
appropriate for us to further interpret
these exceptions through the regulatory
process.
Comment: Several commenters asked
us to clarify what activities on the part
of either an existing LTCH or an existing
satellite would continue to be
permissible under section 114(d)(1) of
the MMSEA. Specifically, the
commenters asked the following
questions: (1) Is an existing LTCH or an
existing satellite permitted to relocate;
(2) may a LTCH under development that
meets the moratorium exception at
section 114(d)(2)(A), (B), or (C) undergo
a change in ownership without
imperiling the exception; (3) may an
existing LTCH merge with another
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LTCH; (4) are two satellites of the same
LTCH permitted to consolidate; (5) how
does the moratorium affect a remote
location of a LTCH; (6) is a LTCH
permitted to reduce its bed numbers and
open a remote location (not a satellite)
with those beds so that there is no
increase in bed numbers under the
LTCH’s provider number; and (7) does
the moratorium have any impact on the
ability of a new IRF or IPF to co-locate
with an existing LTCH without affecting
its Medicare certification?
Response: In response the
commenters’ specific concerns
regarding our implementation of section
114(d) of the MMSEA, we will take this
opportunity to set forth the policy
determinations on permissible actions
by LTCHs and satellites during the
moratorium that we have given
individually to a number of targeted
inquiries from LTCHs, trade
associations, consultants, and attorneys.
Specifically, following the numbering of
the questions in the comment above, our
responses are below:
(1) An existing LTCH or an existing
LTCH satellite may relocate in
accordance with State survey agency
policies as long as there is no increase
in the number of beds in the LTCH or
in the satellite at the new site. For
example, if the State surveyors would
typically allow LTCH ‘‘A’’ with 100
beds to move to a building 8 miles away
and it maintains the same provider
agreement, the moratorium would not
preclude the re-opening of the 100 bed
LTCH in the new location. However if
the LTCH has a new provider agreement
at the new location, it would be a new
LTCH and therefore subject to the
moratorium.
(2) A new LTCH that meets one (or
more of) the exceptions at sections
114(d)(2)(A), (B) and (C) of the MMSEA,
may undergo a change of ownership and
may still qualify for the exception, if
certain requirements are met.
Specifically, if meeting the ‘‘qualifying
period’’ exception at section
114(d)(2)(A) of the MMSEA is the
exception being claimed, a change of
ownership where the new owner takes
over the original provider agreement
would not affect the hospital’s
qualification for an exception. If the
hospital or entity is claiming that it
meets the exception set forth at section
114(d)(2)(B), that is, that it has a
‘‘binding written agreement * * * and
* * * has expended * * * at least 10
percent of the estimated cost of the
project (or if less, $2,500,000) * * *,’’
but the developing entity was sold,
eligibility for the exception can be
granted to the original owner. However,
a determination would be made by the
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CMS RO which initially granted the
exception as to whether it is still the
same LTCH or entity that would meet
the requirements of section 114(c)(2)(B)
of the MMSEA. Finally, if the hospital
or entity that is developing the LTCH is
basing its exception on section
114(c)(2)(C) of the MMSEA, that is, that
a CON was obtained in a State where
one was required on or before December
29, 2007, a determination would need to
be made by the State Agency on
whether the CON that was originally
issued was transferable to a new owner
or whether a new CON would be
required in order to proceed. If a new
CON is required, the hospital or entity
would not meet the statutory December
29, 2007 deadline and therefore, would
not qualify for an exception to the
moratorium.
(3) We would apply CMS’
longstanding policy regarding hospital
mergers so that the merger of two
LTCHs would result in one LTCH’s
provider number being voluntarily
terminated and the other serving as the
provider number for the new entity. The
moratorium on the increase in hospital
beds would apply to the sum of the beds
that existed in both LTCHs as of
December 29, 2007. This determination
parallels our approach to determining
appropriate caps on the number of
residents under our GME payment
adjustment when hospitals merge so
that any additional statutory or
regulatory limit on residency positions
in the merged entity would be imposed
on top of the sum of the positions that
had been available in each hospital
prior to the merger (64 FR 26329).
(4) Two satellites of the same LTCH
would not be permitted to consolidate
during the 3-year moratorium. The
reason for this is that the result of the
satellites consolidating would be an
increase in the number of beds in one
satellite, which is precluded by section
114(d)(1)(B) of the MMSEA.
(5) Section 114(d) of the MMSEA does
not subject remote locations of a LTCH
to the moratorium, but we emphasize
that it would be essential to determine
that the facility in question is actually
a ‘‘remote location’’ and not a satellite
of a LTCH. If the ‘‘remote location’’ is
located on the campus of another
hospital, it is defined as a satellite,
under § 412.22(h) of the regulations,
and, therefore, subject to the
moratorium. A remote location of a
LTCH that was not a satellite, because
it is provider-based and not co-located
with another hospital, however, would
operate under the provider number of
its main LTCH. Therefore, where
establishing a remote location adds beds
under that provider number, in the
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aggregate, it is subject to the
moratorium.
(6) If a LTCH adds a provider-based
location that does not increase the
aggregate number of beds at the LTCH,
because it has decreased the number of
beds at the main campus by at least an
equivalent number of beds, the LTCH
would not have violated the
moratorium.
(7) The moratorium provision at
section 114(d) of the MMSEA would
have no impact on whether an IRF or an
IPF could co-locate with an existing
LTCH. All providers that would be
affected by the co-location, however,
would be required to comply with
‘‘separateness and control’’ regulations
at § 412.22(e) and the existing LTCH
would be required to meet the
notification requirements at
§ 412.22(e)(3).
Comment: One commenter requested
that CMS view ‘‘obtaining a new
provider number’’ under circumstances
where there is an acquisition of another
facility as the same as when there is an
assumption of an existing number and,
therefore, covered by the exemption
from the moratorium.
Response: As we stated in the
previous response, under our existing
regulations at § 489.18, which govern
change of ownership and its effect on
provider agreements, there is a
significant difference between whether a
LTCH is acquired and it functions under
the same provider agreement as prior to
the acquisition compared to a situation
where a new provider agreement is
sought when a hospital changes
ownership. Since the cessation of
service under an existing provider
agreement is considered a termination
of the provider agreement for the
duration of the moratorium, obtaining a
new provider agreement for a LTCH
would be tantamount to developing a
new LTCH, an activity that is precluded
unless one of the statutory exceptions,
discussed in detail above, was met. We
encourage the commenter to review our
regulations at 42 CFR part 489 Subpart
E. These regulations address the
distinction between these two
alternatives and specify the
requirements and consequences of both.
Comment: Three commenters stated
that it is their understanding that an
increase in ‘‘non-Medicare certified
beds’’ is permitted under the
moratorium established under section
114(d)(3) of the MMSEA.
Response: The commenters’
understanding is incorrect. All beds in
a LTCH with an agreement to participate
in the Medicare program must be
available to Medicare beneficiaries. We
used the term ‘‘Medicare certified beds’’
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in the May 22, 2008 interim final rule
with comment period in order to specify
how we would count the actual number
of beds in an existing LTCH or satellite
after the MMSEA was enacted. At that
time, we noted that we were using the
number of beds certified by Medicare,
because this number could be verified
by CMS and its contractors and this was
currently referenced in our regulations
at § 412.22(h)(2)(i), and similarly
referenced in § 412.22(f)(1) (73 FR 29706
and 29707). We did not mean to imply
that there could be some hospital beds
that would be available for nonMedicare patients but would not be
available for use by Medicare
beneficiaries.
After considering the public
comments we received, we are
finalizing the regulatory changes at
§§ 412.22.(e)(5) and (e)(6) implementing
section 114(d) of the MMSEA that we
included in the May 22, 2008 interim
final rule with comment period.
We once again note that the
amendments to both section 114(c) and
(d) of the MMSEA made by the ARRA
are being implemented in an interim
final rule with comment period in
section XI. of this document.
XI. Interim Final Rule With Comment
Period Implementing Section 4302 of
the American Recovery and
Reinvestment Act of 2009 (Pub. L. 111–
5) Relating to Payments to LTCHs and
LTCH Satellite Facilities
A. Background
Section 4302 of the American
Recovery and Reinvestment Act (ARRA)
(Pub. L. 111–5) affects several of the
provisions of section 114 of the MMSEA
(Pub. L. 110–173) that are discussed in
section X. of the preamble of this
document. Specifically, section 4302 of
the ARRA amended several of the
provisions of section 114 of the
MMSEA, to be effective and applicable
as if the amendments had been included
in the MMSEA. Some of the ARRA
amendments address issues raised by
commenters regarding our May 22, 2008
interim final rule with comment period
(73 FR 29699). (In section X. of the
preamble of the final rule in this
document, we respond to comments
received on the May 22, 2008 interim
final rule with comment period, and
finalize the policies implementing
section 114(c) of the MMSEA that were
not amended by the ARRA.)
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B. Amendments Relating to Payment
Adjustment to LTCHs and LTCH
Satellite Facilities Made by Section 4302
of the ARRA
Sections 114(c)(1)(A) and (B) of the
MMSEA established a 3-year delay, for
cost reporting periods beginning on or
after December 29, 2007, for
freestanding LTCHs (defined at
§ 412.23(e)(5) of the regulations) and
‘‘grandfathered’’ long-term care HwHs,
from the application of the percentage
threshold payment adjustment
established under § 412.536 or
§ 412.534, respectively, or any similar
provision. Section 4302(a)(1) of the
ARRA amended the provisions of
sections 114(c)(1)(A) and (B) of the
MMSEA as follows:
First, under section 4302(a)(1)(A) of
the ARRA, the heading of section
114(c)(1) is changed to ‘‘Delay in
Application of 25 Percent Patient
Threshold Payment Adjustment’’ from
the original ‘‘No Application of 25
Percent Patient Threshold Payment
Adjustment to Freestanding and
Grandfathered LTCHs.’’
Second, under section 4302(a)(1)(B) of
the ARRA, the effective date of the delay
in application of the 25 percent patient
threshold payment adjustment found in
section 114(c)(1) of the MMSEA is
changed from the date of enactment of
the MMSEA (that is, December 29, 2007)
to July 1, 2007. As a result, a
‘‘grandfathered’’ long-term care HwH or
a ‘‘freestanding’’ LTCH with a cost
reporting period beginning before
December 29, 2007, would no longer be
subject to the applicable payment
adjustments at § 412.534(h) and
§ 412.536 until the start of its next cost
reporting period. This is the case
because our regulations at § 412.534(h),
with respect to ‘‘grandfathered’’ LTCHs,
and § 412.536 with respect to all LTCHs,
were implemented for cost reporting
periods beginning on or after July 1,
2007. Therefore, the amendment made
by section 4302(a)(1)(B) of the ARRA to
section 114(c)(1) of the MMSEA results
in a uniform start of the application of
the statutory 3-year relief from the 25
percentage threshold payment
adjustment.
Third, section 4302(a)(1)(C) of the
ARRA adds, for 3 years, a third category
of LTCHs that will not be subject to
§§ 412.534 and 412.536 of the
regulations, or any similar provision of
the regulations for a 3-year period for
cost reporting periods beginning on or
after July 1, 2007. Specifically, section
4302(a)(1)(C) of the ARRA extends the
3-year exemption from the percentage
threshold payment adjustments at
§§ 412.534 and 412.536 to include
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‘‘* * * a long-term care hospital, or
satellite facility, that as of December 29,
2007, was co-located with an entity that
is a provider-based, off-campus location
of a subsection (d) hospital which did
not provide services payable under
section 1886(d) of the Social Security
Act at the off-campus location * * *.’’
Therefore, no percentage threshold (and
therefore, no payment adjustment) will
be applied for patients discharged from
an acute care hospital who are admitted
to a LTCH or LTCH satellite facility that
is co-located with an entity that is a
provider-based, off-campus location of
an acute care hospital (as set forth in our
regulations at § 413.65) as long as there
are no inpatient acute care hospital
services payable under section 1886(d)
of the Act offered at that off-campus
location. For example, this would apply
to a situation where an acute care
hospital, that Medicare pays under the
IPPS, is located on the main campus of
a multicampus entity and, on a second
campus of that acute care hospital, the
LTCH shares a building with an IRF unit
or an outpatient clinic that is providerbased to the acute care hospital but
there are no services payable under the
IPPS hospital provided at that second
campus.
Section 114(c)(2) of the MMSEA
provided, for a 3-year period, increases
in the percentage thresholds (‘‘payment
adjustments’’) established under
§ 412.534 of the regulations for
‘‘applicable’’ LTCHs or satellite facilities
for cost reporting periods beginning on
or after December 29, 2007. Specifically,
if the threshold percentage would have
been 25 percent, for 3 years it will
increase to 50 percent; and if the
threshold would have been 50 percent
prior to the enactment of the MMSEA,
it will increase to 75 percent. The term
‘‘applicable’’ was defined as ‘‘* * * a
hospital or satellite facility that is
subject to the transition rules under
section 412.534(g) of title 42 of the Code
of Federal Regulations.’’ The revisions
made by section 114(c)(2) of the
MMSEA were limited to a hospital or a
satellite subject to the transition rules at
§ 412.534(g) of the regulations. Because
‘‘grandfathered’’ LTCH satellite facilities
were subject to the transition at
§ 412.534(h) of the regulations, not at
§ 412.534(g), the percentage increase
resulting from the application of section
114(c)(2) did not apply to them (73 FR
29703).
Section 4302(a)(2)(A) of the ARRA
modified the definition of ‘‘applicable
long term care hospital or satellite
facility.’’ This provision amended
section 114(c)(2)(B)(ii) of the MMSEA
by specifying that those ‘‘grandfathered
satellites’’ described in § 412.22(h)(3)(i)
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of the regulations were to be included
in the definition. (Under
§ 412.22(h)(3)(i), ‘‘grandfathered’’
satellites were exempted from
compliance with the ‘‘separateness and
control’’ rules specified in § 412.22(h) if
they had been structured as a satellite
facility on or before September 30,
1999.) However, we note that
‘‘grandfathered satellites’’ under
§ 412.22(h)(3) of the regulations
continue to be subject to the applicable
percentage thresholds outlined in
§ 412.536 for patients admitted from any
individual hospital with which they
were not co-located because there were
no exceptions for such entities for
purposes of payment as described at
§ 412.536 of the regulations.
Section 114(c)(2)(C) of the MMSEA
applied the 3-year increase in the
percentage thresholds at § 412.534 of the
regulations for cost reporting periods
beginning on or after the date of
enactment of the MMSEA (December 29,
2007). Section 4302(a)(2)(B) of the
ARRA revised the effective date of the
MMSEA provisions to increase the
applicable percentages to cost reporting
periods beginning on or after October 1,
2007, for LTCHs and LTCH satellite
facilities that were subject to the
transition rules under § 412.534(g) and
also established the effective date as
cost reporting periods beginning on or
after July 1, 2007, ‘‘* * * in the case of
a satellite facility described in section
412.22(h)(3)(i) of title 42 of the Code of
Federal Regulations.’’ (Different dates
are applicable because the effective date
for the 25 percent threshold payment
adjustment policy for LTCHs and LTCH
satellite facilities governed under
§ 412.534(g) of the regulations was
October 1, 2005, while the percent
threshold for ‘‘grandfathered’’ LTCH
satellite facilities policy was effective
for cost reporting periods beginning on
or after July 1, 2007.)
The result of this modification in the
effective date of the 3-year increase in
the percentage threshold for
‘‘applicable’’ LTCHs and LTCH satellite
facilities (now including ‘‘grandfathered
satellites’’) is that LTCHs and LTCH
satellite facilities will not have the fully
phased-in 25 percentage threshold
payment adjustment applied for cost
reporting periods beginning on or after
October 1, 2007, and ‘‘grandfathered’’
satellite facilities will not be subject to
the transition to the 25 percentage
threshold for cost reporting periods
beginning on or after July 1, 2007.
To implement the provisions of
section 4302 of the ARRA, in this
interim final rule with comment period,
we are revising our regulations at
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43991
§§ 412.534 and 412.536 to reflect the
statutory revisions described above.
C. Amendment to the Moratorium on
the Increase in Number of Beds in
Existing LTCHs or LTCH Satellite
Facilities Made by Section 4302 of the
ARRA
Section 114(d) of the MMSEA
provided a 3-year moratorium on the
increase of hospital beds in existing
LTCHs and LTCH satellite facilities.
(The definition of an existing LTCH and
LTCH satellite facility for purposes of
this policy is codified at § 412.23(e)(7)(i)
of our regulations.) Section 114(d) of the
MMSEA includes exceptions to the
moratorium on the increase in hospital
beds in existing LTCHs and LTCH
satellite facilities. Specifically, section
114(d)(3)(A) of the MMSEA provided
that the moratorium on the increase in
beds in an existing LTCH or LTCH
satellite facility would not apply to an
increase in beds if an existing LTCH or
LTCH satellite facility is ‘‘located in a
State where there is only one other longterm care hospital; and requests an
increase in beds following the closure or
the decrease in the number of beds of
another long-term care hospital in the
State.’’
Section 4302(b) of the ARRA added
an additional exception to the bedincrease moratorium in an existing
LTCH or LTCH satellite facility ‘‘* * *
if the hospital or facility obtained a
certificate of need for an increase in
beds that is in a State for which such
certificate of need is required and that
was issued on or after April 1, 2005, and
before December 29, 2007.’’
Accordingly, in this interim final rule
with comment period, we are revising
our regulations at § 412.23(e)(7)(B) to
include this new exception to the
moratorium on an increase in the
number of beds in existence in an
existing LTCH or LTCH satellite facility
beyond those in existence on December
29, 2007. In the May 22, 2008 interim
final rule with comment period, in our
discussion of the original exception to
the moratorium on bed increases at
section 114(d)(3)(A) of the MMSEA, and
in our regulations at
§§ 412.23(e)(7)(ii)(A) and (e)(7)(ii)(B)(2)
added in that interim final rule with
comment period, we noted that the
baseline number of beds that existed on
December 29, 2007, was the number of
Medicare-certified beds because this
number can be verified by CMS and its
contractors and this is currently
referenced in our regulations at
§ 412.22(h)(2)(i), and in a similar
reference in § 412.22(f)(1) (73 FR 29706
and 29707). However, we emphasize
that, in employing the term ‘‘Medicare-
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certified beds,’’ we are not implying that
there is distinction between ‘‘Medicarecertified beds’’ and some additional
group of beds in the hospital that are
reserved for non-Medicare patients and,
therefore, not included in this total. A
hospital participates in the Medicare
program in its entirety; that is, all beds
in a hospital with a provider agreement
with the Medicare program are available
for use by Medicare beneficiaries.
As we specified in our discussion in
the May 22, 2008 interim final rule with
comment period regarding
implementation of the certificate of
need exception to the development of
new LTCHs and LTCH satellite facilities
provided in section 114(d)(2)(C) of the
MMSEA and codified at
§ 412.23(e)(6)(ii)(C) of our regulations,
decisions regarding whether a specific
situation will be considered to meet the
certificate of need exception established
by the section 4302(b) of the ARRA,
which modifies section 114(d)(3)(A) of
the MMSEA, on the increase in the
number of beds in existing LTCHs or
LTCH satellite facilities, will be
determined on a case-by-case basis by
the applicant’s State agency, which will
make recommendations to the CMS
regional office. (The ARRA included no
amendments to section 114(d) of the
MMSEA regarding the moratorium on
the development of new LTCHs and
LTCH satellite facilities. Therefore, we
have finalized our regulations regarding
this provision at § 412.23(e)(6) as
discussed in section X. of the preamble
of the final rule in this document.)
Finally, section 4302(c) of the ARRA
specifies that the ‘‘* * * effective date
of the amendments made by this section
shall be effective and apply as if
included in the enactment of the
Medicare, Medicaid, and SCHIP
Extension Act of 2007’’ (Pub. L. 110–
173).
Accordingly, in this interim final rule
with comment period, we are revising
our regulations at § 412.23 to include a
description of the additional exception
to the moratorium on the establishment
of new beds in existing LTCHs and
LTCH satellite facilities.
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D. Responses to Comments
Because of the large number of public
comments we normally receive on
Federal Register documents, we are not
able to acknowledge and respond to
them individually. We will consider all
comments we receive by the date and
time specified in the DATES section of
this document, and, when we proceed
with a subsequent document, we will
respond to the comments in the
preamble of that document.
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E. Waiver of Proposed Rulemaking
We ordinarily publish a notice of
proposed rulemaking and invite public
comment on a proposed rule in
accordance with 5 U.S.C. 553(b) of the
Administrative Procedure Act (APA). In
addition, section 1871(b)(1) of the Act
provides that the Secretary shall provide
for notice of the proposed regulation in
the Federal Register and a period of not
less than 60 days for public comment
thereon. Section 1871(b)(2) of the Act
provides for an exception to the
requirement that the Secretary provide
for notice of a proposed rulemaking and
a period of not less than 60 days for
public comment. Specifically, section
1871(b)(2)(B) of the Act provides an
exception to these requirements when a
law establishes a specific deadline for
the implementation of a provision and
the deadline is less than 150 days after
the date of the enactment of the statute
in which the deadline is contained.
Section 4302 of the ARRA amended
sections 114(c) and (d) of the MMSEA
and changed existing LTCH PPS
policies. It affected the adjustment
policies in § 412.534 and § 412.536 of
our regulations. It also revised a
moratorium on bed increases in existing
LTCHs and LTCH satellite facilities
affecting policies in § 412.23 of our
regulations. These changes were
required to be implemented as if
included in the enactment of the
MMSEA 2007, that is, December 29,
2007. Accordingly, these changes are
required to be implemented: (1)
Effective December 29, 2007 (section
4302(c) of the ARRA); (2) beginning
with cost reporting periods beginning
on or after December 29, 2007 (section
4302(b) of the ARRA); or beginning with
cost reporting periods beginning on or
after July 1, 2007, or October 1, 2007, as
applicable (sections 4302(a)(1)(B) and
(a)(2)(B) of the ARRA). The ARRA was
enacted on February 17, 2009. Thus,
section 4302 of the ARRA’s deadlines
for implementation of the MMSEArelated policies contained in this
interim final rule with comment period
were less than 150 days after the date of
the enactment of the statute in which
the deadlines were contained.
Therefore, under the authority of
section 1871(b)(2)(B) of the Act, we are
waiving notice and comment
procedures for the AARA amendments
to the MMSEA policy changes
pertaining to §§ 412.534 and 412.536 of
our regulations as well as the
moratorium on increasing beds at an
existing LTCH and an existing satellite
facility of a LTCH in § 412.23.
We also find good cause to waive the
requirement for publication of a notice
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of proposed rulemaking and comment
on the grounds that it is unnecessary,
impracticable and contrary to the public
interest under the authority of 5 U.S.C.
553(b)(B). In general, this interim final
rule with comment period sets forth
nondiscretionary provisions of the
amendments made by section 4302 of
the ARRA to section 114 of the MMSEA
with respect to a moratorium on the
increase of long-term care hospital beds
in existing LTCHs or LTCH satellite
facilities, and payment policies
pertaining to §§ 412.534 and 412.536 of
our regulations. Therefore, we believe
pursuing notice and comment is
unnecessary.
Moreover, because that process would
prevent timely implementation of
congressionally mandated policy
changes that are to be effective, as
described previously in this section, we
believe notice and comment procedures
are impracticable and contrary to the
public interest.
In addition, notice and comment
would delay significantly the issuance
of essential guidance to the public
which is necessary to assist them in
making complex, time-sensitive
business decisions of significant
financial consequence with respect to
their efforts to comply with section 114
of the MMSEA as amended by section
4302 of the ARRA. Failure to provide
this guidance would impede such
business decisions.
Section 1871(e)(1)(A) of the Act
provides that a substantive change in
regulations, manual instructions,
interpretative rules, statements of
policy, or guidelines of general
applicability under this title shall not be
applied (by extrapolation or otherwise)
retroactively to items and services
furnished before the effective date of the
change unless the Secretary determines
that (i) such retroactive application is
necessary to comply with statutory
requirements; or (ii) failure to apply the
change retroactively would be contrary
to the public interest. As explained
above, the amendments made by section
4302 of the ARRA to section 114 of the
MMSEA requires the Secretary to
implement various policy changes
beginning with cost reporting periods
beginning on or after July 1, 2007,
October 1, 2007, or December 29, 2007
as applicable.
Therefore, under the authority of
section 1871(e)(1)(A)(i) of the Act, we
are making the provisions of this
interim final rule with comment period
that implement section 4302 of the
ARRA effective for cost reporting
periods beginning on or after July 1,
2007, October 1, 2007, or December 29,
2007, as applicable. Additionally, as
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explained previously, the Secretary also
finds that it would be contrary to the
public interest if these provisions were
not made effective on December 29,
2007 or for cost reporting periods
beginning on or after July 1, 2007,
October 1, 2007, or December 29, 2007,
as indicated above. Therefore, under the
authority of section 1871(e)(1)(A)(ii) of
the Act, we are making these changes
effective under the timeframes noted
above.
For the same reasons noted above, we
find good cause under section 553(d)(3)
of the APA to waive the 30-day delay in
the effective date of this interim final
rule with comment period.
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F. Collection of Information
Requirements
This document does not impose
information collection and
recordkeeping requirements.
Consequently, it need not be reviewed
by the Office of Management and
Budget under the authority of the
Paperwork Reduction Act of 1995.
G. Regulatory Impact Analysis
We have examined the impacts of this
rule as required by Executive Order
12866 (September 1993, Regulatory
Planning and Review), the Regulatory
Flexibility Act (RFA) (September 19,
1980, Pub. L. 96–354), section 1102(b) of
the Social Security Act, the Unfunded
Mandates Reform Act of 1995 (Pub. L.
104–4), Executive Order 13132 on
Federalism, and the Congressional
Review Act (5 U.S.C. 804(2)).
Executive Order 12866 directs
agencies to assess all costs and benefits
of available regulatory alternatives and,
if regulation is necessary, to select
regulatory approaches that maximize
net benefits (including potential
economic, environmental, public health
and safety effects, distributive impacts,
and equity). A regulatory impact
analysis (RIA) must be prepared for
major rules with economically
significant effects ($100 million or more
in any 1 year).
The enactment of section 4302 of the
ARRA, which amended provisions of
sections 114(c) and (d) of the MMSEA,
requires several modifications to the
regulations at §§ 412.534 and 412.536,
which, as discussed in section XI.C. of
this interim final rule with comment
period, exempts an additional category
of LTCHs and LTCH satellites from the
applicability of the regulations at
§§ 412.534 and 412.536 for 3 years and
for the same 3 years, adds
‘‘grandfathered’’ LTCH satellites to
those ‘‘applicable’’ LTCHs that, under
the MMSEA, have an increase in the
threshold percentage of patients that
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may be admitted from co-located
referring hospitals (typically acute care
hospitals) without a payment
adjustment. The effective date of these
MMSEA provisions was also amended
by sections 4302(a)(1)(B) and (a)(2)(B) of
the ARRA so that, rather than December
29, 2007, the effective dates for the
section 114 of the MMSEA changes to
the regulations at §§ 412.534 and
412.536 are set respectively, at July 1,
2007, or October 1, 2007, as applicable.
In the May 22, 2008 interim final rule
with comment period, we estimated that
the implementation of the MMSEA
provisions pertaining to §§ 412.534 and
412.536 would result in a projected
increase of approximately $30 million
in estimated aggregate LTCH PPS
payments for RY 2008 (73 FR 29708).
Although we are unable to quantify the
impact of the ARRA amendments to the
MMSEA provisions, we believe that
there will be a small increase in the
number of LTCHs and LTCH satellites
that will now be included in the 3-year
delay in the application of §§ 412.534
and 412.536 and also the percentage
threshold increase. We also believe that
setting back the effective dates for those
MMSEA provisions from December 29,
2007 to either July 1, 2007 or October
1, 2007, as applicable, will not, in the
aggregate, have a significant impact on
Medicare payments under the LTCH
PPS.
Section 4302(b) of the ARRA
amended section 114(d) of the MMSEA,
which provided for a moratorium on the
establishment of LTCHs, LTCH satellite
facilities, and on the increase of LTCH
beds in existing LTCHs or satellite
facilities for a period of 3 years, by
adding another exception to the 3-year
moratorium. In the May 22, 2008
interim final with comment period, we
noted that, in regard to section 114(d) of
the MMSEA, we were unable to provide
an estimate of the impact of the
moratorium provisions because we had
no way of determining how many
LTCHs would have opened in the
absence of the moratorium, nor did we
have sufficient information at that time
to determine how many new LTCHs
will meet the exceptions criteria
provided for in the statute (73 FR
29708). For the same reason, we are
unable to provide an estimate of the
impact of section 4302(b) of the ARRA,
which added an additional exception to
the moratorium on an increase in beds
in existing LTCHs and LTCH satellites.
However, we do not believe that
distributional effects and estimated
changes to the Medicare program
payments resulting from section 4302 of
the ARRA, which amended sections
114(c) and (d) of the MMSEA, would be
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43993
greater than $100 million. Therefore, we
have determined that this interim final
rule with comment period would not be
considered a major economic rule, as
defined in this section.
The RFA requires agencies to analyze
options for regulatory relief of small
businesses. For purposes of the RFA,
small entities include small businesses,
nonprofit organizations, and small
governmental jurisdictions. Most
hospitals and most other providers and
suppliers are small entities, either by
nonprofit status or by having revenues
of $7 million to $34.5 million in any 1
year. (For further information, see the
Small Business Administration’s
regulation at 70 FR 72577, December 6,
2005.) Individuals and States are not
included in the definition of a small
entity. Because we lack data on
individual hospital receipts, we cannot
determine the number of small
proprietary LTCHs. Therefore, we
assume that all LTCHs are considered
small entities for the purpose of this
impact discussion. Medicare fiscal
intermediaries and MACs are not
considered to be small entities. As we
discuss in detail throughout the
preamble of this interim final rule with
comment period, we believe that the
provisions specified by the MMSEA
presented in this interim final rule with
comment period would result in an
increase in estimated aggregate LTCH
PPS payments. Accordingly, the
Secretary certifies that this interim final
rule with comment period would not
have a significant economic impact on
a substantial number of small entities.
In addition, section 1102(b) of the Act
requires us to prepare a regulatory
impact analysis if a rule may have a
significant impact on the operations of
a substantial number of small rural
hospitals. This analysis must conform to
the provisions of section 604 of the
RFA. For purposes of section 1102(b) of
the Act, we define a small rural hospital
as a hospital that is located outside of
a Metropolitan Statistical Area for
Medicare payment regulations and has
fewer than 100 beds. As stated above,
implementing the provisions specified
by the ARRA that are discussed in this
interim final rule with comment period
will result in an increase in estimated
aggregate LTCH PPS payments.
Therefore, we believe this rule will not
have a significant impact on small rural
hospitals. Accordingly, the Secretary
certifies that this interim final rule with
comment period would not have a
significant economic impact on the
operations of a substantial number of
small rural hospitals.
Section 202 of the Unfunded
Mandates Reform Act of 1995 also
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requires that agencies assess anticipated
costs and benefits before issuing any
rule whose mandates require spending
in any 1 year of $100 million in 1995
dollars, updated annually for inflation.
In 2009, that threshold level is currently
approximately $133 million. This
interim final rule with comment period
would not mandate any requirements
for State, local, or tribal governments,
nor would it result in expenditures by
the private sector of $133 million or
more in any 1 year.
Executive Order 13132 establishes
certain requirements that an agency
must meet when it promulgates a
proposed rule (and subsequent final
rule) that imposes substantial direct
requirement costs on State and local
governments, preempts State law, or
otherwise has Federalism implications.
Because this regulation does not impose
any costs on State or local governments,
the requirements of Executive Order
13132 are not applicable.
In accordance with the provisions of
Executive Order 12866, this interim
final rule with comment period was
reviewed by the Office of Management
and Budget.
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XI. MedPAC Recommendations
Under section 1886(e)(4)(B) of the
Act, the Secretary must consider
MedPAC’s recommendations regarding
hospital inpatient payments. Under
section 1886(e)(5) of the Act, the
Secretary must publish in the annual
proposed and final IPPS rules the
Secretary’s recommendations regarding
MedPAC’s recommendations. We have
reviewed MedPAC’s March 2009
‘‘Report to the Congress: Medicare
Payment Policy’’ and have given the
recommendations in the report careful
consideration in conjunction with the
policies set forth in this final rule.
MedPAC’s Recommendation 2A–1
states that ‘‘[t]he Congress should
increase payment rates for the acute
inpatient and outpatient prospective
payment systems in 2010 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 final rule.
MedPAC’s Recommendation 2A–2
states that ‘‘[t]he Congress should
reduce the indirect medical education
adjustment in 2010 by 1 percentage
point to 4.5 percent per 10 percent
increment in the resident-to-bed ratio.
The funds obtained by reducing the
indirect medical education adjustment
should be used to fund a quality
incentive payment program.’’
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Response to Recommendation 2A–2:
Redirecting funds obtained by reducing
the IME adjustment to fund a quality
incentive payment program is consistent
with the value-based purchasing
initiatives to improve the quality of
care. However, section 502(a) of Public
Law 108–173 modified the formula
multiplier (c) to be used in the
calculation of the IME adjustment
beginning midway through FY 2004 and
provided for a new schedule of formula
multipliers for FYs 2005 and thereafter.
Consequently, given the existing
statutory requirement regarding the IME
formula multiplier, CMS does not have
the authority to implement MedPAC’s
recommendation to reduce the IME
adjustment in FY 2010.
Comment: One commenter objected to
MedPAC’s recommendation 2A–2,
although the commenter acknowledged
that CMS does not have the authority to
implement the recommendation. The
commenter believed that it is ‘‘highly
inappropriate’’ to reduce payments to
teaching hospitals in order to fund a
quality incentive program for all
hospitals. The commenter stated that
the impropriety of the recommendation
is highlighted by MedPAC’s own
analysis of margin variation in
hospitals, which the commenter
believed supported the assertion that
teaching hospitals are ‘‘the class of
hospitals least able to afford a
reduction.’’ While the commenter
commended this margin analysis by
MedPAC, the commenter remained
disappointed that MedPAC restated its
recommendation 2A–2 from 2008.
Response: We appreciate the
commenter’s input regarding MedPAC’s
recommendations. We remind the
public that, as stated in the proposed
rule, CMS does not have the authority
to implement the changes to IME
payments as recommended by MedPAC.
For further information relating
specifically to the MedPAC reports or to
obtain a copy of the reports, contact
MedPAC at (202) 653–7226, or visit
MedPAC’s Web site at: https://
www.medpac.gov.
XII. 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 now available on compact disc
(CD) format. However, many of the files
are available on the Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS.
We listed the data files and the cost for
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each file, if applicable, in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
(74 FR 24233 through 24234).
Commenters interested in discussing
any data used in constructing the
proposed rule or this final rule should
contact Nisha Bhat at (410) 786–5320.
B. Collection of Information
Requirements
1. Legislative Requirement for
Solicitation of Comments
Under the Paperwork Reduction Act
of 1995 (PRA), we are required to
provide 30-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:
• The need for the information
collection and its usefulness in carrying
out the proper functions of our agency.
• The accuracy of our estimate of the
information collection burden.
• The quality, utility, and clarity of
the information to be collected.
• Recommendations to minimize the
information collection burden on the
affected public, including automated
collection techniques.
2. Requirements in Regulation Text
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24234
through 24236), we solicited public
comments on each of the issues listed in
section XII.B.1. of this preamble for the
following sections of this document that
contain information collection
requirements (ICRs). We discuss and
respond to any public comments we
received in each individual section.
a. ICRs Regarding Payment Adjustment
for Medicare DSHs (§ 412.106)
As discussed in section V.E. of the
preamble of this final rule,
§ 412.106(b)(4)(iv) permits hospitals to
count Medicaid eligible inpatient days
in the numerator of the Medicaid
fraction of the DPP in the DSH payment
adjustment calculation by one of the
following methodologies, as long as no
such days are counted more than once
for any hospital in a cost reporting
period: date of discharge; date of
admission; or dates of service. To avoid
‘‘double counting,’’ a hospital is
required to report to CMS any changes
to the methodology it uses to count days
in the numerator of the Medicaid
fraction of the DPP. The burden
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associated with this requirement is the
time and effort necessary for a hospital
to report to CMS changes to the
methodology it uses to count days in the
numerator of its Medicaid fraction of the
DPP.
This requirement is subject to the
PRA. While we believe the burden is
minimal, we are unable to accurately
quantify the burden because we cannot
estimate the number of expected
submissions from hospitals reporting
changes to their respective methodology
for counting days in the numerator of
the Medicaid fraction of the DPP for the
Medicare DSH payment adjustment
calculation.
We did not receive any public
comments on this ICR. While we are
still not able to accurately quantify the
burden associated with this ICR,
because we cannot estimate the number
of expected submissions from hospitals,
we will review each submission on a
case-by-case basis. If we determine that
the number of submissions may exceed
the threshold of 10 or more persons in
a 12-month period, as defined in 5 CFR
1320.3(c)(4), we will develop an
information collection request as part of
the formal OMB approval process.
b. ICRs Regarding Payments for GME
(§ 413.75)
Existing regulations at § 413.75(b)
permit hospitals that share residents to
elect to form a Medicare GME affiliated
group if they are in the same or
contiguous urban or rural areas, if they
are under common ownership, or if they
are jointly listed as program sponsors or
major participating institutions in the
same program. The purpose of a
Medicare GME affiliated group is to
provide flexibility to hospitals in
structuring rotations under an aggregate
FTE resident cap when they share
residents. The existing regulations at
§ 413.79(f)(1) specify that each hospital
in a Medicare GME affiliated group
must submit a Medicare GME affiliation
agreement (as defined under § 413.75(b))
to the Medicare fiscal intermediary or
MAC servicing the hospital and send a
copy to CMS’ Central Office no later
than July 1 of the residency program
year during which the Medicare GME
affiliation agreement will be in effect.
In section V.G.3. of the preamble of
this final rule, we discuss our proposed
and final policy to amend the
regulations to specify that a hospital
that is new after July 1 and that begins
training residents for the first time after
the July 1 start date of that academic
year is permitted to submit a Medicare
GME affiliation agreement prior to the
end of its cost reporting period in order
to participate in an existing Medicare
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GME affiliated group for the remainder
of the academic year. The burden
associated with this requirement is the
time and effort it would take for the new
hospital to develop and submit the
Medicare GME affiliation agreement. It
is difficult for us to estimate the annual
burden associated with this requirement
because we cannot estimate the
additional number of hospitals that will
be permitted to submit Medicare GME
affiliation agreements in any given year
as a result of the change. However, we
believe the number of affected hospitals
will be very small because, under the
change, a hospital will not only have to
start training residents after July 1, but
will also need to be a new hospital after
July 1. We note that this requirement
will merely apply established
procedures to provide increased
flexibility to a new hospital to join an
existing GME affiliated group such that,
in its first year, it may train and receive
IME and direct GME payments relating
to FTE for residents that could
otherwise be counted for purposes of
IME and direct GME at another hospital.
We believe the expansion of the existing
policy regarding the submission of
Medicare GME affiliation agreements for
hospitals that are new after July 1 and
that begin to train residents after July 1
will amount to a minimal paperwork
burden.
We did not receive any public
comments on this ICR. While we are
still not able to accurately quantify the
burden because we cannot estimate the
number of expected submissions from
hospitals, we will review each
submission on a case-by-case basis. If
we determine that the number of
submissions may exceed the threshold
of 10 or more persons in a 12-month
period, as defined in 5 CFR 1320.3(c)(4),
we will develop an information
collection request as part of the formal
OMB approval process.
C. Additional Information Collection
Requirements
This final rule imposes collection of
information requirements as outlined in
the regulation text and specified above.
However, this final rule also makes
reference to several associated
information collections that are not
discussed in the regulation text
contained in this document. The
following is a discussion of these
information collections, some of which
have already received OMB approval.
1. Present on Admission (POA)
Indicator Reporting
Section II.F.6. of the preamble of this
final rule discusses the POA indicator
reporting program. As stated earlier,
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collection of POA indicator data is
necessary to identify which conditions
were acquired during hospitalization for
the HAC payment provision and for
broader public health uses of Medicare
data. Through Change Request 5499
dated May 11, 2007, CMS issued
instructions that require IPPS hospitals
to submit POA indicator data for all
diagnosis codes on Medicare claims.
The burden associated with this
requirement is the time and effort
necessary to place the appropriate POA
indicator codes on Medicare claims.
This requirement is subject to the PRA;
however, the associated burden is
currently approved under OMB control
number 0938–0997 with an expiration
date of August 31, 2009.
2. Add-On Payments for New Services
and Technologies
Section II.I.1. of the preamble of this
final rule discusses add-on payments for
new services and technologies.
Specifically, this section states that
applicants for add-on payments for new
medical services or technologies for FY
2011 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 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 detailed the burden
associated with this requirement in the
September 7, 2001, IPPS final rule (66
FR 46902). As stated in that final rule,
collection of the information for this
requirement is conducted on an
individual case-by-case basis. We
believe the associated burden is thereby
exempt from the PRA as stipulated
under 5 CFR 1320.3(h)(6). Similarly, we
also believe the burden associated with
this requirement is exempt from the
PRA under 5 CFR 1320.3(c), which
defines the agency collection of
information subject to the requirements
of the PRA as information collection
imposed on 10 or more persons within
any 12-month period. This information
collection does not impact 10 or more
entities in a 12-month period. In FYs
2008, 2009, and 2010, we received 1, 4,
and 5 applications, respectively.
We did not receive any public
comments on this ICF.
3. Reporting of Hospital Quality Data for
Annual Hospital Payment Update
As discussed in section V.A. of the
preamble of this final rule, the
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RHQDAPU program was originally
established to implement section 501(b)
of Public Law 108–173, thereby
expanding our voluntary Hospital
Quality Initiative (HQI). The RHQDAPU
program originally consisted of a
‘‘starter set’’ of 10 quality measures.
OMB approved the collection of data
associated with the original starter set of
quality measures under OMB control
number 0938–0918, with a current
expiration date of January 31, 2010.
As part of our implementation of
section 5001(a) of the DRA, we
expanded the number of quality
measures reported in the RHQDAPU
program. Specifically, section
1886(b)(3)(B)(viii)(III) of the Act, added
by section 5001(a) of the DRA, requires
that the Secretary expand the ‘‘starter
set’’ of 10 quality measures that were
established by the Secretary as of
November 1, 2003, to include measures
‘‘that the Secretary determines to be
appropriate for the measurement of the
quality of care furnished by hospitals in
inpatient settings.’’ Under this
provision, we established additional
program measures to bring the total
number of measures to 30. The burden
associated with these reporting
requirements is currently approved
under OMB control number 0938–1022,
with a current expiration date of June
30, 2011.
In the FY 2009 IPPS proposed rule (73
FR 23527), we solicited public
comments on several considerations for
expanding and updating quality
measures. We responded to the public
comments received in the FY 2009 IPPS
final rule (73 FR 48433). We also
expanded and finalized the RHQDAPU
program measure set for FY 2010. As
part of the expansion effort, two
measures were finalized in the CY 2009
OPPS/ASC final rule with comment
period (73 FR 68781). In this FY 2010
IPPS final rule, as we proposed, we are
adding a total of four new measures, to
harmonize two existing measures, and
to retire one measure, which will
increase the total number of measures in
the RHQDAPU program from 42 in FY
2010 to 46 in FY 2011. Specifically, we
are adding four new measures, two new
chart abstracted measures, and two new
structural measures. The new chart
abstracted measures include the
addition of SCIP-Infection-9:
Postoperative Urinary Catheter Removal
on Postoperative Day 1 or 2, and
SCIPInfection-10: Perioperative
Temperature Management to the
existing SCIP measure set. As stated in
V.A.3. of the preamble of this final rule,
the new structural measures include (1)
Participation in a Systematic Clinical
Database Registry for Stroke Care; and
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(2) Participation in a Systematic Clinical
Database Registry for Nursing Sensitive
Care. We are submitting a revised
version of the information collection
request approved under OMB control
number 0938–1022, to obtain approval
for the new measures.
Section V.A.9. of the preamble of the
proposed rule and this final 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 CMS to
reconsider our decision. The hospital’s
letter must explain the reasons why 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.
4. Occupational Mix Adjustment to the
FY 2010 Index (Hospital Wage Index
Occupational Mix Survey)
Section II.D. of the preamble of this
final rule discusses the occupational
mix adjustment to the FY 2010 wage
index. While the preamble does not
contain any new ICRs, it is important to
note that there is an OMB approved
information collection request
associated with the hospital wage index.
Section 304(c) of Public Law 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 requirement is
the time and effort required to collect
and submit the data in the Hospital
Wage Index Occupational Mix Survey to
CMS. The aforementioned burden is
subject to the PRA; however, it is
currently approved under OMB control
number 0938–0907, with an expiration
date of February 28, 2011.
We did not receive any public
comments of this provision in the
proposed rule.
5. Hospital Applications for Geographic
Reclassifications by the MGCRB
Section III.I.3. of the preamble of this
final rule discusses revisions to the
wage index based on hospital
redesignations. As stated in that section,
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under section 1886(d)(10) of the Act, the
MGCRB has the authority to accept
short-term IPPS hospital applications
requesting geographic reclassification
for wage index or standardized payment
amounts and to issue decisions on these
requests by hospitals for geographic
reclassification for purposes of payment
under the IPPS. The burden associated
with this application process is the time
and effort necessary for an IPPS hospital
to complete and submit an application
for reclassification to the MGCRB. While
this requirement is subject to the PRA,
it is currently approved under OMB
control number 0938–0573, with an
expiration date of December 31, 2011.
We did not receive any public
comments on the ICR for this provision
in the proposed rule.
List of Subjects
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 415
Health facilities, Health professions,
Medicare, Reporting and recordkeeping
requirements.
42 CFR Part 485
Grant programs—health, Health
facilities, Medicaid, Medicare,
Reporting and recordkeeping
requirements.
42 CFR Part 489
Health facilities, Medicare, Reporting
and recordkeeping requirements.
■ For the reasons stated in the preamble
of this final rule, the Centers for
Medicare & Medicaid Services is
amending 42 CFR Chapter IV as follows:
PART 412—PROSPECTIVE PAYMENT
SYSTEMS FOR INPATIENT HOSPITAL
SERVICES
1. The authority citation for Part 412
continues 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 Public Law 106–113
(113 Stat. 1501A–332).
2. Section 412.22 is amended by
revising paragraph (h)(2)(iii)(A) to read
as follows:
■
§ 412.22 Excluded hospitals and hospital
units: General rules.
*
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(h) * * *
(2) * * *
(iii) * * *
(A) Effective for cost reporting periods
beginning on or after October 1, 2002, it
is not under the control of the governing
body or chief executive officer of the
hospital in which it is located, and it
furnishes inpatient care through the use
of medical personnel who are not under
the control of the medical staff or chief
medical officer of the hospital in which
it is located.
(1) Except as provided in paragraph
(h)(2)(iii)(A)(2) of this section, effective
for cost reporting periods beginning on
or after October 1, 2009, the governing
body of the hospital of which the
satellite facility is a part is not under the
control of any third entity that controls
both the hospital of which the satellite
facility is a part and the hospital with
which the satellite facility is co-located.
(2) If a hospital and its satellite
facility were excluded from the
inpatient prospective payment system
under the provisions of this section for
the most recent cost reporting period
beginning prior to October 1, 2009, the
hospital does not have to meet the
requirements of paragraph
(h)(2)(iii)(A)(1) of this section, with
respect to that satellite facility, in order
to retain its IPPS-excluded status.
(3) A hospital described in paragraph
(h)(2)(iii)(A)(2) of this section that
establishes an additional satellite
facility in a cost reporting period
beginning on or after October 1, 2009,
must meet the criteria in this section,
including the provisions of paragraph
(h)(2)(iii)(A)(1) of this section with
respect to the additional satellite
facility, in order to be excluded from the
inpatient prospective payment system.
*
*
*
*
*
■ 3. Section 412.23 is amended by
revising paragraph (e)(7)(ii) to read as
follows:
§ 412.23 Excluded hospitals:
Classifications.
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*
*
*
*
*
(e) * * *
(7) Moratorium on increasing the
number of beds in existing long-term
care hospitals and existing long-term
care hospital satellite facilities.
*
*
*
*
*
(ii) Effective for the period beginning
December 29, 2007 and ending
December 28, 2010—
(A) Except as specified in paragraph
(e)(7)(ii)(B) and (C) of this section, the
number of Medicare-certified beds in an
existing long-term care hospital or an
existing long-term care hospital satellite
facility as defined in paragraph (e)(7)(i)
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of this section must not be increased
beyond the number of Medicarecertified beds on December 29, 2007.
(B) Except as specified in paragraph
(e)(7)(ii)(C) of this section, the
moratorium specified in paragraph
(e)(7)(ii)(A) of this section is not
applicable to—
(1) An existing long-term care hospital
or existing long-term care hospital
satellite facility as defined in paragraph
(e)(7)(i) of this section that meets both
of the following requirements:
(i) Is located in a State where there is
only one other long-term care hospital
that meets the criteria specified in
§ 412.23(e) of this subpart.
(ii) Requests an increase in the
number of Medicare-certified beds after
the closure or decrease in the number of
Medicare-certified beds of another longterm care hospital in the State; or
(2) An existing long-term care hospital
or existing long-term care hospital
satellite facility as defined in paragraph
(e)(7)(i) of this section that obtained a
certificate of need for an increase in
beds and that meets both of the
following requirements:
(i) Is in a State for which such
certificate of need is required, and
(ii) Such certificate was issued on or
after April 1, 2005, and before December
29, 2007.
(C) The exceptions specified in
paragraph (e)(7)(ii)(B) of this section do
not affect the limitation on increasing
beds under § 412.22(f) and
§ 412.22(h)(3) of subpart.
*
*
*
*
*
§ 412.103 Special treatment: Hospitals
located in urban areas and that apply for
reclassification as rural.
■
4. Section 412.64 is amended by
revising paragraph (c) to read as follows:
§ 412.106 Special treatment: Hospitals that
service a disproportionate share of lowincome patients.
§ 412.64 Federal rates for inpatient
operating costs for Federal fiscal year 2005
and subsequent fiscal years.
(a) * * *
(1) * * *
(ii) * * *
(B) Beds otherwise countable under
this section used for outpatient
observation services or skilled nursing
swing-bed services;
*
*
*
*
*
(b) * * *
(4) * * *
(iv) For cost reporting periods
beginning on or after October 1, 2009,
the hospital must report the days in the
numerator of the fraction in the second
computation in a cost reporting period
based on the date of discharge, the date
of admission, or the dates of service. If
a hospital seeks to change its
methodology for reporting days in the
numerator of the fraction in the second
computation, the hospital must notify
CMS, through its fiscal intermediary or
MAC, in writing at least 30 days before
the beginning of the cost reporting
*
*
*
*
*
(c) Computing the standardized
amount. CMS computes an average
standardized amount that is applicable
to all hospitals located in all areas,
updated by the applicable percentage
increase specified in paragraph (d) of
this section. CMS standardizes the
average standardized amount by
excluding an estimate of indirect
medical education payments.
*
*
*
*
*
§ 412.87
[Amended]
5. In § 412.87, paragraph (b)(1),
remove the word ‘‘relating’’ and add in
its place the word ‘‘relative’’.
■
6. Section 412.103 is amended by
adding a new paragraph (a)(5) to read as
follows:
■
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(a) * * *
(5) For any period after September 30,
2009, and before October 1, 2011, a CAH
in a county that, in FY 2009, was not
part of an MSA as defined by the Office
of Management and Budget, but, as of
FY 2010, was included as part of an
MSA as a result of the most recent
census data and implementation of the
new MSA definitions announced by
OMB on November 20, 2008, may be
reclassified as being located in a rural
area for purposes of meeting the rural
location requirement in § 485.610(b) of
this chapter if it meets any of the
requirements under paragraph (a)(1),
(a)(2), or (a)(3) of this section.
*
*
*
*
*
■ 7. Section 412.105 is amended by
revising paragraph (b)(4) to read as
follows:
§ 412.105 Special treatment: Hospitals that
incur indirect costs for graduate medical
education programs.
*
*
*
*
*
(b) * * *
(4) Beds otherwise countable under
this section used for outpatient
observation services or skilled nursing
swing-bed services, or ancillary labor/
delivery services;
*
*
*
*
*
■ 8. Section 412.106 is amended by—
■ a. Revising paragraph (a)(1)(ii)(B).
■ b. Adding a new paragraph (b)(4)(iv).
The revision and addition read as
follows:
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period in which the change would
apply. The written notification must
specify the methodology the hospital
will use, the cost reporting period to
which the requested change would
apply, and the current methodology
being used. Such a change will be
effective only on the first day of a cost
reporting period. If a hospital changes
its methodology for reporting such days,
CMS or the fiscal intermediary or MAC
may adjust the number of days reported
for a cost reporting period if it
determines that any of those days have
been counted in a prior cost reporting
period.
*
*
*
*
*
§ 412.113
[Amended]
9. In paragraph (c)(2)(i)(B) of
§ 412.113, the cross-reference ‘‘§ 410.66’’
is removed and the cross-reference
‘‘§ 410.69’’ is added in its place.
■
§ 412.322
[Amended]
10. Section 412.322 is amended by
removing and reserving paragraphs (c)
and (d) to read as follows:
■ 11. Section 412.523 is amended by
adding a new paragraph (c)(3)(vi) to
read as follows:
■
§ 412.523 Methodology for calculating the
Federal prospective payment rates.
*
*
*
*
(c) * * *
(3) * * *
(vi) For long-term care hospital
prospective payment system rate year
beginning October 1, 2009 and ending
September 30, 2010. The standard
Federal rate for long-term care hospital
prospective payment system rate year
beginning October 1, 2009 and ending
September 30, 2010 is the standard
Federal rate for the previous long-term
care hospital prospective payment
system rate year updated by 2.0 percent.
The standard Federal rate is adjusted, as
appropriate, as described in paragraph
(d) of this section.
*
*
*
*
*
■ 12. Section 412.525 is amended by—
■ a. Revising paragraph (a)(2).
■ b. Revising paragraph (d)(1).
■ c. Adding a new paragraph (d)(5).
The revisions and addition read as
follows:
sroberts on DSKD5P82C1PROD with RULES
*
§ 412.525 Adjustments to the Federal
prospective payment.
(a) * * *
(2) The fixed-loss amount is
determined for the long-term care
hospital rate year using the LTC–DRG
relative weights that are in effect on the
start of the applicable long-term care
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hospital prospective payment system
rate year, as defined in § 412.503.
*
*
*
*
*
(d) * * *
(1) Short-stay outliers, as provided for
in § 412.529.
*
*
*
*
*
(5) Long-term care hospitals and
satellites of long-term care hospitals that
discharged Medicare patients admitted
from a hospital not located in the same
building or on the same campus as the
long-term care hospital or satellite of the
long-term care hospital, as provided in
§ 412.536.
■ 13. Section 412.534 is amended by
revising paragraphs (c) through (e), and
(h) to read as follows:
§ 412.534 Special payment provisions for
long-term care hospitals within hospitals
and satellites of long-term care hospitals.
*
*
*
*
*
(c) Patients admitted from the
hospital located in the same building or
on the same campus as the long-term
care hospital or satellite facility. Except
for a long-term care hospital or a longterm care hospital satellite facility that
meets the requirements of paragraphs
(d) or (e) of this section, payments to the
long-term care hospital for patients
admitted to it or to its long-term care
hospital satellite facility from the colocated hospital are made under either
of the following:
(1) For cost reporting periods
beginning on or after October 1, 2004
and before October 1, 2007 and for cost
reporting periods beginning on or after
October 1, 2010. (i) Except as provided
in paragraphs (g) and (h) of this section,
for any cost reporting period beginning
on or after October 1, 2004 and before
October 1, 2007 and for cost reporting
periods beginning on or after October 1,
2010 in which the long-term care
hospital or its satellite facility has a
discharged Medicare inpatient
population of whom no more than 25
percent were admitted to the hospital or
its satellite facility from the co-located
hospital, payments are made under the
rules at §§ 412.500 through 412.541 in
this subpart with no adjustment under
this section.
(ii) Except as provided in paragraph
(g) or (h) of this section, for any cost
reporting period beginning on or after
October 1, 2004 and before October 1,
2007 and for cost reporting periods
beginning on or after October 1, 2010 in
which the long-term care hospital or
satellite facility has a discharged
Medicare inpatient population of whom
more than 25 percent were admitted to
the hospital or satellite facility from the
co-located hospital, payments for the
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patients who are admitted from the colocated hospital and who cause the
long-term care hospital or satellite
facility to exceed the 25 percent
threshold for discharged patients who
have been admitted from the co-located
hospital are the lesser of the amount
otherwise payable under this subpart or
the amount payable under this subpart
that is equivalent, as set forth in
paragraph (f) of this section, to the
amount that would be determined under
the rules at § 412.1(a). Payments for the
remainder of the long-term care
hospital’s or satellite facility’s patients
are made under the rules in this subpart
at §§ 412.500 through 412.541 with no
adjustment under this section.
(iii) In determining the percentage of
patients admitted to the long-term care
hospital or its satellite from the colocated hospital under paragraphs
(c)(1)(i) and (c)(1)(ii) of this section,
patients on whose behalf an outlier
payment was made to the co-located
hospital are not counted towards the 25
percent threshold.
(2) For cost reporting periods
beginning on or after October 1, 2007
and before October 1, 2010. (i) Except
for a long-term care hospital or a longterm care hospital satellite facility
subject to paragraph (g) or (h) of this
section, payments are determined using
the methodology specified in paragraph
(c)(1) of this section.
(ii) Payments for a long-term care
hospital or long-term care hospital
satellite facility subject to paragraph (g)
of this section are determined using the
methodology specified in paragraph
(c)(1) of this section except that 25
percent is substituted with 50 percent.
(3) For cost reporting periods
beginning on or after July 1, 2007 and
before July 1, 2010. Payments for a longterm care hospital satellite facility
described in § 412.22(h)(3)(i) are
determined using the methodology
specified in paragraph (c)(1) of this
section except that 25 percent is
substituted with 50 percent.
(d) Special treatment of rural
hospitals. (1) For cost reporting periods
beginning on or after October 1, 2004
and before October 1, 2007 and for cost
reporting periods beginning on or after
October 1, 2010. (i) Subject to
paragraphs (g) and (h) of this section, in
the case of a long-term care hospital or
satellite facility that is located in a rural
area as defined in § 412.503 and is colocated with another hospital for any
cost reporting period beginning on or
after October 1, 2004 and before October
1, 2007 and for any cost reporting
period beginning on or after October 1,
2010 in which the long-term care
hospital or long-term care satellite
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facility has a discharged Medicare
inpatient population of whom more
than 50 percent were admitted to the
long-term care hospital or satellite
facility from the co-located hospital,
payments for the patients who are
admitted from the co-located hospital
and who cause the long-term care
hospital or satellite facility to exceed the
50 percent threshold for discharged
patients who were admitted from the colocated hospital are the lesser of the
amount otherwise payable under this
subpart or the amount payable under
this subpart that is equivalent, as set
forth in paragraph (f) of this section, to
the amount that were otherwise payable
under § 412.1(a). Payments for the
remainder of the long-term care
hospital’s or long-term care hospital
satellite facility’s patients are made
under the rules in this subpart at
§§ 412.500 through 412.541 with no
adjustment under this section.
(ii) In determining the percentage of
patients admitted from the co-located
hospital under paragraph (d)(1)(i) of this
section, patients on whose behalf outlier
payment was made at the co-located
hospital are not counted toward the 50
percent threshold.
(2) For cost reporting periods
beginning on or after October 1, 2007,
and before October 1, 2010. (i) Except
for a long-term care hospital or a longterm care hospital satellite facility
subject to paragraph (g) or (h) of this
section, payments are determined using
the methodology specified in paragraph
(d)(1) of this section.
(ii) Payments for long-term care
hospitals and long-term care hospital
satellite facilities subject to paragraph
(g) of this section are determined using
the methodology specified in paragraph
(d)(1) of this section except that 50
percent is substituted with 75 percent.
(3) For cost reporting periods
beginning on or after July 1, 2007 and
before July 1, 2010. Payments for a longterm care hospital satellite facility
described in § 412.22(h)(3)(i) are
determined using the methodology
specified in paragraph (d)(1) of this
section except that 50 percent is
substituted with 75 percent.
(e) Special treatment of urban single
or MSA-dominant hospitals. (1) For cost
reporting periods beginning on or after
October 1, 2004 and before October 1,
2007 and for cost reporting periods
beginning on or after October 1, 2010. (i)
Subject to paragraphs (g) and (h) of this
section, in the case of a long-term care
hospital or a long-term care hospital
satellite facility that is co-located with
the only other hospital in the MSA or
with a MSA-dominant hospital as
defined in paragraph (e)(1)(iv) of this
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22:36 Aug 26, 2009
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section, for any cost reporting period
beginning on or after October 1, 2004,
and before October 1, 2007 and for any
cost reporting periods beginning on or
after October 1, 2010, in which the longterm care hospital or long-term care
hospital satellite facility has a
discharged Medicare inpatient
population of whom more than the
percentage calculated under paragraph
(e)(1)(ii) of this section were admitted to
the hospital from the co-located
hospital, payments for the patients who
are admitted from the co-located
hospital and who cause the long-term
care hospital to exceed the applicable
threshold for discharged patients who
have been admitted from the co-located
hospital are the lesser of the amount
otherwise payable under this subpart or
the amount under this subpart that is
equivalent, as set forth in paragraph (f)
of this section, to the amount that
otherwise would be determined under
§ 412.1(a). Payments for the remainder
of the long-term care hospital’s or
satellite facility’s patients are made
under the rules in this subpart with no
adjustment under this section.
(ii) For purposes of paragraph (e)(1)(i)
of this section, the percentage used is
the percentage of total Medicare
discharges in the Metropolitan
Statistical Area in which the hospital is
located that are from the co-located
hospital for the cost reporting period for
which the adjustment was made, but in
no case is less than 25 percent or more
than 50 percent.
(iii) In determining the percentage of
patients admitted from the co-located
hospital under paragraph (e)(1)(i) of this
section, patients on whose behalf outlier
payment was made at the co-located
hospital are not counted toward the
applicable threshold.
(iv) For purposes of this paragraph, an
‘‘MSA-dominant hospital’’ is a hospital
that has discharged more than 25
percent of the total hospital Medicare
discharges in the MSA in which the
hospital is located.
(2) For cost reporting periods
beginning on or after October 1, 2007
and before October 1, 2010. (i) Except
for a long-term care hospital or a longterm care hospital satellite facility
subject to paragraph (g) or (h) of this
section, payments are determined using
the methodology specified in paragraph
(e)(1) of this section.
(ii) Payments for a long-term care
hospital or long-term care hospital
satellite facilities subject to paragraph
(g) of this section are determined using
the methodology specified in paragraph
(e)(1) of this section except that the
percentage of Medicare discharges that
may be admitted from the co-located
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43999
hospital without being subject to the
payment adjustment at paragraph (e)(1)
of this section is 75 percent.
(3) For cost reporting periods
beginning on or after July 1, 2007 and
before July 1, 2010. Payments for a longterm care hospital satellite facility
described in § 412.22(h)(3)(i), are
determined using the methodology
specified in paragraph (d)(1) of this
section except that the payment
adjustment under paragraph (e)(1) of
this section is 75 percent.
*
*
*
*
*
(h) Effective date of policies in this
section for certain co-located LTCH
hospitals and satellites of LTCHs. The
policies set forth in this section apply to
Medicare patient discharges that were
admitted from a hospital located in the
same building or on the same campus as
a long-term care hospital described in
§ 412.23(e)(2)(i) that meets the criteria in
§ 412.22(f) and a satellite facility of a
long-term care hospital as described
under § 412.22(h)(3)(i) for discharges
occurring in cost reporting periods
beginning on or after July 1, 2007.
(1) Except as specified in paragraph
(h)(4) of this section, in the case of a
long-term care hospital or long-term
care hospital satellite facility that is
described under this paragraph (h), the
thresholds applied at paragraphs (c), (d),
and (e) of this section are not less than
the following percentages:
(i) For cost reporting periods
beginning on or after July 1, 2007 and
before July 1, 2008, the lesser of 75
percent of the total number of Medicare
discharges that were admitted to the
long-term care hospital or long-term
care hospital satellite facility from its
co-located hospital during the cost
reporting period or the percentage of
Medicare discharges that had been
admitted to the long-term care hospital
or satellite from that co-located hospital
during the long-term care hospital’s or
satellite’s RY 2005 cost reporting period.
(ii) For cost reporting periods
beginning on or after July 1, 2008 and
before July 1, 2009, the lesser of 50
percent of the total number of Medicare
discharges that were admitted to the
long-term care hospital or the long-term
care hospital satellite facility from its
co-located hospital or the percentage of
Medicare discharges that had been
admitted from that co-located hospital
during the long-term care hospital’s or
satellite’s RY 2005 cost reporting period.
(iii) For cost reporting periods
beginning on or after July 1, 2009, 25
percent of the total number of Medicare
discharges that were admitted to the
long-term care hospital or satellite from
its co-located hospital during the cost
reporting period.
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(2) In determining the percentage of
Medicare discharges admitted from the
co-located hospital under this
paragraph, patients on whose behalf a
Medicare high cost outlier payment was
made at the co-located referring hospital
are not counted toward this threshold.
(3) Except as specified in paragraph
(h)(4) of this section, for cost reporting
periods beginning on or after July 1,
2007, payments to long term care
hospitals described in § 412.23(e)(2)(i)
that meet the criteria in § 412.22(f) and
satellite facilities of long-term care
hospitals described at § 412.22(h)(3)(i)
are subject to the provisions of § 412.536
for discharges of Medicare patients who
are admitted from a hospital not located
in the same building or on the same
campus as the LTCH or LTCH satellite
facility.
(4) For a long-term care hospital
described in § 412.23(e)(2)(i) that meets
the criteria in § 412.22(f), the policies
set forth in this paragraph and in
§ 412.536 of this part do not apply for
discharges occurring in cost reporting
periods beginning on or after July 1,
2007 and before July 1, 2010.
(5) For a long-term care hospital or
satellite facility that, as of December 29,
2007, was co-located with an entity that
is a provider-based, off-campus location
of a subsection (d) hospital which did
not provide services payable under
section 1886(d) of the Act at the offcampus location, the policies set forth
in this paragraph and in § 412.536 of
this part do not apply for discharges
occurring in cost reporting periods
beginning on or after July 1, 2007 and
before July 1, 2010.
■ 14. Section 412.536 is amended by
revising paragraph (a)(2) to read as
follows:
sroberts on DSKD5P82C1PROD with RULES
§ 412.536 Special payment provisions for
long-term care hospitals and satellites of
long-term care hospitals that discharged
Medicare patients admitted from a hospital
not located in the same building or on the
same campus as the long-term care
hospital or satellite of the long-term care
hospital.
(a) Scope. * * *
(2) For cost reporting periods
beginning on or after July 1, 2007 and
before July 1, 2010, the policies set forth
in this section are not applicable to
discharges from:
(i) A long-term care hospital described
in § 412.23(e)(5) of this part; or
(ii) A long-term care hospital
described in § 412.23(e)(2)(i) of this part
and that meet the criteria specified in
§ 412.22(f) of this part; or
(iii) A long-term care hospital or
satellite facility, that as of December 29,
2007, was co-located with an entity that
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19:22 Aug 26, 2009
Jkt 217001
is a provider-based, off-campus location
of a subsection (d) hospital which did
not provide services payable under
section 1886(d) of the Act at the offcampus location.
*
*
*
*
*
PART 413—PRINCIPLES OF
REASONABLE COST
REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE
SERVICES; OPTIONAL
PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED
NURSING FACILITIES
15. The authority citation for Part 413
continues to read as follows:
■
Authority: Secs. 1102, 1812(d), 1814(b),
1815, 1833(a), (i), and (n), 1861(v), 1871,
1881, 1883, and 1886 of the Social Security
Act (42 U.S.C. 1302, 1395d(d), 1395f(b),
1395g, 1395l(a), (i), and (n), 1395x(v),
1395hh, 1395rr, 1395tt, and 1395ww); and
sec. 124 of Public Law 106–133 (113 Stat.
1501A–332).
■
■
■
16. Section 413.65 is amended by—
a. Revising paragraph (a)(1)(ii)(G).
b. Revising paragraph (a)(1)(ii)(H).
The revisions read as follows:
§ 413.65 Requirements for a determination
that a facility or an organization has
provider-based status.
(a) * * *
(1) * * *
(ii) * * *
(G) Independent diagnostic testing
facilities furnishing only services paid
under a fee schedule, such as facilities
that furnish only screening
mammography services (as defined in
section 1861(jj) of the Act), facilities that
furnish only clinical diagnostic
laboratory tests, other than those
clinical diagnostic laboratories
operating as parts of CAHs on or after
October 1, 2010, or facilities that furnish
only some combination of these
services.
(H) Facilities, other than those
operating as parts of CAHs, furnishing
only physical, occupational, or speech
therapy to ambulatory patients,
throughout any period during which the
annual financial cap amount on
payment for coverage of physical,
occupational, or speech therapy, as
described in section 1833(g)(2) of the
Act, is suspended by legislation.
*
*
*
*
*
■ 17. Section 413.70 is amended by—
■ a. Revising paragraph (b)(1)(i).
■ b. Removing paragraph (b)(2)(iii).
■ c. Revising the heading of paragraph
(b)(3).
■ d. Revising paragraph (b)(3)(ii)(A).
■ e. Adding a new paragraph (b)(7).
The revisions and addition read as
follows:
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§ 413.70
Payment for services of a CAH.
*
*
*
*
*
(b) * * *
(1) * * *
(i) Unless the CAH elects to be paid
for services to its outpatients under the
method specified in paragraph (b)(3) of
this section, the amount of payment for
outpatient services of a CAH is
determined under paragraph (b)(2) of
this section.
*
*
*
*
*
(3) Election to be paid reasonable
costs for facility services plus fee
schedule for professional services.
* * *
(ii) * * *
(A) For cost reporting periods
beginning on or after October 1, 2009,
for facility services not including any
services for which payment may be
made under paragraph (b)(3)(ii)(B) of
this section, the reasonable costs of the
services as determined in accordance
with the provisions of section
1861(v)(1)(A) of the Act and the
applicable principles of cost
reimbursement specified in this part
and in Part 415 of this subchapter,
except that the lesser of costs or charges
principle and the RCE payment
principle are excluded when
determining payment for CAH
outpatient services; and
*
*
*
*
*
(7) Payment for clinical diagnostic
laboratory tests included as outpatient
CAH services. (i) Payment for clinical
diagnostic laboratory tests is not subject
to the Medicare Part B deductible and
coinsurance amounts.
(ii) Subject to the provisions of
paragraphs (b)(7)(iii) through (b)(7)(vi)
of this section, payment to a CAH for
clinical diagnostic laboratory tests will
be made at 101 percent of reasonable
costs of the services as determined in
accordance paragraph (b)(2)(i) of this
section.
(iii) For services furnished before July
1, 2009, payment to a CAH for clinical
diagnostic laboratory tests will be made
under paragraph (b)(7)(ii) of this section
only if the individual is an outpatient of
the CAH, as defined in § 410.2 of this
chapter, and is physically present in the
CAH at the time the specimen is
collected.
(iv) Except as provided in paragraphs
(b)(7)(iii) and (b)(7)(v) of this section,
payment to a CAH for clinical
diagnostic laboratory tests will be made
under paragraph (b)(7)(ii) of this section
only if the individual is an outpatient of
the CAH, as defined in § 410.2 of this
chapter, without regard to whether the
individual is physically present in the
CAH at the time the specimen is
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collected and at least one of the
following conditions is met:
(A) The individual is receiving
outpatient services in the CAH on the
same day the specimen is collected; or
(B) The specimen is collected by an
employee of the CAH.
(v) Notwithstanding paragraph
(b)(7)(iv) of this section, payment for
outpatient clinical diagnostic laboratory
tests will not be made under paragraph
(b)(7)(ii) of this section if the billing
rules under § 411.15(p) of this chapter
apply.
(vi) Payment for clinical diagnostic
laboratory tests for which payment may
not be made under paragraph (b)(7)(iii)
or paragraph (b)(7)(iv) of this section
will be made in accordance with the
provisions of sections 1833(a)(1)(D) and
1833(a)(2)(D) of the Act.
*
*
*
*
*
■ 18. Section 413.79 is amended by—
■ a. Revising paragraph (f)(1).
■ b. Redesignating paragraph (f)(6) and
paragraph (f)(7).
■ c. Adding a new paragraph (f)(6).
■ d. Moving paragraph (l), currently
incorrectly placed between paragraphs
(k)(6) and (7), so that it appears after
paragraph (k)(7) and is the last
paragraph in the section.
The revisions and addition read as
follows:
Medicare GME affiliation agreement
will be in effect or the end of the first
cost reporting period during which the
hospital begins training residents. The
Medicare GME affiliation agreement
must specify the effective period for the
agreement, which may begin no earlier
than the date the affiliation agreement is
submitted to CMS. Each of the other
hospitals participating in the Medicare
GME affiliated group must submit an
amended Medicare GME affiliation
agreement that reflects the participation
of the new hospital to the CMS fiscal
intermediary or MAC servicing the
hospital and send a copy to the CMS
Central Office no later than June 30 of
the residency program year during
which the Medicare GME affiliation
agreement will be in effect. For
purposes of this paragraph, a new
hospital is one for which a new
Medicare provider agreement takes
effect in accordance with § 489.13 of
this chapter.
*
*
*
*
*
PART 415—SERVICES FURNISHED BY
PHYSICIANS IN PROVIDERS,
SUPERVISING PHYSICIANS IN
TEACHING SETTINGS, AND
RESIDENTS IN CERTAIN SETTINGS
19. The authority citation for Part 415
continues to read as follows:
■
Authority: Secs. 1102 and 1871 of the
Social Security Act (42 U.S.C. 1302 and
1395hh).
*
sroberts on DSKD5P82C1PROD with RULES
§ 413.79 Direct GME payments:
Determination of the weighted number of
FTE residents.
§ 415.152
*
*
*
*
(f) * * *
(1) Except as provided in paragraph
(f)(6) of this section, each hospital in the
Medicare GME affiliated group must
submit the Medicare GME affiliation
agreement, as defined under § 413.75(b)
of this section, to the CMS fiscal
intermediary or MAC servicing the
hospital and send a copy to the CMS
Central Office no later than July 1 of the
residency program year during which
the Medicare GME affiliation agreement
will be in effect.
*
*
*
*
*
(6) Effective October 1, 2009, a
hospital that is new after July 1 and
begins training residents for the first
time after the July 1 start date of an
academic year may receive a temporary
adjustment to its FTE resident cap to
reflect its participation in an existing
Medicare GME affiliated group by
submitting the Medicare GME affiliation
agreement, as defined under § 413.75(b),
to the CMS fiscal intermediary or MAC
servicing the hospital and sending a
copy to the CMS Central Office by the
earlier of June 30 of the residency
program year during which the
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19:22 Aug 26, 2009
Jkt 217001
[Amended]
20. In § 415.152, under paragraph (1)
of the definition of ‘‘Approved graduate
medical education (GME) program’’,
remove the phrase ‘‘the Committee on
Hospitals of the Bureau of Professional
Education of’’.
■
PART 485—CONDITIONS OF
PARTICIPATION: SPECIALIZED
PROVIDERS
21. The authority citation for part 485
continues to read as follows:
■
Authority: Secs. 1102 and 1871 of the
Social Security Act (42 U.S.C. 1302 and
1395(hh)).
22. Section 485.610 is amended by—
a. Revising paragraph (b)(3).
b. Adding a new paragraph (b)(4).
The addition and revision read as
follows:
■
■
■
§ 485.610 Condition of participation:
Status and location.
*
*
*
*
*
(b) * * *
(3) Effective for October 1, 2004
through September 30, 2006, the CAH
does not meet the location requirements
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44001
in either paragraph (b)(1) or (b)(2) of this
section and is located in a county that,
in FY 2004, was not part of a
Metropolitan Statistical Area as defined
by the Office of Management and
Budget, but as of FY 2005 was included
as part of such a Metropolitan Statistical
Area as a result of the most recent
census data and implementation of the
new Metropolitan Statistical Area
definitions announced by the Office of
Management and Budget on June 3,
2003.
(4) Effective for October 1, 2009
through September 30, 2011, the CAH
does not meet the location requirements
in either paragraph (b)(1) or (b)(2) of this
section and is located in a county that,
in FY 2009, was not part of a
Metropolitan Statistical Area as defined
by the Office of Management and
Budget, but, as of FY 2010, was
included as part of such a Metropolitan
Statistical Area as a result of the most
recent census data and implementation
of the new Metropolitan Statistical Area
definitions announced by the Office of
Management and Budget on November
20, 2008.
*
*
*
*
*
PART 489—PROVIDER AGREEMENTS
AND SUPPLIER APPROVAL
23. The authority citation for Part 489
continues to read as follows:
■
Authority: Secs. 1102, 1819, 1820(e), 1861,
1864(m), 1866, 1869, and 1871 of the Social
Security Act (42 U.S.C. 1302, 1395i–3, 1395x,
1395aa(m), 1395cc, 1395ff, and 1395hh).
24. Section 489.24 is amended by
revising paragraph (a)(2) to read as
follows:
■
§ 489.24 Special responsibilities of
Medicare hospitals in emergency cases.
(a) * * *
(2)(i) When a waiver has been issued
in accordance with section 1135 of the
Act that includes a waiver under section
1135(b)(3) of the Act, sanctions under
this section for an inappropriate transfer
or for the direction or relocation of an
individual to receive medical screening
at an alternate location do not apply to
a hospital with a dedicated emergency
department if the following conditions
are met:
(A) The transfer is necessitated by the
circumstances of the declared
emergency in the emergency area during
the emergency period.
(B) The direction or relocation of an
individual to receive medical screening
at an alternate location is pursuant to an
appropriate State emergency
preparedness plan or, in the case of a
public health emergency that involves a
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pandemic infectious disease, pursuant
to a State pandemic preparedness plan.
(C) The hospital does not discriminate
on the basis of an individual’s source of
payment or ability to pay.
(D) The hospital is located in an
emergency area during an emergency
period, as those terms are defined in
section 1135(g)(1) of the Act.
(E) There has been a determination
that a waiver of sanctions is necessary.
(ii) A waiver of these sanctions 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 waiver will continue in
effect until the termination of the
applicable declaration of a public health
emergency, as provided under section
1135(e)(1)(B) of the Act.
*
*
*
*
*
(Catalog of Federal Domestic Assistance
Program No. 93.773, Medicare—Hospital
Insurance; and Program No. 93.774,
Medicare—Supplementary Medical
Insurance Program)
Dated: July 27, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare
& Medicaid Services.
Dated: July 29, 2009.
Kathleen Sebelius,
Secretary.
[Editorial Note: The following Addendum
and appendixes will not appear in the Code
of Federal Regulations.]
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Addendum—Schedule of Standardized
Amounts, Update Factors, and Rate-ofIncrease Percentages Effective With
Cost Reporting Periods Beginning On or
After October 1, 2009
I. Summary and Background
In this Addendum, we are setting forth a
description of the methods and data we used
to determine the prospective payment rates
for Medicare hospital inpatient operating
costs and Medicare hospital inpatient capitalrelated costs for FY 2010 for acute care
hospitals. We also are setting forth the rateof-increase percentages for updating the
target amounts for certain hospitals excluded
from the IPPS for FY 2010. We note that,
because certain hospitals excluded from the
IPPS are paid on a reasonable cost basis
subject to a rate-of-increase ceiling (and not
by the IPPS), these hospitals are not affected
by the figures for the standardized amounts,
offsets, and budget neutrality factors.
Therefore, in this final rule, we are
establishing the rate-of-increase percentages
for updating the target amounts for certain
hospitals excluded from the IPPS that are
effective for cost reporting periods beginning
on or after October 1, 2009.
In addition, we are setting forth a
description of the methods and data we used
to determine the standard Federal rate that
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will be applicable to Medicare LTCHs for RY
2010.
In general, except for SCHs, MDHs, and
hospitals located in Puerto Rico, each
hospital’s payment per discharge under the
IPPS is based on 100 percent of the Federal
national rate, also known as the national
adjusted standardized amount. This amount
reflects the national average hospital cost per
case from a base year, updated for inflation.
Currently, SCHs are paid based on
whichever of the following rates yields the
greatest aggregate payment: the Federal
national rate; the updated hospital-specific
rate based on FY 1982 costs per discharge;
the updated hospital-specific rate based on
FY 1987 costs per discharge; the updated
hospital-specific rate based on FY 1996 costs
per discharge; or for cost reporting periods
beginning on or after January 1, 2009, the
updated hospital-specific rate based on the
FY 2006 costs per discharge.
Under section 1886(d)(5)(G) of the Act,
MDHs historically have been paid based on
the Federal national rate or, if higher, the
Federal national rate plus 50 percent of the
difference between the Federal national rate
and the updated hospital-specific rate based
on FY 1982 or FY 1987 costs per discharge,
whichever was higher. (MDHs did not have
the option to use their FY 1996 hospitalspecific rate.) However, section 5003(a)(1) of
Public Law 109–171 extended and modified
the MDH special payment provision that was
previously set to expire on October 1, 2006,
to include discharges occurring on or after
October 1, 2006, but before October 1, 2011.
Under section 5003(b) of Public Law 109–
171, if the change results in an increase to
an MDH’s target amount, we must rebase an
MDH’s hospital-specific rates based on its FY
2002 cost report. Section 5003(c) of Public
Law 109–171 further required that MDHs be
paid based on the Federal national rate or, if
higher, the Federal national rate plus 75
percent of the difference between the Federal
national rate and the updated hospitalspecific rate. Further, based on the provisions
of section 5003(d) of Pub. L. 109–171, MDHs
are no longer subject to the 12-percent cap on
their DSH payment adjustment factor.
For hospitals located in Puerto Rico, the
payment per discharge is based on the sum
of 25 percent of an updated Puerto Ricospecific rate based on average costs per case
of Puerto Rico hospitals for the base year and
75 percent of the Federal national rate. (We
refer readers to section II.D.3. of this
Addendum for a complete description.)
As discussed below in section II. of this
Addendum, we are making changes in the
determination of the prospective payment
rates for Medicare inpatient operating costs
for acute care hospitals for FY 2010. In
section III. of this Addendum, we discuss our
policy changes for determining the
prospective payment rates for Medicare
inpatient capital-related costs for FY 2010. In
section IV. of this Addendum, we are setting
forth our changes for determining the rate-ofincrease limits for certain hospitals excluded
from the IPPS for FY 2010. In section V. of
this Addendum, we are making changes in
the determination of the standard Federal
rate for LTCHs under the LTCH PPS for RY
2010. The tables to which we refer in the
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preamble of this final rule are presented in
section VI. of this Addendum.
II. Changes to Prospective Payment Rates for
Hospital Inpatient Operating Costs for Acute
Care Hospitals for FY 2010
The basic methodology for determining
prospective payment rates for hospital
inpatient operating costs for acute care
hospitals for FY 2005 and subsequent fiscal
years is set forth at § 412.64. The basic
methodology for determining the prospective
payment rates for hospital inpatient
operating costs for hospitals located in Puerto
Rico for FY 2005 and subsequent fiscal years
is set forth at §§ 412.211 and 412.212. Below
we discuss the factors used for determining
the prospective payment rates for FY 2010.
In summary, the standardized amounts set
forth in Tables 1A, 1B, and 1C of section VI.
of this Addendum reflect—
• Equalization of the standardized
amounts for urban and other areas at the
level computed for large urban hospitals
during FY 2004 and onward, as provided for
under section 1886(d)(3)(A)(iv)(II) of the Act,
updated by the applicable percentage
increase required under sections
1886(b)(3)(B)(i)(XX) and 1886(b)(3)(B)(viii) of
the Act.
• The labor-related share that is applied to
the standardized amounts and Puerto Ricospecific standardized amounts to give the
hospital the highest payment, as provided for
under sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act.
• Updates of 2.1 percent for all areas (that
is, the estimated full market basket
percentage increase of 2.1 percent), as
required by section 1886(b)(3)(B)(i)(XX) of
the Act, as amended by section 5001(a)(1) of
Public Law 109–171, and reflecting the
requirements of section 1886(b)(3)(B)(viii) of
the Act, as added by section 5001(a)(3) of
Public Law 109–171, to reduce the applicable
percentage increase by 2.0 percentage points
for a hospital that fails to submit data, in a
form and manner, and at the time specified
by the Secretary, relating to the quality of
inpatient care furnished by the hospital.
• An update of 2.1 percent to the Puerto
Rico-specific standardized amount (that is,
the full estimated rate-of-increase in the
hospital market basket for IPPS hospitals), as
provided for under § 412.211(c), which states
that we update the Puerto Rico-specific
standardized amount using the percentage
increase specified in § 412.64(d)(1), or the
percentage increase in the market basket
index for prospective payment hospitals for
all areas.
• An adjustment to the standardized
amount to ensure budget neutrality for DRG
recalibration and reclassification, as provided
for under section 1886(d)(4)(C)(iii) of the Act.
• An adjustment to ensure the wage index
and labor share update and changes are
budget neutral, as provided for under section
1886(d)(3)(E)(i) of the Act. We note that
section 1886(d)(3)(E)(i) of the Act requires
that we do not consider the labor-related
share of 62 percent to compute wage index
budget neutrality.
• An adjustment to ensure the effects of
geographic reclassification are budget
neutral, as provided for in section
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1886(d)(8)(D) of the Act, by removing the FY
2009 budget neutrality factor and applying a
revised factor.
• An adjustment to remove the FY 2009
outlier offset and apply an offset for FY 2010,
as provided for in section 1886(d)(3)(B) of the
Act.
• An adjustment to ensure the effects of
the rural community hospital demonstration
required under section 410A of Public Law
108–173 are budget neutral, as required
under section 410A(c)(2) of Public Law 108–
173.
We note that in this final rule, as discussed
below and in section II. of the preamble to
this final rule, we are opting to postpone
adopting documentation and coding
adjustments to the national standardized
amount, as authorized under section 7(a) of
Public Law 110–90 and section
1886(d)(3)(A)(vi) of the Act, and to the
hospital-specific rates and Puerto Ricospecific standardized amount under our
special exceptions and adjustment authority
under section 1886(d)(5)(I)(i) of the Act until
a full analysis of FY 2009 case-mix changes
can be completed.
We note that, beginning in FY 2008, we
applied the budget neutrality adjustment for
the rural floor to the hospital wage indices
rather than the standardized amount. As we
did for FY 2009, for FY 2010, we are
continuing to apply the rural floor budget
neutrality adjustment to hospital wage
indices rather than the standardized amount.
In addition, instead of applying the budget
neutrality adjustment for the imputed floor
adopted under section 1886(d)(3)(E) of the
Act to the standardized amount, for FY 2010,
we are continuing to apply the imputed floor
budget neutrality adjustment to the wage
indices. As we did for FY 2009, we also are
continuing to apply the budget neutrality
adjustments for the rural floor and imputed
rural floor at the State level rather than the
national level. For a complete discussion of
the budget neutrality changes concerning the
rural floor and the imputed floor, including
the within-State budget neutrality
adjustment, we refer readers to section
III.B.2.b. of the preamble of the FY 2009 IPPS
final rule and this final rule.
A. Calculation of the Adjusted Standardized
Amount
1. Standardization of Base-Year Costs or
Target Amounts
In general, the national standardized
amount is based on per discharge averages of
adjusted hospital costs from a base period
(section 1886(d)(2)(A) of the Act), updated
and otherwise adjusted in accordance with
the provisions of section 1886(d) of the Act.
For Puerto Rico hospitals, the Puerto Ricospecific standardized amount is based on per
discharge averages of adjusted target amounts
from a base period (section 1886(d)(9)(B)(i) of
the Act), updated and otherwise adjusted in
accordance with the provisions of section
1886(d)(9) of the Act. The September 1, 1983
interim final rule (48 FR 39763) contained a
detailed explanation of how base-year cost
data (from cost reporting periods ending
during FY 1981) were established for urban
and rural hospitals in the initial development
of standardized amounts for the IPPS. The
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September 1, 1987 final rule (52 FR 33043
and 33066) contains a detailed explanation of
how the target amounts were determined and
how they are used in computing the Puerto
Rico rates.
Sections 1886(d)(2)(B) and 1886(d)(2)(C) of
the Act require us to update base-year per
discharge costs for FY 1984 and then
standardize the cost data in order to remove
the effects of certain sources of cost
variations among hospitals. These effects
include case-mix, differences in area wage
levels, cost-of-living adjustments for Alaska
and Hawaii, IME costs, and costs to hospitals
serving a disproportionate share of lowincome patients.
In accordance with section 1886(d)(3)(E) of
the Act, the Secretary estimates, from timeto-time, the proportion of hospitals’ costs that
are attributable to wages and wage-related
costs. In general, the standardized amount is
divided into labor-related and nonlaborrelated amounts; only the proportion
considered to be the labor-related amount is
adjusted by the wage index. Section
1886(d)(3)(E) of the Act requires that 62
percent of the standardized amount be
adjusted by the wage index, unless doing so
would result in lower payments to a hospital
than would otherwise be made. (Section
1886(d)(9)(C)(iv)(II) of the Act extends this
provision to the labor-related share for
hospitals located in Puerto Rico.)
For FY 2010, we are rebasing and revising
the national and Puerto Rico-specific laborrelated and nonlabor-related shares from the
percentages established for FY 2009.
Specifically, under section 1886(d)(3)(E) of
the Act, the Secretary estimates from time to
time the proportion of payments 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 proportion of
hospitals’ costs that are attributable to wages
and wage-related costs as the ‘‘labor-related
share.’’ For FY 2010, as discussed in section
IV.B.4. of the preamble of this final rule, we
are establishing a labor-related share of 68.8
percent for the national standardized
amounts and 62.1 percent for the Puerto
Rico-specific standardized amount.
Consistent with section 1886(d)(3)(E) of the
Act, we are applying the wage index to a
labor-related share of 62 percent for all nonPuerto Rico hospitals whose wage indexes
are less than or equal to 1.0000. For all nonPuerto Rico hospitals whose wage indices are
greater than 1.0000, we are applying the wage
index to a labor-related share of 68.8 percent
of the national standardized amount. For
hospitals located in Puerto Rico whose
Puerto Rico-specific wage index values are
greater than 1.0000, we are applying a laborrelated share of 62.1 percent. For hospitals
located in Puerto Rico, we are applying a
labor-related share of 62 percent if its Puerto
Rico-specific wage index is less than or equal
to 1.0000.
The standardized amounts for operating
costs appear in Tables 1A, 1B, and 1C of the
Addendum to this final rule.
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44003
2. Computing the Average Standardized
Amount
Section 1886(d)(3)(A)(iv)(II) of the Act
requires that, beginning with FY 2004 and
thereafter, an equal standardized amount be
computed for all hospitals at the level
computed for large urban hospitals during FY
2003, updated by the applicable percentage
update. Section 1886(d)(9)(A)(ii)(II) of the
Act equalizes the Puerto Rico-specific urban
and rural area rates. Accordingly, we are
calculating the FY 2010 national and Puerto
Rico standardized amounts irrespective of
whether a hospital is located in an urban or
rural location.
3. Updating the Average Standardized
Amount
In accordance with section
1886(d)(3)(A)(iv)(II) of the Act, we are
updating the equalized standardized amount
for FY 2010 by the full estimated market
basket percentage increase for hospitals in all
areas, as specified in section
1886(b)(3)(B)(i)(XX) of the Act, as amended
by section 5001(a)(1) of Public Law 109–171.
The percentage increase in the market basket
reflects the average change in the price of
goods and services comprising routine,
ancillary, and special care unit hospital
inpatient services. The most recent forecast
of the hospital market basket increase for FY
2010 is 2.1 percent. Thus, for FY 2010, the
update to the average standardized amount is
2.1 percent for hospitals in all areas. The
estimated market basket increase of 2.1
percent is based on Global Insight, Inc.’s
2009 first quarter forecast of the hospital
market basket increase (as discussed in
Appendix B of this final rule).
Section 1886(b)(3)(B) of the Act specifies
the mechanism to be used to update the
standardized amount for payment for
inpatient hospital operating costs. Section
1886(b)(3)(B)(viii) of the Act, as added by
section 5001(a)(3) of Public Law 109–171,
provides for a reduction of 2.0 percentage
points from the update percentage increase
(also known as the market basket update) for
FY 2007 and each subsequent fiscal year for
any ‘‘subsection (d) hospital’’ that does not
submit quality data, as discussed in section
V.A. of the preamble of this final rule. The
standardized amounts in Tables 1A through
1C of section VI. of this Addendum reflect
these differential amounts.
Section 412.211(c) states that we update
the Puerto Rico-specific standardized amount
using the percentage increase specified in
§ 412.64(d)(1), or the percentage increase in
the market basket index for prospective
payment hospitals for all areas. We are
applying the full rate-of-increase in the
hospital market basket for IPPS hospitals to
the Puerto Rico-specific standardized
amount. Therefore, the update to the Puerto
Rico-specific standardized amount is 2.1
percent.
Although the update factors for FY 2010
are set by law, we are required by section
1886(e)(4) of the Act to recommend, taking
into account MedPAC’s recommendations,
appropriate update factors for FY 2010 for
both IPPS hospitals and hospitals and
hospital units excluded from the IPPS.
Section 1886(e)(5)(A) of the Act requires that
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we publish our proposed recommendations
in the Federal Register for public comment.
Our recommendation on the update factors is
set forth in Appendix B of this final rule.
4. Other Adjustments to the Average
Standardized Amount
As in the past, we are adjusting the FY
2010 standardized amount to remove the
effects of the FY 2009 geographic
reclassifications and outlier payments before
applying the FY 2010 updates. We then
apply budget neutrality offsets for outliers
and geographic reclassifications to the
standardized amount based on FY 2010
payment policies.
We do not remove the prior year’s budget
neutrality adjustments for reclassification
and recalibration of the DRG weights and for
updated wage data because, in accordance
with sections 1886(d)(4)(C)(iii) and
1886(d)(3)(E) of the Act, estimated aggregate
payments after updates in the DRG relative
weights and wage index should equal
estimated aggregate payments prior to the
changes. If we removed the prior year’s
adjustment, we would not satisfy these
conditions.
Budget neutrality is determined by
comparing aggregate IPPS payments before
and after making changes that are required to
be budget neutral (for example, changes to
DRG classifications, recalibration of the DRG
relative weights, updates to the wage index,
and different geographic reclassifications).
We include outlier payments in the
simulations because they may be affected by
changes in these parameters.
In section II. of the preamble of this final
rule, we discussed that we received some
comments on whether Medicare Advantage
claims were used in the FY 2010 IPPS
proposed rule to calculate the MS–DRG
relative weights. We responded to those
comments by explaining that, historically, we
have excluded data from Medicare
Advantage claims from the calculation of the
relative weights. However, the December 31,
2008 update of the FY 2008 MedPAR data
that was used as the source for calculating
the proposed FY 2010 relative weights
contained a significant number of Medicare
Advantage claims. This is because hospitals
were required to submit informational only
claims for all Medicare Advantage patients
they treated for discharges occurring on or
after October 1, 2006, under Change Request
5647 (Transmittal 1311). As a result, we
inadvertently included claims from
discharges of patients enrolled in Medicare
Advantage plans in the calculation of the
proposed FY 2010 relative weights. For this
final rule, we have excluded the discharges
of patients enrolled in Medicare Advantage
plans in the calculation of the FY 2010
relative weights.
Similarly, in the proposed rule, we
inadvertently included Medicare Advantage
claims in the budget neutrality calculations.
Thus, we unintentionally included the
estimated full IPPS payments for the
Medicare Advantage claims in the budget
neutrality calculations and outlier payment
estimates for the proposed rule. Although we
are excluding Medicare Advantage claims
from the relative weight calculations in this
final rule, it is necessary to include IME
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payments for Medicare Advantage enrollees
in the budget neutrality calculations (except
for computing the outlier threshold, which
we explain in section II.A.4.e. of this
Addendum). Under § 412.105(g) of the
regulations and as implemented in
Transmittal A–98–21 (Change Request 332),
hospitals that are paid under the IPPS and
train residents in approved GME programs
may submit claims associated with Medicare
Advantage enrollees to the fiscal
intermediary/MAC for the purpose of
receiving an IME payment. No IPPS MS–DRG
payments (or other add-on payment, such as
DSH or outliers) are made for these Medicare
Advantage enrollees.
As described in detail below, we make
various budget neutrality adjustments to the
standardized amount. Specifically, the
budget neutrality adjustment under section
1886(d)(4)(C)(iii) of the Act requires that we
ensure that the recalibration of the relative
weights does not increase aggregate payments
made under section 1886(d) of the Act.
Similarly, section 1886(d)(3)(E) of the Act
requires that the adjustment to the wage
index shall be made in a manner that does
not increase or decrease aggregate payments
under section 1886(d) of the Act (subject to
the requirement, explained below, that we
must assume a uniform labor-related share).
In addition, we make an adjustment to the
wage index to ensure that aggregate payments
after implementation of the rural floor under
section 4410 of the BBA (Pub. L. 105–33) and
the imputed floor under § 412.64(h)(4) of the
regulations are made in a manner that
ensures that aggregate payments to hospitals
are not affected. Under section 1886(d)(8)(D)
of the Act, the Secretary is required to adjust
the standardized amount to ensure that
aggregate payments under the IPPS after
implementation of the provisions for certain
geographic reclassification under 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. As discussed below, we
also are adjusting the standardized amount
for FY 2010 by an estimated amount to
ensure that aggregate payments made by the
Secretary under section 1886(d) of the Act do
not exceed the amount of payments that
would have been made in the absence of the
rural community hospital demonstration
program, consistent with section 410A of
Public Law 108–173. Because IME Medicare
Advantage payments are made to IPPS
hospitals under section 1886(d) of the Act,
we believe these payments must be part of
these budget neutrality calculations.
However, we note that it is not necessary to
include Medicare Advantage IME payments
in the outlier threshold calculation or the
outlier offset to the standardized amount
because the statute requires that outlier
payments be not less than 5 percent nor more
than 6 percent of total ‘‘operating DRG
payments,’’ which does not include IME and
DSH payments.
In order to account for these Medicare
Advantage IME payments in determining the
budget neutrality adjustments for this final
rule, we identified Medicare Advantage
claims from IPPS teaching hospitals in the
MedPAR data. The GHO Paid indicator with
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a value of ‘‘1’’ on the MedPAR file indicates
that the claim was paid by a Medicare
Advantage plan (other than the IPPS IME
payment specified at § 412.105(g)). For these
Medicare Advantage claims from IPPS
teaching hospitals, we computed a transferadjusted CMI by provider based on the FY
2009 MS–DRG GROUPER Version 26.0
assignment and relative weights. We also
computed a transfer-adjusted CMI for these
Medicare Advantage claims from IPPS
teaching hospitals based on the FY 2010 MS–
DRG GROUPER Version 27.0 assignments
and relative weights. These transfer-adjusted
CMIs (and corresponding case counts) were
used to calculate an IME teaching add-on
payment in accordance with § 412.105(g).
The total Medicare Advantage IME payment
amount was then added to the total Federal
payment amount for each provider (where
applicable) in order to account for the
Medicare Advantage IME payment in
determining the budget neutrality
adjustments. We note that we did not include
Medicare Advantage IME claims when
estimating outlier payments for providers
because Medicare Advantage claims are not
eligible for outlier payments under the IPPS.
We also are adjusting the standardized
amount for FY 2010 by an estimated amount
to ensure that aggregate payments made by
the Secretary do not exceed the amount of
payments that would have been made in the
absence of the rural community hospital
demonstration program, as required under
section 410A of Public Law 108–173. This
demonstration is required to be budget
neutral under section 410A(c)(2) of Public
Law 108–173. For FY 2010, we are not
applying budget neutrality for the imputed
floor to the standardized amount, but instead
are applying it to the wage index, as
discussed in section III.B.2. of the preamble
of this final rule.
Comment: One commenter requested that
CMS completely and adequately describe the
FY 2010 methods and data elements used in
each budget neutrality adjustment
calculation to allow a determination that the
proposed budget neutrality adjustments and
methodologies are appropriate and are not
duplicated across the various budget
neutrality adjustments. The commenter
specifically requested clarification on
whether the pre- or post-labor share adjusted
rate is used in the budget neutrality
calculations. The commenter also urged CMS
to assure that any data necessary for
commenters are available during the
comment period (such as the data used to
develop the CCR adjustment factors).
Response: In the discussion below, we
explain our methodology for computing each
individual budget neutrality adjustment. In
addition, as stated above, budget neutrality is
determined by comparing aggregate IPPS
payments before and after making changes
that are required to be budget neutral (for
example, changes to MS–DRG classifications,
recalibration of the MS–DRG relative
weights, updates to the wage index, and
different geographic reclassifications). We
include outlier payments in the simulations
because they may be affected by changes in
these parameters. We also take extra caution
to ensure that all variables are correctly
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inputted in our budget neutrality calculations
in order that the various budget neutrality
adjustments are not duplicated. In addition,
because the commenter’s remarks are very
general, we are not sure where the
inadequacy lies that the commenter
references. However, we did clarify in the
budget neutrality calculations below in
which instances we used FY 2009 or FY 2010
pre- and post-reclassified wage indices, FY
2009 or FY 2010 relative weights, and FY
2009 or FY 2010 labor-related share
percentages. We believe the discussions
above and below adequately describe the
methodology for budget neutrality.
In reference to the comment on assuring
that any data necessary for the commenters
are available during the comment period, we
strive to ensure that all files are available to
the public. Most data files are available on
the CMS Web site, as we specified in the
proposed. In addition, we have reorganized
the IPPS Web site to make it easier for the
end user to locate relevant data files for the
proposed rule and this final rule in one
central location.
a. Recalibration of DRG Weights and Updated
Wage Index—Budget Neutrality Adjustment
Section 1886(d)(4)(C)(iii) of the Act
specifies that, beginning in FY 1991, the
annual DRG reclassification and recalibration
of the relative weights must be made in a
manner that ensures that aggregate payments
to hospitals are not affected. As discussed in
section II. of the preamble of this final rule,
we normalized the recalibrated DRG weights
by an adjustment factor so that the average
case weight after recalibration is equal to the
average case weight prior to recalibration.
However, equating the average case weight
after recalibration to the average case weight
before recalibration does not necessarily
achieve budget neutrality with respect to
aggregate payments to hospitals because
payments to hospitals are affected by factors
other than average case weight. Therefore, as
we have done in past years, we are making
a budget neutrality adjustment to ensure that
the requirement of section 1886(d)(4)(C)(iii)
of the Act is met.
Section 1886(d)(3)(E)(i) of the Act requires
us to update the hospital wage index on an
annual basis beginning October 1, 1993. 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. In addition, under
section 1886(d)(3)(E)(i) of the Act, as we
established in the FY 2006 IPPS final rule (70
FR 47395), we are implementing the revised
and rebased labor share in a budget neutral
manner. Specifically, section 1886(d)(3)(E)(i)
of the Act directs us to determine a laborrelated share that reflects the ‘‘proportion
* * * of hospitals’ costs which are
attributable to wages and wage-related costs.’’
In addition, section 1886(d)(3)(E)(i) of the Act
requires that we implement the wage index
adjustment in a budget neutral manner.
However, section 1886(d)(3)(E)(ii) of the Act
sets the labor-related share at 62 percent for
hospitals with a wage index less than or
equal to 1.0, and section 1886(d)(3)(E)(i) of
the Act provides that the Secretary shall
calculate the budget neutrality adjustment for
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the adjustments or updates made under that
provision as if section 1886(d)(3)(E)(ii) of the
Act had not been enacted. In other words,
these two sections of the statute require that
we implement the revision of the laborrelated share of 68.8 percent (compared to
69.7 percent for FY 2009) (as well as the
wage index updates) in a budget neutral
manner, but that our budget neutrality
adjustment should not take into account the
requirement that we set the labor-related
share for hospitals with indices less than or
equal to 1.0 at the more advantageous level
of 62 percent. Therefore, for purposes of this
budget neutrality adjustment, section
1886(d)(3)(E)(i) of the Act prohibits us from
taking into account the fact that hospitals
with a wage index less than or equal to 1.0
are paid using a labor-related share of 62
percent. Consistent with current policy, for
FY 2010, we are adjusting 100 percent of the
wage index factor for occupational mix. We
describe the occupational mix adjustment in
section III.D. of the preamble of this final
rule.
For FY 2010, to comply with the
requirement that DRG reclassification and
recalibration of the relative weights be budget
neutral for the Puerto Rico standardized
amount and the hospital-specific rates, we
used FY 2008 discharge data to simulate
payments and compared aggregate payments
using the FY 2009 labor-related share
percentages, the FY 2009 relative weights,
and the FY 2009 pre-reclassified wage data
to aggregate payments using the FY 2009
labor-related share percentages, the FY 2010
relative weights, and the FY 2009 prereclassified wage data. Based on this
comparison, we computed a budget
neutrality adjustment factor equal to
0.997941. As discussed in section IV. of this
Addendum, we would also apply the DRG
reclassification and recalibration budget
neutrality factor of 0.997941 to the hospitalspecific rates that are to be effective for cost
reporting periods beginning on or after
October 1, 2009.
In order to meet the statutory requirements
that we do not take into account the laborrelated share of 62 percent when computing
wage index budget neutrality and that we
budget neutralize any changes in payments
as a result of the FY 2010 rebased and revised
labor-related share, it was necessary to use a
three-step process to comply with the
requirements that DRG reclassification and
recalibration of the relative weights and the
updated wage index and labor-related share
have no effect on aggregate payments for
IPPS hospitals. We first determined a DRG
reclassification and recalibration budget
neutrality factor of 0.997941 by using the
same methodology described above to
determine the DRG reclassification and
recalibration budget neutrality factor for the
Puerto Rico standardized amount and
hospital-specific rates. Secondly, to compute
a budget neutrality factor for wage index and
labor-related share changes, we used FY 2008
discharge data to simulate payments and
compared aggregate payments using FY 2010
relative weights and FY 2009 pre-reclassified
wage indices, and applied the FY 2009 laborrelated share of 69.7 percent to all hospitals
(regardless of whether the hospital’s wage
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index was above or below 1.0) to aggregate
payments using the FY 2010 relative weights
and the FY 2010 pre-reclassified wage
indices, and applied the rebased and revised
labor-related share for FY 2010 of 68.8
percent to all hospitals (regardless of whether
the hospital’s wage index was above or below
1.0). In addition, we applied the DRG
reclassification and recalibration budget
neutrality factor (derived in the first step) to
the rates that were used to simulate payments
for this comparison of aggregate payments
from FY 2009 to FY 2010. By applying this
methodology, we determined a budget
neutrality factor for the wage index and
labor-related share changes of 1.000407.
Finally, we multiplied the DRG
reclassification and recalibration budget
neutrality factor of 0.997941 (derived in the
first step) by the budget neutrality factor for
wage index changes of 1.000407 (derived in
the second step) to determine the DRG
reclassification and recalibration and
updated wage index and labor-related share
budget neutrality factor of 0.998347.
Comment: One commenter requested that
CMS explain why it has made changes to the
budget neutrality calculation to segment
various aspects of those calculations.
Response: As discussed above, in order to
meet the statutory requirements of section
1886(d)(3)(E)(i) of the Act that we do not take
into account the labor-related share of 62
percent when computing wage index budget
neutrality and that we budget neutralize any
changes in payments as a result of the FY
2010 rebased and revised labor-related share,
it was necessary to use a three-step process
(or segment various aspects of the
calculation) to comply with the requirements
for DRG reclassification and recalibration,
wage index and labor-related share budget
neutrality.
b. Reclassified Hospitals—Budget Neutrality
Adjustment
Section 1886(d)(8)(B) of the Act provides
that, effective with discharges occurring on
or after October 1, 1988, certain rural
hospitals are deemed urban. In addition,
section 1886(d)(10) of the Act provides for
the reclassification of hospitals based on
determinations by the MGCRB. Under section
1886(d)(10) of the Act, a hospital may be
reclassified for purposes of the wage index.
Under section 1886(d)(8)(D) of the Act, the
Secretary is required to adjust the
standardized amount 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. We note that the wage
index adjustments provided under section
1886(d)(13) of the Act are not budget neutral.
Section 1886(d)(13)(H) of the Act provides
that any increase in a wage index under
section 1886(d)(13) shall not be taken into
account ‘‘in applying any budget neutrality
adjustment with respect to such index’’
under section 1886(d)(8)(D) of the Act. To
calculate the budget neutrality factor for FY
2010, we used FY 2008 discharge data to
simulate payments and compared total IPPS
payments with FY 2010 relative weights, FY
2010 labor share percentages, and FY 2010
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wage data prior to any reclassifications under
sections 1886(d)(8)(B) and (C) and
1886(d)(10) of the Act to total IPPS payments
with FY 2010 relative weights, FY 2010 labor
share percentages, and FY 2010 wage data
after such reclassifications. Based on these
simulations, we calculated an adjustment
factor of 0.991297 to ensure that the effects
of these provisions are budget neutral,
consistent with the statute.
The FY 2010 budget neutrality adjustment
factor is applied to the standardized amount
after removing the effects of the FY 2009
budget neutrality adjustment factor. We note
that the FY 2010 budget neutrality
adjustment reflects FY 2010 wage index
reclassifications approved by the MGCRB or
the Administrator.
c. Rural Floor and Imputed Floor Budget
Neutrality Adjustment
CMS makes an adjustment to the wage
index to ensure that aggregate payments after
implementation of the rural floor under
section 4410 of the BBA (Pub. L. 105–33) and
the imputed floor under § 412.64(h)(4) of the
regulations are made in a manner that
ensures that aggregate payments to hospitals
are not affected. As discussed in section III.B.
of the preamble of the FY 2009 IPPS final
rule (73 FR 48570 through 48574), we
adopted as final State-level budget neutrality
for the rural and imputed floors, effective
beginning with the FY 2009 wage index. In
response to the public’s concerns and taking
into account the potentially significant
payment cuts that could occur to hospitals in
some States if we implemented this change
with no transition, we decided to phase in,
over a 3-year period, the transition from the
national rural floor budget neutrality
adjustment on the wage index to the Statelevel rural floor budget neutrality adjustment
on the wage index. In FY 2009, hospitals
received a blended wage index that was
comprised of 20 percent of the wage index
adjusted by applying the State-level rural and
imputed floor budget neutrality adjustment
and 80 percent of the wage index adjusted by
applying the national budget neutrality
adjustment. For FY 2010, the blended wage
index is determined by adding 50 percent of
the wage index adjusted by applying the
State-level rural and imputed floor budget
neutrality adjustment and 50 percent of the
wage index adjusted by applying the national
budget neutrality adjustment. In FY 2011, the
adjustment will be completely transitioned to
the State-level methodology, such that the
wage index will be determined by applying
100 percent of the State-level budget
neutrality adjustment. As stated earlier, we
note that the rural floor budget neutrality
adjustment is applied to the wage index and
not the standardized amount. However,
because these blended wage indices
reflecting the 50 percent State-level rural and
imputed floor budget neutrality adjustment
and the 50 percent national rural and
imputed floor budget neutrality adjustment
are used in calculating the FY 2010 outlier
threshold (as discussed below), we are
explaining our calculation of the rural floor
budget neutrality adjustments (in this
section) below.
In order to compute a budget neutral wage
index that is a blend of 50 percent of the
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wage index adjusted by the State-level rural
and imputed floor budget neutrality
adjustment and 50 percent of the wage index
adjusted by the national rural and imputed
floor budget neutrality adjustment, similar to
our calculation of the FY 2009 wage index
(73 FR 48570 through 48574), we used FY
2008 discharge data with FY 2010 relative
weights, FY 2010 labor share percentages,
and FY 2010 post reclassified wage indices
to simulate IPPS payments. First, we
compared the national simulated payments
without the rural and imputed floors applied
to national simulated payments with the
rural and imputed floors applied to
determine the national rural and imputed
floor budget neutrality adjustment factor of
0.996705. This national adjustment was then
applied to the FY 2010 post reclassified wage
indices to produce a national rural and
imputed floor budget neutral wage index,
which was used in determining the FY 2010
blended post reclassified wage indices for the
second year of the transition (as described
below). We then used the same methodology
to determine each State’s rural or imputed
floor budget neutrality adjustment by
comparing each State’s total simulated
payments with and without the rural or
imputed floor applied. These State-level rural
and imputed floor budget neutrality factors
were then applied to the wage indices to
produce a State-level rural and imputed floor
budget neutral wage index, which was used
in determining the FY 2010 blended wage
indices for the second year of the transition
(as described below).
To determine the FY 2010 wage indices for
the second year of the transition, we then
blended the national and State-level post
reclassified wage index values (computed
above) by taking 50 percent of the national
rural and imputed floor budget neutral post
reclassified wage index and 50 percent of the
State-level rural and imputed floor budget
neutral post reclassified wage index. Because
of interactive effects between the payment
factors applied under the IPPS and/or
rounding issues, the blended post reclassified
wage index calculated above does not
necessarily result in overall budget
neutrality. That is, aggregate IPPS payments
simulated using the blended budget neutral
post reclassified wage index may not be
equal to aggregate IPPS payments simulated
using the post reclassified wage index prior
to the application of the rural and imputed
floors. Therefore, in order to ensure that
national payments overall remain budget
neutral after application of the rural and
imputed floors, an additional adjustment
factor of 0.999995 must be applied to the
blended post reclassified wage indices
calculated as described above.
Comment: Several commenters pointed out
that in the proposed rule CMS stated on page
24243 of the rule that it applied an additional
budget neutrality factor of 1.00016 to the
blended wage indexes, while on page 24663
of the rule CMS stated that this same
additional budget-neutrality factor was
1.000017. The commenter requested that
CMS clarify which factor is the correct
additional budget neutrality factor related to
the rural floor.
Response: We thank the commenter for
pointing out the two different factors that
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were published in the proposed rule. The
correct factor for the proposed rule is
1.00016. For this final rule, as described
above, we applied an adjustment factor of
0.999995 to the blended wage indices
calculated.
d. Case-Mix Budget Neutrality Adjustment
(1) Adjustment to the FY 2010 IPPS
Standardized Amount
As stated earlier, beginning in FY 2008, we
adopted the MS–DRG patient classification
system for the IPPS to better recognize
patients’ severity of illness in Medicare
payment rates. In the FY 2008 IPPS final rule
with comment period (73 FR 47175 through
47186), we indicated that we believe the
adoption of the MS–DRGs had the potential
to lead to increases in aggregate payments
without a corresponding increase in actual
patient severity of illness due to the
incentives for changes in documentation and
coding. In that final rule, using the
Secretary’s authority under section
1886(d)(3)(A)(vi) of the Act to maintain
budget neutrality by adjusting the national
standardized amounts to eliminate the effect
of changes in documentation and coding that
do not reflect real change in case-mix, we
established prospective documentation and
coding adjustments of ¥1.2 percent for FY
2008, ¥1.8 percent for FY 2009, and ¥1.8
percent for FY 2010 (for a total adjustment
of ¥4.8 percent). On September 29, 2007,
Public Law 110–90 was enacted. Section 7 of
Public Law 110–90 included a provision that
reduces the documentation and coding
adjustment for the MS–DRG system that we
adopted in the FY 2008 IPPS final rule with
comment period to ¥0.6 percent for FY 2008
and ¥0.9 percent for FY 2009. To comply
with the provision of section 7(a) of Public
Law 110–90, in a final rule that appeared in
the Federal Register on November 27, 2007
(72 FR 66886), we changed the IPPS
documentation and coding adjustment for FY
2008 to ¥0.6 percent, and revised the FY
2008 national standardized amounts (as well
as other payment factors and thresholds)
accordingly, with these revisions being
effective as of October 1, 2007. For FY 2009,
section 7(a) of Public Law 110–90 required a
documentation and coding adjustment of
¥0.9 percent instead of the ¥1.8 percent
adjustment specified in the FY 2008 IPPS
final rule with comment period. As required
by statute, we applied a documentation and
coding adjustment of ¥0.9 percent to the FY
2009 IPPS national standardized amounts.
The documentation and coding adjustments
established in the FY 2008 IPPS final rule
with comment period are cumulative. As a
result, the ¥0.9 percent documentation and
coding adjustment in FY 2009 was in
addition to the ¥0.6 percent adjustment in
FY 2008, yielding a combined effect of ¥1.5
percent.
In the proposed rule, we discussed our
analysis of FY 2008 claims data which shows
an increase in case-mix of 2.5 percent due to
changes in documentation and coding that do
not reflect real changes in case-mix for
discharges occurring during FY 2008. For FY
2010, we proposed to reduce the average
standardized amounts under section 1886(d)
of the Act in FY 2010 by ¥1.9 percent,
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which represents the difference between
changes in documentation and coding that do
not reflect real changes in case-mix for
discharges occurring during FY 2008 and the
prospective adjustment applied under Public
Law 110–90. As discussed in section II.D. of
the preamble of this final rule, after
consideration of the public comments we
received on our analysis and proposals
presented in the proposed rule, we have
decided to postpone adopting documentation
and coding adjustments as authorized under
section 7(a) of Public Law 110–90 and
section 1886(d)(3)(A)(vi) of the Act until a
full analysis of FY 2009 case-mix changes
can be completed. Accordingly, in this final
rule, for FY 2010, we did not apply any
additional documentation and coding
adjustments to the average standardized
amounts under section 1886(d) of the Act.
(2) Adjustment to the FY 2010 HospitalSpecific Rates for SCHs and MDHs
As discussed in section II.D. of the
preamble of the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule and this final rule,
because hospitals (SCHs and MDHs) paid
based in whole or in part on the hospitalspecific rate use the same MS–DRG system as
other hospitals, we believe they have the
potential to realize increased payments from
documentation and coding changes that do
not reflect real increases in patients’ severity
of illness. Under section 1886(d)(3)(A)(vi) of
the Act, Congress stipulated that hospitals
paid based on the standardized amount
should not receive additional payments
based on the effect of documentation and
coding changes that do not reflect real
changes in case-mix. Similarly, we believe
that hospitals paid based on the hospitalspecific rate should not have the potential to
realize increased payments due to
documentation and coding changes that do
not reflect real increases in patients’ severity
of illness. While we continue to believe that
section 1886(d)(3)(A)(vi) of the Act does not
provide explicit authority for application of
the documentation and coding adjustment to
the hospital-specific rates, we believe that we
have the authority to apply the
documentation and coding adjustment to the
hospital-specific rates using our special
exceptions and adjustment authority under
section 1886(d)(5)(I)(i) of the Act.
As discussed in the proposed rule, we
found that, independently for both SCHs and
MDHs, the change due to documentation and
coding that did not reflect real changes in
case-mix for discharges occurring during FY
2008 slightly exceeded the 2.5 percent result
discussed earlier, but did not significantly
differ from that result.
Therefore, we proposed to use our
authority under section 1886(d)(5)(I)(i) of the
Act to prospectively adjust the hospitalspecific rates by ¥2.5 percent in FY 2010 for
our estimated documentation and coding
effect in FY 2008 that does not reflect real
changes in case-mix. We also noted that,
unlike the national standardized rates, the FY
2009 hospital-specific rates were not
previously reduced in order to account for
anticipated changes in documentation and
coding that do not reflect real changes in
case-mix resulting from the adoption of the
MS–DRGs.
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Consistent with our approach for
determining the national average
standardized amounts discussed earlier, after
consideration of the public comments we
received on our analysis and proposals
presented in the proposed rule, we also are
postponing adoption of a documentation and
coding adjustment to the hospital-specific
rate until a full analysis of FY 2009 case-mix
changes can be completed. Accordingly, in
this final rule, for FY 2010, we will not apply
a documentation and coding adjustment to
the hospital-specific rates.
(3) Adjustment to the FY 2010 Puerto Rico
Standardized Amount
As stated in section II.D. of the preamble
of this final rule, we believe that we have the
authority to apply the documentation and
coding adjustment to the Puerto Rico-specific
standardized amount using our special
exceptions and adjustment authority under
section 1886(d)(5)(I)(i) of the Act. Similar to
SCHs and MDHs that are paid based on the
hospital-specific rate, we believe that Puerto
Rico hospitals that are paid based on the
Puerto Rico-specific standardized amount
should not have the potential to realize
increased payments due to documentation
and coding changes that do not reflect real
increases in patients’ severity of illness. In
the proposed rule, we discussed our analysis
of FY 2008 claims data for Puerto Rico
hospitals, which shows that, for Puerto Rico
hospitals, the increase in payments for
discharges occurring during FY 2008 due to
documentation and coding changes that did
not reflect real changes in case-mix for
discharges occurring during FY 2008 was
approximately 1.1 percent. We note that,
unlike the national standardized rates, the FY
2009 Puerto Rico-specific standardized
amount was not previously reduced in order
to account for anticipated changes in
documentation and coding that do not reflect
real changes in case-mix resulting from the
adoption of the MS–DRGs. Therefore, we
proposed to use our authority under section
1886(d)(5)(I)(i) of the Act to adjust the Puerto
Rico-specific standardized amount by ¥1.1
percent in FY 2010 to account for the FY
2008 documentation and coding changes that
are not due to changes in real case-mix and
to leave that adjustment in place for
subsequent fiscal years.
Consistent with our approach for
determining the national average
standardized amounts and hospital-specific
rates of SCHs and MDHs discussed above,
after consideration of the public comments
we received on our analysis and proposals
presented in the proposed rule, we also are
postponing adoption of a documentation and
coding adjustment to the Puerto Rico-specific
rates until a full analysis of FY 2009 case-mix
changes can be completed. Accordingly, in
this final rule, for FY 2010, we will not apply
a documentation and coding adjustment to
the Puerto Rico-specific rates.
e. Outlier Payments
Section 1886(d)(5)(A) of the Act provides
for payments in addition to the basic
prospective payments for ‘‘outlier’’ cases
involving extraordinarily high costs. To
qualify for outlier payments, a case must
have costs greater than the sum of the
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prospective payment rate for the DRG, any
IME and DSH payments, any new technology
add-on payments, and the ‘‘outlier
threshold’’ or ‘‘fixed-loss’’ amount (a dollar
amount by which the costs of a case must
exceed payments in order to qualify for an
outlier payment). We refer to the sum of the
prospective payment rate for the DRG, any
IME and DSH payments, any new technology
add-on payments, and the outlier threshold
as the outlier ‘‘fixed-loss cost threshold.’’ To
determine whether the costs of a case exceed
the fixed-loss cost threshold, a hospital’s CCR
is applied to the total covered charges for the
case to convert the charges to estimated costs.
Payments for eligible cases are then made
based on a marginal cost factor, which is a
percentage of the estimated costs above the
fixed-loss cost threshold. The marginal cost
factor for FY 2010 is 80 percent, the same
marginal cost factor we have used since FY
1995 (59 FR 45367).
In accordance with section
1886(d)(5)(A)(iv) of the Act, outlier payments
for any year are projected to be not less than
5 percent nor more than 6 percent of total
operating DRG payments plus outlier
payments. We note that the statute requires
outlier payments to be not less than 5 percent
nor more than 6 percent of total ‘‘operating
DRG payments’’ (which does not include IME
and DSH payments) plus outlier payments.
When setting the outlier threshold, we
compute the 5.1 percent target by dividing
the total operating outlier payments by the
total operating DRG payments plus outlier
payments. We do not include any other
payments such as IME and DSH within the
outlier target amount. Therefore, it is not
necessary to include Medicare Advantage
IME payments in the outlier threshold
calculation. Section 1886(d)(3)(B) of the Act
requires the Secretary to reduce the average
standardized amount by a factor to account
for the estimated proportion of total DRG
payments made to outlier cases. Similarly,
section 1886(d)(9)(B)(iv) of the Act requires
the Secretary to reduce the average
standardized amount applicable to hospitals
located in Puerto Rico to account for the
estimated proportion of total DRG payments
made to outlier cases. More information on
outlier payments may be found on the CMS
Web site at https://www.cms.hhs.gov/Acute
InpatientPPS/04_outlier.asp#TopOfPage.
(1) FY 2010 Outlier Fixed-Loss Cost
Threshold
For FY 2010, we proposed to continue to
use the same methodology used for FY 2009
(73 FR 48763 through 48766) to calculate the
outlier threshold. Similar to the methodology
used in the FY 2009 IPPS final rule, for FY
2010, we proposed to apply an adjustment
factor to the CCRs to account for cost and
charge inflation (as explained below). As we
have done in the past, to calculate the
proposed FY 2010 outlier threshold we
simulated payments by applying FY 2010
rates and policies using cases from the FY
2008 MedPAR files. Therefore, in order to
determine the proposed FY 2010 outlier
threshold, we inflated the charges on the
MedPAR claims by 2 years, from FY 2008 to
FY 2010.
We proposed to continue to use a refined
methodology that takes into account the
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lower inflation in hospital charges that are
occurring as a result of the outlier final rule
(68 FR 34494), which changed our
methodology for determining outlier
payments by implementing the use of more
current CCRs. Our refined methodology uses
more recent data that reflect the rate-ofchange in hospital charges under the new
outlier policy.
Using the most recent data available, we
calculated the 1-year average annualized rateof-change in charges-per-case from the last
quarter of FY 2007 in combination with the
first quarter of FY 2008 (July 1, 2007 through
December 31, 2007) to the last quarter of FY
2008 in combination with the first quarter of
FY 2009 (July 1, 2008 through December 31,
2008). This rate of change was 7.29 percent
(1.0729) or 15.11 percent (1.1511) over 2
years.
As we have done in the past, we
established the proposed FY 2010 outlier
threshold using hospital CCRs from the
December 2008 update to the ProviderSpecific File (PSF)—the most recent available
data at the time of the proposed rule. This
file includes CCRs that reflect
implementation of the changes to the policy
for determining the applicable CCRs that
became effective August 8, 2003 (68 FR
34494).
As discussed in the FY 2007 IPPS final rule
(71 FR 48150), we worked with the Office of
Actuary to derive the methodology described
below to develop the CCR adjustment factor.
For FY 2010, we proposed to continue to use
the same methodology to calculate the CCR
adjustment by using the FY 2008 operating
cost per discharge increase in combination
with the actual FY 2008 operating market
basket percentage increase determined by
IHS Global Insight, Inc., as well as the charge
inflation factor described above to estimate
the adjustment to the CCRs. (We note that the
FY 2008 actual (otherwise referred to as
‘‘final’’) operating market basket percentage
increase reflects historical data, whereas the
published FY 2008 operating market basket
update factor was based on IHS Global
Insight, Inc.’s 2007 third quarter forecast with
historical data through the first quarter of
2008.) By using the operating market basket
percentage increase and the increase in the
average cost per discharge from hospital cost
reports, we are using two different measures
of cost inflation. For FY 2010, we determined
the adjustment by taking the percentage
increase in the operating costs per discharge
from FY 2006 to FY 2007 (1.0460) from the
cost report and dividing it by the final
operating market basket percentage increase
from FY 2007 (1.0360). This operation
removes the measure of pure price increase
(the market basket) from the percentage
increase in operating cost per discharge,
leaving the nonprice factors in the cost
increase (for example, quantity and changes
in the mix of goods and services). We
repeated this calculation for 2 prior years to
determine the 3-year average of the rate of
adjusted change in costs between the
operating market basket percentage increase
and the increase in cost per case from the
cost report (the FY 2004 to FY 2005
percentage increase of operating costs per
discharge of 1.0584 divided by the FY 2005
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final operating market basket percentage
increase of 1.0390, the FY 2005 to FY 2006
percentage increase of operating costs per
discharge of 1.0578 divided by FY 2006 final
operating market basket percentage increase
of 1.0400). For FY 2010, we averaged the
differentials calculated for FY 2005, FY 2006,
and FY 2007, which resulted in a mean ratio
of 1.0151. We multiplied the 3-year average
of 1.0151 by the FY 2008 final operating
market basket percentage increase of 1.0400,
which resulted in an operating cost inflation
factor of 5.56 percent or 1.056. We then
divided the operating cost inflation factor by
the 1-year average change in charges
(1.072893) and applied an adjustment factor
of 0.9840 to the operating CCRs from the PSF.
As stated in the FY 2009 IPPS final rule (73
FR 48763), we continue to believe it is
appropriate to apply only a 1-year adjustment
factor to the CCRs. On average, it takes
approximately 9 months for a fiscal
intermediary or MAC to tentatively settle a
cost report from the fiscal year end of a
hospital’s cost reporting period. The average
‘‘age’’ of hospitals’ CCRs from the time the
fiscal intermediary or the MAC inserts the
CCR in the PSF until the beginning of FY
2009 is approximately 1 year. Therefore, as
stated above, we believe a 1-year adjustment
factor to the CCRs is appropriate.
We used the same methodology for the
capital CCRs and determined the adjustment
by taking the percentage increase in the
capital costs per discharge from FY 2006 to
FY 2007 (1.0488) from the cost report and
dividing it by the final capital market basket
percentage increase from FY 2007 (1.0130).
We repeated this calculation for 2 prior years
to determine the 3-year average of the rate of
adjusted change in costs between the capital
market basket percentage increase and the
increase in cost per case from the cost report
(the FY 2004 to FY 2005 percentage increase
of capital costs per discharge of 1.0329
divided by the FY 2005 final capital market
basket percentage increase of 1.0090, the FY
2005 to FY 2006 percentage increase of
capital costs per discharge of 1.0467 divided
by the FY 2006 final capital market basket
percentage increase of 1.0110). For FY 2010,
we averaged the differentials calculated for
FY 2005, FY 2006, and FY 2007, which
resulted in a mean ratio of 1.0314. We
multiplied the 3-year average of 1.0314 by
the FY 2008 final capital market basket
percentage increase of 1.0140, which resulted
in a capital cost inflation factor of 4.59
percent or 1.0459. We then divided the
capital cost inflation factor by the 1-year
average change in charges (1.072893) and
applied an adjustment factor of 0.9748 to the
capital CCRs from the PSF. We are using the
same charge inflation factor for the capital
CCRs that was used for the operating CCRs.
The charge inflation factor is based on the
overall billed charges. Therefore, we believe
it is appropriate to apply the charge factor to
both the operating and capital CCRs.
As stated above, for FY 2010, we applied
the proposed FY 2010 rates and policies
using cases from the FY 2008 MedPAR files
in calculating the proposed outlier threshold.
Therefore, for purposes of estimating the
proposed outlier threshold for FY 2010, it is
necessary to take into account the remaining
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projected case-mix growth when calculating
the outlier threshold that results in outlier
payments being 5.1 percent of total payments
for FY 2010. As discussed above and in
section II.D. of the preamble of this final rule,
our actuaries estimate that maintaining
budget neutrality for changes in case-mix due
to the adoption of the MS–DRGs requires an
adjustment of ¥4.8 percent to the national
standardized amount. For FY 2008, our
estimate of the case-mix increase due to
documentation and coding in FY 2008 is 2.5
percent, which is already included within
the claims data (FY 2008 MedPAR files) used
to calculate the proposed FY 2010 threshold.
In addition, we stated that, even with our
assumption that there will be no continued
changes in documentation and coding in FY
2009, the use of the FY 2009 relative weights
will result in an additional 0.7 percent casemix increase due to the documentation and
coding effect in FY 2009. Therefore, we
projected that an additional 1.6 percent casemix growth occurred since 2008 (4.8 percent
¥2.5 percent (case-mix growth in FY 2008)
¥0.7 percent (FY 2009 relative weights
effect) = 1.6 percent). As a result, we inflated
the FY 2008 claims data by an additional 1.6
percent for the additional case-mix growth
projected to have occurred since FY 2008. If
we did not take into account the remaining
1.6 percent projected case-mix growth, our
estimate of total FY 2010 payments would be
too low, and as a result, our proposed outlier
threshold would be too high, such that
estimated outlier payments would be less
than our projected 5.1 percent of total
payments. While we assume 1.6 percent casemix growth for IPPS hospitals in our outlier
threshold calculations, the FY 2010 national
standardized amounts used to calculate the
proposed outlier threshold reflect the
proposed cumulative adjustment of -3.4
percent (as described above in this section
above).
Using this methodology, we proposed an
outlier fixed-loss cost threshold for FY 2010
equal to the prospective payment rate for the
DRG, plus any IME and DSH payments, and
any add-on payments for new technology,
plus $24,240.
In the proposed rule, we stated that as we
did in establishing the FY 2009 outlier
threshold (73 FR 57891), in our projection of
FY 2010 outlier payments, we did not make
any adjustments for the possibility that
hospitals’ CCRs and outlier payments may be
reconciled upon cost report settlement. We
continue to believe that, due to the policy
implemented in the June 9, 2003 outlier final
rule (68 FR 34494), CCRs will no longer
fluctuate significantly and, therefore, few
hospitals will actually have these ratios
reconciled upon cost report settlement. In
addition, it is difficult to predict the specific
hospitals that will have CCRs and outlier
payments reconciled in any given year. We
also noted that reconciliation occurs because
hospitals’ actual CCRs for the cost reporting
period are different than the interim CCRs
used to calculate outlier payments when a
bill is processed. Our simulations assume
that CCRs accurately measure hospital costs
based on information available to us at the
time we set the outlier threshold. For these
reasons, we proposed not to make any
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assumptions about the effects of
reconciliation on the outlier threshold
calculation.
We also noted in the proposed rule that
there were some factors that contributed to a
higher proposed fixed loss outlier threshold
for FY 2010 compared to FY 2009. First, as
stated below in section II.A.4.e.(3) of this
Addendum, we are currently projecting 5.4
percent of total IPPS payment will be paid as
outliers in FY 2009 or 0.3 percentage points
greater than the 5.1 percent originally
estimated. If we do not increase the FY 2009
threshold in FY 2010, we would continue to
make outlier payments in excess of the 5.1
percent target. In addition, because overall
payments are projected to be lower in FY
2010 compared to FY 2009, even more cases
would qualify for outlier payments. In order
to maintain outlier payments at 5.1 percent,
the outlier threshold must be further
increased to decrease the amount of cases
that would qualify as outliers. Together, we
believe that the above factors cumulatively
contributed to a higher proposed fixed-loss
outlier threshold in FY 2010 compared to FY
2009.
Comment: Some commenters stated that it
appears CMS is making conservative
estimates and assumptions in the numbers
and cost of outlier cases in order to be within
or materially below the 5.1 percent target.
Another commenter stated that CMS should
not use FY 2009 projections to determine the
FY 2010 threshold and instead CMS should
use FY 2008 actual payments. The
commenter further stated that underpayment
in FY 2008 indicates that the proposed
increase in the FY 2010 threshold is
overstated.
One commenter objected to CMS’ proposal
to raise the outlier threshold in FY 2010
(compared to FY 2009). The commenter
explained that it does not understand why
CMS is proposing to raise the threshold if the
FY 2009 threshold has clearly achieved
Congress’ stated goal. The commenter
believed that raising the threshold will
jeopardize CMS’ ability to meet the outlier
target for FY 2010. The commenter also noted
that because there is a planned reduction to
the rate for documentation and coding, CMS
should lower the outlier threshold.
Response: As explained above, we use the
most recent data available to set the outlier
threshold. Specifically, to calculate the FY
2010 outlier threshold, we simulated
payments by applying FY 2010 rates and
policies using cases from the FY 2008
MedPAR files. Therefore, we did not use the
FY 2009 projection in the modeling of the
outlier threshold. In our discussion in the
proposed rule of why we believe the
threshold increased from FY 2009 to FY
2010, we observed from our analysis that the
threshold we set in FY 2009 is currently
projecting an outlier estimate of 5.4 percent
for FY 2009. Based on this observation, it
would seem if we maintained the FY 2009
threshold for FY 2010, we would continue to
miss the 5.1 percent target and overpay
outliers. Upon modeling the proposed outlier
threshold using FY 2008 MedPAR claims and
the methodology described above (not
including the FY 2009 projection of the
outlier estimate), the result was indeed an
increased outlier threshold for FY 2010.
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We note that in the proposed rule we
proposed to reduce the proposed
standardized amount by 1.9 percent due to
documentation and coding. As stated above,
the proposed FY 2010 national standardized
amounts used to calculate the proposed
outlier threshold reflected the proposed
cumulative adjustment of ¥3.4 percent. We
believe that the proposed cumulative
documentation and coding adjustment
applied to the proposed FY 2010 national
standardized amounts to calculate the
proposed outlier threshold also contributed
to an increase in the proposed FY 2010
outlier threshold from FY 2009. Specifically,
as a result of the reduction to the
standardized amount for documentation and
coding in the proposed rule, more cases
would qualify for outliers. Therefore, it was
necessary to increase the outlier threshold in
the proposed rule to maintain outlier
payments at 5.1 percent of overall payments.
However, as stated below, for this final rule,
the FY 2010 national standardized amounts
used to calculate the final outlier threshold
reflect the cumulative adjustment of ¥1.5
percent (from FY 2008 and FY 2009) with no
further documentation and coding
adjustment for FY 2010. Because we are no
longer applying additional documentation
and coding adjustments for FY 2010, fewer
cases will qualify for outlier payments.
Therefore, for this final rule, our use of a FY
2010 national standardized amount that
reflects a cumulative adjustment of ¥1.5
percent rather than ¥3.4 percent resulted in
a lower outlier threshold from the proposed
rule in order to maintain outlier payments at
5.1 percent of overall payments.
Comment: One commenter recommended
that CMS make a mid-year change to the
outlier threshold if it appears that the 5.1
percent target will not be met. The
commenter suggested that CMS use more
recent CCR data for a mid-year correction to
the outlier threshold and use thresholds such
as if outlier payments less than 95 percent or
greater than 105 percent of the 5.1 percent
target to trigger a mid-year adjustment.
Response: We responded to a similar
comment in the FY 2006 IPPS final rule (70
FR 47495). We refer readers to that final rule.
Comment: One commenter recommended
that CMS use a multiyear trend analysis
using actual outlier payments rather than
estimating payments based a portion of
payments from FY 2009 to determine the FY
2010 outlier threshold. The commenter noted
that actual outlier payments for hospitals in
its city do not match CMS’ projections. The
commenter opposed the increase to the
outlier threshold and requested that CMS
develop a methodology that better predicts
the outlier threshold with less variability.
Response: The commenter did not provide
an explanation on how to use actual
payments to determine the outlier threshold
for the coming fiscal year. Also, considering
actual outlier payments in the modeling of
the outlier threshold would result in our
modeling the threshold based on high cost
cases that are not relevant to the upcoming
fiscal year. In addition, we use the latest data
available (that is, the FY 2008 MedPAR) to
model the FY 2010 outlier threshold as if we
were making payments within FY 2010. We
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44009
believe our outlier policies are consistent
with the statute and the goals of the IPPS.
In response to the comments that actual
outlier payments for hospitals in the
commenter’s city do not match CMS’
projections, when we compute the outlier
threshold, we set the threshold to meet the
5.1 percent target in the aggregate (on a
national basis) and not on an individual
hospital basis. It is possible that some
hospitals may treat sicker patients than
others, thus resulting in an individual outlier
percentage that is higher than 5.1 percent,
while other hospitals may treat more healthy
patients, which results in an outlier
percentage that is less than 5.1 percent. Our
goal is to set an outlier threshold that meets
the 5.1 percent target on a national level. In
addition, for FY 2009, we are currently
projecting outlier payment to be 5.4 percent
of total payments, which is greater than the
5.1 percent target. We believe that the current
methodology, which also adjusts the CCRs,
has led to better accuracy in determining the
outlier threshold in order to maintain outlier
payments at 5.1 percent.
Comment: Many commenters stated that
CMS currently estimates outlier payments in
FY 2008 at 4.8 percent of total payments. The
commenters commended CMS for making
refinements such as applying an adjustment
factor to CCRs when computing the outlier
threshold but noted that, because CMS is still
not reaching the 5.1 percent target, there is
still room for improvement. The commenters
further stated that although CMS currently
projects outlier payments in FY 2009 to be
estimated at 5.4 percent of total payments,
which exceeds the 5.1 percent target, this
estimate is based on discharges from a prior
year and will likely not reflect the actual
result. The commenters noted that in prior
years when CMS provided its projected
estimate of outlier payments for a given fiscal
year, once the actual claims were available to
determine the actual outlier payment (in the
following fiscal year), the estimate declined
between 0.2 percent and 0.3 percent from the
projection. The commenters suggested that
the methodology to develop the adjustment
factor to the CCRs is unnecessarily
complicated and does not lead to a more
accurate result. The commenters urged CMS
to adopt a methodology that uses recent
historical industry wide average rate of
change, similar to the methodology used to
develop the charge inflation factor. Further,
in addition to applying an adjustment to the
CCRs based on historical data, the
commenters suggested that the CCRs should
be projected over different periods of time,
some less or more than one year, based on
variations in hospital fiscal year ends. The
commenters believed this methodology
would more accurately project the decline in
CCRs. The commenters also compared its
method and CMS’ method to the actual FY
2008 rate of change in CCRs and found a
variance of 0.6 percent (for the commenters’
methodology) compared to 1.6 percent (CMS’
methodology).
Response: For this final rule, similar to our
response in the FY 2008 final rule (72 FR
47418), in response to the comment that
CCRs should be projected over different
periods of time, it is possible that some of the
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CCRs in the March PSF will be used in FY
2009 for actual outlier payments, while other
CCRs may be one year old. Therefore, we
apply a 1-year adjustment to the CCRs. With
respect to the comment on our methodology
used to adjust the CCRs, as we stated in the
FY 2008 IPPS final rule with comment period
(72 FR 47418), we continue to believe this
calculation of an adjustment to the CCRs is
more accurate and stable than the
commenter’s methodology because it takes
into account the costs per discharge and the
market basket percentage increase when
determining a cost adjustment factor. There
are times where the market basket and the
cost per discharge will be constant, while
other times these values will differ from each
other, depending on the fiscal year.
Therefore, as mentioned above, using the
market basket in conjunction with the cost
per discharge takes into account two sources
that measure potential cost inflation and
ensures a more accurate and stable cost
adjustment factor.
In addition, as stated below, we are
currently projecting FY 2009 payments at an
estimate of 5.4 percent of overall payments.
As the commenters noted, however, in the
past, once actual data is available to
determine actual outlier payment, actual
outlier payments tend to decline by 0.2
percent or 0.3 percent from CMS’ original
projection. If this trend holds for FY 2009,
actual FY 2009 outlier payments would be
very close to our target of 5.1 percent of
overall payments. Therefore, we continue to
believe that our methodology for adjusting
the CCRs is an appropriate method for use in
determining the outlier threshold.
Comment: One commenter was concerned
that CMS did not include outlier
reconciliations in developing the outlier
threshold. The commenter requested that
CMS disclose in the final rule and future
proposed and final IPPS rules the amount of
money it has recovered through
reconciliation. The commenter explained
that this information will allow others to
comment specifically on how this provision
would impact the threshold.
Response: We thank the commenter for the
concern regarding not including outlier
reconciliation within the development of the
outlier threshold. However, as stated above,
we continue to believe that, due to the policy
implemented in the June 9, 2003 outlier final
rule (68 FR 34494), CCRs will no longer
fluctuate significantly and, therefore, few
hospitals will actually have these ratios
reconciled upon cost report settlement. In
addition, it is difficult to predict the specific
hospitals that will have CCRs and outlier
payments reconciled in any given year. We
also noted that reconciliation occurs because
hospitals’ actual CCRs for the cost reporting
period are different than the interim CCRs
used to calculate outlier payments when a
bill is processed. Our simulations assume
that CCRs accurately measure hospital costs
based on information available to us at the
time we set the outlier threshold. For these
reasons, we proposed and are finalizing our
policy not to make any assumptions about
the effects of reconciliation on the outlier
threshold calculation.
Comment: Commenters questioned
whether CMS Medicare Advantage claims
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were used in the FY 2010 IPPS proposed rule
to calculate the outlier threshold.
Commenters also questioned if the charges
for organ acquisition costs and antihemophilic blood factor were excluded from
the modeling of the outlier threshold.
Response: As stated above, we
inadvertently included Medicare Advantage
claims in the budget neutrality calculations.
For this final rule, we have corrected this
oversight in the calculation of the FY 2010
final relative weights.
In addition, in the proposed rule, we
inadvertently included charges for organ
acquisition costs within the budget neutrality
calculations and the calculation of the outlier
threshold. For the final rule, we excluded
charges for organ acquisition costs within the
budget neutrality calculations and the
calculation of the outlier threshold.
Finally, charges for anti-hemophilic blood
factor were included in the proposed budget
neutrality calculations and the calculation of
the outlier threshold. We examined the
MedPAR file and have determined that
charges for anti-hemophilic blood factor are
contained within the pharmacy charges.
Unfortunately, we are currently unable to
break out charges for anti-hemophilic blood
factor from the pharmacy charges within
MedPAR. We will explore the possibility of
identifying for anti-hemophilic blood factor
charges in future fiscal years.
Because we are not making any changes to
our methodology for this final rule, for FY
2010, we are using the same methodology we
proposed to calculate the outlier threshold.
We used the blended wage indices (as
discussed above) when we simulated
payments in our outlier modeling to
determine the final outlier threshold for FY
2010. Using the most recent data available,
we calculated the 1-year average annualized
rate-of-change in charges per case from the
first quarter of FY 2008 in combination with
the second quarter of FY 2008 (October 1,
2007 through March 31, 2008) to the first
quarter of FY 2009 in combination with the
second quarter of FY 2009 (October 1, 2008
through March 31, 2009). This rate of change
was 6.8570 percent (1.068570) or 14.184
percent (1.14184) over 2 years.
As we have done in the past, we
established the final FY 2010 outlier
threshold using hospital CCRs from the
March 2009 update to the PSF—the most
recent available data at the time of this final
rule. This file includes CCRs that reflected
implementation of the changes to the policy
for determining the applicable CCRs that
became effective August 8, 2003 (68 FR
34494).
For FY 2009, we calculated the CCR
adjustment by using the operating cost per
discharge increase in combination with the
market basket increase determined by IHS
Global Insight, Inc., as well as the charge
inflation factor described above to estimate
the adjustment to the CCRs. We determined
the operating CCR adjustment by taking the
percentage increase in the operating costs per
discharge from FY 2006 to FY 2007 (1.0463)
from the cost report and dividing it by the
final market basket increase from FY 2007
(1.036). This operation removes the measure
of pure price increase (the market basket)
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from the percentage increase in operating
cost per discharge, leaving the non-price
factors in the cost increase (that is, quantity
and changes in the mix of goods and
services) to increase the projected market
basket for estimating the future cost increase.
We repeated this calculation for 2 prior years
to determine the 3-year average of the rate of
adjusted change in costs between the market
basket rate-of-increase and the increase in
cost per case from the cost report (FY 2004
to FY 2005 percentage increase of operating
costs per discharge of 1.0585 divided by FY
2005 final market basket increase of 1.039,
FY 2005 to FY 2006 percentage increase of
operating costs per discharge of 1.0574
divided by FY 2006 final market basket
increase of 1.04). For FY 2010, we averaged
the differentials calculated for FY 2005, FY
2006, and FY 2007 which resulted in a mean
ratio of 1.0151. We multiplied the 3-year
average of 1.0151 by the FY 2008 final market
basket percentage increase of 1.04, which
resulted in an operating cost inflation factor
of 5.58 percent or 1.0558. We then divided
the operating cost inflation factor by the 1year average change in charges (1.068570)
and applied an adjustment factor of 0.988 to
the operating CCRs from the PSF.
We used the same methodology for the
capital CCRs and determined the adjustment
by taking the percentage increase in the
capital costs per discharge from FY 2006 to
FY 2007 (1.0502) from the cost report and
dividing it by the final capital market basket
increase from FY 2007 (1.013). We repeated
this calculation for 2 prior years to determine
the 3-year average of the rate of adjusted
change in costs between the capital market
basket rate-of-increase and the increase in
cost per case from the cost report (FY 2004
to FY 2005 percentage increase of capital
costs per discharge of 1.0323 divided by FY
2005 final capital market basket increase of
1.009, FY 2005 to FY 2006 percentage
increase of capital costs per discharge of
1.0464 divided by FY 2006 final capital
market basket increase of 1.0110). For FY
2010, we averaged the differentials calculated
for FY 2005, FY 2006, and FY 2007, which
resulted in a mean ratio of 1.0316. We
multiplied the 3-year average of 1.0316 by
the FY 2008 final capital market basket
percentage increase of 1.0140, which resulted
in a capital cost inflation factor of 4.61
percent or 1.0461. We then divided the
capital cost inflation factor by the 1-year
average change in charges (1.068570) and
applied an adjustment factor of 0.9789 to the
capital CCRs from the PSF. We are using the
same charge inflation factor for the capital
CCRs that was used for the operating CCRs.
The charge inflation factor is based on the
overall billed charges. Therefore, we believe
it is appropriate to apply the charge factor to
both the operating and capital CCRs.
As stated above, for FY 2010, we applied
the final FY 2010 rates and policies using
cases from the FY 2008 MedPAR files in
calculating the outlier threshold. Therefore,
for purposes of estimating the outlier
threshold for FY 2010, it is necessary to take
into account the remaining projected casemix growth when calculating the outlier
threshold that results in outlier payments
being 5.1 percent of total payments for FY
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2010. As discussed above and in section II.D.
of the preamble of this final rule, our
actuaries estimate that maintaining budget
neutrality for changes in case-mix due to the
adoption of the MS–DRGs requires an
adjustment of ¥4.8 percent to the national
standardized amount. For FY 2008, our
estimate of the case-mix increase due to
documentation and coding in FY 2008 is 2.5
percent, which is already included within
the claims data (FY 2008 MedPAR files) used
to calculate the proposed FY 2010 threshold.
Based on the updated data used for this final
rule (the March 2009 update to the FY 2008
MedPAR), even with our assumption that
there will be no continued changes in
documentation and coding in FY 2009, we
now estimate that the use of the FY 2009
relative weights will result in an additional
0.76 percent case-mix increase due to the
documentation and coding effect in FY 2009.
(In the proposed rule, we estimated an
additional 0.7 percent case-mix increase due
to the documentation and coding effect in FY
2009). Therefore, for this final rule, we are
projecting an additional 1.54 percent casemix growth to have occurred since 2008 (4.8
percent ¥2.5 percent (case-mix growth in FY
2008) ¥0.76 percent (FY 2009 relative
weights effect) = 1.54 percent). As a result,
we inflated the FY 2008 claims data by an
additional 1.54 percent for the additional
case-mix growth projected to have occurred
since FY 2008. If we did not take into
account the remaining 1.54 percent projected
case-mix growth, our estimate of total FY
2010 payments would be too low, and as a
result, our outlier threshold would be too
high, such that estimated outlier payments
would be less than our projected 5.1 percent
of total payments. While we assume 1.54
percent case-mix growth for IPPS hospitals in
our outlier threshold calculations, as stated
above, we are opting to postpone adopting
documentation and coding adjustments as
authorized under section 7(a) of Public Law
110–90 and section 1886(d)(3)(A)(vi) of the
Act until a full analysis of FY 2009 case-mix
changes can be completed. Therefore, the FY
2010 national standardized amounts used to
calculate the final outlier threshold reflect
the cumulative adjustment of ¥1.5 percent
(from FY 2008 and FY 2009) with no further
documentation and coding adjustment for FY
2010.
Using this methodology, we calculated a
final outlier fixed-loss cost threshold for FY
2010 equal to the prospective payment rate
for the DRG, plus any IME and DSH
payments, and any add-on payments for new
technology, plus $23,140. With this
threshold, we project that outlier payments
will equal 5.1 percent of total IPPS payments.
As we stated above and as we established
the FY 2009 outlier threshold (72 FR 47419),
in our projection of FY 2010 outlier
payments, we are not making any
adjustments for the possibility that hospitals’
CCRs and outlier payments may be
reconciled upon cost report settlement. We
continue to believe that, due to the policy
implemented in the outlier final rule (68 FR
34494, June 9, 2003), CCRs will no longer
fluctuate significantly and, therefore, few
hospitals will actually have these ratios
reconciled upon cost report settlement. In
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addition, it is difficult to predict the specific
hospitals that will have CCRs and outlier
payments reconciled in any given year. We
also noted that reconciliation occurs because
hospitals’ actual CCRs for the cost reporting
period are different than the interim CCRs
used to calculate outlier payments when a
bill is processed. Our simulations assume
that CCRs accurately measure hospital costs
based on information available to us at the
time we set the outlier threshold. For these
reasons, we are not making any assumptions
about the effects of reconciliation on the
outlier threshold calculation.
We also note that the final threshold for FY
2010 is lower than the FY 2010 proposed
outlier threshold. As stated above, we are
opting to postpone adopting documentation
and coding adjustments as authorized under
section 7(a) of Public Law 110–90 and
section 1886(d)(3)(A)(vi) of the Act until a
full analysis of FY 2009 case-mix changes
can be completed. Because we are not further
reducing the standardized amount for
documentation and coding in FY 2010, fewer
cases will qualify for outlier payments thus
requiring us to lower the threshold from the
proposed rule to this final rule.
(2) Other Changes Concerning Outliers
As stated in the FY 1994 IPPS final rule (58
FR 46348), we establish an outlier threshold
that is applicable to both hospital inpatient
operating costs and hospital inpatient
capital-related costs. When we modeled the
combined operating and capital outlier
payments, we found that using a common
threshold resulted in a lower percentage of
outlier payments for capital-related costs
than for operating costs. We project that the
thresholds for FY 2010 will result in outlier
payments that will equal 5.1 percent of
operating DRG payments and 5.2 percent of
capital payments based on the Federal rate.
In accordance with section 1886(d)(3)(B) of
the Act, we are reducing the FY 2010
standardized amount by the same percentage
to account for the projected proportion of
payments paid as outliers.
The outlier adjustment factors that will be
applied to the standardized amount for the
FY 2010 outlier threshold are as follows:
Operating
standardized
amounts
National .............
Puerto Rico .......
0.948994
0.957524
Capital
Federal
rate
0.947689
0.935958
We are applying the outlier adjustment
factors to the FY 2010 rates after removing
the effects of the FY 2009 outlier adjustment
factors on the standardized amount.
To determine whether a case qualifies for
outlier payments, we apply hospital-specific
CCRs to the total covered charges for the
case. Estimated operating and capital costs
for the case are calculated separately by
applying separate operating and capital
CCRs. These costs are then combined and
compared with the outlier fixed-loss cost
threshold.
The June 9, 2003 outlier final rule (68 FR
34494) eliminated the application of the
statewide average CCRs for hospitals with
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44011
CCRs that fell below 3 standard deviations
from the national mean CCR. However, for
those hospitals for which the fiscal
intermediary or MAC computes operating
CCRs greater than 1.179 or capital CCRs
greater than 0.148, or hospitals for whom the
fiscal intermediary or MAC is unable to
calculate a CCR (as described at § 412.84(i)(3)
of our regulations), we still use statewide
average CCRs to determine whether a
hospital qualifies for outlier payments.13
Table 8A in this Addendum contains the
statewide average operating CCRs for urban
hospitals and for rural hospitals for which
the fiscal intermediary or MAC is unable to
compute a hospital-specific CCR within the
above range. Effective for discharges
occurring on or after October 1, 2009, these
statewide average ratios will replace the
ratios published in the IPPS final rule for FY
2009 (73 FR 48994 through 48995). Table 8B
in this Addendum contains the comparable
statewide average capital CCRs. Again, the
CCRs in Tables 8A and 8B will be used
during FY 2010 when hospital-specific CCRs
based on the latest settled cost report are
either not available or are outside the range
noted above. For an explanation of Table 8C,
we refer readers to section V. of this
Addendum.
We finally note that we published a
manual update (Change Request 3966) to our
outlier policy on October 12, 2005, which
updated Chapter 3, Section 20.1.2 of the
Medicare Claims Processing Manual. The
manual update covered an array of topics,
including CCRs, reconciliation, and the time
value of money. We encourage hospitals that
are assigned the statewide average operating
and/or capital CCRs to work with their fiscal
intermediary or MAC on a possible
alternative operating and/or capital CCR as
explained in Change Request 3966. Use of an
alternative CCR developed by the hospital in
conjunction with the fiscal intermediary or
MAC can avoid possible overpayments or
underpayments at cost report settlement,
thus ensuring better accuracy when making
outlier payments and negating the need for
outlier reconciliation. We also note that a
hospital may request an alternative operating
or capital CCR ratio at any time as long as
the guidelines of Change Request 3966 are
followed. To download and view the manual
instructions on outlier and CCRs, we refer
readers to CMS Web site: https://
www.cms.hhs.gov/manuals/downloads/
clm104c03.pdf.
(3) FY 2008 and FY 2009 Outlier Payments
In the FY 2009 IPPS final rule (73 FR
48766), we stated that, based on available
data, we estimated that actual FY 2008
outlier payments would be approximately 4.7
percent of actual total DRG payments. This
estimate was computed based on simulations
using the FY 2007 MedPAR file (discharge
data for FY 2007 claims). That is, the
estimate of actual outlier payments did not
reflect actual FY 2008 claims, but instead
reflected the application of FY 2008 rates and
policies to available FY 2007 claims.
13 These figures represent 3.0 standard deviations
from the mean of the log distribution of CCRs for
all hospitals.
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Our current estimate, using available FY
2008 claims data, is that actual outlier
payments for FY 2008 were approximately
4.8 percent of actual total DRG payments.
Thus, the data indicate that, for FY 2008, the
percentage of actual outlier payments relative
to actual total payments is higher than we
projected before FY 2008. Consistent with the
policy and statutory interpretation we have
maintained since the inception of the IPPS,
we do not plan to make retroactive
adjustments to outlier payments to ensure
that total outlier payments for FY 2008 are
equal to 5.1 percent of total DRG payments.
We currently estimate that actual outlier
payments for FY 2009 will be approximately
5.4 percent of actual total DRG payments, 0.3
percentage points higher than the 5.1 percent
we projected in setting the outlier policies for
FY 2009. This estimate is based on
simulations using the FY 2008 MedPAR file
(discharge data for FY 2008 claims). We used
these data to calculate an estimate of the
actual outlier percentage for FY 2009 by
applying FY 2009 rates and policies,
including an outlier threshold of $20,045 to
available FY 2008 claims.
Comment: One commenter simulated CMS’
estimate of the FY 2008 outlier payment and
determined an outlier payment percentage of
4.57 percent. The commenter noted that it is
has consistently determined different actual
outlier payout percentages for the last couple
of years. The commenter requested that CMS
revisit its calculations and publish an
explanation to explain the discrepancy in FY
2008.
Response: We are not sure why there is a
discrepancy between our estimate of the FY
2008 outlier payment and the commenter’s
estimate of the FY 2008 outlier payment.
Perhaps the commenter used different data
trims than we used when computing the FY
2008 outlier estimate. Without knowing the
specifics of how the commenter computed
their estimate, it is possible that CMS and the
commenter can reach two different estimates.
We invite the commenter to share its analysis
in detail with us so we can distinguish any
differences between CMS’ calculation of the
outlier estimate and the commenter’s
calculation of the outlier estimate.
f. Rural Community Hospital Demonstration
Program Adjustment (Section 410A of Pub. L.
108–173)
Section 410A of Public Law 108–173
requires the Secretary to establish a
demonstration that will modify
reimbursement for inpatient services for up
to 15 small rural hospitals. Section
410A(c)(2) of Public Law 108–173 requires
that ‘‘[i]n conducting the 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.’’ As discussed
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in section V.I. of the preamble of this final
rule, we have satisfied this requirement by
making an adjustment to the national IPPS
rates by a factor that is sufficient to account
for the added costs of this demonstration. We
estimate that the average additional annual
payment that will be made to each
participating hospital under the
demonstration will be approximately
$1,371,023. We based this estimate on the
recent historical experience of the difference
between inpatient cost and payment for
hospitals that are participating in the
demonstration program. For 11 participating
hospitals, the projected total annual impact
of the demonstration program for FY 2010 is
$15,081,251. In addition, because the cost
reports of all hospitals participating in the
demonstration in its first and second years
(that is, FY 2005 and FY 2006) have been
finalized, we are able to determine how
much the cost of the demonstration program
exceeded the amount that was offset by the
budget neutrality adjustment for FY 2005 and
FY 2006. For all 13 hospitals that
participated in the demonstration in FY
2005, the amount is $7,856,617. For the 10
hospitals that participated in the
demonstration in FY 2006, the amount is
$4,203,947. Therefore, the projected total
annual impact of the demonstration program
for FY 2010 is $27,141,815. The budget
neutrality adjustment factor applied to the
Federal rate to calculate Medicare inpatient
prospective payments as a result of the
demonstration is 0.999739.
In order to achieve budget neutrality, we
are adjusting the national IPPS rates by an
amount sufficient to account for the added
costs of this demonstration. In other words,
we are applying budget neutrality across the
payment system as a whole rather than
merely across the participants of this
demonstration, consistent with past practice.
We believe that the language of the statutory
budget neutrality requirement permits the
agency to implement the budget neutrality
provision in this manner. The statutory
language requires that ‘‘aggregate payments
made by the Secretary do not exceed the
amount which the Secretary would have paid
if the demonstration * * * was not
implemented,’’ but does not identify the
range across which aggregate payments must
be held equal.
5. FY 2010 Standardized Amount
The adjusted standardized amount is
divided into labor-related and nonlaborrelated portions. Tables 1A and 1B of this
Addendum contain the national standardized
amounts that we are applying to all hospitals,
except hospitals located in Puerto Rico, for
FY 2010. The Puerto Rico-specific amounts
are shown in Table 1C of this Addendum.
The amounts shown in Tables 1A and 1B
differ only in that the labor-related share
applied to the standardized amounts in Table
1A is the revised labor-related share of 68.8
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percent, and Table 1B is 62 percent. In
accordance with sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act, we are applying
a labor-related share of 62 percent, unless
application of that percentage would result in
lower payments to a hospital than would
otherwise be made. In effect, the statutory
provision means that we will apply a laborrelated share of 62 percent for all hospitals
(other than those in Puerto Rico) whose wage
indices are less than or equal to 1.0000.
In addition, Tables 1A and 1B include
standardized amounts reflecting the full 2.1
percent update for FY 2010, and the
standardized amounts reflecting the 2.0
percentage point reduction to the update (a
0.1 percent update) applicable for hospitals
that fail to submit quality data consistent
with section 1886(b)(3)(B)(viii) of the Act.
Under section 1886(d)(9)(A)(ii) of the Act,
the Federal portion of the Puerto Rico
payment rate is based on the dischargeweighted average of the national large urban
standardized amount (this amount is set forth
in Table 1A). The labor-related and nonlaborrelated portions of the national average
standardized amounts for Puerto Rico
hospitals for FY 2010 are set forth in Table
1C of this Addendum. This table also
includes the Puerto Rico standardized
amounts. The labor-related share applied to
the Puerto Rico specific standardized amount
is the labor-related share of 62.1 percent, or
62 percent, depending on which provides
higher payments to the hospital. (Section
1886(d)(9)(C)(iv) of the Act, as amended by
section 403(b) of Pub. L. 108–173, provides
that the labor-related share for hospitals
located in Puerto Rico be 62 percent, unless
the application of that percentage would
result in lower payments to the hospital.)
The following table illustrates the changes
from the FY 2009 national standardized
amount. The second column shows the
changes from the FY 2009 standardized
amounts for hospitals that satisfy the quality
data submission requirement for receiving
the full update (2.1 percent). The third
column shows the changes for hospitals
receiving the reduced update (0.1 percent).
The first row of the table shows the updated
(through FY 2009) average standardized
amount after restoring the FY 2008 offsets for
outlier payments, demonstration budget
neutrality and the geographic reclassification
budget neutrality. The DRG reclassification
and recalibration wage index budget
neutrality factors are cumulative. Therefore,
the FY 2009 factor is not removed from this
table. Additionally, the documentation and
coding adjustments for FY 2008 and FY 2009
are cumulative. Therefore, the FY 2008 and
FY 2009 adjustment factors are not removed
from this table. We also have added separate
rows to this table to reflect the different
labor-related shares that apply to hospitals.
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COMPARISON OF FY 2009 STANDARDIZED AMOUNTS TO THE FY 2010 STANDARDIZED AMOUNT WITH FULL AND REDUCED
UPDATE
Full update (2.1 percent); wage index is
greater than 1.0000
FY 2009 Base Rate, after removing geographic reclassification budget neutrality,
demonstration budget neutrality and outlier
offset (based on the labor-related share
percentage for FY 2010).
FY 2010 Update Factor ..................................
FY 2010 DRG Recalibration and Wage Index
Budget Neutrality Factor.
FY 2010 Reclassification Budget Neutrality
Factor.
FY 2010 Outlier Factor ...................................
Rural Demonstration Budget Neutrality Factor.
Rate for FY 2010 ............................................
Under section 1886(d)(9)(A)(ii) of the Act,
the Federal portion of the Puerto Rico
payment rate is based on the dischargeweighted average of the national
standardized amount (as set forth in Table 1A
of this Addendum). The labor-related and
nonlabor-related portions of the national
average standardized amounts for Puerto
Rico hospitals are set forth in Table 1C of this
Addendum. This table also includes the
Puerto Rico standardized amounts. The
labor-related share applied to the Puerto Rico
standardized amount is 62.1 percent, or 62
percent, depending on which results in
higher payments to the hospital. (Section
1886(d)(9)(C)(iv) of the Act, as amended by
section 403(b) of Pub. L. 108–173, provides
that the labor-related share for hospitals in
Puerto Rico will be 62 percent, unless the
application of that percentage would result in
lower payments to the hospital.)
Full update (2.1 percent); wage index is
less than or equal to
1.0000
Reduced update (0.1
percent); wage index
is greater than 1.0000
Reduced update (0.1
percent); wage index
is less than or equal
to 1.0000
Labor: $3,748.52 .......
Nonlabor: $1,699.91 ..
Labor: $3,378.40 .......
Nonlabor: $2,070.40 ..
Labor: $3,748.52 .......
Nonlabor: $1,699.91 ..
Labor: $3,378.03.
Nonlabor: $2,070.40.
1.021 ..........................
0.998347 ....................
1.021 ..........................
0.998347 ....................
1.001 ..........................
0.998347 ....................
1.001.
0.998347.
0.991297 ....................
0.991297 ....................
0.991297 ....................
0.991297.
0.948994 ....................
0.999739 ....................
0.948994 ....................
0.999739 ....................
0.948994 ....................
0.999739 ....................
0.948994.
0.999739.
Labor: $3,593.52 .......
Nonlabor: $1,629.62 ..
Labor: $3,238.35 .......
Nonlabor: $1,984.79 ..
Labor: $3,523.13 .......
Nonlabor: $1,597.70 ..
Labor: $3,174.91.
Nonlabor: $1,945.92.
B. Adjustments for Area Wage Levels and
Cost-of-Living
Tables 1A through 1C, as set forth in this
Addendum, contain the labor-related and
nonlabor-related shares that we are using to
calculate the prospective payment rates for
hospitals located in the 50 States, the District
of Columbia, and Puerto Rico for FY 2010.
This section addresses two types of
adjustments to the standardized amounts that
are made in determining the proposed
prospective payment rates as described in
this Addendum.
1. Adjustment for Area Wage Levels
Sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act require that we
make an adjustment to the labor-related
portion of the national and Puerto Rico
prospective payment rates, respectively, to
account for area differences in hospital wage
levels. This adjustment is made by
multiplying the labor-related portion of the
adjusted standardized amounts by the
appropriate wage index for the area in which
the hospital is located. In section III. of the
preamble of this final rule, we discuss the
data and methodology for the FY 2010 wage
index.
2. Adjustment for Cost-of-Living in Alaska
and Hawaii
Section 1886(d)(5)(H) of the Act authorizes
the Secretary to make an adjustment to take
into account the unique circumstances of
hospitals in Alaska and Hawaii. Higher laborrelated costs for these two States are taken
into account in the adjustment for area wages
described above. For FY 2010, we are
adjusting the payments for hospitals in
Alaska and Hawaii by multiplying the
nonlabor-related portion of the standardized
amount by the applicable adjustment factor
contained in the table below. These factors
were obtained from the U.S. Office of
Personnel Management (OPM) and are
currently also used under the IPPS.
TABLE OF COST-OF-LIVING ADJUSTMENT FACTORS: ALASKA AND HAWAII HOSPITALS
Cost of living
adjustment
factor
Area
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Alaska:
City of Anchorage and 80-kilometer (50-mile) radius by road .....................................................................................................
City of Fairbanks and 80-kilometer (50-mile) radius by road ......................................................................................................
City of Juneau and 80-kilometer (50-mile) radius by road ..........................................................................................................
Rest of Alaska ..............................................................................................................................................................................
Hawaii:
City and County of Honolulu ........................................................................................................................................................
County of Hawaii ..........................................................................................................................................................................
County of Kauai ............................................................................................................................................................................
County of Maui and County of Kalawao ......................................................................................................................................
1.23
1.23
1.23
1.25
1.25
1.18
1.25
1.25
(The above factors are based on data obtained from the U.S. Office of Personnel Management Web site at: https://www.opm.gov/oca/cola/
rates.asp.)
C. MS–DRG Relative Weights
As discussed in section II.H. of the
preamble of this final rule, we have
developed relative weights for each MS–DRG
that reflect the resource utilization of cases
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in each MS–DRG relative to Medicare cases
in other MS–DRGs. Table 5 of this
Addendum contains the relative weights that
we will apply to discharges occurring in FY
2010. These factors have been recalibrated as
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explained in section II. of the preamble of
this final rule.
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D. Calculation of the Prospective Payment
Rates
General Formula for Calculation of the
Prospective Payment Rates for FY 2010
In general, the operating prospective
payment rate for all hospitals paid under the
IPPS located outside of Puerto Rico, except
SCHs and MDHs, for FY 2010 equals the
Federal rate.
Currently, SCHs are paid based on
whichever of the following rates yields the
greatest aggregate payment: the Federal
national rate; the updated hospital-specific
rate based on FY 1982 costs per discharge;
the updated hospital-specific rate based on
FY 1987 costs per discharge; the updated
hospital-specific rate based on FY 1996 costs
per discharge; or for cost reporting periods
beginning on or after January 1, 2009, the
updated hospital-specific rate based on the
FY 2006 costs per discharge to determine the
rate that yields the greatest aggregate
payment.
The prospective payment rate for SCHs for
FY 2010 equals the higher of the applicable
Federal rate, or the hospital-specific rate as
described below. The prospective payment
rate for MDHs for FY 2010 equals the higher
of the Federal rate, or the Federal rate plus
75 percent of the difference between the
Federal rate and the hospital-specific rate as
described below. The prospective payment
rate for hospitals located in Puerto Rico for
FY 2010 equals 25 percent of the Puerto Rico
rate plus 75 percent of the applicable
national rate.
1. Federal Rate
The Federal rate is determined as follows:
Step 1—Select the applicable average
standardized amount depending on whether
the hospital submitted qualifying quality data
(full update for qualifying hospitals, update
minus 2.0 percentage points for
nonqualifying hospitals).
Step 2—Multiply the labor-related portion
of the standardized amount by the applicable
wage index for the geographic area in which
the hospital is located or the area to which
the hospital is reclassified.
Step 3—For hospitals in Alaska and
Hawaii, multiply the nonlabor-related
portion of the standardized amount by the
applicable cost-of-living adjustment factor.
Step 4—Add the amount from Step 2 and
the nonlabor-related portion of the
standardized amount (adjusted, if applicable,
under Step 3).
Step 5—Multiply the final amount from
Step 4 by the relative weight corresponding
to the applicable MS–DRG (see Table 5 of
this Addendum).
The Federal rate as determined in Step 5
may then be further adjusted if the hospital
qualifies for either the IME or DSH
adjustment. In addition, for hospitals that
qualify for a low-volume payment adjustment
under section 1886(d)(12) of the Act and 42
CFR 412.101(b), the payment in Step 5 would
be increased by 25 percent.
2. Hospital-Specific Rate (Applicable Only to
SCHs and MDHs)
a. Calculation of Hospital-Specific Rate
Section 1886(b)(3)(C) of the Act provides
that, for cost reporting periods beginning
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prior to January 1, 2009, SCHs are paid based
on whichever of the following rates yields
the greatest aggregate payment: the Federal
rate; the updated hospital-specific rate based
on FY 1982 costs per discharge; the updated
hospital-specific rate based on FY 1987 costs
per discharge; the updated hospital-specific
rate based on FY 1996 costs per discharge; or
for cost reporting periods beginning on or
after January 1, 2009, the updated hospitalspecific rate based on the FY 2006 costs per
discharge to determine the rate that yields
the greatest aggregate payment.
As discussed previously, we are required
to rebase MDHs hospital-specific rates to
their FY 2002 cost reports if doing so results
in higher payments. In addition, effective for
discharges occurring on or after October 1,
2006, MDHs are to be paid based on the
Federal national rate or, if higher, the Federal
national rate plus 75 percent (changed from
50 percent) of the difference between the
Federal national rate and the greater of the
updated hospital-specific rates based on
either FY 1982, FY 1987 or FY 2002 costs per
discharge. Further, MDHs are no longer
subject to the 12-percent cap on their DSH
payment adjustment factor.
Hospital-specific rates have been
determined for each of these hospitals based
on the FY 1982 costs per discharge, the FY
1987 costs per discharge, or, for SCHs, the FY
1996 costs per discharge or the FY 2006 costs
per discharge, and for MDHs, the FY 2002
cost per discharge. For a more detailed
discussion of the calculation of the hospitalspecific rates, we refer the reader to the FY
1984 IPPS interim final rule (48 FR 39772);
the April 20, 1990 final rule with comment
period (55 FR 15150); the FY 1991 IPPS final
rule (55 FR 35994); and the FY 2001 IPPS
final rule (65 FR 47082). In addition, for both
SCHs and MDHs, the hospital-specific rate is
adjusted by the budget neutrality adjustment
factor as discussed in section III. of this
Addendum. The resulting rate will be used
in determining the payment rate an SCH or
MDH will receive for its discharges beginning
on or after October 1, 2009.
b. Updating the FY 1982, FY 1987, FY 1996,
FY 2002, and FY 2006 Hospital-Specific
Rates for FY 2010
We are increasing the hospital-specific
rates by 2.1 percent (the hospital market
basket percentage increase) for FY 2010 for
those SCHs and MDHs that submit qualifying
quality data and by 0.1 percent for SCHs and
MDHs that fail to submit qualifying quality
data. Section 1886(b)(3)(C)(iv) of the Act
provides that the update factor applicable to
the hospital-specific rates for SCHs is equal
to the update factor provided under section
1886(b)(3)(B)(iv) of the Act, which, for SCHs
in FY 2009, is the market basket percentage
increase for hospitals that submit qualifying
quality data and the market basket percentage
increase minus 2 percent for hospitals that
fail to submit qualifying quality data. Section
1886(b)(3)(D) of the Act provides that the
update factor applicable to the hospitalspecific rates for MDHs also equals the
update factor provided for under section
1886(b)(3)(B)(iv) of the Act, which, for FY
2009, is the market basket percentage
increase for hospitals that submit qualifying
quality data and the market basket percentage
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increase minus 2 percent for hospitals that
fail to submit qualifying quality data.
3. General Formula for Calculation of
Prospective Payment Rates for Hospitals
Located in Puerto Rico Beginning On or After
October 1, 2009, and Before October 1, 2010
Section 1886(d)(9)(E)(iv) of the Act
provides that, effective for discharges
occurring on or after October 1, 2004,
hospitals located in Puerto Rico are paid
based on a blend of 75 percent of the national
prospective payment rate and 25 percent of
the Puerto Rico-specific rate.
a. Puerto Rico Rate
The Puerto Rico prospective payment rate
is determined as follows:
Step 1—Select the applicable average
standardized amount considering the
applicable wage index (Table 1C of this
Addendum).
Step 2—Multiply the labor-related portion
of the standardized amount by the applicable
Puerto Rico-specific wage index.
Step 3—Add the amount from Step 2 and
the nonlabor-related portion of the
standardized amount.
Step 4—Multiply the amount from Step 3
by the applicable MS–DRG relative weight
(Table 5 of this Addendum).
Step 5—Multiply the result in Step 4 by 25
percent.
b. National Rate
The national prospective payment rate is
determined as follows:
Step 1—Select the applicable average
standardized amount.
Step 2—Multiply the labor-related portion
of the standardized amount by the applicable
wage index for the geographic area in which
the hospital is located or the area to which
the hospital is reclassified.
Step 3—Add the amount from Step 2 and
the nonlabor-related portion of the national
average standardized amount.
Step 4—Multiply the amount from Step 3
by the applicable MS–DRG relative weight
(Table 5 of this Addendum).
Step 5—Multiply the result in Step 4 by 75
percent.
The sum of the Puerto Rico rate and the
national rate computed above equals the
prospective payment for a given discharge for
a hospital located in Puerto Rico. This rate
would then be further adjusted if the hospital
qualifies for either the IME or DSH
adjustment.
III. Changes to Payment Rates for Acute Care
Hospital Inpatient Capital-Related Costs for
FY 2010
The PPS for acute care hospital inpatient
capital-related costs was implemented for
cost reporting periods beginning on or after
October 1, 1991. Effective with that cost
reporting period, hospitals were paid during
a 10-year transition period (which extended
through FY 2001) to change the payment
methodology for Medicare acute care hospital
inpatient capital-related costs from a
reasonable cost-based methodology to a
prospective methodology (based fully on the
Federal rate).
The basic methodology for determining
Federal capital prospective rates is set forth
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in the regulations at 42 CFR 412.308 through
412.352. Below we discuss the factors that
we used to determine the capital Federal rate
for FY 2010, which will be effective for
discharges occurring on or after October 1,
2009.
The 10-year transition period ended with
hospital cost reporting periods beginning on
or after October 1, 2001 (FY 2002). Therefore,
for cost reporting periods beginning in FY
2002, all hospitals (except ‘‘new’’ hospitals
under § 412.304(c)(2)) are paid based on the
capital Federal rate. 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 be
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 (GAF) are
budget neutral.
For FYs 1992 through 1995, § 412.352
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 respective
fiscal year. That provision expired in FY
1996. Section 412.308(b)(2) describes the 7.4
percent reduction to the capital Federal rate
that was made in FY 1994, and
§ 412.308(b)(3) describes the 0.28 percent
reduction to the capital Federal rate made in
FY 1996 as a result of the revised policy for
paying for transfers. In FY 1998, we
implemented section 4402 of Public Law
105–33, which required that, for discharges
occurring on or after October 1, 1997, the
budget neutrality adjustment factor in effect
as of September 30, 1995, be applied to the
unadjusted capital standard Federal rate and
the unadjusted hospital-specific rate. That
factor was 0.8432, which was equivalent to
a 15.68 percent reduction to the unadjusted
capital payment rates. An additional 2.1
percent reduction to the rates was effective
from October 1, 1997 through September 30,
2002, making the total reduction 17.78
percent. As we discussed in the FY 2003
IPPS final rule (67 FR 50102) and
implemented in § 412.308(b)(6), the 2.1
percent reduction was restored to the
unadjusted capital payment rates effective
October 1, 2002.
To determine the appropriate budget
neutrality adjustment factor and the regular
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exceptions payment adjustment during the
10-year transition period, we developed a
dynamic model of Medicare inpatient
capital-related costs; that is, a model that
projected changes in Medicare inpatient
capital-related costs over time. With the
expiration of the budget neutrality provision,
the capital cost model was only used to
estimate the regular exceptions payment
adjustment and other factors during the
transition period. As we explained in the FY
2002 IPPS final rule (66 FR 39911), beginning
in FY 2002, an adjustment for regular
exception payments is no longer necessary
because regular exception payments were
only made for cost reporting periods
beginning on or after October 1, 1991, and
before October 1, 2001 (see § 412.348(b)).
Because payments are no longer made under
the regular exception policy effective with
cost reporting periods beginning in FY 2002,
we discontinued use of the capital cost
model. The capital cost model and its
application during the transition period are
described in Appendix B of the FY 2002 IPPS
final rule (66 FR 40099).
Section 412.374 provides for blended
payments to hospitals located in Puerto Rico
under the IPPS for acute care hospital
inpatient capital-related costs. Accordingly,
under the capital PPS, we compute a separate
payment rate specific to hospitals located in
Puerto Rico using the same methodology
used to compute the national Federal rate for
capital-related costs. In accordance with
section 1886(d)(9)(A) of the Act, under the
IPPS for acute care hospital operating costs,
hospitals located in Puerto Rico are paid for
operating costs under a special payment
formula. Prior to FY 1998, hospitals located
in Puerto Rico were paid a blended operating
rate that consisted of 75 percent of the
applicable standardized amount specific to
Puerto Rico hospitals and 25 percent of the
applicable national average standardized
amount. Similarly, prior to FY 1998,
hospitals located in Puerto Rico were paid a
blended capital rate that consisted of 75
percent of the applicable capital Puerto Ricospecific rate and 25 percent of the applicable
capital Federal rate. However, effective
October 1, 1997, in accordance with section
4406 of Public Law 105–33, the methodology
for operating payments made to hospitals
located in Puerto Rico under the IPPS was
revised to make payments based on a blend
of 50 percent of the applicable standardized
amount specific to Puerto Rico hospitals and
50 percent of the applicable national average
standardized amount. In conjunction with
this change to the operating blend
percentage, effective with discharges
occurring on or after October 1, 1997, we also
revised the methodology for computing
capital payments to hospitals located in
Puerto Rico to be based on a blend of 50
percent of the Puerto Rico capital rate and 50
percent of the national capital Federal rate.
As we discussed in the FY 2005 IPPS final
rule (69 FR 49185), section 504 of Public Law
108–173 increased the national portion of the
operating IPPS payments for hospitals
located in Puerto Rico from 50 percent to
62.5 percent and decreased the Puerto Rico
portion of the operating IPPS payments from
50 percent to 37.5 percent for discharges
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occurring on or after April 1, 2004 through
September 30, 2004 (refer to the March 26,
2004 One-Time Notification (Change Request
3158)). In addition, section 504 of Public Law
108–173 provided that the national portion of
operating IPPS payments for hospitals
located in Puerto Rico is equal to 75 percent
and the Puerto Rico-specific portion of
operating IPPS payments is equal to 25
percent for discharges occurring on or after
October 1, 2004. Consistent with that change
in operating IPPS payments to hospitals
located in Puerto Rico, for FY 2005 (as we
discussed in the FY 2005 IPPS final rule), we
revised the methodology for computing
capital payments to hospitals located in
Puerto Rico to be based on a blend of 25
percent of the Puerto Rico-specific capital
rate and 75 percent of the national capital
Federal rate for discharges occurring on or
after October 1, 2004.
A. Determination of Federal Hospital
Inpatient Capital-Related Prospective
Payment Rate Update
In the Federal Register notice setting out
the final wage indices for FY 2009 (73 FR
57892), we established the final capital
Federal rate of $424.17 for FY 2009. In the
discussion that follows, we explain the
factors that we used to determine the capital
Federal rate for FY 2010. In particular, we
explain why the FY 2010 capital Federal rate
will increase approximately 1.4 percent,
compared to the FY 2009 capital Federal rate.
Furthermore, we estimate that aggregate
capital payments will increase during this
same period (approximately $171 million),
primarily due to the increase in the capital
Federal rate. Total payments to hospitals
under the IPPS are relatively unaffected by
changes in the capital prospective payments.
Because capital payments constitute about 10
percent of hospital payments, a 1-percent
change in the capital Federal rate yields only
about a 0.1 percent change in actual
payments to hospitals.
1. Projected Capital Standard Federal Rate
Update
a. Description of the Update Framework
Under § 412.308(c)(1), the capital standard
Federal rate is updated 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. The update factor for FY 2010
under that framework is 1.40 percent based
on the best data available at this time. The
update factor under that framework is based
on a projected 1.4 percent increase in the
CIPI, a 0.0 percent adjustment for intensity,
a 0.0 percent adjustment for case-mix, a 0.0
percent adjustment for the FY 2008 DRG
reclassification and recalibration, and a
forecast error correction of 0.0 percent. As
discussed below in section III.C. of this
Addendum, we continue to 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
explain the basis for the FY 2010 CIPI
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projection in that same section of this
Addendum. We note, as discussed in section
VI.E.1. of the preamble of this final rule, we
are not applying any additional adjustments
to the capital rates in FY 2010 to account for
changes in documentation and coding under
the MS–DRGs that do not correspond to
changes in real increases in patients’ severity
of illness. Below we describe the policy
adjustments that we applied in the update
framework for FY 2010.
The case-mix index is the measure of the
average DRG weight for cases paid under the
IPPS. Because the DRG weight determines
the prospective payment for each case, any
percentage increase in the case-mix index
corresponds to an equal percentage increase
in hospital payments.
The case-mix index can change for any of
several reasons:
• The average resource use of Medicare
patients changes (‘‘real’’ case-mix change);
• Changes in hospital documentation and
coding of patient records result in higher
weight DRG assignments (‘‘coding effects’’);
and
• The annual DRG reclassification and
recalibration changes may not be budget
neutral (‘‘reclassification effect’’).
We define real case-mix change as actual
changes in the mix (and resource
requirements) of Medicare patients as
opposed to changes in documentation and
coding behavior that result in assignment of
cases to higher weighted DRGs but do not
reflect higher resource requirements. The
capital update framework includes the same
case-mix index adjustment used in the
former operating IPPS update framework (as
discussed in the May 18, 2004 IPPS proposed
rule for FY 2005 (69 FR 28816)). (We no
longer use an update framework to make a
recommendation for updating the operating
IPPS standardized amounts as discussed in
section II. of Appendix B in the FY 2006 IPPS
final rule (70 FR 47707).)
Absent the projected increase in case-mix
resulting from changes in documentation and
coding due to the adoption of the MS–DRGs,
for FY 2010, we projected a 1.0 percent total
increase in the case-mix index. We estimated
that the real case-mix increase will also equal
1.0 percent for FY 2010. The net adjustment
for change in case-mix is the difference
between the projected real increase in casemix and the projected total increase in casemix. Therefore, the net adjustment for casemix change in FY 2010 is 0.0 percentage
points.
The capital update framework also
contains an adjustment for the effects of DRG
reclassification and recalibration. This
adjustment is intended to remove the effect
on total payments of prior year’s changes to
the DRG classifications and relative weights,
in order to retain budget neutrality for all
case-mix index-related changes other than
those due to patient severity. Due to the lag
time in the availability of data, there is a 2year lag in data used to determine the
adjustment for the effects of DRG
reclassification and recalibration. For
example, we have data available to evaluate
the effects of the FY 2008 DRG
reclassification and recalibration as part of
our update for FY 2010. To adjust for
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reclassification and recalibration effects,
under our historical methodology, we run the
FY 2008 cases through the FY 2007
GROUPER and through the FY 2008
GROUPER. The resulting ratio of the casemix indices should equate to 1.0. If not,
under our historical methodology, in the
update framework for FY 2010, we would
make an adjustment to adjust for the
reclassification and recalibration effects in
FY 2008. As discussed in detail in section
II.B. of the preamble of this final rule,
however, when we adopted the MS–DRGs for
FY 2008 to better recognize severity of illness
in Medicare payment rates, we also
recognized that changes in documentation
and coding could potentially lead to
increases in aggregate payments without a
corresponding increase in patients’ severity
of illness (that is, increased case-mix index
other than real case-mix index increase). To
maintain budget neutrality for the adoption
of the MS–DRGs, in the proposed rule, we
proposed to apply a –1.9 percent adjustment
to the capital Federal rate in FY 2010 to
account for the effect of documentation and
coding changes unrelated to changes in real
case-mix in FY 2008. Therefore, in that same
proposed rule, we proposed not to adjust for
reclassification and recalibration effects from
FY 2008 in the update framework for FY
2010 because it was already accounted for in
the proposed documentation and coding
adjustment to the capital Federal rates for FY
2010.
As discussed in greater detail in section
II.D. of the preamble of this final rule, we are
delaying any additional documentation and
coding adjustment to the capital Federal rates
until a full analysis of case-mix changes can
be completed (as noted in section VI.E.1. of
the preamble of this final rule, the capital
Federal rate has already been adjusted by
¥0.6 percent and ¥0.9 percent to account
for the effects of documentation and coding
in FY 2008 and FY 2009, respectively, for a
cumulative adjustment of ¥1.5 percent).
Therefore, as proposed, we are not making
any adjustment for the effects of FY 2008
DRG reclassification and recalibration in the
update framework for FY 2010 because we
will be accounting for it when an adjustment
to the capital Federal rates for the additional
documentation and coding effect that
occurred in FY 2008 is made in future
rulemaking.
The capital update framework also
contains an adjustment for forecast error. The
input price index forecast is based on
historical trends and relationships
ascertainable at the time the update factor is
established for the upcoming year. In any
given year, there may be unanticipated price
fluctuations that may result in differences
between the actual increase in prices and the
forecast used in calculating the update
factors. In setting a prospective payment rate
under the framework, we make an
adjustment for forecast error only if our
estimate of the change in the capital input
price index for any year is off by 0.25
percentage points or more. There is a 2-year
lag between the forecast and the availability
of data to develop a measurement of the
forecast error. A forecast error of 0.1
percentage point was calculated for the FY
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2010 update. That is, current historical data
indicate that the forecasted FY 2008 CIPI (1.3
percent) used in calculating the FY 2008
update factor slightly understated the actual
realized price increases (1.4 percent) by 0.1
percentage point. This slight underprediction
was mostly due to the incorporation of newly
available source data for fixed asset prices
and moveable asset prices into the market
basket. However, because this estimation of
the change in the CIPI is less than 0.25
percentage points, it is not reflected in the
update recommended under this framework.
Therefore, we made a 0.0 percent adjustment
for forecast error in the update for FY 2010.
Under the capital IPPS update framework,
we also make an adjustment for changes in
intensity. We calculate this adjustment using
the same methodology and data that were
used in the past under the framework for
operating IPPS. The intensity factor for the
operating update framework reflects how
hospital services are utilized to produce the
final product, that is, the discharge. This
component accounts for changes in the use
of quality-enhancing services, for changes
within DRG severity, and for expected
modification of practice patterns to remove
noncost-effective services.
We calculate case-mix constant intensity as
the change in total charges per admission,
adjusted for price level changes (the CIPI for
hospital and related services) and changes in
real case-mix. The use of total charges in the
calculation of the intensity factor makes it a
total intensity factor; that is, charges for
capital services are already built into the
calculation of the factor. Therefore, we have
incorporated the intensity adjustment from
the operating update framework into the
capital update framework. Without reliable
estimates of the proportions of the overall
annual intensity increases that are due,
respectively, to ineffective practice patterns
and the combination of quality-enhancing
new technologies and complexity within the
DRG system, we assume that one-half of the
annual increase is due to each of these
factors. The capital update framework thus
provides an add-on to the input price index
rate of increase of one-half of the estimated
annual increase in intensity, to allow for
increases within DRG severity and the
adoption of quality-enhancing technology.
We have developed a Medicare-specific
intensity measure based on a 5-year average.
Past studies of case-mix change by the RAND
Corporation (Has DRG Creep Crept Up?
Decomposing the Case Mix Index Change
Between 1987 and 1988 by G. M. Carter, J.
P. Newhouse, and D. A. Relles, R–4098–
HCFA/ProPAC (1991)) suggest that real casemix change was not dependent on total
change, but was usually a fairly steady
increase of 1.0 to 1.5 percent per year.
However, we used 1.4 percent as the upper
bound because the RAND study did not take
into account that hospitals may have induced
doctors to document medical records more
completely in order to improve payment.
As we noted above, in accordance with
§ 412.308(c)(1)(ii), we began updating the
capital standard Federal rate in FY 1996
using an update framework that takes into
account, among other things, allowable
changes in the intensity of hospital services.
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For FYs 1996 through 2001, we found that
case-mix constant intensity was declining,
and we established a 0.0 percent adjustment
for intensity in each of those years. For FYs
2002 and 2003, we found that case-mix
constant intensity was increasing, and we
established a 0.3 percent adjustment and 1.0
percent adjustment for intensity,
respectively. For FYs 2004 and 2005, we
found that the charge data appeared to be
skewed (as discussed in greater detail below)
as a result of hospitals attempting to
maximize outlier payments, while lessening
costs, and we established a 0.0 percent
adjustment in each of those years.
Furthermore, we stated that we would
continue to apply a 0.0 percent adjustment
for intensity until any increase in charges can
be tied to intensity rather than attempts to
maximize outlier payments.
On June 9, 2003, we published in the
Federal Register revisions to our outlier
policy for determining the additional
payment for extraordinarily high-cost cases
(68 FR 34494 through 34515). These revised
policies were effective on August 8, 2003,
and October 1, 2003. While it does appear
that a response to these policy changes is
beginning to occur, that is, the increase in
charges for FYs 2004 and 2005 are somewhat
less than the previous 4 years, they still show
a significant annual increase in charges
without a corresponding increase in hospital
case-mix. Specifically, the percent change in
hospitals’ charges in FY 2004 is
approximately 12 percent, which is similar in
magnitude to the large increases in charges
that we found in the 4 years prior to FY 2004
and before our revisions to the outlier policy
in FY 2003. For FY 2005, there is
approximately an 8 percent change in
charges, which is somewhat lower than the
percent change in FY 2004. Nevertheless, the
percent change in charges in both FYs 2004
and 2005 are still relatively high as compared
to the change in charges prior to FY 2001.
Moreover, the percent change in hospitals’
case-mix in those years is not in proportion
to the higher charges. The remaining 3 years
in the 5-year average indicate that the change
in hospitals’ charges appears to be slightly
moderating, and is lower than FYs 2004 and
2005. (We refer readers to a discussion
regarding the intensity factor in the FY 2004
IPPS final rule (68 FR 45482), the FY 2005
IPPS final rule (69 FR 49285), the FY 2006
IPPS final rule (70 FR 47500), the FY 2007
IPPS final rule (72 FR 47500), the FY 2008
IPPS final rule with comment period (72 FR
47426), and the FY 2009 IPPS final rule (73
FR 48771.)
Our intensity measure is based on a 5-year
average, and therefore, the intensity
adjustment for FY 2010 is based on data from
the 5-year period beginning with FY 2004
and extending through FY 2008. Based on the
increases in charges for FYs 2004 through
2005 that remain in the 5-year average used
for the intensity adjustment, we believe
residual effects of hospitals’ charge practices
prior to the implementation of the outlier
policy revisions established in the June 9,
2003 final rule continue to appear in the
data, as it may have taken hospitals some
time to adopt changes in their behavior in
response to the new outlier policy. Thus, we
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believe that the FY 2004 and possibly the FY
2005 charge data may still be skewed.
The change in hospitals’ charges for FY
2004 and to a somewhat lesser extent, FY
2005, remains similar to the considerable
increase in hospitals’ charges that we found
when examining hospitals’ charge data in
determining the intensity factor in the update
recommendations for the past few years. If
hospitals were treating new or different types
of cases, which would result in an
appropriate increase in charges per
discharge, then we would expect hospitals’
case-mix to increase proportionally, and it
did not.
Although it appears that the change in
hospitals’ charges is more reasonable
compared to data used in recent past
rulemaking, using a 5-year average of the data
tends to smooth out what might otherwise be
more obvious effects of particular years such
as FYs 2004 and 2005. Therefore,
notwithstanding the gradual effect of the
outlier policy over time, we believe the effect
from hospitals attempting to maximize
outlier payments prior to the implementation
of the outlier policy continues, albeit to a
smaller degree, to skew the charge data used
in determining the intensity adjustment.
As we discussed most recently in the FY
2009 IPPS final rule (73 FR 48771), because
our intensity calculation relies heavily upon
charge data and we believe that these charge
data for at least 1 if not 2 years of the 5-year
average may be inappropriately skewed, as
we proposed, we are establishing a 0.0
percent adjustment for intensity for FY 2010,
as we did for FYs 2004 through 2009.
In the past (FYs 1996 through 2001) when
we found intensity to be declining, we
believed a zero (rather than negative)
intensity adjustment was appropriate.
Similarly, we believe that it is appropriate to
apply a zero intensity adjustment for FY 2010
until any increase in charges during the 5year period upon which the intensity
adjustment is based can be tied to intensity
rather than to attempts to maximize outlier
payments.
Above, we described the basis of the
components used to develop the 1.4 percent
capital update factor under the capital update
framework for FY 2010 as shown in the table
below.
CMS FY 2010 UPDATE FACTOR TO
THE CAPITAL FEDERAL RATE
Capital Input Price Index ..................
Intensity ............................................
Case-Mix Adjustment Factors:
Real Across DRG Change ............
Projected Case-Mix Change .........
1.4
0.0
¥1.0
1.0
Subtotal .....................................
Effect of FY 2008 Reclassification
and Recalibration ..........................
Forecast Error Correction .................
1.4
Total Update ..............................
1.4
0.0
0.0
b. Comparison of CMS and MedPAC Update
Recommendation
In its March 2009 Report to Congress,
MedPAC did not make a specific update
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44017
recommendation for capital IPPS payments
for FY 2010. (MedPAC’s Report to the
Congress: Medicare Payment Policy, March
2009, Section 2A.)
2. Outlier Payment Adjustment Factor
Section 412.312(c) establishes a unified
outlier payment methodology for inpatient
operating and inpatient capital-related costs.
A single set of thresholds is used to identify
outlier cases for both inpatient operating and
inpatient capital-related payments. Section
412.308(c)(2) provides that the standard
Federal rate for inpatient capital-related costs
be reduced by an adjustment factor equal to
the estimated proportion of capital-related
outlier payments to total inpatient capitalrelated PPS payments. The outlier thresholds
are set so that operating outlier payments are
projected to be 5.1 percent of total operating
IPPS DRG payments.
In the Federal Register notice setting out
the final wage indices for FY 2009 (73 FR
57891), we estimated that outlier payments
for capital will equal 5.35 percent of
inpatient capital-related payments based on
the capital Federal rate in FY 2009. Based on
the thresholds as set forth in section II.A. of
this Addendum, we estimate that outlier
payments for capital-related costs will equal
5.23 percent for inpatient capital-related
payments based on the capital Federal rate in
FY 2010. Therefore, we applied an outlier
adjustment factor of 0.9477 in determining
the capital Federal rate. Thus, we estimate
that the percentage of capital outlier
payments to total capital standard payments
for FY 2010 will be lower than the percentage
for FY 2009. This decrease in capital outlier
payments is primarily due to the increase in
estimated aggregate capital IPPS payments.
That is, because overall payments are
projected to be higher in FY 2010 compared
to FY 2009, as discussed in section VIII. of
Appendix A to this final rule, fewer cases
will qualify for outlier payments.
The outlier reduction factors are not built
permanently into the capital rates; that is,
they are not applied cumulatively in
determining the capital Federal rate. The FY
2010 outlier adjustment of 0.9477 is a 0.13
percent change from the FY 2009 outlier
adjustment of 0.9465. Therefore, the net
change in the outlier adjustment to the
capital Federal rate for FY 2010 is 1.0013
(0.9477/0.9465). Thus, the outlier adjustment
increases the FY 2010 capital Federal rate by
0.13 percent compared with the FY 2009
outlier adjustment.
3. Budget Neutrality Adjustment Factor for
Changes in DRG Classifications and Weights
and the GAF
Section 412.308(c)(4)(ii) requires that the
capital Federal rate be adjusted so that
aggregate payments for the fiscal year based
on the capital Federal rate after any changes
resulting from the annual DRG
reclassification and recalibration and changes
in the GAF are projected to equal aggregate
payments that would have been made on the
basis of the capital Federal rate without such
changes. Because we implemented a separate
GAF for Puerto Rico, we apply separate
budget neutrality adjustments for the
national GAF and the Puerto Rico GAF. We
apply the same budget neutrality factor for
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DRG reclassifications and recalibration
nationally and for Puerto Rico. Separate
adjustments were unnecessary for FY 1998
and earlier because the GAF for Puerto Rico
was implemented in FY 1998.
In the past, we used the 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 the capital
Federal rate with and without changes in the
DRG classifications and weights and in the
GAF to compute the adjustment required to
maintain budget neutrality for changes in
DRG weights and in the GAF. During the
transition period, the capital cost model was
also used to estimate the regular exception
payment adjustment factor. As we explain in
section III.A. of this Addendum, beginning in
FY 2002, an adjustment for regular exception
payments is no longer necessary. Therefore,
we no longer use the capital cost model.
Instead, we are using historical data based on
hospitals’ actual cost experiences to
determine the exceptions payment
adjustment factor for special exceptions
payments.
To determine the factors for FY 2010, we
compared (separately for the national capital
rate and the Puerto Rico capital rate)
estimated aggregate capital Federal rate
payments based on the FY 2009 MS–DRG
classifications and relative weights and the
FY 2009 GAF to estimated aggregate capital
Federal rate payments based on the FY 2010
MS–DRG classifications and relative weights
and the FY 2010 GAFs. In making the
comparison, we set the exceptions reduction
factor to 1.00. To achieve budget neutrality
for the changes in the national GAFs, based
on calculations using updated data, we
applied an incremental budget neutrality
adjustment of 0.9995 for FY 2010 to the
previous cumulative FY 2009 adjustment of
0.9917, yielding an adjustment of 0.9912,
through FY 2010. For the Puerto Rico GAFs,
we applied an incremental budget neutrality
adjustment of 1.0014 for FY 2010 to the
previous cumulative FY 2009 adjustment of
0.9960, yielding a cumulative adjustment of
0.9974 through FY 2010.
We then compared estimated aggregate
capital Federal rate payments based on the
FY 2009 DRG relative weights and the FY
2010 GAFs to estimated aggregate capital
Federal rate payments based on the
cumulative effects of the FY 2010 MS–DRG
classifications and relative weights and the
FY 2010 GAFs. The incremental adjustment
for DRG classifications and changes in
relative weights is 0.9995 both nationally and
for Puerto Rico. The cumulative adjustments
for MS–DRG classifications and changes in
relative weights and for changes in the GAFs
through FY 2010 are 0.9907 nationally and
0.9969 for Puerto Rico. The following table
summarizes the adjustment factors for each
fiscal year:
BUDGET NEUTRALITY ADJUSTMENT FOR DRG RECLASSIFICATIONS AND RECALIBRATION AND THE GEOGRAPHIC
ADJUSTMENT FACTORS
National
Puerto Rico
Incremental adjustment
Fiscal
year
Geographic
adjustment
factor
1992 .................
1993 .................
1994 .................
1995 .................
1996 .................
1997 .................
1998 .................
1999 .................
2000 .................
2001 1 ...............
2 2001 ...............
2002 .................
2003 5 ...............
2003 6 ...............
2004 8 ...............
2004 10 .............
2005 11 .............
2005 13 .............
2006 .................
2007 .................
2008 .................
15 ......................
2010 16 .............
DRG Reclassifications
and recalibration
......................
......................
......................
......................
......................
......................
0.99944
0.99857
0.99782
3 0.99771
4 0.99666
0.99915
7 0.99896
9 1.00175
9 1.00164
12 0.99967
13 0.99946
14 1.00185
1.00000
1.00172
1.00206
0.99950
......................
......................
......................
......................
......................
......................
1.00335
0.99991
1.00009
3 1.00009
4 0.99668
0.99662
7 0.99662
9 1.00081
9 1.00081
1.00094
1.00094
0.99892
0.99858
0.99792
0.99945
0.99953
Incremental adjustment
Cumulative
Combined
1.00000
0.99800
1.00330
1.00310
1.00250
1.00123
1.00015
1.00294
1.00142
0.99933
0.99922
0.99268
0.98848
0.98830
0.99083
0.99072
0.99137
0.99117
0.99198
0.99057
0.99021
0.99170
0.99073
0.99800
1.00531
0.99980
0.99940
0.99873
0.99892
1.00279
0.99848
0.99791
3 0.99780
4 0.99335
0.99577
7 0.99558
9 1.00256
9 1.00245
12 1.00061
12 1.00040
14 1.00076
0.99858
0.99963
1.00150
0.99902
Geographic
adjustment
factor
DRG Reclassifications
and recalibration
Combined
......................
......................
......................
......................
......................
......................
0.99898
0.99910
1.00365
3 1.00365
4 0.98991
1.00809
1.00809
1.00028
1.00028
0.99115
0.99115
1.00762
1.00234
1.00079
1.00097
1.00141
......................
......................
......................
......................
......................
......................
1.00335
0.99991
1.00009
3 1.00009
4 0.99668
0.99662
0.99662
1.00081
1.00081
1.00094
1.00094
0.99892
0.99858
0.99792
0.99945
0.99953
......................
......................
......................
......................
......................
......................
1.00233
0.99901
1.00374
3 1.00374
4 0.99662
1.00468
1.00468
1.00109
1.00109
0.99208
0.99208
1.00653
1.00092
0.99870
1.00041
1.00094
1 Factors
......................
......................
......................
......................
......................
......................
1.00000
1.00233
1.00134
1.00508
1.00508
0.99164
0.99628
0.99628
0.99736
0.99736
0.98946
0.98946
0.99592
0.99683
0.99554
0.99595
0.99688
effective for the first half of FY 2001 (October 2000 through March 2001).
effective for the second half of FY 2001 (April 2001 through September 2001).
factors are applied to FY 2000 cumulative factors.
4 Incremental factors are applied to the cumulative factors for the first half of FY 2001.
5 Factors effective for the first half of FY 2003 (October 2002 through March 2003).
6 Factors effective for the second half of FY 2003 (April 2003 through September 2003).
7 Incremental factors are applied to FY 2002 cumulative factors.
8 Factors effective for the first half of FY 2004 (October 2003 through March 2004).
9 Incremental factors are applied to the cumulative factors for the second half of FY 2003.
10 Factors effective for the second half of FY 2004 (April 2004 through September 2004).
11 Factors effective for the first quarter of FY 2005 (September 2004 through December 2004).
12 Incremental factors are applied to average of the cumulative factors for the first half (October 1, 2003 through March 31, 2004) and second
half (April 1, 2004 through September 30, 2004) of FY 2004.
13 Factors effective for the last three quarters of FY 2005 (January 2005 through September 2005).
14 Incremental factors are applied to average of the cumulative factors for 2005.
15 Final factors for FY 2009, including the implementation of section 124 of Public Law 110–275, which affects wage indices and GAFs for FY
2009, as discussed above in this section.
16 Final factors for FY 2010.
2 Factors
3 Incremental
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Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations
The methodology used to determine the
recalibration and geographic adjustment
factor (DRG/GAF) budget neutrality
adjustment is similar to the methodology
used in establishing budget neutrality
adjustments under the IPPS for operating
costs. One difference is that, under the
operating IPPS, the budget neutrality
adjustments for the effect of geographic
reclassifications are determined separately
from the effects of other changes in the
hospital wage index and the DRG relative
weights. Under the capital IPPS, there is a
single DRG/GAF budget neutrality
adjustment factor (the national capital rate
and the Puerto Rico capital rate are
determined separately) for changes in the
GAF (including geographic reclassification)
and the DRG relative weights. In addition,
there is no adjustment for the effects that
geographic reclassification has on the other
payment parameters, such as the payments
for DSH or IME.
For FY 2009, we calculated a final GAF/
DRG budget neutrality factor of 1.0015 (73 FR
57892). For FY 2010, we established a GAF/
DRG budget neutrality factor of 0.9990. The
GAF/DRG budget neutrality factors are built
permanently into the capital rates; that is,
they are applied cumulatively in determining
the capital Federal rate. This follows the
requirement that estimated aggregate
payments each year be no more or less than
they would have been in the absence of the
annual DRG reclassification and recalibration
and changes in the GAFs. The incremental
change in the adjustment from FY 2009 to FY
2010 is 0.9990. The cumulative change in the
capital Federal rate due to this adjustment is
0.9907 (the product of the incremental factors
for FYs 1995 though 2009 and the
incremental factor of 0.9990 for FY 2010).
(We note that averages of the incremental
factors that were in effect during FYs 2005
and 2006, respectively, were used in the
calculation of the cumulative adjustment of
0.9907 for FY 2010.)
The factor accounts for the MS–DRG
reclassifications and recalibration and for
changes in the GAFs. It also incorporates the
effects on the GAFs of FY 2010 geographic
reclassification decisions made by the
MGCRB compared to FY 2009 decisions.
However, it does not account for changes in
payments due to changes in the DSH and
IME adjustment factors.
4. Exceptions Payment Adjustment Factor
Section 412.308(c)(3) of our regulations
requires that the capital standard Federal rate
be reduced by an adjustment factor equal to
the estimated proportion of additional
payments for both regular exceptions and
special exceptions under § 412.348 relative to
total capital PPS payments. In estimating the
proportion of regular exception payments to
total capital PPS payments during the
transition period, we used the actuarial
capital cost model originally developed for
determining budget neutrality (described in
Appendix B of the FY 2002 IPPS final rule
(66 FR 40099)) to determine the exceptions
payment adjustment factor, which was
applied to both the Federal and hospitalspecific capital rates.
An adjustment for regular exception
payments is no longer necessary in
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determining the FY 2010 capital Federal rate
because, in accordance with § 412.348(b),
regular exception payments were only made
for cost reporting periods beginning on or
after October 1, 1991 and before October 1,
2001. Accordingly, as we explained in the FY
2002 IPPS final rule (66 FR 39949), in FY
2002 and subsequent fiscal years, no
payments are made under the regular
exceptions provision. However, in
accordance with § 412.308(c), we still need to
compute a budget neutrality adjustment for
special exception payments under
§ 412.348(g). We describe our methodology
for determining the exceptions adjustment
used in calculating the FY 2010 capital
Federal rate below.
Under the special exceptions provision
specified at § 412.348(g)(1), eligible hospitals
include SCHs, urban hospitals with at least
100 beds that have a disproportionate share
percentage of at least 20.2 percent or qualify
for DSH payments under § 412.106(c)(2), and
hospitals with a combined Medicare and
Medicaid inpatient utilization of at least 70
percent. An eligible hospital may receive
special exceptions payments if it meets the
following criteria: (1) a project need
requirement as described at § 412.348(g)(2),
which, in the case of certain urban hospitals,
includes an excess capacity test as described
at § 412.348(g)(4); (2) an age of assets test as
described at § 412.348(g)(3); and (3) a project
size requirement as described at
§ 412.348(g)(5).
Based on information compiled from our
fiscal intermediaries and MACs, six hospitals
have qualified for special exceptions
payments under § 412.348(g). One of these
hospitals closed in May 2005. Because we
have cost reports ending in FY 2007 for four
of these five hospitals, we calculated the
adjustment based on actual cost experience.
(We note that the one hospital for which we
do not have FY 2007 cost report data has had
zero special exception payments for all
available past cost reports. Consequently, we
expect that this hospital would not have any
special exceptions payments in FY 2007, and
the lack of this hospital’s FY 2007 cost report
data would not distort the calculation of the
adjustment.) Using data from cost reports
ending in FY 2007 from the June 2009 update
of the HCRIS data, we divided the capital
special exceptions payment amounts for the
four available hospitals that qualified for
special exceptions by the total capital PPS
payment amounts (including special
exception payments) for all hospitals. Based
on the data from cost reports ending in FY
2007, this ratio is rounded to 0.0002. We also
computed the ratio for FYs 2005 and 2006,
which rounds to 0.0002. Based on these data,
we are making an adjustment of 0.0002.
Because special exceptions are budget
neutral, we offset the capital Federal rate by
0.02 percent for special exceptions payments
for FY 2010. Therefore, the exceptions
adjustment factor is equal to 0.9998 (1—
0.0002) to account for special exceptions
payments in FY 2010.
In the FY 2009 IPPS final rule (73 FR
48773), we estimated that total (special)
exceptions payments for FY 2009 would
equal 0.01 percent of aggregate payments
based on the capital Federal rate. Therefore,
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44019
we applied an exceptions adjustment factor
of 0.9999 (1¥0.0001) to determine the FY
2009 capital Federal rate. As we stated above,
we are applying an exceptions payment
adjustment factor of 0.9998 (1¥0.0002) to the
capital Federal rate for FY 2010 based on our
estimate that exceptions payments in FY
2010 will equal 0.02 percent of aggregate
payments based on the FY 2010 capital
Federal rate. The exceptions reduction
factors are not built permanently into the
capital rates; that is, the factors are not
applied cumulatively in determining the
capital Federal rate. Therefore, the net
change in the exceptions adjustment factor
used in determining the FY 2010 capital
Federal rate is 0.9999 (0.9998/0.9999).
5. Capital Standard Federal Rate for FY 2010
For FY 2009, we established a final capital
Federal rate of $424.17 (73 FR 57891). We are
establishing an update of 1.4 percent in
determining the FY 2010 capital Federal rate
for all hospitals. As a result of the 1.4 percent
update and other budget neutrality factors
discussed above, we are establishing a
national capital Federal rate of $430.15 for
FY 2010. The national capital Federal rate for
FY 2010 was calculated as follows:
• The FY 2010 update factor is 1.0140, that
is, the update is 1.4 percent.
• The FY 2010 budget neutrality
adjustment factor that is applied to the
capital standard Federal payment rate for
changes in the MS–DRG classifications and
relative weights and changes in the GAFs is
0.9990.
• The FY 2010 outlier adjustment factor is
0.9477.
• The FY 2010 (special) exceptions
payment adjustment factor is 0.9998.
Because the capital Federal rate has
already been adjusted for differences in casemix, wages, cost-of-living, indirect medical
education costs, and payments to hospitals
serving a disproportionate share of lowincome patients, we did not make additional
adjustments in the capital standard Federal
rate for these factors, other than the budget
neutrality factor for changes in the MS–DRG
classifications and relative weights and for
changes in the GAFs.
We are providing the following chart that
shows how each of the factors and
adjustments for FY 2010 affected the
computation of the FY 2010 national capital
Federal rate in comparison to the FY 2009
national capital Federal rate. The FY 2010
update factor has the effect of increasing the
capital Federal rate by 1.4 percent compared
to the FY 2009 capital Federal rate. The GAF/
DRG budget neutrality factor has the effect of
decreasing the capital Federal rate by 0.10
percent. The FY 2010 outlier adjustment
factor has the effect of increasing the capital
Federal rate by 0.13 percent compared to the
FY 2009 capital Federal rate. The FY 2010
exceptions payment adjustment factor has
the effect of decreasing the capital Federal
rate by 0.01 percent compared to the FY 2009
capital Federal rate. (As discussed in section
VI.E.1. of the preamble of this final rule, we
are not applying an additional adjustment to
the FY 2010 capital Federal rate for changes
in documentation and coding that do not
reflect real changes in patients’ severity of
illness. A permanent cumulative adjustment
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of ¥1.5 percent (that is, a factor of 0.985) was
applied in determining the FY 2009 capital
Federal rate for changes in documentation
and coding that do not reflect real changes
in patients’ severity of illness.) The combined
effect of all the changes will increase the
national capital Federal rate by
approximately 1.4 percent compared to the
FY 2009 national capital Federal rate.
COMPARISON OF FACTORS AND ADJUSTMENTS: FY 2009 CAPITAL FEDERAL RATE AND FY 2010 CAPITAL FEDERAL RATE
h
FY 2009
Update Factor 1 ................................................................................................
GAF/DRG Adjustment Factor 1 ........................................................................
Outlier Adjustment Factor 2 ..............................................................................
Exceptions Adjustment Factor 2 .......................................................................
MS–DRG Documentation and Coding Adjustment Factor ..............................
Capital Federal Rate ........................................................................................
1.0090
1.0015
0.9465
0.9999
0.985
$424.17
FY 2010
1.0140
0.9990
0.9477
0.9998
1.0000
$430.20
Change
1.0140
0.9990
1.0012
0.9999
1.0000
1.0142
Percent
change
1.40
¥0.10
0.13
¥0.01
0.0
1.42
1 The update factor and the GAF/DRG budget neutrality factors are built permanently into the capital rates. Thus, for example, the incremental
change from FY 2009 to FY 2010 resulting from the application of the 0.9990 GAF/DRG budget neutrality factor for FY 2010 is 0.9990.
2 The outlier reduction factor and the exceptions adjustment factor are not built permanently into the capital rates; that is, these factors are not
applied cumulatively in determining the capital rates. Thus, for example, the net change resulting from the application of the FY 2010 outlier adjustment factor is 0.9477/0.9465, or 1.0013.
We also are providing the following chart
that shows how the final FY 2010 capital
Federal rate differs from the proposed FY
2010 capital Federal rates as presented in the
FY 2010 IPPS/RY 2010 LTCH PPS proposed
rule (74 FR 24258).
COMPARISON OF FACTORS AND ADJUSTMENTS: PROPOSED FY 2010 CAPITAL FEDERAL RATE AND FINAL FY 2010
CAPITAL FEDERAL RATE
Proposed
FY 2010
h
sroberts on DSKD5P82C1PROD with RULES
Update Factor ..................................................................................................
GAF/DRG Adjustment Factor ..........................................................................
Outlier Adjustment Factor ................................................................................
Exceptions Adjustment Factor .........................................................................
MS–DRG Upcoding Adjustment Factor ...........................................................
Capital Federal Rate ........................................................................................
6. Special Capital Rate for Puerto Rico
Hospitals
Section 412.374 provides for the use of a
blended payment system for payments to
hospitals located in Puerto Rico under the
PPS for acute care hospital inpatient capitalrelated costs. Accordingly, under the capital
PPS, we compute a separate payment rate
specific to hospitals located in Puerto Rico
using the same methodology used to compute
the national Federal rate for capital-related
costs. Under the broad authority of section
1886(g) of the Act, as discussed in section VI.
of the preamble of this final rule, beginning
with discharges occurring on or after October
1, 2004, capital payments to hospitals located
in Puerto Rico are based on a blend of 25
percent of the Puerto Rico capital rate and 75
percent of the capital Federal rate. The
Puerto Rico capital rate is derived from the
costs of Puerto Rico hospitals only, while the
capital Federal rate is derived from the costs
of all acute care hospitals participating in the
IPPS (including Puerto Rico).
To adjust hospitals’ capital payments for
geographic variations in capital costs, we
apply a GAF to both portions of the blended
capital rate. The GAF is calculated using the
operating IPPS wage index, and varies
depending on the labor market area or rural
area in which the hospital is located. We use
the Puerto Rico wage index to determine the
GAF for the Puerto Rico part of the capitalblended rate and the national wage index to
determine the GAF for the national part of
the blended capital rate.
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1.0120
0.9994
0.9454
0.9999
0.9670
$420.67
Because we implemented a separate GAF
for Puerto Rico in FY 1998, we also apply
separate budget neutrality adjustments for
the national GAF and for the Puerto Rico
GAF. However, we apply the same budget
neutrality factor for DRG reclassifications and
recalibration nationally and for Puerto Rico.
As we stated in section III.A.4. of this
Addendum, both the national GAF budget
neutrality factor and the DRG adjustment are
0.9995, for a combined cumulative
adjustment of 0.9990.
In computing the payment for a particular
Puerto Rico hospital, the Puerto Rico portion
of the capital rate (25 percent) is multiplied
by the Puerto Rico-specific GAF for the labor
market area in which the hospital is located,
and the national portion of the capital rate
(75 percent) is multiplied by the national
GAF for the labor market area in which the
hospital is located (which is computed from
national data for all hospitals in the United
States and Puerto Rico). In FY 1998, we
implemented a 17.78 percent reduction to the
Puerto Rico capital rate as a result of Public
Law 105–33. In FY 2003, a small part of that
reduction was restored.
For FY 2009, before application of the
GAF, the special capital rate for hospitals
located in Puerto Rico is $198.77 for
discharges occurring on or after October 1,
2008, through September 30, 2009 (73 FR
57893). Consistent with our development of
the FY 2009 Puerto Rico-specific operating
standardized amount, we did not apply the
additional ¥0.9 percent documentation and
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Final
FY 2010
1.0140
0.9990
0.9477
0.9998
1.0000
$430.20
Change
1.0020
0.9996
1.002
0.9999
1.0341
1.0227
Percent
Change
0.20
¥0.04
0.24
¥0.01
3.41
2.27
coding adjustment (or the cumulative ¥1.5
percent adjustment) to the FY 2009 Puerto
Rico-specific capital rate. We also noted in
the FY 2009 IPPS final rule (73 FR 48449
through 48550) that we may propose to apply
such an adjustment to the Puerto Rico
operating and capital rates in the future.
With the changes we made to the other
factors used to determine the capital rate, the
FY 2010 special capital rate for hospitals in
Puerto Rico is $204.01. As noted above and
discussed in greater detail in section VI.E.1.
of the preamble of this final rule, consistent
with our development of the Puerto Ricospecific operating standardized amount, we
are not applying an adjustment to account for
changes in documentation and coding that
resulted from the adoption of the MS–DRGs
in determining the FY 2010 Puerto Ricospecific capital rate.
B. Calculation of the Inpatient CapitalRelated Prospective Payments for FY 2010
Because the 10-year capital PPS transition
period ended in FY 2001, all hospitals
(except ‘‘new’’ hospitals under § 412.324(b)
and under § 412.304(c)(2)) are paid based on
100 percent of the capital Federal rate in FY
2010.
For purposes of calculating payments for
each discharge during FY 2010, the capital
standard Federal rate is adjusted as follows:
(Standard Federal Rate) x (DRG weight) x
(GAF) x (COLA for hospitals located in
Alaska and Hawaii) x (1 + DSH Adjustment
Factor + IME Adjustment Factor, if
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applicable). The result is the adjusted capital
Federal rate. (As discussed in section VI.E.1.
of this preamble of this final rule, at this
time, we are no longer eliminating the IME
adjustment under the capital IPPS.)
Hospitals also may receive outlier
payments for those cases that qualify under
the thresholds established for each fiscal
year. Section 412.312(c) provides for a single
set of thresholds to identify outlier cases for
both inpatient operating and inpatient
capital-related payments. The outlier
thresholds for FY 2010 are in section II.A. of
this Addendum. For FY 2010, a case will
qualify as a cost outlier if the cost for the case
plus the (operating) IME and DSH payments
is greater than the prospective payment rate
for the MS–DRG plus the fixed-loss amount
of $23,140.
An eligible hospital may also qualify for a
special exceptions payment under
§ 412.348(g) up through the 10th year beyond
the end of the capital transition period if it
meets the following criteria: (1) A project
need requirement described at
§ 412.348(g)(2), which in the case of certain
urban hospitals includes an excess capacity
test as described at § 412.348(g)(4); and (2) a
project size requirement as described at
§ 412.348(g)(5). Eligible hospitals include
SCHs, urban hospitals with at least 100 beds
that have a DSH patient percentage of at least
20.2 percent or qualify for DSH payments
under § 412.106(c)(2), and hospitals that have
a combined Medicare and Medicaid inpatient
utilization of at least 70 percent. Under
§ 412.348(g)(8), the amount of a special
exceptions payment is determined by
comparing the cumulative payments made to
the hospital under the capital PPS to the
cumulative minimum payment level. This
amount is offset by: (1) Any amount by
which a hospital’s cumulative capital
payments exceed its cumulative minimum
payment levels applicable under the regular
exceptions process for cost reporting periods
beginning during which the hospital has
been subject to the capital PPS; and (2) any
amount by which a hospital’s current year
operating and capital payments (excluding 75
percent of operating DSH payments) exceed
its operating and capital costs. Under
§ 412.348(g)(6), the minimum payment level
is 70 percent for all eligible hospitals.
Currently, as provided in § 412.304(c)(2),
we pay a new hospital 85 percent of its
reasonable costs during the first 2 years of
operation unless it elects to receive payment
based on 100 percent of the capital Federal
rate. Effective with the third year of
operation, we pay the hospital based on 100
percent of the capital Federal rate (that is, the
same methodology used to pay all other
hospitals subject to the capital PPS).
C. Capital Input Price Index
1. Background
Like the operating input price index, the
capital input price index (CIPI) is a fixedweight price index that measures the price
changes associated with capital costs during
a given year. The CIPI differs from the
operating input price index in one important
aspect—the CIPI reflects the vintage nature of
capital, which is the acquisition and use of
capital over time. Capital expenses in any
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given year are determined by the stock of
capital in that year (that is, capital that
remains on hand from all current and prior
capital acquisitions). An index measuring
capital price changes needs to reflect this
vintage nature of capital. Therefore, the CIPI
was developed to capture the vintage nature
of capital by using a weighted-average of past
capital purchase prices up to and including
the current year.
We periodically update the base year for
the operating and capital input price indexes
to reflect the changing composition of inputs
for operating and capital expenses. In this
final rule, we rebased and revised the CIPI to
a FY 2006 base year to reflect the more
current structure of capital costs in hospitals.
A complete discussion of this rebasing is
provided in section IV.D. of the preamble of
this final rule. The CIPI was last rebased to
FY 2002 in the FY 2006 IPPS final rule (70
FR 47387).
2. Forecast of the CIPI for FY 2010
Based on the latest forecast by IHS Global
Insight, Inc. (second quarter of 2009), we
forecast the FY 2006-based CIPI to increase
1.4 percent in FY 2010. This reflects a
projected 1.8 percent increase in vintageweighted depreciation prices (building and
fixed equipment, and movable equipment),
and a 2.0 percent increase in other capital
expense prices in FY 2010, partially offset by
2.1 percent decline in vintage-weighted
interest expenses in FY 2010. The weighted
average of these three factors produces the
1.4 percent increase for the FY 2006-based
CIPI as a whole in FY 2010.
IV. Changes to Payment Rates for Excluded
Hospitals: Rate-of-Increase Percentages
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-ofincrease 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).
Payments for services furnished in
children’s hospitals and cancer hospitals that
are excluded from the IPPS continue 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), RNHCIs are also subject to
the rate-of-increase limits established under
§ 413.40 of the regulations.)
In the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we proposed that the FY 2010
rate-of-increase percentage for cancer and
children’s hospitals and RNHCIs was the
percentage increase in the FY 2010 IPPS
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operating market basket, estimated to be 2.1
percent, in accordance with applicable
regulations at § 413.40. We also proposed to
use more recent data when determining the
estimated percentage increase for the FY
2010 IPPS market basket for the final rule, to
the extent these data were available. For this
final rule, we are using the most recent data
available to determine the FY 2010 IPPS
operating market basket. Based on IHS Global
Insight, Inc.’s second quarter 2009 forecast,
with historical data through the 2009 first
quarter, the IPPS operating market basket
increase is 2.1 percent for FY 2010.
Therefore, for cancer and children’s hospitals
and RNHCIs, the FY 2010 rate-of-increase
percentage that is applied to the FY 2009
target amounts in order to determine the FY
2010 target amounts is 2.1 percent.
IRFs, IPFs, and LTCHs were previously
paid 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
transitioning periods of varying lengths of
time during which a portion of the
prospective payment is based on cost-based
reimbursement rules under 42 CFR part 413
(certain providers do not receive a
transitioning period or may elect to bypass
the transition as applicable under 42 CFR
part 412, Subparts N, O, and P.) We note that
all of the various transitioning periods
provided for under the IRF PPS, the IPF PPS,
and the LTCH PPS have ended.
The IRF PPS, the IPF PPS, and the LTCH
PPS are updated annually. We refer readers
to section VIII. of the preamble and section
V. of the Addendum to this final rule for the
update changes to the Federal payment rates
for LTCHs under the LTCH PPS for RY 2010.
The annual updates for the IRF PPS and the
IPF PPS are issued by the agency in separate
Federal Register documents.
V. Changes to the Payment Rates for the
LTCH PPS for RY 2010
A. LTCH PPS Standard Federal Rate for FY
2010
1. Background
In section VIII. of the preamble of this final
rule, we discuss our changes to the payment
rates, factors, and specific policies under the
LTCH PPS for RY 2010. At § 412.523(c)(3)(ii)
of the regulations, for LTCH PPS rate years
beginning RY 2004 through RY 2006, we
updated the standard Federal rate by a rate
increase factor to adjust for the most recent
estimate of the increases in prices of an
appropriate market basket of goods and
services for LTCHs. We established that
policy of annually updating the standard
Federal rate because, at that time, we
believed that was the most appropriate
method for updating the LTCH PPS standard
Federal rate annually for years after the
initial implementation of the LTCH PPS in
FY 2003. When we moved the date of the
annual update of the LTCH PPS from October
1 to July 1 in the RY 2004 LTCH PPS final
rule (68 FR 34138), we revised § 412.523(c)(3)
to specify that, for LTCH PPS rate years
beginning on or after July 1, 2003, the annual
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update to the standard Federal rate for the
LTCH PPS would be equal to the previous
rate year’s Federal rate updated by the most
recent estimate of increases in the
appropriate market basket of goods and
services included in covered inpatient LTCH
services. At that time, we believed that was
the most appropriate method for updating the
LTCH PPS standard Federal rate annually for
years after RY 2004.
In the RY 2007 LTCH PPS final rule (71 FR
27818), we explained that rather than solely
using the most recent estimate of the LTCH
PPS market basket as the basis of the update
factor for the standard Federal rate for RY
2007, we believed that, based on our ongoing
monitoring activity, it was appropriate to
adjust the standard Federal rate to account
for the changes in documentation and coding
practices (rather than patient severity of
illness). We established regulations at
§ 412.523(c)(3)(iii) to specify that the update
to the standard Federal rate for the 2007
LTCH PPS rate year is zero percent. This was
based on the most recent estimate of the
LTCH PPS market basket at the time, which
was offset by an adjustment to account for
changes in case-mix in prior periods due to
changes in documentation and coding rather
than increased patient severity of illness in
FY 2004. For the following year, we also
considered changes in documentation and
coding practices rather than patient severity
of illness in establishing the update to the
standard Federal rate for the 2008 LTCH PPS
rate year. In the RY 2008 LTCH PPS final rule
(72 FR 26887 through 27890), we adjusted
the standard Federal rate based on the most
recent estimate of the increase in the market
basket (3.2 percent) and an adjustment to
account for changes in documentation and
coding practices (2.49 percent) in FY 2005.
Accordingly, we established regulations at
§ 412.523(c)(3)(iv) to specify that the update
to the standard Federal rate for RY 2008 was
0.71 percent.
However, Public Law 110–173 (MMSEA),
enacted on December 29, 2007, contained a
provision that addressed the standard
Federal rate for RY 2008. Specifically, section
114(e)(1) of Public Law 110–173 provided
that under the added section 1886(m)(2) of
the Act, the standard Federal rate for RY
2008 shall be the same as the standard
Federal rate for RY 2007. In addition, section
114(e)(2) of Public Law 110–173 specifically
stated that the revised standard Federal rate
provided for under section 114(e)(1) ‘‘shall
not apply to discharges occurring on or after
July 1, 2007, and before April 1, 2008,’’
effectively resulting in a delay of the
application of the updated standard Federal
rate for RY 2007 established in the LTCH PPS
RY 2008 final rule (72 FR 26890). We
implemented these statutory provisions in an
interim final rule with comment period (73
FR 24875 through 24877), as discussed in
further detail in section IX. of the preamble
of this final rule. Accordingly, we revised
§ 412.523(c)(iv) to provide that: (1) the
standard Federal rate for the LTCH PPS RY
2008 is the same as the standard Federal rate
for the previous LTCH PPS RY, which is RY
2007; and (2) for discharges occurring on or
after July 1, 2007, and before April 1, 2008,
payments are based on the standard Federal
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rate for LTCH PPS RY 2007, updated by 0.71
percent. Thus, effectively, the standard
Federal rate used to determine LTCH PPS
payments for discharges occurring on or after
July 1, 2007, through March 31, 2008, is the
standard Federal rate for RY 2007 updated by
0.71 percent, while LTCH PPS payments for
discharges occurring from April 1, 2008,
through June 30, 2008, are determined based
on the standard Federal rate set forth in
section 114(e)(1) of Public Law 110–173 (that
is, the same standard Federal rate as the
previous rate year (RY 2007)).
Consistent with our historical practice, in
the RY 2009 LTCH PPS final rule (73 FR
26806), we updated the standard Federal rate
from the previous year (that is, the standard
Federal rate for RY 2008 as established by
section 1886(m)(2) of the Act) to determine
the standard Federal rate for RY 2009. In that
same final rule, under the broad authority
conferred upon the Secretary by section 123
of the BBRA as amended by section 307(b)
of the BIPA, we established an annual update
to the standard Federal rate for RY 2009
based on the most recent estimate of the
increase in the LTCH PPS market basket of
3.6 percent (for the 15-month rate year,
which was based on the best available data
at that time) and an adjustment of ¥0.9
percent to account for the increase in casemix in a prior period (FY 2006) due to
changes in documentation and coding
practices rather than an increase in patient
severity of illness. (As noted above, we
established a 15-month period for RY 2009
(July 1, 2008 through September 30, 2009) in
order to move the LTCH PPS annual rate
update to an October 1 effective date
beginning October 1, 2009. We refer readers
to 73 FR 26797 through 26798). Accordingly,
we established regulations at
§ 412.523(c)(3)(v) to specify that the update
to the standard Federal rate for the 2009
LTCH PPS rate year is 2.7 percent.
2. Development of the RY 2010 LTCH PPS
Standard Federal Rate
As we stated in the FY 2010 IPPS/RY 2010
proposed rule (74 FR 24261), while we
continue to believe that an update to the
LTCH PPS standard Federal rate should be
based on the most recent estimate of the
increase in the LTCH PPS market basket, we
also believe it is appropriate that the
standard Federal rate be offset by an
adjustment to account for any changes in
documentation and coding practices that do
not reflect increased patient severity of
illness. Such an adjustment protects the
integrity of the Medicare Trust Funds by
ensuring that the LTCH PPS payment rates
better reflect the true costs of treating LTCH
patients. Furthermore, as we discussed most
recently in the RY 2009 LTCH final rule (73
FR 26805), we did not establish a case-mix
budget neutrality factor (that is, a
documentation and coding adjustment for
changes in case-mix that are not due to
changes in patient severity of illness) for the
adoption of the severity adjusted MS–LTC–
DRG patient classification system. Rather, we
noted that, consistent with past LTCH
payment policy, we would continue to
monitor LTCH data and we could propose to
make adjustments when updating the LTCH
PPS standard Federal rate in the future to
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account for changes in documentation and
coding that do not reflect any real changes in
case-mix during these years that we are
implementing MS–LTC–DRGs.
As we discussed in greater detail in section
VIII.C.3. of the preamble of this final rule, we
performed a CMI analysis using the most
recent available LTCH claims data under
both the current MS–LTC–DRG and former
CMS LTC–DRG patient classification
systems. Based on this evaluation, in the FY
2010 IPPS/RY 2010 LTCH PPS proposed rule
(74 FR 24229 through 24230), we determined
that there was a total increase in LTCH CMI
of 1.8 percent due to changes in
documentation and coding that did not
reflect real changes in patient severity of
illness for LTCH discharges occurring in FY
2007 and FY 2008. Specifically, our analysis
showed an increase in CMI of 0.5 percent in
FY 2007 and 1.3 percent in FY 2008 due to
changes in documentation and coding that
did not reflect increased patient severity of
illness (or costs). As we discuss in section
VIII.C.3. of the preamble of this final rule, we
are applying a ¥0.5 percent adjustment to
account for the increase in case-mix in FY
2007. However, we are delaying the
application of the ¥1.3 percent adjustment
to account for the increase in case-mix in FY
2008.
At this time, the most recent estimate of
the increase in the LTCH PPS market basket
(that is, the FY 2002-based RPL market
basket) for RY 2010 is 2.5 percent, as
discussed in section VIII.B.2. of the preamble
of this final rule (compared to a proposed
increase of 2.4 percent in the proposed rule).
Consistent with our historical practice, in
this final rule, as proposed, we are updating
the LTCH PPS standard Federal rate for RY
2010 based on the full LTCH PPS market
basket increase estimate of 2.5 percent and an
adjustment to account for the increase in
case-mix in a prior periods (FY 2007) that
resulted from changes in documentation and
coding practices of 0.5 percent. Therefore,
the update factor to the standard Federal rate
for RY 2010 is 2.0 percent (that is, we are
applying a factor of 1.020 in determining the
LTCH PPS standard Federal rate for RY 2010,
calculated as 1.025 × 1 divided by 1.005 =
1.020 or 2.0 percent). That is, under the
broad authority conferred upon the Secretary
under the BBRA and the BIPA to determine
appropriate updates under the LTCH PPS, we
are specifying under § 412.523(c)(3)(vi) that,
for LTCH discharges occurring on or after
October 1, 2009, and on or before September
30, 2010, the standard Federal rate from the
previous year will be updated by 2.0 percent.
Accordingly, we are amending § 412.523 to
add a new paragraph (c)(3)(vi) to specify that
the standard Federal rate for RY 2010 is the
standard Federal rate for the previous rate
year updated by 2.0 percent. In determining
the standard Federal rate for RY 2010, we
applied the 1.020 update factor to the RY
2009 Federal rate of $39,114.36 (as
established in the RY 2009 LTCH PPS final
rule (73 FR 26812)). Consequently, the
standard Federal rate for RY 2010 is
$39,896.65.
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B. Adjustment for Area Wage Levels Under
the LTCH PPS for RY 2010
1. Background
Under the authority of section 123 of the
BBRA as amended by section 307(b) of the
BIPA, we established an adjustment to the
LTCH PPS standard Federal rate to account
for differences in LTCH area wage levels at
§ 412.525(c). The labor-related share of the
LTCH PPS standard Federal rate (discussed
in greater detail in section VIII.C.2. of the
preamble of this final rule), is adjusted to
account for geographic differences in area
wage levels by applying the applicable LTCH
PPS wage index. The applicable LTCH PPS
wage index is computed using wage data
from inpatient acute care hospitals without
regard to reclassification under section
1886(d)(8) or section 1886(d)(10) of the Act.
As we discussed in the August 30, 2002
LTCH PPS final rule (67 FR 56015), when we
implemented the LTCH PPS, we established
a 5-year transition to the full wage index
adjustment. The wage index adjustment was
completely phased-in for cost reporting
periods beginning in FY 2007. Therefore, for
cost reporting periods beginning on or after
October 1, 2006, the applicable LTCH wage
index values are the full (five-fifths) LTCH
PPS wage index values calculated based on
acute care hospital inpatient wage index data
without taking into account geographic
reclassification under section 1886(d)(8) and
section 1886(d)(10) of the Act. For additional
information on the phase-in of the wage
index adjustment under the LTCH PPS, we
refer readers to the August 30, 2002 LTCH
PPS final rule (67 FR 56017 through 56019)
and the RY 2008 LTCH PPS final rule (72 FR
26891).
2. Updates to the Geographic Classifications/
Labor Market Area Definitions
a. Background
As discussed in the August 30, 2002 LTCH
PPS final rule, which implemented the LTCH
PPS (67 FR 56015 through 56019), in
establishing an adjustment for area wage
levels under § 412.525(c), the labor-related
portion of a LTCH’s Federal prospective
payment is adjusted by using an appropriate
wage index based on the labor market area
in which the LTCH is located. In the RY 2006
LTCH PPS final rule (70 FR 24184 through
24185), in regulations at § 412.525(c), we
revised the labor market area definitions used
under the LTCH PPS effective for discharges
occurring on or after July 1, 2005, based on
the Executive OMB’s CBSA designations,
which are based on 2000 Census data. We
made this revision because we believe that
the CBSA-based labor market area definitions
will ensure that the LTCH PPS wage index
adjustment most appropriately accounts for
and reflects the relative hospital wage levels
in the geographic area of the hospital as
compared to the national average hospital
wage level. We note that these are the same
CBSA-based designations implemented for
acute care hospitals under the IPPS at
§ 412.64(b), effective October 1, 2004 (69 FR
49026 through 49034). (For further
discussion of the CBSA-based labor market
area (geographic classification) definitions
currently used under the LTCH PPS, we refer
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readers to the RY 2006 LTCH PPS final rule
(70 FR 24182 through 24191).)
In the RY 2009 LTCH PPS final rule (73 FR
26814), we codified the definitions of
‘‘urban’’ and ‘‘rural’’ in 42 CFR part 412,
Subpart O (the subpart of the regulations
specific to the LTCH PPS). Prior to this
codification, the application of the wage
index adjustment under § 412.525(c)(2) was
made on the basis of the location of the
facility in either an urban area or a rural area
as defined in § 412.64(b)(1)(ii)(A) through (C)
of the regulations, which apply specifically
to the IPPS. Under that regulatory
construction, the then existing § 412.525(c)
indicated that the terms ‘‘rural area’’ and
‘‘urban area’’ were defined according to the
definitions of those terms under the IPPS in
42 CFR part 412, Subpart D. In that same
final rule, we revised § 412.525(c) to specify
that the application of the LTCH PPS wage
index adjustment is made on the basis of the
location of the LTCH in either an urban area
or a rural area as defined in § 412.503
because we believe it is administratively
simpler to have the LTCH PPS urban and
rural labor market area definitions selfcontained in the regulations of the subpart
specific to the LTCH PPS (§ 412.503) rather
than specifying a cross-reference to the
definitions of urban area and rural area in the
IPPS regulations in 42 CFR part 412, Subpart
D. Thus, under § 412.503, for discharges
occurring on or after July 1, 2008, an ‘‘urban
area’’ under the LTCH PPS is defined as a
Metropolitan Statistical Area, as defined by
OMB and a ‘‘rural area’’ is defined as any
area outside of an urban area.
In addition, in the RY 2009 LTCH PPS final
rule (73 FR 26813 through 26814), we
clarified the change regarding the treatment
of Litchfield County, Connecticut (CT), and
Merrimack County, New Hampshire (NH)
CBSA-based labor market area definitions.
Specifically, we discussed that, effective for
LTCH PPS discharges occurring on or after
July 1, 2008, Litchfield County, CT, and
Merrimack County, NH, are considered
‘‘rural’’ and are no longer considered as being
part of urban CBSA 25540 (Hartford-West
Hartford-East Hartford, CT) and urban CBSA
31700 (Manchester-Nashua, NH),
respectively, as these areas had been in the
past as a result of a change to the regulations
at § 412.64(b)(1)(ii)(B) established in the FY
2008 IPPS final rule with comment period
(72 FR 47337 through 47338). In making this
clarification, we noted that this policy is
consistent with our policy of not taking into
account IPPS geographic reclassifications in
determining payments under the LTCH PPS.
b. Update to the CBSA–Based Labor Market
Area Definitions
The CBSA-based labor market area
definitions used under the LTCH PPS were
last updated in the RY 2009 LTCH PPS final
rule (73 FR 26812 through 26813) based on
the most recent OMB bulletin available at
that time (December 18, 2006; OMB Bulletin
No. 07–01). As discussed in the proposed
rule (74 FR 24262 through 24263), since that
time, there have been two OMB bulletins
announcing revisions to the CBSA
designations, and under the broad authority
conferred upon the Secretary by section 123
of the BBRA, as amended by section 307(b)
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44023
of BIPA, to determine appropriate
adjustments under the LTCH PPS, we
proposed to apply the changes from those
two OMB bulletins to the current CBSAbased labor market area definitions and
geographic classifications used under the
LTCH PPS, effective for discharges occurring
on or after October 1, 2009.
We did not receive any public comments
on our proposed update to the CBSA-based
labor market area definitions used under the
LTCH PPS for RY 2010. Therefore, we are
adopting those proposed changes as final in
this final rule. Specifically, for RY 2010, we
are establishing the following updates to the
LTCH PPS CBSA-based labor market area
definitions and geographic classifications:
First, on November 20, 2007, OMB
announced the revision of titles for eight
urban areas (OMB Bulletin No. 08–01). This
OMB bulletin is available on the OMB Web
site at: https://www.whitehouse.gov/omb/
assets/omb/bulletins/fy2008/b08–01.pdf. The
revised titles are as follows:
• Hammonton, New Jersey qualifies as a
new principal city of the Atlantic City, New
Jersey CBSA. The new title is Atlantic CityHammonton, New Jersey CBSA (CBSA
12100).
• New Brunswick, New Jersey, located in
the Edison, New Jersey Metropolitan
Division, qualifies as a new principal city of
the New York- Northern New Jersey-Long
Island, New York, New Jersey, Pennsylvania
CBSA. The new title for the Metropolitan
Division is Edison-New Brunswick, New
Jersey CBSA (CBSA 20764).
• Summerville, South Carolina qualifies as
a new principal city of the Charleston-North
Charleston, South Carolina CBSA. The new
title is Charleston-North CharlestonSummerville, South Carolina (CBSA 16700).
• Winter Haven, Florida qualifies as a new
principal city of the Lakeland, Florida CBSA.
The new title is Lakeland-Winter Haven,
Florida (CBSA 29460).
• Bradenton, Florida replaces Sarasota,
Florida as the most populous principal city
of the Sarasota-Bradenton-Venice, Florida
CBSA (currently CBSA 42260). The new title
is Bradenton-Sarasota-Venice, Florida. The
new CBSA code is 14600.
• Frederick, Maryland replaces
Gaithersburg, Maryland as the second most
populous principal city in the BethesdaGaithersburg-Frederick, Maryland CBSA. The
new title is Bethesda-Frederick-Gaithersburg,
Maryland (CBSA 13644).
• North Myrtle Beach, South Carolina
replaces Conway, South Carolina as the
second most populous principal city of the
Myrtle Beach-Conway-North Myrtle Beach,
South Carolina CBSA. The new title is Myrtle
Beach-North Myrtle Beach-Conway, South
Carolina (CBSA 34820).
• Pasco, Washington replaces Richland,
Washington as the second most populous
principal city of the Kennewick-RichlandPasco, Washington CBSA. The new title is
Kennewick-Pasco-Richland, Washington
(CBSA 28420).
In this final rule, under the broad authority
conferred upon the Secretary by section 123
of the BBRA, as amended by section 307(b)
of BIPA, to determine appropriate
adjustments under the LTCH PPS, as
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proposed, we are applying these changes to
the current CBSA-based labor market area
definitions and geographic classifications
used under the LTCH PPS, effective for
discharges occurring on or after October 1,
2009 (to the extent that they are not changed
by the later OMB Bulletin No. 90–1 discussed
below). We believe these revisions to the
LTCH PPS CBSA-based labor market area
definitions, which are based on the most
recent available data, will ensure that the
LTCH PPS wage index adjustment most
appropriately accounts for and reflects the
relative hospital wage levels in the
geographic area of the hospital as compared
to the national average hospital wage level.
Accordingly, the RY 2010 LTCH PPS wage
index values presented in Tables 12A and
12B in the Addendum of this final rule
reflect the revisions to the CBSA-based labor
market area definitions described above. We
note that the eight CBSA title revisions
announced in OMB Bulletin No. 08–01 do
not change the composition (constituent
counties) of the affected CBSAs; they only
revise the CBSA titles (and do not change the
CBSA codes with the exception of the change
in CBSA code 42260 to 14600). We also note
that these revisions were applicable under
the IPPS beginning October 1, 2008 (73 FR
48575).
Second, on November 20, 2008, OMB
announced three Micropolitan Statistical
Areas that now qualify as MSAs and changed
the principal cities and titles of a number of
CBSAs and a Metropolitan Division (OMB
Bulletin No. 09–01). This OMB bulletin is
available on the OMB Web site at: https://
www.whitehouse.gov/omb/assets/omb/
bulletins/fy2009/09-01.pdf. The new urban
CBSAs are as follows:
• Cape Girardeau-Jackson, MissouriIllinois (CBSA 16020). This CBSA is
comprised of the principal cities of Cape
Girardeau and Jackson, Missouri in
Alexander County, Illinois; Bollinger County,
Missouri, and Cape Girardeau County,
Missouri.
• Manhattan, Kansas (CBSA 31740). This
CBSA is comprised of the principal city of
Manhattan, Kansas in Geary County,
Pottawatomie County, and Riley County.
• Mankato-North Mankato, Minnesota
(CBSA 31860). This CBSA is comprised of
the principal cities of Mankato and North
Mankato, Minnesota in Blue Earth County
and Nicollet County.
The changes in the principal cities and the
revised titles are as follows:
• Broomfield, Colorado qualifies as a new
principal city of the Denver-Aurora, Florida
CBSA. The new title is Denver-AuroraBroomfield, Colorado (CBSA 19740).
• Chapel Hill, North Carolina qualifies as
a new principal city of the Durham, North
Carolina CBSA. The new title is DurhamChapel Hill, North Carolina (CBSA 20500).
• Chowchilla, California qualifies as a new
principal city of the Madera, California
CBSA. The new title is Madera-Chowchilla,
California (CBSA 31460).
• Panama City Beach, Florida qualifies as
a new principal city of the Panama City-Lynn
Haven, Florida CBSA. The new title is
Panama City-Lynn Haven-Panama City
Beach, Florida (CBSA 37460).
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• East Wenatchee, Washington qualifies as
a new principal city of the Wenatchee,
Washington CBSA. The new title is
Wenatchee-East Wenatchee, Washington
(CBSA 48300).
• Rockville, Maryland replaces
Gaithersburg, Maryland as the third most
populous city of the Bethesda-FrederickGaithersburg, Maryland Metropolitan
Division. The new title is BethesdaFrederick-Rockville, Maryland Metropolitan
Division (CBSA 13644).
In this final rule, under the broad authority
conferred upon the Secretary by section 123
of the BBRA, as amended by section 307(b)
of BIPA, to determine appropriate
adjustments under the LTCH PPS, as
proposed, we are applying these changes to
the current CBSA-based labor market area
definitions and geographic classifications
used under the LTCH PPS effective for
discharges occurring on or after October 1,
2009. We believe these revisions to the LTCH
PPS CBSA-based labor market area
definitions, which are based on the most
recent available data, would ensure that the
LTCH PPS wage index adjustment most
appropriately accounts for and reflects the
relative hospital wage levels in the
geographic area of the hospital as compared
to the national average hospital wage level.
Accordingly, the RY 2010 LTCH PPS wage
index values presented in Tables 12A and
12B in the Addendum of this final rule
reflect the revisions to the CBSA-based labor
market area definitions described above. We
note that the six CBSA title revisions noted
above do not change the composition
(constituent counties) of the affected CBSAs;
they only revise the CBSA titles (and do not
change the CBSA codes). We also note that
we are currently aware of only one LTCH
located in one of the three new CBSAs (CBSA
16020). As discussed in section III.C. of the
preamble of this final rule, the revisions to
the CBSA-based designations are also
adopted under the IPPS effective beginning
October 1, 2009.
3. LTCH PPS Labor-Related Share
As noted above in this section, under the
adjustment for difference in area wage levels
at § 412.525(c), the labor-related share of a
LTCH’s PPS payment is adjusted by the
applicable wage index for the labor market
area in which the LTCH is located.
Specifically, as discussed in section
VIII.C.2.d. of the preamble of this final rule,
the LTCH PPS labor-related share is
determined by our actuaries and is based on
data for the labor-related share of operating
costs and capital costs of the FY 2002-based
RPL market basket. (Additional background
information on the historical development of
the labor-related share under the LTCH PPS
can be found in the RY 2009 LTCH PPS final
rule (73 FR 26815). In the RY 2007 final rule
(71 FR 27829 through 27830), we established
a labor-related share based on the relative
importance of the labor-related share of
operating costs (wages and salaries, employee
benefits, professional fees, postal services,
and all other labor-intensive services) and
capital costs of the RPL market basket based
on FY 2002 data, as they are the best
available data that reflect the cost structure
of LTCHs. For the past 2 years (RYs 2008 and
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2009), we updated the LTCH PPS laborrelated share annually based on the latest
available data for the RPL market basket. For
RY 2009, the labor-related share is 75.662
percent, as established in the RY 2009 LTCH
PPS final rule (73 FR 26815 through 26816),
based on the sum of the relative importance
of the labor-related share of operating costs
(wages and salaries, employee benefits,
professional fees, and all other laborintensive services) and a labor-related
portion of capital costs of the FY 2002-based
RPL market basket from the first quarter of
2008 forecast (the most recent available data
at that time).
As discussed in section VIII.C. of the
preamble of this final rule and as we
proposed, we are continuing to use the FY
2002-based RPL market basket used under
the LTCH PPS for RY 2010. Furthermore, for
RY 2010, we are continuing to define the
LTCH PPS labor-related share as the national
average proportion of operating costs (wages
and salaries, employee benefits, professional
fees, and all other labor-intensive services)
and a labor-related portion of capital costs
based on the FY 2002-based RPL market
basket. (As noted above, additional
information on the development of the FY
2002-based RPL market basket used under
the LTCH PPS can be found in the RY 2007
LTCH PPS final rule (71 FR 27808 through
27818).) Accordingly, consistent with our
historical practice of using the best available
data, we used IHS Global Insight, Inc.’s
second quarter 2009 forecast of the FY 2002based RPL market basket for RY 2010 (in the
proposed rule, we used IHS Global Insight,
Inc’s first quarter 2009 forecast) to determine
the labor-related share for the LTCH PPS for
RY 2010 that will be effective for discharges
occurring on or after October 1, 2009, and
through September 30, 2010, as these are the
most recent available data. As shown in the
chart in section VIII.C.2.d. of the preamble of
this final rule, based on the latest available
data (and the authority set forth in section
123 of the BBRA as amended by section
307(b) of the BIPA, we are establishing a
labor-related share of 75.779 percent under
the LTCH PPS for the RY 2010.
4. LTCH PPS Wage Index for RY 2010
Historically, under the LTCH PPS, we have
established LTCH PPS wage index values
calculated from acute care IPPS hospital
wage data without taking into account
geographic reclassification under sections
1886(d)(8) and 1886(d)(10) of the Act. As we
discussed in the August 30, 2002 LTCH PPS
final rule (67 FR 56019), hospitals that are
excluded from the IPPS are not required to
provide wage-related information on the
Medicare cost report. Therefore, we would
need to establish instructions for the
collection of these LTCH data as well as
develop some type of application and
determination process before a geographic
reclassification adjustment under the LTCH
PPS could be implemented. The wage
adjustment established under the LTCH PPS
is based on a LTCH’s actual location without
regard to the urban or rural designation of
any related or affiliated provider. Acute care
hospital inpatient wage index data are also
used to establish the wage index adjustment
used in other Medicare PPSs, such as the IRF
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PPS, the IPF PPS, the HHA PPS, and the SNF
PPS.
In the RY 2009 LTCH PPS final rule (73 FR
26816 through 26817), we established LTCH
PPS wage index values for RY 2009
calculated from the same data collected from
cost reports submitted by IPPS hospitals for
cost reporting periods beginning during FY
2004 that were used to compute the FY 2008
acute care hospital inpatient wage index data
without taking into account geographic
reclassification under sections 1886(d)(8) and
1886(d)(10) of the Act because these were the
best available data at that time. The LTCH
PPS wage index values applicable for
discharges occurring on or after July 1, 2008,
through September 30, 2009, were shown in
Table 1 (for urban areas) and Table 2 (for
rural areas) in the Addendum to the RY 2009
LTCH PPS final rule (73 FR 26840 through
26863).
In this final rule, under the broad authority
conferred upon the Secretary by section 123
of the BBRA, as amended by section 307(b)
of BIPA, to determine appropriate
adjustments under the LTCH PPS for RY
2010, as we proposed, we used the same data
collected from cost reports submitted by IPPS
hospitals for cost reporting periods beginning
during FY 2006 that are being used to
compute the FY 2010 acute care hospital
inpatient wage index data without taking into
account geographic reclassification under
sections 1886(d)(8) and 1886(d)(10) of the
Act to determine the applicable wage index
values under the LTCH PPS in RY 2010
because these data (FY 2006) are the most
recent complete data available at this time.
(We note that due to the change in the annual
LTCH PPS rate year update cycle from July
1 to October 1, effective October 1, 2009,
established in the RY 2009 LTCH PPS final
rule, there is no longer a lag-time in the
availability of the IPPS hospital wage data
used to develop the respective wage indices
used under the IPPS and LTCH PPS.
Consequently, because the annual update to
the LTCH PPS and the IPPS now occurs on
October 1 of each year, we are able to
calculate wage index values using the same
wage data to develop the LTCH wage index
as is used to develop the IPPS wage index in
a given year. Under the previous July 1
annual LTCH PPS rate year update cycle, due
to the lag-time in the availability of data,
there was a 1-year lag-time in the best
available IPPS wage data to develop the
LTCH PPS wage index each year (for
example, as noted above, we established RY
2009 LTCH PPS wage index values from the
same data collected from FY 2004 IPPS
hospital cost reports that were used to
compute the FY 2008 IPPS wage index). We
are continuing to use IPPS wage data as a
proxy to determine the LTCH wage index
values for RY 2010 because both LTCHs and
acute care hospitals are required to meet the
same certification criteria set forth in section
1861(e) of the Act to participate as a hospital
in the Medicare program and they both
compete in the same labor markets and,
therefore, experience similar wage-related
costs.)
We also note that using the IPPS wage data
to determine the RY 2010 LTCH wage index
values reflects our policy under the IPPS
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beginning in FY 2008 that apportions the
wage data for multicampus hospitals that are
located in different labor market areas
(CBSAs) to each CBSA where the campuses
are located. (For additional information, we
refer readers to the FY 2008 IPPS final rule
with comment (72 FR 47317 through 47320),
the FY 2009 IPPS final rule (73 FR 48582),
and section III.C. of the preamble of this final
rule.) Specifically, for the RY 2010 LTCH PPS
wage index values, which are computed from
IPPS wage data submitted by hospitals for
cost reporting periods beginning in FY 2006
(which are used to determine the FY 2010
IPPS wage index discussed in section III.F. of
the preamble of this final rule), we allocated
salaries and hours to the campuses of three
multicampus hospitals with campuses that
are located in different labor areas that are
located in the following States:
Massachusetts, Illinois, and Michigan. Thus,
consistent with the FY 2010 IPPS wage
index, the RY 2010 LTCH PPS wage index
values for the following CBSAs will be
affected by this policy: Boston-Quincy, MA
(CBSA 14484); Providence-New BedfordFalls River, RI–MA (CBSA 39300); ChicagoNaperville-Joliet, IL (CBSA 16974); Lake
County-Kenosha County, IL–WI (CBSA
29404); Detroit-Livonia-Dearborn, MI (CBSA
19804); and Warren-Troy-Farmington-Hills,
MI (CBSA 47644) (reflected in Tables 12A
and 12B in the Addendum of this final rule).
The RY 2010 LTCH PPS wage index values
were computed consistent with the urban
and rural geographic classifications (labor
market areas) discussed in section V.B.2. of
the Addendum of this final rule and
consistent with the pre-reclassified IPPS
wage index policy (that is, our historical
policy of not taking into account IPPS
geographic reclassifications in determining
payments under the LTCH PPS). The RY
2010 wage index values also reflect our
methodology for establishing wage index
values in urban and rural areas in which
there are no IPPS wage data from which to
compute a wage index value (as described
above in this section).
As previously noted, in the RY 2009 LTCH
PPS final rule (73 FR 26817 through 26818),
we established a methodology for
determining a LTCH PPS wage index value
for areas that have no IPPS wage data. Under
this methodology, we stated that each year
we would determine a wage index value for
any area in which there is no IPPS wage data
based on the methodologies described in that
final rule. We believe it is appropriate to
establish a methodology for determining
LTCH PPS wage index values for areas with
no IPPS wage data, if necessary, because IPPS
hospitals may open or close at any time, and
therefore the number of areas without any
IPPS wage data may change from year to
year. Even when an IPPS hospital opens in
an area where there are currently no IPPS
hospitals, there is a lag-time 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. The policies
established for determining LTCH PPS wage
index values for areas with no IPPS hospital
wage data are consistent with the
methodologies that have been established
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44025
under other Medicare postacute care PPSs,
such as SNF and HHA, as well as the IPPS.
Below we discuss the application of our
established methodology for determining a
LTCH PPS wage index value for RY 2010 for
any areas in which there is no IPPS wage
data for cost reporting periods beginning
during FY 2006 (that is, for the areas in
which there is no data in the IPPS wage data
that we used to compute the RY 2010 LTCH
PPS wage index).
In this final rule, as we proposed, we
determined RY 2010 LTCH PPS wage index
values for labor market areas in which there
is no IPPS hospital wage data from which to
compute a wage index value consistent with
the methodology we established in the RY
2009 LTCH PPS final rule (73 FR 26817). As
was the case in RY 2009, there are no LTCHs
located in labor areas where there is no IPPS
hospital wage data (or IPPS hospitals) for RY
2010. However, we continue to believe it is
appropriate to calculate LTCH PPS wage
index values for these areas using our
established methodology in the event that in
the future a LTCH should open in one of
those areas.
Therefore, we will continue to determine a
LTCH PPS wage index value for urban
CBSAs with no IPPS wage data by using an
average of all of the urban areas within the
State to serve as a reasonable proxy for
determining the LTCH PPS wage index for an
urban area without specific IPPS hospital
wage index data. We believe that an average
of all of the urban areas within the State is
a reasonable proxy for determining the LTCH
PPS wage index for an urban area in the State
with no wage data because it is based on prereclassified IPPS wage data, it is easy to
evaluate, and it uses the most geographically
similar relative wage-related costs data
available. Furthermore, as noted above, this
methodology has been adopted by other
Medicare PPSs, such as the SNF PPS and the
HHA PPS.
Based on the FY 2006 IPPS wage data that
we used to determine the RY 2010 LTCH PPS
wage index values, there are no IPPS wage
data for the urban area of Hinesville-Fort
Stewart, GA (CBSA 25980). Consistent with
our methodology for determining a LTCH
PPS wage index value for urban areas with
no IPPS wage data (discussed above), in this
final rule, we calculated the RY 2010 wage
index value for CBSA 25980 as the average
of the wage index values for all of the other
urban areas within the State of Georgia (that
is, CBSAs 10500, 12020, 12060, 12260,
15260, 16860, 17980, 19140, 23580, 31420,
40660, 42340, 46660 and 47580) (reflected in
Table 12A of the Addendum of this final
rule). (As noted above, there are currently no
LTCHs located in CBSA 25980.) As discussed
in the RY 2009 final rule (73 FR 26817), as
IPPS wage data are dynamic, it is possible
that urban areas without IPPS wage data will
vary in the future.
As we proposed, we also are continuing to
determine a LTCH PPS wage index value for
rural areas with no IPPS wage data using the
unweighted average of the wage indices from
all of the CBSAs that are contiguous to the
rural counties of the State to serve as a
reasonable proxy in determining the LTCH
PPS wage index for a rural area without
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specific IPPS hospital wage index data. For
this purpose, we are defining ‘‘contiguous’’
as sharing a border. We are not able to apply
an averaging in rural areas with no wage data
similar to what we are doing for urban areas
with no wage data because there is no rural
hospital data available for averaging on a
statewide basis. We believe that using an
unweighted average of the wage indices from
all of the CBSAs that are contiguous to the
rural counties of the State is a reasonable
proxy for determining the wage index for
rural areas in a State with no wage data
because it is based on pre-reclassified IPPS
wage data, it is easy to evaluate, and it uses
the most geographically similar relative
wage-related costs data available.
Based on the FY 2006 IPPS wage data that
we used to determine the RY 2010 LTCH PPS
wage index values, there are no IPPS wage
data for the rural area of Massachusetts
(CBSA code 11). Consistent with our
methodology for determining a LTCH PPS
wage index value for rural areas with no IPPS
wage data (discussed above), in this final
rule, as we proposed, we calculated the RY
2010 wage index value for rural
Massachusetts by computing the unweighted
average of the wage indices from all of the
CBSAs that are contiguous to the rural
counties in that State. Specifically, in the
case of Massachusetts, the entire rural area
consists of Dukes and Nantucket counties.
We determined that the borders of Dukes and
Nantucket counties are ‘‘contiguous’’ with
Barnstable County, MA, and Bristol County,
MA. Therefore, the RY 2010 LTCH PPS wage
index value for rural Massachusetts is
computed as the unweighted average of the
RY 2010 wage indexes for Barnstable County
and Bristol County (reflected in Tables 12A
and 12B in the Addendum of this final rule).
(There are currently no LTCHs located in
rural Massachusetts.) As discussed in the RY
2009 final rule (73 FR 26817), as IPPS wage
data are dynamic, it is possible that rural
areas without IPPS wage data will vary in the
future.
The RY 2010 LTCH wage index values that
are applicable for LTCH discharges occurring
on or after October 1, 2009, through
September 30, 2010, are presented in Table
12A (for urban areas) and Table 12B (for rural
areas) in the Addendum of this final rule.
We did not receive any public comments
on our proposals for calculating the LTCH
PPS wage index for RY 2010. Therefore, we
are adopting those proposals in this final rule
as described above.
5. LTCH PPS Cost-of-Living Adjustment for
LTCHs Located in Alaska and Hawaii
In the August 30, 2002 final rule (67 FR
56022), we established, under § 412.525(b), a
cost-of-living adjustment (COLA) for LTCHs
located in Alaska and Hawaii to account for
the higher costs incurred in those States. In
the RY 2009 LTCH PPS final rule (73 FR
26819) (under the broad authority conferred
upon the Secretary by section 123 of the
BBRA as amended by section 307(b) of BIPA
to determine appropriate adjustments under
the LTCH PPS), for RY 2009, we applied a
COLA to payments to LTCHs located in
Alaska and Hawaii by multiplying the
standard Federal payment rate by the factors
listed in Table III of that same rule.
In the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24266), under the broad
authority conferred upon the Secretary by
section 123 of the BBRA, as amended by
section 307(b) of BIPA, to determine
appropriate adjustments under the LTCH
PPS, we proposed to apply a COLA to
payments to LTCHs located in Alaska and
Hawaii by multiplying the standard Federal
payment rate by the most recent available
factors listed in that same proposed rule. We
did not receive any public comments on our
proposed COLA to payments to LTCHs
located in Alaska and Hawaii and, therefore,
are adopting that proposal in this final rule.
Therefore, for RY 2010, under the broad
authority conferred upon the Secretary by
section 123 of the BBRA, as amended by
section 307(b) of BIPA, to determine
appropriate adjustments under the LTCH
PPS, we are applying a COLA to payments
to LTCHs located in Alaska and Hawaii by
multiplying the standard Federal payment
rate by the factors listed in the chart below
because they are the most recent available
data at this time. These factors were obtained
from the U.S. Office of Personnel
Management (OPM) and are also used under
the IPPS effective October 1, 2009 (section
II.B.2. of the Addendum of this final rule).
COST-OF-LIVING ADJUSTMENT FACTORS FOR ALASKA AND HAWAII HOSPITALS FOR THE 2010 LTCH PPS RATE YEAR
Alaska:
City of Anchorage and 80-kilometer (50-mile) radius by road .............................................................................................................
City of Fairbanks and 80-kilometer (50-mile) radius by road ..............................................................................................................
City of Juneau and 80-kilometer (50-mile) radius by road ..................................................................................................................
All other areas of Alaska ......................................................................................................................................................................
Hawaii:
City and County of Honolulu ................................................................................................................................................................
County of Hawaii ..................................................................................................................................................................................
County of Kauai ....................................................................................................................................................................................
County of Maui and County of Kalawao ..............................................................................................................................................
C. Adjustment for LTCH PPS High-Cost
Outlier (HCO) Cases
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1. Background
Under the broad authority conferred upon
the Secretary by section 123 of the BBRA as
amended by section 307(b) of BIPA, in the
regulations at § 412.525(a), we established an
adjustment for additional payments for
outlier cases that have extraordinarily high
costs relative to the costs of most discharges.
We refer to these cases as high cost outliers
(HCOs). Providing additional payments for
outliers strongly improves the accuracy of the
LTCH PPS in determining resource costs at
the patient and hospital level. These
additional payments reduce the financial
losses that would otherwise be incurred
when treating patients who require more
costly care and, therefore, reduce the
incentives to underserve these patients. We
set the outlier threshold before the beginning
of the applicable rate year so that total
estimated outlier payments are projected to
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equal 8 percent of total estimated payments
under the LTCH PPS.
Under § 412.525(a) in the regulations (in
conjunction with the revised definition of
‘‘LTC–DRG’’ at § 412.503), we make outlier
payments for any discharges if the estimated
cost of a case exceeds the adjusted LTCH PPS
payment for the MS–LTC–DRG plus a fixedloss amount. Specifically, in accordance with
§ 412.525(a)(3) (in conjunction with the
revised definition of ‘‘LTC–DRG’’ at
§ 412.503), we pay outlier cases 80 percent of
the difference between the estimated cost of
the patient case and the outlier threshold,
which is the sum of the adjusted Federal
prospective payment for the MS–LTC–DRG
and the fixed-loss amount. The fixed-loss
amount is the amount used to limit the loss
that a hospital will incur under the outlier
policy for a case with unusually high costs.
This results in Medicare and the LTCH
sharing financial risk in the treatment of
extraordinarily costly cases. Under the LTCH
PPS HCO policy, the LTCH’s loss is limited
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1.23
1.23
1.23
1.25
1.25
1.18
1.25
1.25
to the fixed-loss amount and a fixed
percentage of costs above the outlier
threshold (MS–LTC–DRG payment plus the
fixed-loss amount). The fixed percentage of
costs is called the marginal cost factor. We
calculate the estimated cost of a case by
multiplying the Medicare allowable covered
charge by the hospital’s overall hospital CCR.
Under the LTCH PPS, we determine a
fixed-loss amount, that is, the maximum loss
that a LTCH can incur under the LTCH PPS
for a case with unusually high costs before
the LTCH will receive any additional
payments. We calculate the fixed-loss
amount by estimating aggregate payments
with and without an outlier policy. The
fixed-loss amount results in estimated total
outlier payments being projected to be equal
to 8 percent of projected total LTCH PPS
payments. Currently, MedPAR claims data
and CCRs based on data from the most recent
provider specific file (PSF) (or from the
applicable statewide average CCR if a LTCH’s
CCR data are faulty or unavailable) are used
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to establish a fixed-loss threshold amount
under the LTCH PPS.
2. Determining LTCH CCRs Under the LTCH
PPS
a. Background
The following is a discussion of CCRs that
are used in determining payments for HCO
and SSO cases under the LTCH PPS, at
§ 412.525(a) and § 412.529, respectively.
Although this section is specific to HCO
cases, because CCRs and the policies and
methodologies pertaining to them are used in
determining payments for both HCO and SSO
cases (to determine the estimated cost of the
case at § 412.529(d)(2), we are discussing the
determination of CCRs under the LTCH PPS
for both of these types of cases
simultaneously.
In determining both HCO payments (at
§ 412.525(a)) and SSO payments (at
§ 412.529), we calculate the estimated cost of
the case by multiplying the LTCH’s overall
CCR by the Medicare allowable charges for
the case. In general, we use the LTCH’s
overall CCR, which is computed based on
either the most recently settled cost report or
the most recent tentatively settled cost report,
whichever is from the latest cost reporting
period, in accordance with
§ 412.525(a)(4)(iv)(B) and
§ 412.529(c)(4)(iv)(B) for HCOs and SSOs,
respectively. (We note that, in some
instances, we use an alternative CCR, such as
the statewide average CCR in accordance
with the regulations at § 412.525(a)(4)(iv)(C)
and § 412.529(c)(4)(iv)(C), or a CCR that is
specified by CMS or that is requested by the
hospital under the provisions of the
regulations at § 412.525(a)(4)(iv)(A) and
§ 412.529(c)(4)(iv)(A).) Under the LTCH PPS,
a single prospective payment per discharge is
made for both inpatient operating and
capital-related costs. 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).
b. LTCH Total CCR Ceiling
Generally, 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).
This is because CCRs above this threshold are
most likely due to faulty data reporting or
entry, and, therefore, CCRs based on
erroneous data should not be used to identify
and make payments for outlier cases. Thus,
under our established policy, generally, 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.
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In the FY 2009 IPPS final rule (73 FR
48682), in accordance with
§ 412.525(a)(4)(iv)(C)(2) for HCOs and
§ 412.529(c)(4)(iv)(C)(2) for SSOs, using our
established methodology for determining the
LTCH total CCR ceiling, based on IPPS total
CCR data from the December 2007 update of
the Provider Specific File (PSF), we
established a total CCR ceiling of 1.262 under
the LTCH PPS, effective October 1, 2008,
through September 30, 2009. (For further
detail on our current methodology for
annually determining the LTCH total CCR
ceiling, we refer readers to the FY 2007 IPPS
final rule (71 FR 48119 through 48121).)
In this final rule, in accordance with
§ 412.525(a)(4)(iv)(C)(2) for HCOs and
§ 412.529(c)(4)(iv)(C)(2) for SSOs, using our
established methodology for determining the
LTCH total CCR ceiling (described above),
based on IPPS total CCR data from the March
2009 update of the PSF, we are establishing
a total CCR ceiling of 1.232 under the LTCH
PPS that will be effective for discharges
occurring on or after October 1, 2009, and on
or before September 30, 2010.
c. LTCH Statewide Average CCRs
Our general methodology established for
determining the statewide average CCRs used
under the LTCH PPS is similar to our
established methodology for determining the
LTCH total CCR ceiling (described above)
because it is based on ‘‘total’’ IPPS CCR data.
Under the LTCH PPS HCO policy at
§ 412.525(a)(4)(iv)(C) and the SSO policy at
§ 412.529(c)(4)(iv)(C), the fiscal intermediary
may use a statewide average CCR, which is
established annually by CMS, if it is unable
to determine an accurate CCR for an LTCH
in one of the following circumstances: (1)
New LTCHs that have not yet submitted their
first Medicare cost report (for this purpose,
consistent with current policy, 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 (as discussed above); 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
may consider in determining an 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 an
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.)
In Table 8C of the Addendum to the FY
2009 IPPS final rule (73 FR 48998), in
accordance with the regulations at
§ 412.525(a)(4)(iv)(C) for HCOs and
§ 412.529(c)(4)(iv)(C) for SSOs, using our
established methodology for determining the
LTCH statewide average CCRs, based on
using the most recent complete IPPS total
CCR data from the March 2008 update of the
PSF, we established the LTCH PPS statewide
average total CCRs for urban and rural
hospitals effective for discharges occurring
on or after October 1, 2008, and on or before
September 30, 2009. (For further detail on
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our current methodology for annually
determining the LTCH statewide average
CCRs, we refer readers to the FY 2007 IPPS
final rule (71 FR 48119 through 48121).)
In this final rule, using our established
methodology for determining the LTCH
statewide average CCRs, based on the most
recent complete IPPS total CCR data from the
March 2009 update of the PSF, we are
establishing LTCH PPS statewide average
total CCRs for urban and rural hospitals that
will be effective for discharges occurring on
or after October 1, 2009, and through
September 30, 2010, in Table 8C of the
Addendum to this final rule.
We also note that all areas in the District
of Columbia, New Jersey, Puerto Rico, and
Rhode Island are classified as urban;
therefore, there are no rural statewide average
total CCRs listed for those jurisdictions in
Table 8C of the Addendum to this final rule.
This policy is consistent with the policy that
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 is the same as the policy applied under
the IPPS. In addition, although
Massachusetts has areas that are designated
as rural, there are no short-term acute care
IPPS hospitals or LTCHs located in those
areas as of March 2009. Therefore, for this
final rule, there is no rural statewide average
total CCR listed for rural Massachusetts in
Table 8C of the Addendum of this final rule.
In addition, 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 48120
through 48121), in determining the urban
and rural statewide average total CCRs for
Maryland LTCHs paid under the LTCH PPS,
in this final rule, 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
used this proxy because we believe that the
CCR data on the PSF for Maryland hospitals
may not be entirely accurate (as discussed in
greater detail in that same final rule (71 FR
48120)).
d. Reconciliation of LTCH HCO and SSO
Payments
We note, under the LTCH PPS HCO policy
at § 412.525(a)(4)(iv)(D) and the LTCH PPS
SSO policy at § 412.529(c)(4)(iv)(D), the
payments for HCO and SSO cases,
respectively, are subject to reconciliation.
Specifically, any reconciliation of outlier
payments is based on the CCR that is
calculated based on a ratio of CCRs computed
from the relevant cost report and charge data
determined at the time the cost report
coinciding with the discharge is settled. For
additional information, we refer readers to
the RY 2009 LTCH PPS final rule (73 FR
26820 through 26821).
3. Establishment of the LTCH PPS Fixed-Loss
Amount for RY 2010
When we implemented the LTCH PPS, as
discussed in the August 30, 2002 LTCH PPS
final rule (67 FR 56022 through 56026),
under the broad authority of section 123 of
the BBRA as amended by section 307(b) of
BIPA, we established a fixed-loss amount so
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that total estimated outlier payments are
projected to equal 8 percent of total estimated
payments under the LTCH PPS. To determine
the fixed-loss amount, we estimate outlier
payments and total LTCH PPS payments for
each case using claims data from the
MedPAR files. Specifically, to determine the
outlier payment for each case, we estimate
the cost of the case by multiplying the
Medicare covered charges from the claim by
the applicable CCR. Under § 412.525(a)(3) (in
conjunction with the revised definition of
‘‘LTC–DRG’’ at § 412.503), if the estimated
cost of the case exceeds the outlier threshold
(the sum of the adjusted Federal prospective
payment for the MS–LTC–DRG and the fixedloss amount), we pay an outlier payment
equal to 80 percent of the difference between
the estimated cost of the case and the outlier
threshold (the sum of the adjusted Federal
prospective payment for the MS–LTC–DRG
and the fixed-loss amount).
In the RY 2009 LTCH PPS final rule (73 FR
26823), we used claims data from the
December 2007 update of the FY 2007
MedPAR claims data and CCRs from the
December 2007 update of the PSF to
determine a fixed-loss amount that would
result in estimated outlier payments
projected to be equal to 8 percent of total
estimated payments for the 2009 LTCH PPS
rate year. We determined the RY 2009 fixedloss amount using the MS–LTC–DRG
classifications and relative weights from the
version of the GROUPER that was to be in
effect as of the beginning of the 2009 LTCH
PPS rate year (July 1, 2008), that is, Version
25.0 of the GROUPER (as established in the
FY 2008 IPPS final rule (72 FR 47278).
Furthermore, in using CCRs from the
December 2007 update of the PSF to
determine the RY 2009 fixed-loss amount, we
used the FY 2008 applicable LTCH ‘‘total’’
CCR ceiling of 1.284 and LTCH statewide
average ‘‘total’’ CCRs established in the FY
2008 IPPS final rule (72 FR 47404 and 48126
through 48127) such that the current
applicable Statewide average CCR was
assigned if, among other things, a LTCH’s
CCR exceeded the current ceiling (1.284).
Therefore, based on the data and policies
described under the broad authority of
section 123(a)(1) of the BBRA and section
307(b)(1) of BIPA, in the RY 2009 LTCH PPS
final rule, we established a fixed-loss amount
of $22,960 for RY 2009. Accordingly, for RY
2009, we currently pay an outlier case 80
percent of the difference between the
estimated cost of the case and the outlier
threshold (the sum of the adjusted Federal
LTCH payment for the MS–LTC–DRG and the
fixed-loss amount of $22,960).
We note that in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule (74 FR 24268
through 24269), we proposed an HCO fixedloss amount of $16,059 for RY 2010 to
maintain that total estimated HCO payments
are projected to equal 8 percent of total
estimated payments under the LTCH PPS, as
required under § 412.523(d)(1). This
proposed HCO fixed-loss amount of $16,059
for RY 2010 was calculated based, in part, on
the proposed RY 2010 MS–LTC–DRG relative
weights presented in Table 11 of that same
proposed rule (74 FR 24589 through 24608).
However, in the RY 2010 LTCH PPS
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supplemental proposed rule published in the
Federal Register on June 3, 2009 (74 FR
26600 through 26635), we presented both
proposed RY 2010 MS–LTC–DRG relative
weights and a proposed RY 2010 HCO outlier
fixed-loss amount based on the revised FY
2009 MS–LTC–DRG relative weights
presented in an interim final rule with
comment period also published in the
Federal Register on June 3, 3009 (74 FR
26546 through 26569). Accordingly, based on
the proposed RY 2010 MS–LTC–DRG relative
weights presented in Table 11 (Amended) of
the RY 2010 LTCH PPS supplemental
proposed rule and on the data and policies
described under the broad authority of
section 123(a)(1) of the BBRA and section
307(b)(1) of BIPA, we proposed a fixed-loss
amount of $18,868 for RY 2010 in order to
maintain that total estimated HCO payments
are projected to equal 8 percent of total
estimated payments under the LTCH PPS in
RY 2010.
In this final rule, we use the same
methodology that we used in the RY 2009
LTCH PPS final rule and which was
proposed in the RY 2010 LTCH PPS
supplemental proposed rule, to calculate the
fixed-loss amount for RY 2010 (using
updated data and the rates and policies
established in this final rule) in order to
maintain estimated HCO payments at the
projected 8 percent of total estimated LTCH
PPS payments. Consistent with our historical
practice of using the best data available, in
determining the fixed-loss amount for RY
2010, we used the most recent available
LTCH claims data and CCR data. Specifically,
for this final rule, we used LTCH claims data
from the March 2009 update of the FY 2008
MedPAR files and CCRs from the March 2009
update of the PSF to determine a fixed-loss
amount that will result in estimated outlier
payments projected to be equal to 8 percent
of total estimated payments in RY 2010
because these data are the most recent
complete LTCH data currently available. We
determined the RY 2010 fixed-loss amount
based on the MS–LTC–DRG classifications
and relative weights from the version of the
GROUPER that will be in effect as of the
beginning of the 2010 LTCH PPS rate year
(October 1, 2009), that is, Version 27.0 of the
GROUPER (discussed in section VIII.B. of the
preamble of this final rule). Furthermore, in
determining the RY 2010 fixed-loss amount
using CCRs from the March 2009 update of
the PSF, we used the RY 2010 LTCH ‘‘total’’
CCR ceiling of 1.232 and the applicable
LTCH statewide average ‘‘total’’ CCRs
presented in Table 8C in the Addendum of
this final rule such that the applicable
statewide average CCR was assigned if,
among other things, an LTCH’s CCR
exceeded the ceiling (1.232).
In this final rule, based on the data and
policies described earlier in this final rule
under the broad authority of section 123(a)(1)
of the BBRA and section 307(b)(1) of BIPA,
we are establishing a fixed-loss amount of
$18,425 for RY 2010. Thus, we will pay an
outlier case 80 percent of the difference
between the estimated cost of the case and
the outlier threshold (the sum of the adjusted
Federal LTCH payment for the MS–LTC–DRG
and the fixed-loss amount of $18,425).
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The fixed-loss amount for RY 2010 of
$18,425 is significantly lower than the RY
2009 fixed-loss amount of $22,960. The
decrease in the fixed-loss amount for RY
2010 is primarily due to the projected 3.3
percent increase in LTCH PPS payments from
RY 2009 to RY 2010 (discussed in greater
detail in section IX. of the Appendix A (the
regulatory impact analysis) to this final rule),
which includes our current estimate that we
are paying less than the required 8 percent
of total estimated LTCH PPS payments as
HCO payments in RY 2009 (as discussed
below). Specifically, an analysis of the most
recent available LTCH PPS claims data (that
is, FY 2008 claims from the March 2009
update of the MedPAR files) indicates that
the RY 2009 fixed-loss amount of $22,960
may result in LTCH PPS HCO payments that
fall below the estimated 8 percent
requirement. Specifically, we currently
estimate that HCO payments are
approximately 6.8 percent of estimated total
LTCH PPS payments in RY 2009.
In addition to the estimated increase in
LTCH PPS payments in RY 2010 as compared
to RY 2009 due to the projected increase in
HCO payments, as we discuss in section IX.
of Appendix A to this final rule, we estimate
an increase in LTCH PPS payments in RY
2010 due to the update to the standard
Federal rate and a projected increase in the
payments for SSO cases that are paid based
on the estimated cost of the case. For these
reasons, we believe that establishing a lower
fixed-loss amount is appropriate and
necessary to maintain that estimated outlier
payments will equal 8 percent of estimated
total LTCH PPS payments as required under
§ 412.523(d)(1). Maintaining the fixed-loss
amount at the current level would result in
HCO payments that are significantly less than
the current regulatory requirement that
estimated outlier payments be projected to
equal 8 percent of estimated total LTCH PPS
payments. As we explained in past LTCH
PPS rules (such as the RY 2006 LTCH PPS
final rule (70 FR 24195 through 24196)),
using a lower fixed-loss amount results in
more cases qualifying as outlier cases as well
as increases the amount of the additional
payment for an HCO case because the
maximum loss that an LTCH must incur
before receiving an HCO payment (that is, the
fixed-loss amount) would be smaller. Thus,
in order to maintain that estimated HCO
payments in RY 2010 will be equal to 8
percent of estimated total RY 2010 LTCH PPS
payments, we believe it is appropriate to
lower the fixed-loss amount.
In the August 30, 2002 final rule (67 FR
56022 through 56024), based on our
regression analysis, we established the
outlier ‘‘target’’ at 8 percent of estimated total
LTCH PPS payments to allow us to achieve
a balance between the ‘‘conflicting
considerations of the need to protect
hospitals with costly cases, while
maintaining incentives to improve overall
efficiency.’’ We continue to believe that an
HCO target of 8 percent is appropriate, as
discussed in greater detail below. However,
in the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we solicited public comments
on whether we should revisit the regression
analysis noted above in this section that was
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used to establish the existing 8 percent
outlier target, using the most recent available
data to evaluate whether the current outlier
target of 8 percent should be adjusted, and
which therefore may mitigate the magnitude
of the proposed change in the fixed-loss
amount for RY 2010. Below we provide a
summation of the public comments we
received and our applicable responses.
Comment: Several comments noted that
the proposed fixed-loss amount of $18,868
that was presented in the RY 2010 LTCH PPS
supplemental proposed rule was significantly
higher than the originally proposed fixed-loss
amount of $16,059 included in the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule (74
FR 24268 through 24269). The commenters
expressed concern that the proposed fixedloss amount presented in the RY 2010 LTCH
PPS supplemental proposed rule will have a
significant impact on the LTCH PPS
payments to HCO cases, and believe that
CMS should have provided for a full 60-day
comment period to give the public time to
conduct a meaningful study of the changes
and submit meaningful comments for CMS to
consider.
Response: As we stated in the RY 2010
LTCH PPS supplemental proposed rule,
while we ordinarily publish a notice of
proposed rulemaking in the Federal Register
and permit a 60-day comment period, this
period may be shortened when the Secretary
finds good cause that a 60-day comment
period would be impracticable, unnecessary,
or contrary to the public interest and
incorporates a statement of the finding and
its reasons in the rule issued. We further
stated:
‘‘Ordinarily, we begin our preparations for
issuing an LTCH PPS proposed rule early so
that our proposals may be on public display
by May 1 of that year. This schedule allows
for a 60-day comment period closing within
a sufficient amount of time to also allow for
a 1- to 2-month period to consider all
comments received and appropriately
respond to them. In this case, elsewhere in
this Federal Register an interim final rule
with public comment is issued that provides
for revised FY 2009 MS–LTC–DRG relative
weights. The revised MS–LTC–DRG relative
weights affect some of the proposals
contained in the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule, which went on
display on May 1, 2009, and was published
in the Federal Register on May 22, 2009.
Therefore, we need to immediately replace
those affected proposals. A 60-day comment
period on this supplemental proposed rule
would be both impracticable and contrary to
the public interest because it would not
allow for coordinated consideration of the
comments on this supplemental proposed
rule with those on the FY 2010 IPPS and RY
2010 LTCH PPS proposed rule. Because the
issues raised in this supplemental proposed
rule are integral to our consideration of
comments on certain proposals in the FY
2010 IPPS and RY 2010 LTCH PPS proposed
rule, we do not believe it would be
appropriate to review comments on the
issues raised in this supplemental proposed
rule in isolation from the comments received
on the FY 2010 IPPS and RY 2010 LTCH PPS
proposed rule. We further note that a full 60-
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day comment period would end on a date
that would not allow the agency sufficient
time to process the comments and respond to
them in a meaningful manner by the August
1, 2009 date for issuing the final rule. Timely
filed comments would receive a shorter
period of time for consideration by the
agency, and the agency would be left with
insufficient time to properly respond to
comments and appropriately resolve whether
any of the proposed policies should be
modified in light of comments received. For
all of these reasons, we find good cause to
waive the 60-day comment period for this
rule of proposed rulemaking, and we are
instead providing for a comment period that
coincides with the comment period provided
for on the FY 2010 IPPS and RY 2010 LTCH
PPS proposed rule (74 FR 24080).’’
Finally, we note that while the proposed
fixed-loss amount that was presented in the
RY 2010 LTCH PPS supplemental proposed
rule was significantly higher than the
originally proposed fixed-loss amount
included in the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24268 through
24269), the methodology applied to
determine the proposed fixed-loss amount in
both rules is identical. That is, for each rule,
we proposed the appropriate high cost outlier
fixed-loss amount for RY 2010 that would
maintain that total estimated HCO payments
are projected to equal 8 percent of total
estimated payments under the LTCH PPS as
required under § 412.523(d)(1). We note that
we received no comments on our historical
methodology to determine a fixed-loss
amount that results in estimated total outlier
payments being projected to be equal to 8
percent of projected total LTCH PPS
payments.
As an alternative to using a lower fixedloss amount for RY 2010, we also examined
adjusting the marginal cost factor (that is, the
percentage that Medicare will pay of the
estimated cost of a case that exceeds the sum
of the adjusted Federal prospective payment
for the MS–LTC–DRG and the fixed-loss
amount for LTCH PPS HCO cases as specified
in § 412.525(a)(3)), as a means of ensuring
that estimated outlier payments will be
projected to equal 8 percent of estimated total
LTCH PPS payments. As we established in
the August 30, 2002 final rule (67 FR 56022
through 56026), under the LTCH PPS HCO
policy at § 412.525(a)(3), the marginal cost
factor is currently equal to 80 percent. As
discussed in the RY 2007 LTCH PPS final
rule (71 FR 4677 through 4678), a marginal
cost factor equal to 80 percent means that, for
an outlier case, we pay the LTCH 80 percent
of the difference between the estimated cost
of the case and the outlier threshold (the sum
of the adjusted Federal rate for the MS–LTC–
DRG PPS payment and the fixed-loss
amount). In addition, as we discussed in the
August 30, 2002 final rule (67 FR 56023) that
implemented the LTCH PPS, the marginal
cost factor is designed to ensure ‘‘a balance
between the need to protect LTCHs
financially, while encouraging them to treat
expensive patients and maintaining the
incentives of a prospective payment system
to improve the efficient delivery of care.’’
Increasing the marginal cost factor from the
established 80 percent, without reducing the
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44029
current fixed-loss amount, would increase
total estimated outlier payments because we
would pay a larger percentage of the
estimated costs that exceed the outlier
threshold (the sum of the adjusted Federal
rate for the MS–LTC–DRG and the fixed-loss
amount). For example, if we were to increase
the marginal cost factor to 90 percent instead
of lowering the fixed-loss amount, we could
maintain HCO payments at 8 percent of
estimated total LTCH PPS payments.
However, while this alternative may ensure
that outlier payments are projected to equal
8 percent of estimated total LTCH PPS
payments by increasing estimated aggregate
HCO payments, it may not maintain the
existing balance between providing an
incentive for LTCHs to treat expensive
patients and improving the efficient delivery
of care because a policy such as this would
reduce the incentive to provide cost efficient
care that is in effect under the current HCO
policy (with an 80 percent marginal cost
factor). Such a result would be inconsistent
with the intent of the LTCH PPS HCO policy
(noted above) as stated when we
implemented the LTCH PPS in the August
30, 2002 final rule (67 FR 56025). As we
discussed in that same final rule (67 FR
56023 through 56024), our analysis of
payment-to-cost ratios for HCO cases showed
that a marginal cost factor of 80 percent
appropriately addresses cases that are
significantly more expensive than nonoutlier
cases, while simultaneously maintaining the
integrity of the LTCH PPS. Accordingly, we
did not propose to adjust the marginal cost
factor under the LTCH PPS HCO policy in
the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule. However, as previously stated,
in the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule, we solicited public comments
on whether we should revisit the regression
analysis that was used to establish the
existing 80 percent marginal cost factor,
using the most recent available data to
evaluate whether the current marginal cost
factor of 8 percent in the current HCO policy
should be adjusted, and therefore may
mitigate the proposed change in the fixedloss amount for RY 2010. In response to the
solicitation, we did not receive any public
comments in support of any option to revisit
the regression analysis that was used to
establish the existing 80 percent marginal
cost factor and existing outlier target of 8
percent. The commenters agreed that keeping
the marginal cost factor at 80 percent and the
outlier pool at 8 percent better identifies
LTCH patients that are unusually costly
cases, and that this policy appropriately
addresses HCO cases that are significantly
more expensive than nonoutlier cases.
After consideration of the public comments
we received, in this final rule, we are
establishing a fixed-loss amount of $18,425
for RY 2010 based on the best available LTCH
data and the policies presented in this final
rule because we believe a decrease in the
fixed-loss amount for RY 2010 is appropriate
and necessary to maintain estimated outlier
payments equal to 8 percent of estimated
total LTCH PPS payments, as required under
§ 412.525(a). As explained above in this
section, in section IX of Appendix A to this
final rule, we project an increase in total
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LTCH PPS payments systemwide. In
accordance with § 412.523(d)(1), we reduced
the standard Federal rate by 8 percent for the
estimated proportion of LTCH PPS HCO
payments. Because we estimate an increase
in the average payment per discharge,
thereby increasing total estimated LTCH PPS
payments, and because we are currently
estimating that HCO payments in RY 2009
may fall below the 8 percent target, we
believe the fixed-loss amount must be
lowered in order to maintain total outlier
payments that are projected to equal 8
percent of total payments under the LTCH
PPS, in accordance with § 412.525(a).
4. Application of Outlier Policy to SSO Cases
As we discussed in the August 30, 2002
final rule (67 FR 56026), under some rare
circumstances, a LTCH discharge could
qualify as a SSO case (as defined in the
regulations at § 412.529 in conjunction with
the regulations at § 412.503) and also as a
HCO case. In this scenario, a patient could
be hospitalized for less than five-sixths of the
geometric average length of stay for the
specific MS–LTC–DRG, and yet incur
extraordinarily high treatment costs. If the
costs exceeded the HCO threshold (that is,
the SSO payment plus the fixed-loss
amount), the discharge is eligible for
payment as a HCO. Thus, for a SSO case in
the 2010 LTCH PPS rate year, the HCO
payment will be 80 percent of the difference
between the estimated cost of the case and
the outlier threshold (the sum of the fixedloss amount of $18,425 and the amount paid
under the SSO policy as specified in
§ 412.529).
D. Computing the Adjusted LTCH PPS
Federal Prospective Payments for RY 2010
In accordance with § 412.525, the standard
Federal rate is adjusted to account for
differences in area wages by multiplying the
labor-related share of the standard Federal
rate by the appropriate LTCH PPS wage
index (as shown in Tables 12A and 12B of
the Addendum of this final rule). The
standard Federal rate was also adjusted to
account for the higher costs of hospitals in
Alaska and Hawaii by multiplying the
nonlabor-related share of the standard
Federal rate by the appropriate cost-of-living
factor (shown in the chart in section V.C.5.
of the Addendum of this final rule). In this
final rule, we are establishing a standard
Federal rate for the 2010 LTCH PPS rate year
of $39,896.65, as discussed in section V.A.2.
of the Addendum of this final rule. We
illustrate the methodology to adjust the
Federal rate for the 2010 LTCH PPS rate year
in the following example:
Example:
During the 2010 LTCH PPS rate year, a
Medicare patient is in a LTCH located in
Chicago, Illinois (CBSA 16974). The RY 2010
LTCH PPS wage index value for CBSA 16974
is 1.0471 (Table 12A of the Addendum of this
final rule). The Medicare patient is classified
into MS–LTC–DRG 28 (Spinal Procedures
with MCC), which has a relative weight for
RY 2010 of 1.0933 (Table 11 of the
Addendum of this final rule).
To calculate the LTCH’s total adjusted
Federal prospective payment for this
Medicare patient, we computed the wageadjusted Federal prospective payment
amount by multiplying the unadjusted
standard Federal rate ($39,896.65) by the
labor-related share (75.779 percent) and the
wage index value (1.0471). This wageadjusted amount was then added to the
nonlabor-related portion of the unadjusted
standard Federal rate (24.221 percent;
adjusted for cost of living, if applicable) to
determine the adjusted Federal rate, which
was then multiplied by the MS–LTC–DRG
relative weight (1.0933) to calculate the total
adjusted Federal prospective payment for the
2010 LTCH PPS rate year ($45,175.85). The
table below illustrates the components of the
calculations in this example.
$39,896.65
× 0.75779
= $30,233.28
× 1.0471
= $31,657.27
+ $9,663.37
= $41,320.64
× 1.0933
Total Adjusted Federal Prospective Payment .....................................................................................................................
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Unadjusted Standard Federal Prospective Payment Rate ..........................................................................................................
Labor-Related Share .....................................................................................................................................................................
Labor-Related Portion of the Federal Rate ..................................................................................................................................
Wage Index (CBSA 16974) ...........................................................................................................................................................
Wage-Adjusted Labor Share of Federal Rate ..............................................................................................................................
Nonlabor-Related Portion of the Federal Rate ($39,896.65 × 0.24221) .....................................................................................
Adjusted Federal Rate Amount ...................................................................................................................................................
MS–LTC–DRG 28 Relative Weight ..............................................................................................................................................
= $45,175.85
VI. Tables
This section contains the tables referred to
throughout the preamble to this final rule
and in this Addendum. Tables 1A, 1B, 1C,
1D, 1E, 2, 3A, 3B, 4A, 4B, 4C, 4D–1, 4D–2,
4F, 4J, 5, 7A, 7B, 8A, 8B, 8C, 9A, 9C, 10, 11,
12A, and 12B are presented below. Table
6G.—Additions to the CC Exclusions List,
Table 6H.—Deletions from the CC Exclusions
List, Table 6I.—Complete List of
Complication and Comorbidity (CC)
Exclusions, Table 6J.—Major Complication
and Comorbidity (MCC) List, and Table 6K.—
Complications and Comorbidity (CC) List are
available only through the Internet on the
CMS Web site at: https://www.cms.hhs.gov/
AcuteInpatientPPS/. The tables presented
below are as follows:
Table 1A.—National Adjusted Operating
Standardized Amounts, Labor/Nonlabor
(68.8 Percent Labor Share/31.2 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
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Table 1D.—Capital Standard Federal
Payment Rate
Table 1E.—LTCH Standard Federal
Prospective Payment Rate
Table 2.—Acute Care Hospitals Case-Mix
Indexes for Discharges Occurring in
Federal Fiscal Year 2008; Hospital Wage
Indexes for Federal Fiscal Year 2010;
Hospital Average Hourly Wages for
Federal Fiscal Years 2008 (2004 Wage
Data), 2009 (2005 Wage Data), and 2010
(2006 Wage Data); and 3-Year Average of
Hospital Average Hourly Wages
Table 3A.—FY 2010 and 3-Year Average
Hourly Wage for Acute Care Hospitals in
Urban Areas by CBSA
Table 3B.—FY 2010 and 3-Year Average
Hourly Wage for Acute Care Hospitals in
Rural Areas by CBSA
Table 4A.—Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals in Urban Areas by
CBSA and by State—FY 2010
Table 4B.—Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals in Rural Areas by
CBSA and by State—FY 2010
Table 4C.—Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals That Are
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2010
Table 4D–1.—Rural Floor Budget Neutrality
Factors for Acute Care Hospitals—FY
2010
Table 4D–2.—Urban Areas with Acute Care
Hospitals Receiving the Statewide Rural
Floor or Imputed Floor Wage Index—FY
2010
Table 4E.—Urban CBSAs and Constituent
Counties for Acute Care Hospitals—FY
2010
Table 4F.—Puerto Rico Wage Index and
Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals by
CBSA—FY 2010
Table 4J.—Out-Migration Adjustment for
Acute Care Hospitals—FY 2010
Table 5.—List of 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 7A.—Medicare Prospective Payment
System Selected Percentile Lengths of
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Stay: FY 2008 MedPAR Update—March
2009 GROUPER V26.0 MS–DRGs
Table 7B.—Medicare Prospective Payment
System Selected Percentile Lengths of
Stay: FY 2008 MedPAR Update—March
2009 GROUPER V27.0 MS–DRGs
Table 8A.—Statewide Average Operating
Cost-to-Charge Ratios (CCRs) for Acute
Care Hospitals—July 2009
Table 8B.—Statewide Average Capital Costto-Charge Ratios (CCRs) for Acute Care
Hospitals—July 2009
Table 8C.—Statewide Average Total Cost-toCharge Ratios (CCRs) for LTCHs—July
2009
Table 9A.—Hospital Reclassifications and
Redesignations—FY 2010
Table 9C.—Hospitals Redesignated as Rural
under Section 1886(d)(8)(E) of the Act—
FY 2010
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 Medicare Severity Diagnosis-Related
Group (MS–DRG)—July 2009
Table 11.—MS–LTC–DRGs, Relative Weights,
Geometric Average Length of Stay, and
Short-Stay Outlier (SSO) Threshold for
Discharges Occurring from October 1,
2009 through September 30, 2010 under
the LTCH PPS
Table 12A.—LTCH PPS Wage Index for
Urban Areas for Discharges Occurring
from October 1, 2009 through September
30, 2010
Table 12B.—LTCH PPS Wage Index for Rural
Areas for Discharges Occurring from
October 1, 2009 through September 20,
2010
TABLE 1A—NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (68.8 PERCENT LABOR
SHARE/31.2 PERCENT NONLABOR SHARE IF WAGE INDEX IS GREATER THAN 1)
Full update (2.1 percent)
Reduced update (1.1 percent)
Labor-related
Nonlabor-related
Labor-related
Nonlabor-related
$3,593.52
$1,629.62
$3,523.13
$1,597.70
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)
Full update (2.1 percent)
Reduced update (1.1 percent)
Labor-related
Nonlabor-related
Labor-related
Nonlabor-related
$3,238.35
$1,984.79
$3,174.91
$1,945.92
TABLE 1C—ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR PUERTO RICO, LABOR/NONLABOR
Rates if wage index is greater
than 1
Rates if wage index is less
than or equal to 1
Labor
National ...........................................................................................................
Puerto Rico .....................................................................................................
Nonlabor
Labor
Nonlabor
$3,593.52
1,542.72
$1,629.62
941.52
$3,238.35
1,540.23
$1,984.79
944.01
TABLE 1D—CAPITAL STANDARD FEDERAL PAYMENT RATE
Rate
National ....................................................................................................................................................................................................
Puerto Rico ..............................................................................................................................................................................................
$430.20
204.01
TABLE 1E—LTCH STANDARD FEDERAL PROSPECTIVE PAYMENT RATE
Rate
Standard Federal Rate ............................................................................................................................................................................
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Appendix A: Regulatory Impact
Analysis
I. Overall Impact
We have examined the impacts of this final
rule as required by Executive Order 12866
(September 1993, Regulatory Planning and
Review) and the Regulatory Flexibility Act
(RFA) (September 19, 1980, Pub. L. 96–354),
section 1102(b) of the Social Security Act, the
Unfunded Mandates Reform Act of 1995
(Pub. L. 104–4), Executive Order 13132 on
Federalism, and the Congressional Review
Act (5 U.S.C. 804(2)).
Executive Order 12866 directs agencies to
assess all costs and benefits of available
regulatory alternatives and, if regulation is
necessary, to select regulatory approaches
that maximize net benefits (including
potential economic, environmental, public
health and safety effects, distributive
impacts, and equity). A regulatory impact
analysis (RIA) must be prepared for major
rules with economically significant effects
($100 million or more in any 1 year).
We have determined that this final rule is
a major rule as defined in 5 U.S.C. 804(2). We
estimate that the changes for FY 2010 acute
care hospital operating and capital payments
will redistribute in excess of $100 million
among different types of inpatient cases. The
changes to rebase and revise the market
basket for purposes of the market basket
update to the IPPS rates required by the
statute, in conjunction with other payment
changes in this final rule, will result in an
estimated $1.73 billion increase in FY 2010
operating payments (or 1.6 percent increase),
and $171 million increase in FY 2010 capital
payments (or 1.9 percent increase). The
impacts analysis of the capital payments can
be found in section VIII. of this Appendix. In
addition, as described in section IX. of this
Appendix, LTCHs are expected to experience
an increase in payments by $153 million (or
3.3 percent).
Our operating impact estimate includes the
2.1 percent market basket update to the
standardized amount. Though we had
proposed a ¥2.5 percent documentation and
coding adjustment applied to the hospitalspecific rates, the ¥1.1 percent
documentation and coding adjustment
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applied to the Puerto Rico-specific rates and
the ¥1.9 percent adjustment for
documentation and coding changes to the
IPPS standardized amounts, we are not
applying any documentation and coding
adjustments to any of the rates in this final
rule. The estimates of IPPS operating
payments to acute care hospitals do not
reflect any changes in hospital admissions or
real case-mix intensity, which would also
affect overall payment changes.
The RFA requires agencies to analyze
options for regulatory relief of small
businesses. For purposes of the RFA, small
entities include small businesses, nonprofit
organizations, and small government
jurisdictions. Most hospitals and most other
providers and suppliers are considered to be
small entities, either by being nonprofit
organizations or by meeting the Small
Business Administration definition of a small
business (having revenues of $34.5 million or
less in any 1 year). (For details on the latest
standards for heath care providers, we refer
readers to the Table of Small Business Size
Standards for NAIC 622 found on the Small
Business Administration Office of Size
Standards Web site at: https://www.sba.gov/
contractingopportunities/officials/size/GCSMALL-BUS-SIZE-STANDARDS.html.) For
purposes of the RFA, all hospitals and other
providers and suppliers are considered to be
small entities. Individuals and States are not
included in the definition of a small entity.
We believe that the provisions of this final
rule relating to acute care hospitals would
have a significant impact on small entities as
explained in this Appendix. Because we lack
data on individual hospital receipts, we
cannot determine the number of small
proprietary LTCHs. Therefore, we are
assuming that all LTCHs are considered
small entities for the purpose of the analysis
in section IX. of this Appendix. Medicare
fiscal intermediaries and MACs are not
considered to be small entities. Because we
acknowledge that many of the affected
entities are small entities, the analysis
discussed throughout the preamble of this
final rule constitutes our final regulatory
flexibility analysis. We address any public
comments that we received on the impact of
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these changes we are finalizing in the
applicable sections of this Appendix.
The Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA),
Public Law 104–121, as amended by section
8302 of Public Law 110–28, requires an
agency to provide compliance guides for each
rule or group of related rules for which an
agency is required to prepare a final
regulatory flexibility analysis. The
compliance guides associated with this final
rule are available on the CMS IPPS Web page
at https://www.cms.hhs.gov/
AcuteInpatientPPS/01_overview.asp. We also
note that the Hospital Center Web page at
https://www.cms.hhs.gov/center/hospital.asp
was developed to assist hospitals in
understanding and adapting to changes in
Medicare regulations and in billing and
payment procedures. This Web page provides
hospitals with substantial downloadable
explanatory materials.
In addition, section 1102(b) of the Act
requires us to prepare a regulatory impact
analysis for any proposed or final rule that
may have a significant impact on the
operations of a substantial number of small
rural hospitals. This analysis must conform
to the provisions of section 603 of the RFA.
With the exception of hospitals located in
certain New England counties, for purposes
of section 1102(b) of the Act, we now define
a small rural hospital as a hospital that is
located outside of an urban area and has
fewer than 100 beds. Section 601(g) of the
Social Security Amendments of 1983 (Pub. L.
98–21) designated hospitals in certain New
England counties as belonging to the adjacent
urban area. Thus, for purposes of the IPPS
and the LTCH PPS, we continue to classify
these hospitals as urban hospitals. (We refer
readers to Table 1 and section VI. of this
Appendix for the quantitative effects of the
policy changes under the IPPS for operating
costs.)
Section 202 of the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104–4) also
requires that agencies assess anticipated costs
and benefits before issuing any rule whose
mandates require spending in any 1 year of
$100 million in 1995 dollars, updated
annually for inflation. That threshold level is
currently approximately $133 million. This
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final rule will not mandate any requirements
for State, local, or tribal governments, nor
would it affect private sector costs.
Executive Order 13132 establishes certain
requirements that an agency must meet when
it promulgates a proposed rule (and
subsequent final rule) that imposes
substantial direct requirement costs on State
and local governments, preempts State law,
or otherwise has Federalism implications. As
stated above, this final rule will not have a
substantial effect on State and local
governments.
The following analysis, in conjunction
with the remainder of this document,
demonstrates that this final rule is consistent
with the regulatory philosophy and
principles identified in Executive Order
12866, the RFA, and section 1102(b) of the
Act. The final rule will affect payments to a
substantial number of small rural hospitals,
as well as other classes of hospitals, and the
effects on some hospitals may be significant.
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II. Objectives of the IPPS
The primary objective of the IPPS is to
create incentives for hospitals to operate
efficiently and minimize unnecessary costs
while at the same time ensuring that
payments are sufficient to adequately
compensate hospitals for their legitimate
costs. In addition, we share national goals of
preserving the Medicare Hospital Insurance
Trust Fund.
We believe the changes in this final rule
will further each of these goals while
maintaining the financial viability of the
hospital industry and ensuring access to high
quality health care for Medicare
beneficiaries. We expect that these changes
will ensure that the outcomes of the
prospective payment systems are reasonable
and equitable while avoiding or minimizing
unintended adverse consequences.
III. Limitations of Our Analysis
The following quantitative analysis
presents the projected effects of our policy
changes, as well as statutory changes
effective for FY 2010, on various hospital
groups. We estimate the effects of individual
policy changes by estimating payments per
case while holding all other payment policies
constant. We use the best data available, but,
generally, we do not attempt to make
adjustments for future changes in such
variables as admissions, lengths of stay, or
case-mix. However, in the FY 2008 IPPS final
rule with comment period, we indicated that
we believe that implementation of the MS–
DRGs would lead to increases in case-mix
that do not reflect actual increases in
patients’ severity of illness as a result of more
comprehensive documentation and coding.
As explained in section II.D. of the preamble
of this final rule, the FY 2008 IPPS final rule
with comment period established a
documentation and coding adjustment of
¥1.2 percent for FY 2008, ¥1.8 percent for
FY 2009, and ¥1.8 percent for FY 2010 to
maintain budget neutrality for the transition
to the MS–DRGs. Subsequently, Congress
enacted Public Law 110–90. Section 7 of
Public Law 110–90 reduced the IPPS
documentation and coding adjustment from
¥1.2 percent to ¥0.6 percent for FY 2008
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and from ¥1.8 percent to ¥0.9 percent for
FY 2009. For FY 2010, we had proposed to
reduce the national standardized amount.
However, we have decided to postpone the
documentation and coding adjustment to the
national standardized amount until FY 2011
and will not apply the adjustment to the
national standardized amount for FY 2010.
Furthermore, we believe that hospitals that
are paid under the hospital-specific payment
rate, specifically SCHs and MDHs,
experience similar increases in case-mix due
to documentation and coding changes that do
not reflect real changes in case-mix. Our
actuarial office estimates that hospitals paid
under the hospital-specific rate experienced
a 4.8 percent increase in payments due to
documentation and coding changes in FY
2008 and FY 2009. We did not apply a
documentation and coding adjustment to the
hospital-specific rates when we first
implemented the MS–DRG system. For FY
2010, we had proposed to reduce the
hospital-specific rate by ¥2.5 percent in FY
2010 to account for the case-mix increase that
occurred in FY 2008 due to changes in
documentation and coding under the
adoption of MS–DRGs that do not reflect real
changes in case-mix. However, we have
decided to postpone the documentation and
coding adjustment to the hospital-specific
rate until FY 2011 and will not apply an
adjustment to the hospital-specific rate for
FY 2010.
Our analysis, as described in II.D. of the
preamble, shows that Puerto Rico hospitals
experienced an increase in case-mix by 1.1
percent in FY 2008 due to changes in
documentation and coding. We did not apply
a documentation and coding adjustment to
the Puerto Rico-specific rate when we first
implemented the MS–DRG system.
Consistent with our decision to postpone
documentation and coding adjustments for
the hospital-specific rate and the Federal
standardized amount, we also are postponing
the documentation and coding adjustment to
the Puerto-Rico specific rate until FY 2011.
The impacts shown below illustrate the
impact of the FY 2010 IPPS changes on acute
care hospital operating payments. As we
have done in the previous rules, we solicited
comments and information about the
anticipated effects of the proposed changes
on hospitals and our methodology for
estimating them.
Comment: Several comments questioned
whether Medicare Advantage claims were
used in the impacts analysis. The
commenters suggested that CMS reevaluate
its calculations and data to ensure that
Medicare Advantage claims are not used in
the impacts analysis.
Response: The three primary data sources
for the impacts analyses are the MedPAR
claims file, the Medicare hospital cost report,
and the Provider-Specific File. Historically,
we have excluded data from Medicare
Advantage claims from the impacts analysis.
However, for the FY 2010 IPPS proposed
rule, the December 31, 2008 update of the FY
2008 MedPAR data that was used as the
source for the impact analysis contained a
significant number of Medicare Advantage
claims. Under Change Request 5647,
Transmittal 1311, hospitals were required to
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submit informational only claims for all
Medicare Advantage patients they treated for
discharges occurring on or after October 1,
2006. As a result, we inadvertently included
claims from discharges enrolled in Medicare
Advantage plans in the impact analysis in the
proposed rule.
We generally have excluded Medicare
Advantage claims from the impact analysis.
However, as described in section II.A.4. of
the Addendum to this final rule, we have
used the Medicare Advantage claims
information to determine the IME payment
made on Medicare Advantage claims.
Because IME Medicare Advantage payments
are made to IPPS hospitals under section
1886(d) of the Act, we believe these
payments must be part of these budget
neutrality calculations and in the operating
impact analysis.
The methodology for calculating the IME
payment made on Medicare Advantage
claims is described in section II.A.4. of the
Addendum to this final rule.
IV. Hospitals Included in and Excluded
From the IPPS
The prospective payment systems for
hospital inpatient operating and capitalrelated costs of acute care hospitals
encompass most general short-term, acute
care hospitals that participate in the
Medicare program. There were 33 Indian
Health Service hospitals in our database,
which we excluded from the analysis due to
the special characteristics of the prospective
payment methodology for these hospitals.
Among other short-term, acute care hospitals,
only the 46 such hospitals in Maryland
remain excluded from the IPPS pursuant to
the waiver under section 1814(b)(3) of the
Act.
As of July 2009, there are 3,517 IPPS acute
care hospitals to be included in our analysis.
This represents about 58 percent of all
Medicare-participating hospitals. The
majority of this impact analysis focuses on
this set of hospitals. There are also
approximately 1,330 CAHs. These small,
limited service hospitals are paid on the basis
of reasonable costs rather than under the
IPPS. (We refer readers to section VII. of this
Appendix for a further description of the
impact of CAH-related policy changes.) There
are also 1,251 IPPS-excluded hospitals and
2,188 IPPS-excluded hospital units. These
IPPS-excluded hospitals and units include
IPFs, IRFs, LTCHs, RNHCIs, children’s
hospitals, and cancer hospitals, which are
paid under separate payment systems.
Changes in the prospective payment systems
for IPFs and IRFs are made through separate
rulemaking. Payment impacts for these IPPSexcluded hospitals and units are not
included in this final rule. The impact of the
update and policy changes to the LTCH PPS
for RY 2010 are discussed in section IX. of
this Appendix.
V. Effects on Hospitals Excluded From the
IPPS
As of July 2009, there were 1,251 hospitals
excluded from the IPPS. Of these 1,251
hospitals, 78 children’s hospitals, 11 cancer
hospitals, and 16 RNHCIs are being paid on
a reasonable cost basis subject to the rate-of-
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increase ceiling under § 413.40. The
remaining providers, 225 IRFs and 421
LTCHs, are paid the Federal prospective per
discharge rate under the IRF PPS and the
LTCH PPS, respectively, and 1,224 IPFs are
paid the Federal per diem amount under the
IPF PPS. As stated above, IRFs and IPFs are
not affected by rate updates in this final rule.
The impacts of the changes to LTCHs are
discussed in section IX. of this Appendix. In
addition, there are 1,224 IPF units located in
hospitals otherwise subject to the IPPS. There
are 964 IRFs (paid under the IRF PPS) located
in hospitals otherwise subject to the IPPS.
In the past, certain hospitals and units
excluded from the IPPS have been paid based
on their reasonable costs subject to limits as
established by the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA). Cancer
and children’s hospitals continue to be paid
on a reasonable cost basis subject to TEFRA
limits for FY 2010. For these hospitals
(cancer and children’s hospitals), consistent
with the authority provided in section
1886(b)(3)(B)(ii) of the Act, the update is the
percentage increase in the FY 2010 IPPS
operating market basket. In compliance with
section 404 of the MMA, in this final rule,
we are replacing the FY 2002-based IPPS
operating and capital market baskets with the
revised and rebased FY 2006-based IPPS
operating and capital market baskets for FY
2010. Therefore, consistent with current law,
based on IHS Global Insight, Inc.’s 2009
second quarter forecast, with historical data
through the 2009 first quarter, we are
estimating that the FY 2010 update to the
IPPS operating market basket will be 2.1
percent (that is, the current estimate of the
market basket rate-of-increase). In addition,
in accordance with § 403.752(a) of the
regulations, RNHCIs are paid under § 413.40,
which also uses section 1886(b)(3)(B)(ii) of
the Act to update target amounts by the rateof-increase percentage. For RNHCIs, the
update is the percentage increase in the FY
2010 IPPS operating market basket increase,
which is estimated to be 2.1 percent, based
on IHS Global Insight, Inc.’s 2009 second
quarter forecast of the IPPS operating market
basket increase, with historical data through
the 2009 first quarter.
The impact of the update in the rate-ofincrease limit on those excluded hospitals
depends on the cumulative cost increases
experienced by each excluded hospital since
its applicable base period. For excluded
hospitals that have maintained their cost
increases at a level below the rate-of-increase
limits since their base period, the major effect
is on the level of incentive payments these
excluded hospitals receive. Conversely, for
excluded hospitals with per-case cost
increases above the cumulative update in
their rate-of-increase limits, the major effect
is the amount of excess costs that will not be
reimbursed.
We note that, under § 413.40(d)(3), an
excluded hospital that continues to be paid
under the TEFRA system, whose costs exceed
110 percent of its rate-of-increase limit
receives its rate-of-increase limit plus 50
percent of the difference between its
reasonable costs and 110 percent of the limit,
not to exceed 110 percent of its limit. In
addition, under the various provisions set
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forth in § 413.40, cancer and children’s
hospitals can obtain payment adjustments for
justifiable increases in operating costs that
exceed the limit.
VI. Quantitative Effects of the Policy
Changes Under the IPPS for Operating Costs
A. Basis and Methodology of Estimates
In this final rule, we are announcing policy
changes and payment rate updates for the
IPPS for operating costs of acute care
hospitals. Updates to the capital payments to
acute care hospitals are discussed in section
VIII. of this Appendix.
Based on the overall percentage change in
payments per case estimated using our
payment simulation model, we estimate that
total FY 2010 operating payments will
increase by 1.6 percent compared to FY 2009,
largely due to the statutorily mandated
update to the IPPS rates. The impacts do not
illustrate changes in hospital admissions or
real case-mix intensity, which will also affect
overall payment changes.
We have prepared separate impact analyses
of the changes to each system. This section
deals with changes to the operating
prospective payment system for acute care
hospitals. Our payment simulation model
relies on the most recent available data to
enable us to estimate the impacts on
payments per case of certain changes in this
final rule. However, there are other changes
for which we do not have data available that
would allow us to estimate the payment
impacts using this model. For those changes,
we have attempted to predict the payment
impacts based upon our experience and other
more limited data.
The data used in developing the
quantitative analyses of changes in payments
per case presented below are taken from the
FY 2008 MedPAR file and the most current
Provider-Specific File that is used for
payment purposes. Although the analyses of
the changes to the operating PPS do not
incorporate cost data, data from the most
recently available hospital cost report were
used to categorize hospitals. Our analysis has
several qualifications. First, in this analysis,
we do not make adjustments for future
changes in such variables as admissions,
lengths of stay, or underlying growth in real
case-mix. Second, due to the interdependent
nature of the IPPS payment components, it is
very difficult to precisely quantify the impact
associated with each change. Third, we use
various sources for the data used to
categorize hospitals in the tables. In some
cases, particularly the number of beds, there
is a fair degree of variation in the data from
different sources. We have attempted to
construct these variables with the best
available source overall. However, for
individual hospitals, some
miscategorizations are possible.
Using cases from the FY 2008 MedPAR
file, we simulated payments under the
operating IPPS given various combinations of
payment parameters. Any short-term, acute
care hospitals not paid under the IPPS
(Indian Health Service hospitals and
hospitals in Maryland) were excluded from
the simulations. The impact of payments
under the capital IPPS, or the impact of
payments for costs other than inpatient
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44215
operating costs, are not analyzed in this
section. Estimated payment impacts of the
capital IPPS for FY 2010 are discussed in
section VIII. of this Appendix.
The changes discussed separately below
are the following:
• The effects of the annual reclassification
of diagnoses and procedures, full
implementation of the MS–DRG system and
100 percent cost-based MS–DRG relative
weights.
• The effects of the changes in hospitals’
wage index values reflecting wage data from
hospitals’ cost reporting periods beginning
during FY 2006, compared to the FY 2005
wage data.
• The effects of the changes to the hospital
labor-related share, where the hospital laborrelated share for hospitals with a wage index
greater than 1 has been rebased from 69.7
percent to 68.8 percent. Hospitals with a
wage index less than or equal to 1 will
continue to have a hospital labor-related
share of 62 percent.
• The effects of the recalibration of the
DRG relative weights as required by section
1886(d)(4)(C) of the Act, including the wage
and recalibration budget neutrality factors.
• The effects of geographic
reclassifications by the MGCRB that will be
effective in FY 2010.
• The effects of the second year of the 3year transition to apply rural floor budget
neutrality adjustment at the State level. In FY
2010, hospitals will receive a blended wage
index that is 50 percent of a wage index with
the State level rural and imputed floor budget
neutrality adjustment and 50 percent of a
wage index with the national budget
neutrality adjustment.
• The effects of section 505 of Public Law
108–173, which provides for an increase in
a hospital’s wage index if the hospital
qualifies by meeting a threshold percentage
of residents of the county where the hospital
is located who commute to work at hospitals
in counties with higher wage indexes.
• The total estimated change in payments
based on the FY 2010 policies relative to
payments based on FY 2009 policies that
include the market basket update of 2.1
percent.
To illustrate the impacts of the FY 2010
changes, our analysis begins with a FY 2009
baseline simulation model using: the FY
2010 market basket update of 2.1 percent; the
FY 2009 MS–DRG GROUPER (Version 26.0);
the most current CBSA designations for
hospitals based on OMB’s MSA definitions;
the FY 2009 wage index; and no MGCRB
reclassifications. Outlier payments are set at
5.1 percent of total operating DRG and outlier
payments.
Section 1886(b)(3)(B)(viii) of the Act, as
added by section 5001(a) of Public Law 109–
171, provides that, for FY 2007 and
subsequent years, the update factor will be
reduced by 2.0 percentage points for any
hospital that does not submit quality data in
a form and manner and at a time specified
by the Secretary. At the time this impact was
prepared, 94 hospitals did not receive the full
market basket rate-of-increase for FY 2009
because they failed the quality data
submission process. For purposes of the
simulations shown below, we modeled the
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payment changes for FY 2010 using a
reduced update for these 94 hospitals.
However, we do not have enough
information at this time to determine which
hospitals will not receive the full market
basket rate-of-increase for FY 2010.
Each policy change, statutorily or
otherwise, is then added incrementally to
this baseline, finally arriving at an FY 2010
model incorporating all of the changes. This
simulation allows us to isolate the effects of
each change.
Our final comparison illustrates the
percent change in payments per case from FY
2009 to FY 2010. Three factors not discussed
separately have significant impacts here. The
first factor is the update to the standardized
amount. In accordance with section
1886(b)(3)(B)(i) of the Act, we are updating
the standardized amounts for FY 2010 using
the most recently forecasted hospital market
basket increase for FY 2010 of 2.1 percent.
(Hospitals that fail to comply with the quality
data submission requirements to receive the
full update will receive an update reduced by
2.0 percentage points from 2.1 percent to 0.1
percent.) Under section 1886(b)(3)(B)(iv) of
the Act, the updates to the hospital-specific
amounts for SCHs and for MDHs are also
equal to the market basket percentage
increase, or 2.1 percent.
A second significant factor that affects the
changes in hospitals’ payments per case from
FY 2010 to FY 2010 is the change in a
hospital’s geographic reclassification status
from one year to the next. That is, payments
may be reduced for hospitals reclassified in
FY 2009 that are no longer reclassified in FY
2010. Conversely, payments may increase for
hospitals not reclassified in FY 2009 that are
reclassified in FY 2010. In addition, section
508 of Public Law 108–173, the special
reclassification provision, is set to expire in
FY 2010. The section 508 reclassification is
a nonbudget neutral provision, so overall
payments will be reduced as a result of the
expiration of this provision. In the impact
analysis for this final rule, the expiration of
certain special exceptions as well as section
508 of Public Law 108–173 resulted in
substantial impacts for a relatively small
number of hospitals in a particular category
because those providers have lost their
reclassification status resulting in a
percentage change in payments for the
category to be below the national mean.
A third significant factor is that we
currently estimate that actual outlier
payments during FY 2009 will be 5.4 percent
of total DRG payments. When the FY 2008
final rule was published, we projected FY
2009 outlier payments would be 5.1 percent
of total DRG plus outlier payments; the
average standardized amounts were offset
correspondingly. The effects of the higher
than expected outlier payments during FY
2009 (as discussed in the Addendum to this
final rule) are reflected in the analyses below
comparing our current estimates of FY 2009
payments per case to estimated FY 2010
payments per case (with outlier payments
projected to equal 5.1 percent of total DRG
payments).
B. Analysis of Table I
Table I displays the results of our analysis
of the changes for FY 2010. The table
categorizes hospitals by various geographic
and special payment consideration groups to
illustrate the varying impacts on different
types of hospitals. The top row of the table
shows the overall impact on the 3,517 acute
care hospitals included in the analysis.
The next four rows of Table I contain
hospitals categorized according to their
geographic location: all urban, which is
further divided into large urban and other
urban; and rural. There are 2,525 hospitals
located in urban areas included in our
analysis. Among these, there are 1,377
hospitals located in large urban areas
(populations over 1 million), and 1,148
hospitals in other urban areas (populations of
1 million or fewer). In addition, there are 992
hospitals in rural areas. The next two
groupings are by bed-size categories, shown
separately for urban and rural hospitals. The
final groupings by geographic location are by
census divisions, also shown separately for
urban and rural hospitals.
The second part of Table I shows hospital
groups based on hospitals’ FY 2010 payment
classifications, including any
reclassifications under section 1886(d)(10) of
the Act. For example, the rows labeled urban,
large urban, other urban, and rural show that
the numbers of hospitals paid based on these
categorizations after consideration of
geographic reclassifications (including
reclassifications under section 1886(d)(8)(B)
and section 1886(d)(8)(E) of the Act that have
implications for capital payments) are 2,593,
1,422, 1,171 and 924, respectively.
The next three groupings examine the
impacts of the changes on hospitals grouped
by whether or not they have GME residency
programs (teaching hospitals that receive an
IME adjustment) or receive DSH payments, or
some combination of these two adjustments.
There are 2,475 nonteaching hospitals in our
analysis, 804 teaching hospitals with fewer
than 100 residents, and 238 teaching
hospitals with 100 or more residents.
In the DSH categories, hospitals are
grouped according to their DSH payment
status, and whether they are considered
urban or rural for DSH purposes. The next
category groups together hospitals considered
urban or rural, in terms of whether they
receive the IME adjustment, the DSH
adjustment, both, or neither.
The next five rows examine the impacts of
the changes on rural hospitals by special
payment groups (SCHs, RRCs, and MDHs).
There were 187 RRCs, 337 SCHs, 186 MDHs,
and 106 hospitals that are both SCHs and
RRCs, and 15 hospitals that are both an MDH
and an RRC.
The next series of groupings are based on
the type of ownership and the hospital’s
Medicare utilization expressed as a percent
of total patient days. These data were taken
from the FY 2007 or FY 2006 Medicare cost
reports.
The next two groupings concern the
geographic reclassification status of
hospitals. The first grouping displays all
urban hospitals that were reclassified by the
MGCRB for FY 2010. The second grouping
shows the MGCRB rural reclassifications.
The final category shows the impact of the
policy changes on the 20 cardiac hospitals in
our analysis.
TABLE I—IMPACT ANALYSIS OF CHANGES TO THE IPPS FOR OPERATING COSTS FOR FY 2010
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All Hospitals ............................
By Geographic Location:
Urban hospitals ................
Large urban areas ...........
Other urban areas ............
Rural hospitals .................
Bed Size (Urban):
0–99 beds ........................
100–199 beds ..................
200–299 beds ..................
300–499 beds ..................
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FY 2010
Weights &
DRG
changes
Application
of recalibration
budget
neutrality
FY 2010
Wage data
and laborrelated
share
Application
of wage
budget
neutrality
(1)
Number
of
hospitals
FY 2010
DRG, rel.
wts., wage
index
changes,
labor-related share
with wage
and recalibration
budget
neutrality
(2)
(3)
(4)
(5)
FY 2010
MGCRB
reclassifications
Transitional 1⁄2
within state
rural floor
budget
neutrality
and 1⁄2 national rural
floor
budget
neutrality
FY 2010
Outmigration
adjustment
All
FY 2010
changes
(6)
(7)
(8)
(9)
3,517
0.2
0
0
0
0
0
0
0
1.6
2,525
1,377
1,148
992
0.2
0.2
0.2
0
0
0
0
¥0.2
0
0
¥0.1
¥0.2
0
0
0
¥0.1
0
0
¥0.1
¥0.3
¥0.2
¥0.3
0
1.8
0
0
0.1
¥0.1
0
0
0
0.1
1.6
1.7
1.5
1.6
634
808
466
426
0.4
0.2
0.2
0.2
0.1
0
0
0
0.1
0
0
¥0.1
0.2
0
0
¥0.1
0.2
0
0
¥0.1
¥0.5
¥0.1
¥0.1
¥0.2
0
0.1
0
0
0
0
0
0
1.8
1.6
1.7
1.5
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TABLE I—IMPACT ANALYSIS OF CHANGES TO THE IPPS FOR OPERATING COSTS FOR FY 2010—Continued
sroberts on DSKD5P82C1PROD with RULES
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 ...........
West North Central ..........
West South Central ..........
Mountain ..........................
Pacific ...............................
By Payment Classification:
Urban hospitals ................
Large urban areas ...........
Other urban areas ............
Rural areas ......................
Teaching Status:
Nonteaching .....................
Fewer than 100 residents
100 or more residents ......
Urban DSH:
Non-DSH ..........................
100 or more beds ............
Less than 100 beds .........
Rural DSH:
SCH ..................................
RRC .................................
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
Special Hospital Types:
RRC .................................
SCH ..................................
MDH .................................
SCH and RRC .................
MDH and RRC .................
Type of Ownership:
Voluntary ..........................
Proprietary ........................
Government .....................
Medicare Utilization as a Percent of Inpatient Days:
0–25 .................................
25–50 ...............................
50–65 ...............................
Over 65 ............................
FY 2010 Reclassifications by
the Medicare Geographic
Classification Review Board:
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FY 2010
Weights &
DRG
changes
Application
of recalibration
budget
neutrality
FY 2010
Wage data
and laborrelated
share
Application
of wage
budget
neutrality
(1)
Number
of
hospitals
FY 2010
DRG, rel.
wts., wage
index
changes,
labor-related share
with wage
and recalibration
budget
neutrality
(2)
(3)
(4)
(5)
FY 2010
MGCRB
reclassifications
Transitional 1⁄2
within state
rural floor
budget
neutrality
and 1⁄2 national rural
floor
budget
neutrality
FY 2010
Outmigration
adjustment
All
FY 2010
changes
(6)
(7)
(8)
(9)
0.1
0.1
¥0.3
¥0.1
0
1.7
¥0.2
¥0.2
¥0.3
¥0.2
¥0.1
¥0.1
¥0.1
¥0.2
¥0.1
¥0
¥0.5
¥0.4
¥0.4
¥0.3
¥0.2
0.5
0.9
2.3
2.4
2.6
¥0.1
¥0.1
¥0.1
¥0.1
¥0.1
0.2
0.1
0
0.1
0
2.2
1.5
1.5
1.6
1.5
0
0
0
0
0
0
0
0.1
0
¥0.2
1
0
¥0.3
¥0.4
¥0.3
0.3
¥0.3
0.9
0.3
¥0.1
0.8
¥0.1
¥0.2
¥0.3
¥0.1
0.2
¥0.2
0.8
0.2
0.2
0.8
¥0.1
¥0.2
¥0.2
¥0.1
0.2
¥0.2
0.8
0.1
¥0.2
0.7
0.2
¥0.4
¥0.3
¥0.3
¥0.6
¥0.6
¥0.4
¥0.2
¥0.8
0.3
0.1
¥0.1
¥0.1
0
¥0.1
¥0.1
0
0.1
¥0.1
0
0
0
0
0
0
0
0
0
0
2.2
1.5
1.5
1.3
1.6
1.8
1.7
2.9
1.4
1.6
0.1
¥0.1
0
0
0
0
0
0.2
0.1
¥0.2
¥0.3
¥0.2
¥0.2
¥0.2
¥0.2
¥0.2
0
¥0.2
¥0.5
0.2
¥0.3
¥0.2
¥0
¥0.2
¥0.4
0.2
¥0.3
¥0.5
0.2
¥0.2
¥0.2
0.1
¥0.2
¥0.3
0.2
¥0.2
¥0.7
¥0.1
¥0.4
¥0.4
¥0.2
¥0.4
¥0.5
0.2
¥0.5
2
1.7
1.7
1.5
2.8
0.6
2.1
0.2
1.8
¥0.2
0
¥0.1
¥0.1
¥0.1
0
¥0.1
0
¥0.1
0
0
0.1
0
0.1
0
0.1
0
0
0.2
0.9
2.1
1
1.9
1.3
1.3
3.7
2.8
2,593
1,422
1,171
924
0.2
0.2
0.2
¥0
0
0
0
¥0.2
0
0
¥0.1
¥0.2
0
0
0
¥0.1
0
0
¥0.1
¥0.3
¥0.2
¥0.3
0
1.6
0
0
0.1
0
0
0
0
0.1
1.6
1.7
1.5
1.6
2,475
804
238
0.2
0.2
0.2
0
0
0
¥0.1
¥0.1
0.1
¥0.1
0
0.1
¥0.1
0
0.1
0.3
¥0.2
¥0.2
0
0
0
0
0
0
1.6
1.6
1.7
845
1,538
346
0.2
0.2
0.1
0
0
¥0.1
¥0.1
0
0.1
¥0.1
0
0.1
¥0.2
0
0
0.1
¥0.2
¥0.2
0
0
0
0
0
0
1.3
1.7
1.9
397
207
34
150
¥0.2
0.1
0.1
0.1
¥0.3
¥0.1
¥0.2
¥0.1
¥0.1
¥0.2
0.3
¥0.4
¥0.1
¥0.1
0.3
¥0.2
¥0.4
¥0.3
0.1
¥0.4
0.3
2.7
0.9
1.4
0
¥0.1
0.4
¥0.1
0.1
0
0.2
0.3
2.1
1.5
1.5
1.2
802
178
1,082
531
0.2
0.2
0.2
0.3
0
0
0
0
0
¥0.2
¥0.1
0
0.1
¥0.2
¥0.1
0
0.1
¥0.3
¥0.1
¥0.1
¥0.3
0.2
0
¥0.2
0
0.1
0.1
0
0
0
0
0
1.7
1.3
1.6
1.4
187
337
186
106
15
0.1
¥0.1
¥0.2
0
¥0.2
0
¥0.3
¥0.4
¥0.2
¥0.4
0
¥0.1
¥0.2
0
¥0.2
0.1
¥0
¥0.1
0
¥0.2
¥0
¥0.4
¥0.5
¥0.2
¥0.6
3.3
0.2
0.5
0.7
0.4
¥0.1
0
¥0.1
0
0
0
0
0.2
0
0
1.6
2.1
2.2
1.7
0.2
2,014
860
583
0.2
0.3
0.1
0
0.1
0
0
¥0.1
0.1
0
0
0.1
¥0.1
0
0
0
0
0
0
¥0.1
0.1
0
0
0
1.6
1.7
1.9
317
1,433
1,331
308
0.2
0.2
0.1
0
0.1
0
¥0.1
¥0.1
0.4
0
¥0.2
¥0.3
0.4
0
¥0.1
¥0.2
0.4
0
¥0.2
¥0.4
¥0.4
¥0.3
0.6
0.2
¥0.1
0
0
0.1
0
0
0
0.1
2.2
1.7
1.4
1.4
191
0.2
0
0
349
370
164
62
42
¥0.1
0
0
0.1
0.1
¥0.3
¥0.2
¥0.2
¥0.2
¥0.1
120
344
388
397
160
165
346
163
391
51
0.2
0.1
0.2
0.2
0.2
0.3
0.2
0.3
0.3
0
24
70
171
122
176
101
224
72
32
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Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 / Rules and Regulations
TABLE I—IMPACT ANALYSIS OF CHANGES TO THE IPPS FOR OPERATING COSTS FOR FY 2010—Continued
All Reclassified Hospitals
Non-Reclassified Hospitals .............................
Urban Hospitals Reclassified ................................
Urban Nonreclassified
Hospitals, FY 2010:
All Rural Hospitals Reclassified FY 2010:
Rural Nonreclassified
Hospitals FY 2010:
All Section 401 Reclassified Hospitals:
Other Reclassified Hospitals (Section
1886(d)(8)(B)) ...............
Specialty Hospitals:
Cardiac specialty Hospitals .............................
FY 2010
Weights &
DRG
changes
Application
of recalibration
budget
neutrality
FY 2010
Wage data
and laborrelated
share
Application
of wage
budget
neutrality
(1)
Number
of
hospitals
FY 2010
DRG, rel.
wts., wage
index
changes,
labor-related share
with wage
and recalibration
budget
neutrality
(2)
(3)
(4)
(5)
FY 2010
MGCRB
reclassifications
Transitional 1⁄2
within state
rural floor
budget
neutrality
and 1⁄2 national rural
floor
budget
neutrality
FY 2010
Outmigration
adjustment
All
FY 2010
changes
(6)
(7)
(8)
(9)
807
0.2
0
¥0.2
¥0.1
¥0.2
2
¥0.1
0
1.6
2,710
0.2
0
0
0
0
¥0.7
0
0
1.6
456
0.2
0
¥0.2
¥0.1
¥0.2
¥0.1
0
1.6
2,045
0.2
0
0
0
0
0
0
1.6
351
0.1
¥0.1
¥0.2
¥0.1
¥0.3
2.8
¥0.1
0
1.7
579
¥0.1
¥0.3
¥0.2
¥0.1
¥0.4
¥0.3
¥0.1
0.2
1.6
32
¥0.1
¥0.3
0.2
0.2
¥0.2
¥0.4
0.4
0
0.3
62
¥0.1
¥0.3
¥0.2
¥0.1
¥0.5
3.1
¥0.2
0
0.9
20
¥0.1
¥0.2
0
0.1
¥0.2
¥0.8
0
0
1.6
1.7
¥0.7
1 Because
data necessary to classify some hospitals by category were missing, the total number of hospitals in each category may not equal the national total. Discharge data are from FY 2008, and hospital cost report data are from reporting periods beginning in FY 2007 and FY 2006.
2 This column displays the payment impact of the changes to the Version 27 GROUPER and the recalibration of the DRG weights based on FY 2008 MedPAR data
in accordance with section 1886(d)(4)(C)(iii) of the Act.
3 This column displays the application of the recalibration budget neutrality factor of 0.997941, in accordance with section 1886(d)(4)(C)(iii) of the Act.
4 This column displays the payment impact of the update to wage index data using FY 2006 cost report data and the update to the labor-related share for providers
with a wage index greater than 1. Based on FY 2006 data, the labor related share, or the proportion of the standardized amount that the wage index is applied to, is
being reduced from 69.7 percent to 68.8 percent.
5This column displays the payment impact of the application of the wage budget neutrality factor, which from now on will be calculated separately from the recalibration budget neutrality factor, and will be calculated in accordance with section 1886(d)(3)(E)(i) of the Act. The wage budget neutrality factor is 1.000407.
6 This column displays the combined payment impact of the changes in Columns 2 through 5 and the cumulative budget neutrality factor for DRG and wage
changes in accordance with section 1886(d)(4)(C)(iii) of the Act and section 1886(d)(3)(E) of the Act. The cumulative wage and recalibration budget neutrality factor of
0.998347 is the product of the wage budget neutrality factor and the recalibration budget neutrality factor.
7 Shown here are the effects of geographic reclassifications by the Medicare Geographic Classification Review Board (MGCRB). The effects demonstrate the FY
2010 payment impact of going from no reclassifications to the reclassifications scheduled to be in effect for FY 2009. Reclassification for prior years has no bearing
on the payment impacts shown here. This column reflects the geographic budget neutrality factor of 0.991297.
8 This column displays the effects of the rural floor and the imputed floor, including the transition to the rural floor budget neutrality adjustment at the State level.
Under the transition, hospitals will receive a blended wage index that is 50 percent of a wage index with the State level rural and imputed floor budget neutrality adjustment and 50 percent of a wage index with the national budget neutrality adjustment.
9 This column displays the impact of section 505 of Public Law 108–173, which provides for an increase in a hospital’s wage index if the hospital qualifies by meeting a threshold percentage of residents of the county where the hospital is located who commute to work at hospitals in counties with higher wage indexes.
10 This column shows the changes in payments from FY 2009 to FY 2010. It incorporates all of the changes displayed in Columns 5, 6, 7, and 8 (the changes displayed in Columns 2, 4 are included in Column 5). It also reflects the impact of the FY 2010 market basket update, and changes in hospitals’ reclassification status in
FY 2010 compared to FY 2009. The sum of these impacts may be different from the percentage changes shown here due to rounding and interactive effects.
sroberts on DSKD5P82C1PROD with RULES
C. Effects of the Changes to the MS–DRG
Reclassifications and Relative Cost-Based
Weights (Column 1)
In Column 1 of Table I, we present the
effects of the DRG reclassifications, as
discussed in section II. of the preamble to
this final rule. Section 1886(d)(4)(C)(i) of the
Act requires us annually to make appropriate
classification changes in order to reflect
changes in treatment patterns, technology,
and any other factors that may change the
relative use of hospital resources.
As discussed in the preamble of this final
rule, the FY 2010 DRG relative weights will
be 100 percent cost-based and 100 percent
MS–DRGs. For FY 2010, the MS–DRGs are
calculated using the FY 2008 MedPAR data
grouped to the Version 27.0 (FY 2010) DRGs.
The methods of calculating the relative
weights and the reclassification changes to
the GROUPER are described in more detail in
section II.H. of the preamble to this final rule.
The changes to the relative weights and MS–
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19:22 Aug 26, 2009
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DRGs shown in Column 2 are prior to any
offset for budget neutrality. Overall, hospitals
will experience a 0.2 percent increase in
payments due to the changes in the MS–
DRGs and relative weights prior to budget
neutrality. Urban hospitals will experience a
0.2 percent increase in payments under the
updates to the relative weights and DRGs,
while rural hospitals will not experience a
change in payments. Under the MS–DRG
system, rural hospitals generally will not
experience an increase in payments from
recalibration due to the lower acuity of
services provided.
D. Effects of the Application of Recalibration
Budget Neutrality (Column 2)
Column 2 shows the effects of the changes
to the MS–DRGs and relative weights with
the application of the recalibration budget
neutrality factor to the standardized amounts.
Consistent with section 1886(d)(4)(C)(iii) of
the Act, we are calculating a recalibration
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budget neutrality factor to account for the
changes in MS–DRGs and relative weights to
ensure that the overall payment impact is
budget neutral. Beginning in FY 2010, we are
calculating a budget neutrality factor to
account for changes in MS–DRGs and relative
weights separately from the budget neutrality
factor to account for changes in wage data.
In addition, as described in section II.A.4. of
the Addendum to this final rule, we are
including IME payments made on Medicare
Advantage claims to IPPS hospitals in order
to calculate budget neutrality.
The ‘‘All Hospitals’’ line in Column 1
indicates that changes due to MS–DRGs and
relative weights will increase payments by
0.2 percent before application of the budget
neutrality factor. The recalibration budget
neutrality factor is 0.997941, which is
applied to the standardized amount. Thus,
the impact after accounting only for budget
neutrality for changes to the MS–DRG
relative weights and classification is
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somewhat lower than the figures shown in
Column 1 (approximately 0.2 percent).
Consequentially, urban hospitals will not
experience a change in payments when
recalibration budget neutrality is applied,
while rural hospitals will experience a 0.2
percent decrease in payments due to the
lower acuity of services provided.
E. Effects of Wage Index Changes (Column 3)
Section 1886(d)(3)(E) of the Act requires
that, beginning October 1, 1993, we annually
update the wage data used to calculate the
wage index. In accordance with this
requirement, the wage index for acute care
hospitals for FY 2010 is based on data
submitted for hospital cost reporting periods
beginning on or after October 1, 2005 and
before October 1, 2006. The estimated impact
of the updated wage data and labor share on
hospital payments is isolated in Column 3 by
holding the other payment parameters
constant in this simulation. That is, Column
3 shows the percentage change in payments
when going from a model using the FY 2009
wage index, based on FY 2005 wage data, the
current labor-related share and having a 100percent occupational mix adjustment
applied, to a model using the FY 2010 prereclassification wage index with the laborrelated share, also having a 100-percent
occupational mix adjustment applied, based
on FY 2006 wage data (while holding other
payment parameters such as use of the
Version 26.0 DRG GROUPER constant). The
occupational mix adjustment is based on the
FY 2007/2008 occupational mix survey. The
wage data collected on the FY 2006 cost
report include overhead costs for contract
labor that were not collected on FY 2005 and
earlier cost reports. The impacts below
incorporate the effects of the FY 2006 wage
data collected on hospital cost reports,
including additional overhead costs for
contract labor compared to the wage data
from FY 2005 cost reports that were used to
calculate the FY 2009 wage index.
As discussed in section III. of this final
rule, under section 1886(d)(3)(E) of the Act,
the Secretary estimates from time to time the
proportion of payments 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 proportion of hospitals’ costs that are
attributable to wages and wage-related costs
as the ‘‘labor-related share.’’
The labor-related share is used to
determine the proportion of the national IPPS
base payment rate to which the area wage
index is applied. In this final rule, we
describe our updated methodology and data
sources to calculate the national labor-related
share. In the proposed rule, using the cost
category weights from the FY 2006-based
IPPS market basket, we proposed a laborrelated share of 67.1 percent. In this final
rule, based on updated data, we have
determined a labor-related share of 68.8
percent, approximately 0.9 percentage points
lower than the current labor-related share of
69.7 percent. Accordingly, in this final rule,
we are implementing a national labor-related
share of 68.8 percent for discharges occurring
on or after October 1, 2009. This updated
calculation only affects hospitals with a wage
index greater than 1. According to section
1886(d)(3)(E)(ii) of the Act, hospitals with a
wage index less than or equal to 1 have their
wage index adjusted to 62 percent of the
national standardized amount; therefore,
these hospitals remain unaffected by the
updated labor-related share. In addition, we
are updating the labor-related share for
Puerto Rico. Using FY 2006-based Puerto
Rico cost category weights, we calculated a
labor-related share of 62.1 percent,
approximately 3 percentage points higher
than the current Puerto Rico specific laborrelated share of 58.721. Accordingly, for FY
2010, we are adopting an updated Puerto
Rico labor-related share of 62.1 percent for
hospitals with a wage index greater than 1.
Column 3 shows the impacts of updating
the wage data using FY 2006 cost reports and
the updated labor-related share. The payment
changes simulated in this column are used to
calculate the wage budget neutrality.
Beginning in FY 2010, we are calculating
separate wage budget neutrality and
recalibration budget neutrality factors, in
accordance with section 1886(d)(3)(E) of the
Act, which specifies that budget neutrality to
account for wage changes or updates made
under that subparagraph must be made
without regard to the 62 percent labor-related
share guaranteed under section
1886(d)(3)(E)(ii) of the Act. Therefore, for FY
2010, we are calculating the wage budget
neutrality factor to ensure that payments
under updated wage data and the laborrelated share are budget neutral without
regard to the lower labor-related share of 62
percent applied to hospitals with a wage
index less than or equal to 1. In other words,
the wage budget neutrality is calculated
under the assumption that all hospitals
receive the higher labor-related share of the
standardized amount. Column 3 shows the
effects of the new wage data and new labor
share before budget neutrality under the
assumption that all providers have their wage
44219
index adjusted by the same labor-related
share. Overall, the new wage data will lead
to a 0.0 percent change for all hospitals
before being combined with the wage budget
neutrality adjustment shown in Column 5.
Thus, the figures in this column are
estimated to be the same as what they
otherwise would be if they also illustrated a
budget neutrality adjustment solely for
changes to the wage index and labor-related
share. Among the regions, the largest increase
is in the urban New England region, which
experiences a 1.0 percent increase before
applying an adjustment for budget neutrality.
The largest decline from updating the wage
data is seen in rural New England (¥0.5
percent decrease).
In looking at the wage data itself, the
national average hourly wage increased 4.0
percent compared to FY 2009. Therefore, the
only manner in which to maintain or exceed
the previous year’s wage index was to match
or exceed the national 4.0 percent increase in
average hourly wage. Of the 3,467 hospitals
with wage data for both FYs 2009 and 2010,
1,662, or 47.9 percent, experienced an
average hourly wage increase of 4.0 percent
or more.
The following chart compares the shifts in
wage index values for hospitals for FY 2010
relative to FY 2009. Among urban hospitals,
36 will experience an increase of more than
5 percent and less than 10 percent and 8 will
experience an increase of more than 10
percent. Among rural hospitals, 7 will
experience an increase of more than 5
percent and less than 10 percent, and none
will experience an increase of more than 10
percent. However, 952 rural hospitals will
experience increases or decreases of less than
5 percent, while 2,421 urban hospitals will
experience increases or decreases of less than
5 percent. Thirty-seven urban hospitals will
experience decreases in their wage index
values of more than 5 percent and less than
10 percent. Six urban hospitals will
experience decreases in their wage index
values of greater than 10 percent. No rural
hospitals will experience decreases of more
than 5 percent. These figures reflect changes
in the wage index which is an adjustment to
either 68.8 percent or 62 percent of a
hospital’s standardized amount, depending
upon whether its wage index is greater than
1.0 or less than or equal to 1.0. Therefore,
these figures are illustrating a somewhat
larger change in the wage index than will
occur to the hospital’s total payment.
The following chart shows the projected
impact for urban and rural hospitals.
Number of hospitals
Percentage change in area wage index values
sroberts on DSKD5P82C1PROD with RULES
Urban
Increase more than 10 percent .......................................................................................................................................
Increase more than 5 percent and less than 10 percent ................................................................................................
Increase or decrease less than 5 percent .......................................................................................................................
Decrease more than 5 percent and less than 10 percent ..............................................................................................
Decrease more than 10 percent ......................................................................................................................................
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8
36
2,421
37
6
Rural
0
7
952
0
0
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sroberts on DSKD5P82C1PROD with RULES
F. Application of the Wage Budget Neutrality
Factor (Column 4)
Column 4 shows the impact of the new
wage data, new labor share with the
application of the wage budget neutrality
factor. For FY 2010, we will calculate the
wage budget neutrality factor without regard
to the lower labor share of 62 percent for
hospitals with a wage index less than or
equal to 1, in accordance with section
1886(d)(3)(E)(i) of the Act. In other words,
the wage budget neutrality is calculated
under the assumption that all hospitals
receive the labor-related share of 68.8 percent
of the standardized amount compared to the
current labor-related share of 69.7 percent of
the standardized amount. In addition, as
described in section II.A.4. of the Addendum
to this final rule, we are including IME
payments made on Medicare Advantage
claims to IPPS hospitals in order to calculate
budget neutrality. Because the wage data
changes did not change overall payments
(displayed in Column 3), the wage budget
neutrality factor is minimal at 1.000407, and
the overall payment change is 0.0 percent.
G. Combined Effects of MS–DRG and Wage
Index Changes (Column 5)
Section 1886(d)(4)(C)(iii) of the Act
requires that changes to MS–DRG
reclassifications and the relative weights
cannot increase or decrease aggregate
payments. In addition, section 1886(d)(3)(E)
of the Act specifies that any updates or
adjustments to the wage index are to be
budget neutral. We computed a wage budget
neutrality factor of 1.000411, and a
recalibration budget neutrality factor of
0.997926 (which is applied to the Puerto Rico
specific standardized amount and the
hospital-specific rates). The product of the
two budget neutrality factors is the
cumulative wage and recalibration budget
neutrality factor. The cumulative wage and
recalibration budget neutrality adjustment is
0.998347 or approximately ¥0.2 percent
which is applied to the national standardized
amounts. Because the wage budget neutrality
and the recalibration budget neutrality are
calculated under different methodologies
according to the statute, when the two budget
neutralities are combined and applied to the
standardized amount, the overall payment
impact is not necessarily budget neutral.
However, in this final rule, we are estimating
that the changes in the DRG, relative weights
and updated wage data and rebased laborrelated share with wage and budget
neutrality applied will result in a 0.0 change
in payments. The estimated changes shown
in this column reflect the combined effects of
the changes in Columns 2, 3, and 4 and the
budget neutrality factors discussed
previously.
We estimate that the combined impact of
the changes to the relative weights and DRGs,
the updated wage data and changes to the
labor share with budget neutrality applied
will result in no change in payments for
urban hospitals. Rural hospitals will
generally experience a decrease in payments
(¥0.3 percent) primarily due to payment
decreases under the MS–DRGs and wage
data. Among the rural hospital categories,
rural New England hospitals will experience
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the greatest decline in payment (¥0.7
percent) primarily due to the changes to MS–
DRGs and the relative cost weights.
H. Effects of MGCRB Reclassifications
(Column 6)
Our impact analysis to this point has
assumed acute care hospitals are paid on the
basis of their actual geographic location (with
the exception of ongoing policies that
provide that certain hospitals receive
payments on other bases than where they are
geographically located). The changes in
Column 6 reflect the per case payment
impact of moving from this baseline to a
simulation incorporating the MGCRB
decisions for FY 2010 which affect hospitals’
wage index area assignments. By Spring of
each year, the MGCRB makes reclassification
determinations that will be effective for the
next fiscal year, which begins on October 1.
The MGCRB may approve a hospital’s
reclassification request for the purpose of
using another area’s wage index value.
Hospitals may appeal denials of MGCRB
decisions to the CMS Administrator. Further,
hospitals have 45 days from publication of
the IPPS rule in the Federal Register to
decide whether to withdraw or terminate an
approved geographic reclassification for the
following year. This column reflects all
MGCRB decisions, Administrator appeals
and decisions of hospitals for FY 2010
geographic reclassifications. The overall
effect of geographic reclassification is
required by section 1886(d)(8)(D) of the Act
to be budget neutral. Therefore, for the
purposes of this impact analysis, we are
applying an adjustment of 0.991297 to ensure
that the effects of the section 1886(d)(10)
reclassifications are budget neutral. (See
section II.A. of the Addendum to this final
rule.) Geographic reclassification generally
benefits hospitals in rural areas. We estimate
that geographic reclassification will increase
payments to rural hospitals by an average of
1.8 percent.
Table 9A of the Addendum to this final
rule reflects the approved reclassifications for
FY 2010.
I. Effects of the Rural Floor and Imputed
Floor, Including the Transition To Apply
Budget Neutrality at the State Level (Column
7)
As discussed in section III.B. of the
preamble of the FY 2009 IPPS final rule and
this final rule, section 4410 of Public Law
105–33 established the rural floor by
requiring that the wage index for a hospital
in any urban area cannot be less than the
wage index received by rural hospitals in the
same State. In FY 2008, we changed how we
applied budget neutrality to the rural floor.
Rather than applying a budget neutrality
adjustment to the standardized amount, a
uniform budget neutrality adjustment is
applied to the wage index. In the FY 2009
final rule, we finalized the policy to apply
the rural floor budget neutrality at the State
level with a 3-year transition. In FY 2009,
hospitals received a blended wage index that
is 20 percent of a wage index with the State
level rural and imputed floor budget
neutrality adjustment and 80 percent of a
wage index with the national budget
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neutrality adjustment. As described in FY
2009 IPPS final rule (73 FR 48570), in FY
2010, hospitals will receive a blended wage
index that is 50 percent of a wage index with
the State level rural and imputed floor budget
neutrality and 50 percent of a wage index
with the national budget neutrality
adjustment. The national rural floor budget
neutrality applied to the wage index is
0.996705. The blended rural floor budget
neutrality factors applied to the wage index
are shown in Table 4D–1 in the Addendum
to this final rule. After the wage index is
blended, an additional adjustment of
0.999995 is applied to the wage index to
ensure that payments before the application
of the rural floor are equivalent to the
payments under the blended budget neutral
rural floor wage index.
Furthermore, the FY 2005 IPPS final rule
(69 FR 49109) established a temporary
imputed floor for all urban States from FY
2005 to FY 2007. The rural floor requires that
an urban wage index cannot be lower than
the wage index for any rural hospital in that
State. Therefore, an imputed floor was
established for States that do not have rural
areas or rural IPPS hospitals. In the FY 2008
IPPS final rule with comment period (72 FR
47321), we finalized our proposal to extend
the imputed floor for 1 additional year. In the
FY 2009 IPPS final rule (73 FR 48573), we
extended the imputed floor for an additional
3 years through FY 2011. Furthermore, in
that final rule, we provided for a 3-year
transition to the rural floor budget neutrality
adjustment at the State level. Therefore, we
also apply the imputed floor budget
neutrality adjustment at the State level
through a 3-year transition, so that wage
indices adjusted for the imputed floor will be
blended where 50 percent of the wage index
will have the national rural and imputed
floor budget neutrality factor applied and 50
percent of the wage index will have the
within-State rural and imputed budget
neutrality factor applied. The national rural
floor budget neutrality factor listed also
incorporates the imputed floor in its
adjustment to the wage index.
Column 7 shows the projected impact of
the rural floor and the imputed floor,
including the application of the transition to
within-State rural and imputed floor budget
neutrality. The column compares the postreclassification FY 2010 wage index of
providers before the rural floor adjustment
and the post-reclassification FY 2010 wage
index of providers with the rural floor and
imputed floor adjustment. Only urban
hospitals can benefit from the rural floor
provision. Because the provision is budget
neutral, in prior years, all other hospitals
(that is, all rural hospitals and those urban
hospitals to which the adjustment is not
made) had experienced a decrease in
payments due to the budget neutrality
adjustment applied nationally. However,
because, for FY 2010, the rural floor adjusted
wage index is based on a blend where 50
percent of the wage index will have a withinState budget neutrality factor applied and 50
percent of the wage index will have a
national rural floor budget neutrality factor
applied, rural hospitals and urban hospitals
that do not benefit from the rural floor will
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continue to see decreases in payments, to a
lesser extent. Conversely, all hospitals in
States with hospitals receiving a rural floor
will have their wage indices only partly
downwardly adjusted to achieve budget
neutrality within the State.
We project that, in aggregate, rural
hospitals will experience a 0.1 percent
decrease in payments as a result of the
application of rural floor budget neutrality
because these hospitals do not benefit from
the rural floor, but have their wage indexes
downwardly adjusted to ensure that the
application of the rural floor is budget
neutral overall. We project hospitals located
in other urban areas (populations of 1 million
or fewer) will experience a 0.1 percent
increase in payments because those providers
benefit from the rural floor. The rural floor
in Connecticut has increased significantly
resulting in increased payments to urban
hospitals in Connecticut that qualify for the
rural floor. Because the rural floor is a budget
neutral provision, rural hospitals located in
Connecticut and non-rural floor urban
providers will have their wage index
downwardly adjusted by a rural floor budget
neutrality factor of 0.978887 (or ¥2.1
percent). As a result, rural New England
hospitals can expect decreases in payments
by 0.2 percent while urban New England
hospitals can expect increases in payments of
0.3 percent. Urban Middle Atlantic hospitals
can expect a payment increase of 0.1 percent
primarily due to payment increases among
urban hospitals in New Jersey, which is the
only State that benefits from the imputed
floor.
sroberts on DSKD5P82C1PROD with RULES
J. Effects of the Wage Index Adjustment for
Out-Migration (Column 8)
Section 1886(d)(13) of the Act, as added by
section 505 of Public Law 108–173, 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 area with a higher wage
index. Hospitals located in counties that
qualify for the payment adjustment are to
receive an increase in the wage index that is
equal to a weighted average of the difference
between the wage index of the resident
county, post-reclassification and the higher
wage index work area(s), weighted by the
overall percentage of workers who are
employed in an area with a higher wage
index. With the out-migration adjustment,
small rural providers DSH providers with
less than 100 beds will experience a 0.3
percent increase in payments in FY 2010
relative to no adjustment at all. We included
these additional payments to providers in the
impact table shown above, and we estimate
the impact of these providers receiving the
out-migration increase to be approximately
$20 million.
K. Effects of All Changes (Column 9)
Column 9 shows our estimate of the
changes in payments per discharge from FY
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2009 and FY 2010, resulting from all changes
reflected in this final rule for FY 2010
(including statutory changes). In the IPPS
proposed rule, we had proposed to apply FY
2010 documentation and coding adjustment
of ¥1.9 percent on the national standardized
amount, ¥2.5 percent on the hospitalspecific amount and ¥1.1 percent on the
Puerto Rico-specific rate. However in this
final rule, we have decided to postpone the
application of the documentation and coding
adjustments. Because the hospital payment
projections are based on FY 2008 Medicare
claims data and we believe that case-mix was
expected to increase an additional 1.54
percent in FY 2009 and in FY 2010, the
payment models reflect a case-mix growth of
1.54 percent in FY 2009 and in FY 2010.
Column 9 reflects the impact of all FY 2010
changes relative to FY 2009, including those
shown in Columns 1 through 8. The average
increase in payments under the IPPS for all
hospitals is approximately 1.6 percent. This
average increase includes the effects of the
2.1 percent market basket update, the ¥0.3
percentage point difference between the
projected outlier payments in FY 2009 (5.1
percent of total DRG payments), the current
estimate of the percentage of actual outlier
payments in FY 2009 (5.4 percent), and a 0.2
percent decrease in payments due to the
expiration of section 508 reclassification.
There might also be interactive effects
among the various factors comprising the
payment system that we are not able to
isolate. For these reasons, the values in
Column 9 may not equal the sum of the
percentage changes described above.
The overall change in payments per
discharge for hospitals paid under the IPPS
in FY 2010 is estimated to increase by 1.6
percent. The payment increases among the
hospital categories are largely due to the
market basket update. Hospitals in urban
areas will experience an estimated 1.6
percent increase in payments per discharge
in FY 2010 compared to FY 2009. Hospitals
in large urban areas will experience an
estimated 1.7 percent increase and hospitals
in other urban areas will experience an
estimated 1.5 percent increase in payments
per discharge in FY 2010 as compared to FY
2009. Hospital payments per discharge in
rural areas are estimated to increase by 1.6
percent in FY 2010 as compared to FY 2009.
Among urban census divisions, the largest
estimated payment increases will be 2.2
percent in the New England region and 2.9
percent in the Mountain region. Among the
rural regions, the providers in the Mountain
region will experience the largest increase in
payments (3.7 percent) because several rural
SCHs located in this region will benefit from
rebasing to the 2006 hospital-specific rate
under section 112 of Public Law 110–275
(MIPPA). The rural providers in the New
England region will have the smallest
increase among rural regions at 0.2 percent
due to decreases associated with the
application of the rural floor budget
neutrality on their wage index.
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44221
Among special categories of rural
hospitals, MDHs will receive an estimated
payment increase of 2.2 percent. MDHs are
paid the higher of the IPPS rate based on the
national standardized amount, that is, the
Federal rate, or, if the hospital-specific rate
exceeds the Federal rate, the Federal rate
plus 75 percent of the difference between the
Federal rate and the hospital-specific rate.
This payment impact accounts for the
corrected wage and recalibration budget
neutrality factor, described in section V.B.2.
of the preamble of this final rule, applied to
the hospital-specific rates for MDHs that are
paid based on their FY 2002 hospital-specific
rate. Overall, SCHs will experience an
estimated increase in payments by 2.1
percent. The increase in payments to SCHs
can be largely attributed to the
implementation of section 112 of Pub. L.
110–275 (MIPPA), which allowed for SCHs to
be paid based on a FY 2006 hospital-specific
rate (that is, based on their updated costs per
discharge from their 12-month cost reporting
period beginning during Federal FY 2006), if
this results in the greatest payment to the
SCH, effective for cost reporting periods
beginning on or after January 1, 2009. We
estimated the FY 2006 hospital-specific rate
for SCHs that we believed will benefit from
the rebased rate and included those rates in
our analysis.
Rural hospitals reclassified for FY 2010 are
anticipated to receive a 1.7 percent payment
increase, and rural hospitals that are not
reclassifying are estimated to receive a
payment increase of 1.6 percent.
Cardiac hospitals are expected to
experience a payment increase of 1.6 percent
in FY 2010 relative to FY 2009.
L. Effects of Policy on Payment Adjustments
for Low-Volume Hospitals
For FY 2010, we are proposing to continue
to apply the volume adjustment criteria we
specified in the FY 2005 IPPS final rule (69
FR 49099). We expect that two providers will
receive the low-volume adjustment for FY
2010. We estimate that low-volume hospitals
will experience an increase of $82,000 in
payments due to the low volume payment
adjustment.
M. Impact Analysis of Table II
Table II presents the projected impact of
the changes for FY 2010 for urban and rural
hospitals and for the different categories of
hospitals shown in Table I. It compares the
estimated average payments per discharge for
FY 2009 with the payments per discharge for
FY 2010, as calculated under our models.
Thus, this table presents, in terms of the
average dollar amounts paid per discharge,
the combined effects of the changes
presented in Table I. The estimated
percentage changes shown in the last column
of Table II equal the estimated percentage
changes in average payments per discharge
from Column 9 of Table I.
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TABLE II—IMPACT ANALYSIS OF CHANGES FOR FY 2010 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE PAYMENT
SYSTEM
[Payments per discharge]
Average
FY 2009
payment per
discharge 1
(2)
Average
FY 2010
payment per
discharge 1
(3)
3,517
$9,996
$10,158
1.6
2,525
1,377
1,148
992
10,435
11,003
9,749
7,397
10,605
11,192
9,895
7,516
1.6
1.7
1.5
1.6
634
808
466
426
191
7,867
8,798
9,660
10,886
12,925
8,008
8,935
9,825
11,048
13,149
1.8
1.6
1.7
1.5
1.7
349
370
164
62
42
5,996
6,900
7,333
8,116
9,225
6,128
7,005
7,445
8,246
9,363
2.2
1.5
1.5
1.6
1.5
120
344
388
397
160
165
346
163
391
51
10,821
11,479
9,769
9,825
9,337
10,016
9,697
10,539
12,821
5,044
11,055
11,651
9,920
9,954
9,491
10,198
9,863
10,846
13,004
5,126
2.2
1.5
1.5
1.3
1.6
1.8
1.7
2.9
1.4
1.6
24
70
171
122
176
101
224
72
32
9,791
7,802
7,197
7,601
6,704
7,836
6,663
8,038
9,815
9,810
7,872
7,349
7,677
6,831
7,939
6,747
8,337
10,088
0.2
0.9
2.1
1
1.9
1.3
1.3
3.7
2.8
2,593
1,422
1,171
924
10,408
10,977
9,719
7,465
10,578
11,165
9,865
7,583
1.6
1.7
1.5
1.6
2,475
804
238
8,402
9,952
14,838
8,536
10,112
15,091
1.6
1.6
1.7
845
1,538
346
8,811
10,962
7,393
8,930
11,146
7,532
1.3
1.7
1.9
397
207
34
150
6,777
8,203
7,022
5,772
6,922
8,326
7,124
5,841
2.1
1.5
1.5
1.2
802
178
1,082
531
12,012
9,663
8,976
8,383
12,217
9,788
9,122
8,503
1.7
1.3
1.6
1.4
187
8,320
8,458
1.6
sroberts on DSKD5P82C1PROD with RULES
Number of
hospitals
All hospitals ......................................................................................................................
By Geographic Location:
Urban hospitals .........................................................................................................
Large urban areas (populations over 1 million) .......................................................
Other urban areas (populations of 1 million or fewer) .............................................
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 ...................................................................................................
West North Central ...................................................................................................
West South Central ..................................................................................................
Mountain ...................................................................................................................
Pacific .......................................................................................................................
By Payment Classification:
Urban hospitals .........................................................................................................
Large urban areas (populations over 1 million) .......................................................
Other urban areas (populations of 1 million or fewer) .............................................
Rural areas ...............................................................................................................
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:
SCH ..........................................................................................................................
RRC ..........................................................................................................................
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 ..........................................................................................................................
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All
FY 2010
changes
(4)
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44223
TABLE II—IMPACT ANALYSIS OF CHANGES FOR FY 2010 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE PAYMENT
SYSTEM—Continued
[Payments per discharge]
Average
FY 2009
payment per
discharge 1
(2)
Average
FY 2010
payment per
discharge 1
(3)
337
186
106
15
7,680
6,144
9,298
8,292
7,842
6,279
9,459
8,310
2.1
2.2
1.7
0.2
2,014
860
583
10,151
9,004
10,402
10,308
9,158
10,601
1.6
1.7
1.9
317
1,433
1,331
308
14,046
11,102
8,476
7,442
14,358
11,293
8,593
7,549
2.2
1.7
1.4
1.4
807
2,710
456
2,045
351
579
32
62
9,612
10,137
10,314
10,474
7,989
6,559
9,306
7,267
9,765
10,302
10,476
10,646
8,122
6,665
9,335
7,333
1.6
1.6
1.6
1.6
1.7
1.6
0.3
0.9
20
11,461
11,645
1.6
Number of
hospitals
SCH ..........................................................................................................................
MDH ..........................................................................................................................
SCH and RRC ..........................................................................................................
MDH and RRC .........................................................................................................
Type of Ownership:
Voluntary ...................................................................................................................
Proprietary ................................................................................................................
Government ..............................................................................................................
Medicare Utilization as a Percent of Inpatient Days:
0–25 ..........................................................................................................................
25–50 ........................................................................................................................
50–65 ........................................................................................................................
Over 65 .....................................................................................................................
Hospitals Reclassified by the Medicare Geographic Classification Review Board:
FY 2010 Reclassifications:
All Reclassified Hospitals FY 2010 ..........................................................................
All Non-Reclassified Hospitals FY 2010 ..................................................................
Urban Reclassified Hospitals FY 2010 ....................................................................
Urban Non-reclassified Hospitals FY 2010 ..............................................................
Rural Reclassified Hospitals FY 2010 ......................................................................
Rural Nonreclassified Hospitals FY 2010 ................................................................
All Section 401 Reclassified Hospitals .....................................................................
Other Reclassified Hospitals (Section 1886(d)(8)(B)) ..............................................
Specialty Hospitals:
Cardiac Hospitals .....................................................................................................
All
FY 2010
changes
(4)
1These
payment amounts per discharge reflect estimates of case-mix increase of 1.54 percent in FY 2009 and FY 2010. Using FY 2008
claims data to model payments for FY 2009 and FY 2010, we estimate case-mix will increase an additional 1.54 percent from FY 2008 to FY
2009 and from FY 2008 to FY 2010 due to the adoption of MS–DRGs.
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VII. Effects of Other Policy Changes
In addition to those policy changes
discussed above that we are able to model
using our IPPS payment simulation model,
we are making various other changes in this
final rule. Generally, we have limited or no
specific data available with which to estimate
the impacts of these changes. Our estimates
of the likely impacts associated with these
other changes are discussed below.
A. Effects of Policy on HACs, Including
Infections
In section II.F. of the preamble of this final
rule, we discuss our implementation of
section 1886(d)(4)(D) of the Act, which
requires the Secretary to identify conditions
that are: (1) High cost, high volume, or both;
(2) result in the assignment of a case to an
MS–DRG that has a higher payment when
present as a secondary diagnosis; and (3)
could reasonably have been prevented
through 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, unless based on data
and clinical judgment, it cannot be
determined at the time of admission whether
a condition is present. That is, the case will
be paid as though the secondary diagnosis
were not present. However, the statute also
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requires the Secretary to continue counting
the condition as a secondary diagnosis that
results in a higher IPPS payment when doing
the budget neutrality calculations for MS–
DRG reclassifications and recalibration.
Therefore, we will perform our budget
neutrality calculations as though the
payment provision did not apply, but
Medicare will make a lower payment to the
hospital for the specific case that includes
the secondary diagnosis. Thus, the provision
results in cost savings to the Medicare
program.
We note that the provision will only apply
when one or more of the selected conditions
are the only secondary diagnosis or diagnoses
present on the claim that will lead to higher
payment. Medicare beneficiaries will
generally have multiple secondary diagnoses
during a hospital stay, such that beneficiaries
having one MCC or CC will frequently have
additional conditions that also will generate
higher payment. Only a small percentage of
the cases will have only one secondary
diagnosis that would lead to a higher
payment. Therefore, if at least one
nonselected secondary diagnosis that leads to
higher payment is on the claim, the case will
continue to be assigned to the higher paying
MS–DRG and there will be no Medicare
savings from that case.
The HAC payment provision went into
effect on October 1, 2008. Our savings
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estimates for the next 5 fiscal years are
shown below:
Year
FY
FY
FY
FY
FY
2010
2011
2012
2013
2014
....................................
....................................
....................................
....................................
....................................
Savings
(in millions)
$21
21
22
22
22
B. Effects of Policy Change Relating to New
Medical Service and Technology Add-On
Payments
In the proposed rule, we discussed the five
applications for add-on payments for new
medical services and technologies for FY
2010. After the publication of the proposed
rule and prior to publication of this final
rule, three of the applicants withdrew their
application for consideration of new
technology add-on payments in FY 2010. In
section II.I. of the preamble to this final rule,
we discuss the remaining two applications
(LipiScanTM Coronary Imaging System and
the Spiration® IBV® Valve System) for addon payments for new medical services and
technologies for FY 2010, as well as the
status of the new technology that was
approved to receive new technology add-on
payments in FY 2009. As explained in that
section, add-on payments for new technology
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under section 1886(d)(5)(K) of the Act are not
required to be budget neutral. However, we
are providing an estimate of additional
payments for new technology add-on
payments because such payments will have
an impact on total operating IPPS payments
in FY 2010. For FY 2010 we are continuing
to make new technology add-on payments for
the CardiowestTM Temporary Total Artificial
Heart System (TAH-t). In addition, we are
approving the Spiration® IBV® Valve System
for new technology add-on payments in FY
2010. We note that new technology add-on
payments per case are limited to the lesser
of (1) 50 percent of the costs of the new
technology or (2) 50 percent of the amount
by which the costs of the case exceed the
standard MS–DRG payment for the case.
Because it is difficult to predict the actual
new technology add-on payment for each
case, our estimate below is based on the
increase in add-on payments for FY 2010 as
if every claim that would qualify for a new
technology add-on payments would receive
the maximum add-on payment. Therefore,
we currently estimate that payments for the
TAH-t will increase overall FY 2010
payments by $9.54 million. For the
Spiration® IBV® Valve System, the applicant
estimates that approximately 2,286 Medicare
beneficiaries will be eligible for the
Spiration® IBV® Valve System. Therefore, we
currently estimate that payments for the
Spiration® IBV® Valve System will increase
overall FY 2010 payments by $7.80 million.
C. Effects of Requirements for Hospital
Reporting of Quality Data for Annual
Hospital Payment Update
In section V.A. of the preamble of this final
rule, we discuss our requirements for
hospitals to report quality data under the
RHQDAPU program in order to receive the
full payment update for FY 2010 and FY
2011. We estimate that 96 hospitals may not
receive the full payment update for FY 2010
and that 96 hospitals may not receive the full
payment update for FY 2011. Most of these
hospitals are either small rural or small urban
hospitals. However, at this time, information
is not available to determine how many
hospitals will not meet the requirements to
receive the full hospital market basket
increase for services furnished in FY 2010
and FY 2011.
For the FY 2010 payment update, hospitals
must pass our validation requirement of a
minimum of 80 percent reliability based
upon our chart-audit validation process. For
all but two measures (SCIP–Infection-4 and
SCIP–Infection-6), this process uses four
quarters of data from FY 2008. These data
were due to the QIO Clinical Warehouse by
May 15, 2008 (fourth quarter CY 2007
discharges), August 15, 2008 (first quarter CY
2008 discharges), November 15, 2008 (second
quarter CY 2008 discharges), and February
15, 2009 (third quarter CY 2008 discharges).
For the SCIP–Infection-4 and SCIP–Infection6 measures, the validation process will be
based on two quarters of data from FY 2008.
These data were due to the QIO Clinical
Warehouse by November 15, 2008 (second
quarter CY 2008 discharges) and February 15,
2009 (third quarter CY 2008 discharges).
In section V.A.9. of the preamble of this
final rule, we state that if we determine that
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a hospital is not entitled to receive the full
FY 2010 payment update because it failed to
satisfy the validation requirement, and the
hospital asks for a reconsideration of that
decision, the hospital must submit complete
copies of the medical records that it
submitted to the CDAC contractor for
purposes of the validation. We estimate that
no more than 20 hospitals will fail the
validation requirement for the FY 2010
payment update. We estimate that this policy
will cost hospitals approximately 12 cents
per page for copying and approximately
$4.00 per chart for postage. We have found,
based on experience, that an average sized
medical chart is approximately 150 pages.
Hospitals will be required to return all 20
sampled medical records for the four quarters
of data from FY 2008. We estimate that the
total cost to the 20 impacted hospitals will
be approximately $8,800, or $440 per
hospital. We believe that this cost is minimal,
compared with the 2.0 percentage point
RHQDAPU program component of the annual
payment update at risk. This requirement is
necessary so that CMS has all the information
it needs to fairly and timely make a decision
on the hospital’s reconsideration request. We
also anticipate that this requirement will
benefit hospitals seeking reconsiderations
because it will enable us to resolve potential
issues earlier in the appeals process,
obviating the need for a hearing before the
Provider Reimbursement Review Board
(PRRB). We believe that this benefit will
greatly outweigh the burden of copying and
mailing the requested records.
For the FY 2011 payment update, hospitals
must pass our validation requirement of a
minimum of 80 percent reliability based
upon our chart-audit validation process. For
all but one measure (SCIP–Cardiovascular-2),
this process will use four quarters of data
from FY 2009. These data are due to the QIO
Clinical Warehouse by May 15, 2009 (fourth
quarter CY 2008 discharges), August 15, 2009
(first quarter CY 2009 discharges), November
15, 2009 (second quarter CY 2009
discharges), and February 15, 2010 (third
quarter CY 2009 discharges). For the SCIP–
Cardiovascular-2 measure, the validation
process will be based on two quarters of data
from FY 2009. SCIP–Cardiovascular-2 data
are due to the QIO Clinical Warehouse by
November 15, 2009 (second quarter CY 2009
discharges) and February 15, 2010 (third
quarter CY 2009 discharges).
We have continued our efforts to ensure
that QIOs provide assistance to all hospitals
that wish to participate in the RHQDAPU
program. The requirement of 5 charts per
hospital will result in approximately 21,500
charts per quarter being submitted to CMS for
the FY 2010 payment update and for the FY
2011 payment update. We reimburse
hospitals for the cost of sending charts to the
CDAC contractor at the rate of 12 cents per
page for copying and approximately $4.00
per chart for postage. Our experience shows
that the average chart received by the CDAC
contractor is approximately 150 pages. Thus,
CMS will have expenditures of
approximately $597,600 per quarter to collect
the charts. Because we reimburse hospitals
for the data collection effort, we believe that
a requirement for five charts per hospital per
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quarter represents a minimal burden to the
participating hospital.
We are modifying our validation process
for the FY 2012 payment update. We believe
that our decision to validate data submitted
by 800 hospitals for the FY 2012 RHQDAPU
payment determination will not change the
number of hospitals that fail the validation
requirement for the FY 2012 payment update.
We have changed the way we calculate the
validation matches (that is, all relevant data
elements submitted by the hospital must
match the independently re-abstracted data
elements to count as a match), which will
make it more difficult for hospitals to satisfy
the validation requirement. However, we will
also validate data for a much smaller number
of hospitals each year and we have reduced
the validation score needed to satisfy the
validation requirement. In combination, we
believe that these revisions will
counterbalance each other and result in no
change to the number of hospitals failing our
validation requirement for the FY 2012
payment update.
D. Effects of Correcting the FY 2002-Based
Hospital-Specific Rates for MDHs
In section V.B. of the preamble of this final
rule, we are correcting the calculation of the
FY 2002 hospital-specific rates for MDHs and
applying a cumulative budget neutrality
adjustment factor for DRG changes for FYs
1993 through 2002, in addition to the
cumulative budget neutrality adjustment
factors for FYs 2003 forward (which have
already been applied). The cumulative
budget neutrality adjustment factor of
0.982557 is calculated as the product of the
following budget neutrality adjustment
factors for FYs 1993 through 2002: 0.999851
for FY 1993; 0.999003 for FY 1994; 0.998050
for FY 1995; 0.999306 for FY 1996; 0.998703
for FY 1997; 0.997731 for FY 1998; 0.998978
for FY 1999; 0.997808 for FY 2000; 0.997174
for FY 2001; and 0.995821 for FY 2002. We
estimate that there are currently about 195
MDHs. We estimate that approximately 60
percent of MDHs qualified for the rebasing to
a FY 2002 hospital-specific rate (that is, their
FY 2002 hospital-specific rate was higher
than the other hospital-specific rates (FY
1982 or FY 1987)), of which about 46 percent
of those MDHs were paid based on their FY
2002 hospital-specific rate because it was
higher than the Federal rate. The remaining
54 percent of those MDHs are estimated to
have been paid based solely on the Federal
rate because the Federal rate was higher than
their FY 2002 hospital-specific rate. We
estimate that correcting the FY 2002 hospitalspecific rate to ensure cumulative budget
neutrality for FY 1993 though FY 2002 will
result in a decrease in operating IPPS
payments in FY 2010 of approximately $5
million. However, this figure may be lower
because application of the cumulative budget
neutrality adjustment factor will, in some
cases, lower the FY 2002 hospital-specific
rate to below the Federal rate, thus creating
a floor to the potential reduction.
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E. Effect of Policy Changes Relating to the
Payment Adjustments to Disproportionate
Share Hospitals
1. Change Relating to Inclusion of Labor and
Delivery Days in DSH Calculation
In section V.E.2. of the preamble of this
final rule, we discuss our decision to amend
the regulations so that patient days
associated with labor and delivery services
furnished in an ancillary labor and delivery
bed will always be included in both the
Medicaid and Medicare fractions of the DPP
used for calculating the DSH payment
adjustment regardless of whether the patient
previously occupied a routine bed. We
believe that the impact of the inclusion of
these days in the Medicare fraction of the
DPP will be negligible because, generally,
there are not many labor and delivery patient
days among the Medicare population. With
respect to the Medicaid fraction, we do not
believe the impact will be substantial, since
it will only recategorize ancillary labor and
delivery bed days that did not follow a
routine bed day, and will affect both the
numerator and the denominator of the
Medicaid fraction. We are not able to provide
a detailed analysis of the potential of this
policy change because the impact will
depend on both the number of days
associated with Medicaid-eligible patients
who occupied an ancillary labor and delivery
bed at some point after being admitted as an
inpatient, but prior to occupying a routine
bed, and the number of such days associated
with similarly situated non-Medicaid-eligible
patients. We do not have data on either of
these numbers either in the aggregate or for
individual hospitals. Furthermore, the
impact would depend on the proportion of
Medicaid to the total of such days for each
hospital. We expect that the Medicaid
fraction for some hospitals will increase
while it will decrease for other hospitals.
Therefore, we estimate that the overall
impact of this policy change will be
negligible.
Comment: One comment stated that
‘‘nearly all hospital will see there [sic] DSH
payment go up and by a substantial amount.’’
The commenter stated that overall utilization
is ‘‘substantially higher’’ than overall
hospital utilization as the result of a
Medicaid law that requires Medicaid
coverage for labor and delivery services for
patients who would not normally have fullscope Medicaid. The commenter stated that
it is important that the financial impact of
this policy is not understated and that
hospitals need to be able to budget for the
increase in Medicare DSH funding from this
policy. Finally, the commenter stated that if
the proposed policy was applied
retroactively, it would result in large
payment increases for thousands of cost
reports for many years as well as the
administrative costs to reopen and revise the
cost reports. The commenter stated that there
are many appeals and requests for cost report
reopenings based on the proposed policy and
that the costs and potential payments should
be identified and quantified in the final rule.
Response: It appears that the commenter is
concerned with the potential financial
impact of the proposed policy because the
commenter believed that the policy will
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necessarily increase the Medicaid fraction of
the Medicare DSH calculation for all
hospitals and thereby increase overall DSH
payment adjustments. The commenter
appeared particularly concerned with the
‘‘Emergency Medicaid’’ laws under section
1903(v) of the Act that requires that an alien
who is not lawfully admitted for permanent
residence or otherwise permanently residing
in the United states under the color of the
law be covered under Medicaid for the
treatment of an ‘‘emergency medical
condition’’ as defined by the statute. We
disagree with the commenter that the
adoption of the proposed policy will
necessarily increase overall Medicare DSH
payments for the reasons discussed below.
First, we reiterate that this policy change
relates only to labor and delivery days when
a patient was (1) admitted as an inpatient to
the hospital and (2) occupied an ancillary
labor and delivery bed prior to occupying a
routine bed. Patients who occupied a routine
bed upon admission or prior to occupying an
ancillary labor and delivery bed were already
counted in the DPP. In most cases, there
would only be one day (i.e., the day that the
patient occupied the ancillary labor and
delivery bed prior to occupying the routine
bed) that would be added to the DPP under
the new policy that was not already included
under the previous policy. Under both the
previous and new policy all days that a
patient occupied a routine bed are already
included in the DPP. Therefore, the new
policy would potentially only add one day in
most cases to the DPP per maternity patient
to the extent the hospital placed such
patients in an ancillary labor and delivery
bed after admission as an inpatient to the
hospital, but prior to placing the patient in
a routine bed. To the extent that the
maternity patient was a Medicaid-eligible
patient, the day would be added to both the
numerator and denominator of the Medicaid
fraction of the DPP; to the extent that the
patient was not eligible for Medicaid, one
day would be added just to the denominator
of the Medicaid fraction of the DPP (thereby
lowering the Medicaid ratio).
Second, we note that the population of
aliens, as defined under section 1903(v) of
the Act, varies from State to State and that,
even in an area with a relatively high
proportion of aliens, the potential effect on
the Medicaid fractions is limited to the
number of aliens who are (1) female, (2)
pregnant and in the hospital for labor and
delivery services, and (3) admitted as an
inpatient, but do not occupy a routine bed
prior to occupying a labor and delivery bed.
Therefore, we do not expect that, even for
areas with a large population of aliens, there
will be a material impact on a hospital’s
Medicare DSH payment adjustments as a
result of this policy.
Third, we note that an increase in the
Medicaid fraction does not necessarily
correlate to a proportional increase in the
actual Medicare DSH adjustment (that is,
payment). Rather, the actual amount of the
adjustment will depend on a number of
factors, including the Medicare fraction, the
hospital’s geographic designation, the
hospital’s number of available beds, and,
ultimately, the hospital’s number of Medicare
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discharges because, by definition, the
Medicare DSH adjustment is a percentage
add-on to the hospital’s Medicare payments.
In addition, as we stated in the proposed
FY 2010 IPPS/RY 2010 LTCH PPS proposed
rule, with regard to the Medicaid fraction, we
are not able to provide a detailed analysis of
the potential of this policy change because
the impact will depend on the proportion of
days associated with Medicaid-eligible
patients who occupied an ancillary labor and
delivery bed at some point after being
admitted as an inpatient, but prior to
occupying a routine bed, to days associated
with similarly situated non-Medicaid-eligible
patients relative to a hospital’s current
Medicaid-to-total-days ratio (which would
not have included the types of days we
proposed to include in this policy). We
expect that the Medicaid fraction for some
hospitals will increase while it will decrease
for other hospitals. Therefore, we estimate
that the overall impact of this policy change
will be negligible.
In response to the comment concerning the
potential impact that this policy would have
if applied retroactively, we note that the
change in policy is only effective
prospectively, for cost reporting periods
beginning on or after October 1, 2009.
Therefore, it is not necessary to estimate
payments for prior periods.
2. Change Relating to Calculation of Inpatient
Days in Medicaid Fraction
In section V.E.3. of the preamble of this
final rule, we discuss our decision to allow
a hospital to change its methodology of
reporting days in the numerator of the
Medicaid fraction of the DPP used in the
DSH payment adjustment calculation. Under
the change, we will allow a hospital to report
the Medicaid days in the numerator of the
Medicaid fraction of the DPP based on one
of the following: date of discharge; date of
admission; or dates of service. Hospitals will
be permitted to use only one basis for all of
the Medicaid days for the entire cost
reporting period. In addition, under the
policy, CMS, or its fiscal intermediaries or
MACs, has the authority to make adjustments
to the number of Medicaid days reported to
avoid counting Medicaid days in one cost
reporting period of a hospital that may have
been reported in a hospital’s previous cost
reporting period. We do not believe that the
change in the methodology of counting days
in the numerator of the Medicaid fraction of
the DPP will result in any increase in
aggregate DSH payments.
3. Change Relating to Exclusion of
Observation Beds and Patient Days From
DSH Calculation
In section V.E.4. of the preamble of this
final rule, we discuss our decision to amend
the regulations so that patient days
associated with beds used for observation
services for patients who are subsequently
admitted as an inpatient are no longer
included in the DPP for calculating the DSH
payment adjustment or in the available bed
day count for calculating the DSH payment
adjustment and IME payments. Some
hospitals may receive increased DSH
payment adjustments and other hospitals
may expect to receive lower DSH payment
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adjustments, depending on how the
exclusion of observation patient days affects
the hospital’s overall DPP. Overall, we
estimate the DSH savings associated with this
policy will be $10 million for FY 2010. For
IME payment purposes, a decrease in a
hospital’s number of available beds results in
an increase in the resident-to-bed ratio. The
exclusion of observation bed days from the
available bed count for IME will reduce the
available beds, increase the resident-to-bed
ratio, and, consequently, increase IME
payments to teaching hospitals. We estimate
that Medicare spending for IME will increase
by approximately $7 million as a result of
this policy. As a result, we believe that any
savings associated with changes in DSH
payment adjustments will be offset by
additional spending for IME payments.
Therefore, we anticipate the impact of these
policy changes will be negligible.
F. Effects of Policy Revisions Related to
Payment to Hospitals for Direct GME
In section V.G. of the preamble of this final
rule, we discuss our decision to clarify the
definition of a new medical residency
training program in the regulations by
specifying that a new medical residency
program is one that receives initial
accreditation for the first time, as opposed to
a reaccreditation of a program that existed
previously at the same or another hospital.
When considering whether a particular
program is a new medical residency training
program and whether an accreditation is an
initial one, we identify several supporting
factors (such as whether the program
director, teaching staff, and residents are the
same). We will also consider whether there
previously was a program in the same
specialty at a hospital that closed and, more
generally, whether that program is part of the
FTE caps of any existing hospital. With
respect to GME policy regarding Medicare
GME affiliation agreements, we discuss our
addition of a provision to the regulations
relating to Medicare GME affiliation
agreements to specify that a hospital that is
new after July 1 and that begins training
residents for the first time after the July 1start
date of that academic year will be permitted
to submit a Medicare GME affiliation
agreement prior to the end of its cost
reporting period in order to participate in an
existing Medicare GME affiliated group for
the remainder of the academic year.
With respect to the first policy regarding a
new medical residency training program,
there is no financial impact on the Medicare
program because this is a clarification of
existing policy and is not a policy revision
or addition of a new policy. In the
clarification, we identify and explain the
characteristics of a medical residency
training program that would be indicative of
a new program rather than one that has been
merely relocated from another hospital. We
also explain that there would be no net
increase in the national aggregate FTE caps,
and therefore, no financial impact, if a
hospital received a new program adjustment
to its FTE cap for a program in the same
specialty as one that was located at another
hospital that closed. Further, there is no
financial impact related to the second policy
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concerning Medicare GME affiliated groups
because it does not provide for an increase
in the aggregate number of resident FTEs.
Rather, it merely provides increased
flexibility for a hospital that is new after July
1 and that begins training residents for the
first time after the start date of that academic
year to enter into an existing Medicare GME
affiliation agreement after July 1, so that, in
that academic year, it may train and receive
IME and direct GME payments relating to
FTE for residents that will otherwise be
counted for IME and direct GME at another
hospital.
G. Effects of Policy Changes Relating to
Hospital Emergency Services Under EMTALA
In section V.H. of the preamble of this final
rule, we discuss our decision to amend the
regulations pertaining to the waiver of
EMTALA sanctions in an emergency area
during an emergency period to make the
regulations consistent with the statutory
language of section 1135 of the Act.
Specifically, we are revising the existing
regulations to reflect the Secretary’s authority
under section 1135 of the Act to waive or
modify requirements for a single health care
provider, a class of health care providers, or
a geographic subset of health care providers
located within an emergency area during an
emergency period or portion of an emergency
period. We are amending the regulations to
clarify that, in cases where the Secretary has
delegated implementation of a waiver of
EMTALA sanctions to CMS, CMS is also
authorized to apply a section 1135 waiver to
a subset of the emergency area and some or
all of the emergency period, as necessary. We
also are making the regulations consistent
with section 1135 of the Act by stating in the
regulations that a waiver of EMTALA
sanctions pursuant to an inappropriate
transfer only applies if the transfer is
necessitated by the circumstances of the
declared emergency. Finally, we are making
the regulation text consistent with section
1135 of the Act to provide that the sanctions
waived for an inappropriate transfer or for
the relocation or redirection of an individual
to receive a medical screening examination at
an alternate location are only in effect if the
hospital to which the waiver applies does not
discriminate on the source of an individual’s
payment or ability to pay. We estimate that
these changes will have no impact on
Medicare expenditures and no significant
impact on hospitals with emergency
departments.
H. Effects of Implementation of Rural
Community Hospital Demonstration Program
In section V.I. of the preamble to this final
rule, we discuss our implementation of
section 410A of Public Law 108–173 that
required the Secretary to establish a
demonstration that will modify
reimbursement for inpatient services for up
to 15 small rural hospitals. Section
410A(c)(2) requires that ‘‘[i]n conducting the
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
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implemented.’’ There are currently 11
hospitals participating in the demonstration;
4 of these hospitals were selected to
participate in the demonstration as of July 1,
2008, as a result of our February 6, 2008
solicitation (73 FR 6971).
As discussed in section V.I. of the
preamble to this final rule, we will satisfy
this budget neutrality requirement by
adjusting the national IPPS rates by a factor
that is sufficient to account for the added
costs of this demonstration. For this final
rule, based on more recent data than we had
for the proposed rule, we are estimating the
cost of the demonstration program for FY
2010 for the 11 currently participating
hospitals. (Two hospitals recently withdrew
from the demonstration, and we are adjusting
the estimation of the cost of the
demonstration for FY 2010 for this final rule
to reflect this.) The estimated cost of the
demonstration for FY 2010 for 7 of the 11
currently participating hospitals (specifically,
the 7 hospitals that have participated in the
demonstration since its inception and that
still are participating in the demonstration) is
based on data from their second year cost
reports—that is, cost reporting periods
beginning in CY 2006. We used these cost
reports because they are the most recent
complete cost reports and, thus, we believe
they enable us to estimate FY 2010 costs for
this final rule as accurately as possible. In
addition, we estimated the cost of the
demonstration for FY 2010 for the 4 hospitals
that joined the demonstration in 2008. For 3
of the 4 hospitals that joined the
demonstration in 2008, we estimate the cost
of the demonstration for FY 2010 based on
data from their cost reports for cost reporting
periods beginning January 1, 2007 through
July 1, 2007. Similarly, we used these cost
reports because they are the most recent cost
reports and, thus, we believe they enable us
to estimate FY 2010 costs for these 3
hospitals as accurately as possible. The
remaining hospital of the 4 that began in
2008 is an Indian Health Service provider.
Historically, the hospital has not filed
standard Medicare cost reports. In order to
estimate its costs, we used an analysis of
Medicare inpatient costs and payments
submitted by the hospital for the cost
reporting period of October 1, 2005, through
September 30, 2006. The Medicare cost
amount from this analysis for the IHS
provider is identical to that used in the
proposed rule. When we add together the
estimated costs of the demonstration for FY
2010 for the 7 hospitals that have
participated in the demonstration since its
inception and the 4 new hospitals selected in
2008 based on the more recent data, the total
estimated cost is $15,081,251. This estimated
amount reflects the difference between the
participating hospitals’ estimated costs under
the methodology set forth in Public Law 108–
173 and the estimated amount the hospitals
would have been paid under the IPPS.
Second, because the FY 2005 and FY 2006
cost reports of all hospitals participating in
the demonstration in its first and second
years have been finalized, we are able to
determine how much the cost of the
demonstration program exceeded the amount
that was offset by the budget neutrality
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adjustment for FY 2005 and FY 2006. We
note that, for this final rule, we had updated
data that enabled us to now include the
amount by which the cost of the
demonstration exceeded the amount that was
offset by the FY 2006 budget neutrality
adjustment. For all 13 hospitals that
participated in the demonstration in FY
2005, the amount is $7,856,617. For the 10
hospitals with cost reporting periods that
began in FY 2006, the amount is $4,203,947.
The sum of these amounts, or the amount by
which the cost of the demonstration program
exceeded the offset of the budget neutrality
adjustment for FY 2005 and FY 2006, is
$12,060,564.
The budget neutrality adjustment factor
applied to the IPPS Federal rate to account
for the total $27,141,815 in costs for the
demonstration is 0.999739.
sroberts on DSKD5P82C1PROD with RULES
I. Effects of Policy Changes Relating to
Payments to Satellite Facilities
In section VII.B. of the preamble of this
final rule, we discuss our policy change that
requires, effective for cost reporting periods
beginning on or after October 1, 2009, in
addition to meeting the other criteria in the
regulations, that in order to be excluded from
the IPPS, the governing body of the hospital
of which the satellite facility is a part cannot
be under the control of any third entity that
controls both the hospital of which the
satellite facility is a part and the hospital
with which the satellite facility is co-located.
We also are adopting a policy that if a
hospital and its satellite facility were
excluded from the IPPS under § 412.22(h) for
the most recent cost reporting period
beginning prior to October 1, 2009, the
hospital does not have to meet the
requirements of § 412.22(h)(2)(iii)(A)(1) with
respect to that satellite facility in order to
retain its IPPS-excluded status. However, the
creation of any satellite facility that will
trigger the hospital of which it is a part to
comply with the additional policies will
occur at some point in the future. Therefore,
we are unable to quantify the impact of the
policy changes.
J. Effects of Policy Changes Relating to
Payments to CAHs
In section VII.C.2. of the preamble of this
final rule, we discuss our implementation of
section 148 of Public Law 110–275 (MIPPA).
Under our policy, a CAH may receive
payment based on reasonable cost for
outpatient clinical diagnostic laboratory tests
furnished to an individual who is an
outpatient of the CAH (that is, receiving
outpatient services directly from the CAH)
even if the individual with respect to whom
the laboratory services are furnished is not
physically present in the CAH at the time the
specimen is collected. In order for an
individual who is not physically present in
the CAH at the time the specimen is collected
to be determined to be receiving services
directly from the CAH, we are requiring that
the individual must either receive an
outpatient service in the CAH or a providerbased facility of the CAH on the same day the
specimen is collected or the specimen
collection must be performed by an employee
of the CAH. We anticipate that, for FY 2009
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through FY 2016, the cost of implementing
section 148 of Public Law 110–275 will be
less than $50 million per year.
In section VII.C.3. of the preamble of this
final rule, we discuss our decision to amend
the regulations to make them consistent with
the plain reading of section 1834(g)(2)(A) of
the Act. Section 1834(g)(2)(A) of the Act
requires that CAHs that select the optional
method of payment receive payment at 100
percent of reasonable cost instead of 101
percent of reasonable cost for outpatient
facility services. It is difficult for us to
quantify the payment impact of these
changes because we cannot estimate the
number of CAHs that will be affected by this
provision because election of the optional
method is not permanent; CAHs are only
required to make the election 30 days prior
to the cost reporting period for which it is
effective. Therefore, we cannot estimate how
many CAHs will choose to retain the optional
method of payment once the provision is
finalized. Furthermore, the optional method
of payment is physician-specific. If the
physician has not reassigned his or her
billing rights, the CAH will be paid for that
outpatient service under the traditional
method. We believe we cannot accurately
estimate the number of physicians who will
decide to continue to reassign their billing
rights to the CAH once the provision is
finalized. We note that one commenter
estimated that the CMS proposal will cut
payments to CAHs by $22 million in FY
2010.
In section VII.C.4. of the preamble of this
final rule, we discuss the effect CBSA
changes made by OMB on CAHs located in
areas that have been reclassified from rural
to urban in FY 2010. We are revising the
regulations (in the same manner as the
revisions that were made in FY 2005) to
allow CAHs that are located in areas that
were designated rural in FY 2009 but as a
result of implementation of the new MSA
definitions announced by OMB on November
20, 2008, will be located in an MSA effective
for FY 2010, 2 years to obtain a rural
redesignation under § 412.103 in order to
retain their CAH status. We believe that
because virtually all of these facilities will be
granted rural status by the State, they will
retain their CAH status. We estimate that
these changes will have little or no impact on
Medicare expenditures.
K. Effects of Policy Changes Relating to
Provider-Based Status of Entities and
Organizations
In section VII.D. of the preamble of this
final rule, we discuss our decision to amend
the regulations to require facilities that
furnish only clinical diagnostic laboratory
tests and operate as part of a CAH to meet
the provider-based status rules currently in
the regulations at § 413.65. If a facility that
is part of a CAH and furnishes only clinical
diagnostic laboratory tests meets the
provider-based status rules, the CAH will be
paid for services furnished by the laboratory
facility on a reasonable cost basis. If a facility
that furnishes only clinical diagnostic
laboratory tests does not meet the providerbased status rules, the services furnished in
the facility will be paid under the CLFS,
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44227
unless the laboratory specimen is collected
from an outpatient of the CAH as described
in VII.C.2. of the preamble of this final rule.
It is difficult for us to quantify the payment
impact of these changes because we cannot
estimate the number of CAHs that will be
affected by this policy. In the FY 2010 IPPS
proposed rule, we solicited public comments
on the impact of this proposed change to our
provider-based status rules. We did not
receive any public comments as to how to
quantify the payment impact of this policy.
We are finalizing our policy as proposed,
with one modification. In response to public
comments, we are delaying the effective date
of the policy until October 1, 2010.
VIII. Effects of Changes in the Capital IPPS
A. General Considerations
Fiscal year (FY) 2001 was the last year of
the 10-year transition period established to
phase in the PPS for hospital capital-related
costs. During the transition period, hospitals
were paid under one of two payment
methodologies: fully prospective or hold
harmless. Under the fully prospective
methodology, hospitals were paid a blend of
the capital Federal rate and their hospitalspecific rate (see § 412.340). Under the holdharmless methodology, unless a hospital
elected payment based on 100 percent of the
capital Federal rate, hospitals were paid 85
percent of reasonable costs for old capital
costs (100 percent for SCHs) plus an amount
for new capital costs based on a proportion
of the capital Federal rate (see § 412.344). As
we state in section VI. of the preamble of this
final rule, with the 10-year transition period
ending with hospital cost reporting periods
beginning on or after October 1, 2001 (FY
2002), beginning in FY 2002 capital
prospective payment system payments for
most hospitals are based solely on the capital
Federal rate. Therefore, we no longer include
information on obligated capital costs or
projections of old capital costs and new
capital costs, which were factors needed to
calculate payments during the transition
period, for our impact analysis.
The basic methodology for determining a
capital IPPS payment is set forth at § 412.312.
The basic methodology for calculating capital
IPPS payments in FY 2010 is as follows:
(Standard Federal Rate) × (DRG weight) ×
(GAF) × (COLA for hospitals located in
Alaska and Hawaii) × (1 + DSH Adjustment
Factor + IME adjustment factor, if
applicable).
As discussed in section VI.E.2. of the
preamble of this final rule, we are deleting
§ 412.322(d) of the regulations that
eliminated the IME adjustment factor for FY
2010, the third year of a 3-year transition
period. Therefore, the IME adjustment factor
has been restored for FY 2010. We also note
that the 50-percent reduction to capital IME
adjustments for FY 2009 was repealed by
section 4301(b)(1) of the ARRA. Thus, the
full IME adjustment was restored for FY
2009, as well. In addition to the other
adjustments, hospitals may also receive
outlier payments for those cases that qualify
under the threshold established for each
fiscal year.
The data used in developing the impact
analysis presented below are taken from the
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March 2009 update of the FY 2008 MedPAR
file and the March 2009 update of the
Provider-Specific File (PSF) that is used for
payment purposes. Although the analyses of
the changes to the capital prospective
payment system do not incorporate cost data,
we used the March 2009 update of the most
recently available hospital cost report data
(FYs 2006 and 2007) to categorize hospitals.
Our analysis has several qualifications. We
use the best data available and make
assumptions about case-mix and beneficiary
enrollment as described below. In addition,
as discussed in section III. of the Addendum
to this final rule, we established for FY 2008
(¥0.6 percent) and for FY 2009 (¥0.9
percent) a cumulative permanent adjustment
of ¥1.5 percent to the national capital rate
to account for improvements in
documentation and coding under the MS–
DRGs in FY 2010. Furthermore, due to the
interdependent nature of the IPPS, it is very
difficult to precisely quantify the impact
associated with each change. In addition, we
draw upon various sources for the data used
to categorize hospitals in the tables. In some
cases (for instance, the number of beds), there
is a fair degree of variation in the data from
different sources. We have attempted to
construct these variables with the best
available sources overall. However, for
individual hospitals, some
miscategorizations are possible.
Using cases from the March 2009 update of
the FY 2008 MedPAR file, we simulated
payments under the capital PPS for FY 2009
and FY 2010 for a comparison of total
payments per case. Any short-term, acute
care hospitals not paid under the general
IPPS (Indian Health Service hospitals and
hospitals in Maryland) are excluded from the
simulations. The final capital rates and
factors for FY 2009 were published in a
subsequent notice in the Federal Register (73
FR 57891).
As we explain in section III.A.4. of the
Addendum to this final rule, payments are no
longer made under the regular exceptions
provision under §§ 412.348(b) through (e).
Therefore, we no longer use the actuarial
capital cost model (described in Appendix B
of the August 1, 2001 proposed rule (66 FR
40099)). We modeled payments for each
hospital by multiplying the capital Federal
rate by the GAF and the hospital’s case-mix.
We then added estimated payments for
indirect medical education, disproportionate
share, and outliers, if applicable. For
purposes of this impact analysis, the model
includes the following assumptions:
• We estimate that the Medicare case-mix
index will increase by 1.0 percent in both
FYs 2009 and 2010.
• We estimate that the Medicare
discharges will be approximately 13 million
in both FY 2009 and FY 2010.
• The capital Federal rate was updated
beginning in FY 1996 by an analytical
framework that considers changes in the
prices associated with capital-related costs
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and adjustments to account for forecast error,
changes in the case-mix index, allowable
changes in intensity, and other factors. As
discussed in section III.1.a. of the Addendum
to this final rule, the FY 2010 update is 1.4
percent.
• In addition to the FY 2010 update factor,
the FY 2010 capital Federal rate was
calculated based on a GAF/DRG budget
neutrality factor of 0.9990, an outlier
adjustment factor of 0.9477, and a (special)
exceptions adjustment factor of 0.9998.
• For FY 2010, as discussed in section
VI.E.1.of the preamble of this final rule, we
are not applying an additional adjustment to
the FY 2010 national capital rate for changes
in documentation and coding that are
expected to increase case-mix under the MS–
DRGs. In the FY 2008 IPPS final rule with
comment period (72 FR 47186), we
established adjustments to the IPPS rates
based on the Office of the Actuary projected
case-mix growth resulting from improved
documentation and coding of 1.2 percent for
FY 2008, 1.8 percent for FY 2009, and 1.8
percent for FY 2010. However, we reduced
the documentation and coding adjustment to
¥0.6 percent for FY 2008. For FY 2009, we
applied an adjustment of 0.9 percent,
consistent with section 7 of Public Law 110–
90, for a permanent cumulative adjustment of
¥1.5 percent (that is, a factor of 0.985).
B. Results
We used the actuarial model described
above to estimate the potential impact of our
changes for FY 2010 on total capital
payments per case, using a universe of 3517
hospitals. As described above, the individual
hospital payment parameters are taken from
the best available data, including the March
2009 update of the FY 2008 MedPAR file, the
March 2009 update to the PSF, and the most
recent cost report data from the March 2009
update of HCRIS. In Table III, we present a
comparison of estimated total payments per
case for FY 2009 compared to FY 2010 based
on the FY 2010 payment policies. Column 2
shows estimates of payments per case under
our model for FY 2009. Column 3 shows
estimates of payments per case under our
model for FY 2010. Column 4 shows the total
percentage change in payments from FY 2009
to FY 2010. The change represented in
Column 4 includes the proposed 1.4 percent
update to the capital Federal rate, other
changes in the adjustments to the capital
Federal rate (for example, the restoration of
the teaching adjustment for FY 2010). The
comparisons are provided by: (1) Geographic
location; (2) region; and (3) payment
classification.
The simulation results show that, on
average, capital payments per case in FY
2010 are expected to increase as compared to
capital payments per case in FY 2009. The
capital rate for FY 2010 will increase 1.4
percent as compared to the FY 2009 capital
rate. The changes to the GAFs are expected
to result in a slight decrease in capital
payments largely due to the expiration of
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section 508 of Public Law 108–173. We also
are estimating a decrease in outlier payments
from FY 2009 to FY 2010 due primarily to
an increase in the fixed-loss amount. Our
impact analysis includes actuarial
assumptions of growth from FY 2009 to FY
2010 resulting in an increase in aggregate
capital payments. The net result of these
changes is an estimated 1.9 percent change
in capital payments per discharge from FY
2009 to FY 2010 for all hospitals (as shown
below in Table III).
The geographic comparison shows that, on
average, all urban hospitals are expected to
experience a 2.0 percent increase in capital
IPPS payments per case in FY 2010 as
compared to FY 2009, while hospitals in
large urban areas are expected to experience
a 2.1 percent increase in capital IPPS
payments per case in FY 2010 as compared
to FY 2009. Capital IPPS payments per case
for rural hospitals are expected to increase
1.5 percent.
All regions are estimated to experience an
increase in total capital payments per case
from FY 2009 to FY 2010. These increases
vary by region and range from a 0.7 percent
increase in the New England rural region to
a 2.8 percent increase in the Mountain urban
region.
By type of ownership, voluntary and
proprietary hospitals each are estimated to
experience an increase of 1.9 percent.
Government hospitals are projected to have
a slightly larger increase of 2.0 percent in
capital payments per case.
Section 1886(d)(10) of the Act established
the MGCRB. Before FY 2005, hospitals could
apply to the MGCRB for reclassification for
purposes of the standardized amount, wage
index, or both. Section 401(c) of Public Law
108–173 equalized the standardized amounts
under the operating IPPS. Therefore,
beginning in FY 2005, there is no longer
reclassification for the purposes of the
standardized amounts; however, hospitals
still may apply for reclassification for
purposes of the wage index for FY 2010.
Reclassification for wage index purposes also
affects the GAFs because that factor is
constructed from the hospital wage index.
To present the effects of the hospitals being
reclassified for FY 2010, we show the average
capital payments per case for reclassified
hospitals for FY 2009. All classifications of
reclassified hospitals are expected to
experience an increase in capital payments in
FY 2010 as compared to FY 2009. Both urban
reclassified and urban non-reclassified
hospitals are expected to have an increase in
capital payments of 2.0 percent, while capital
payments for rural reclassified and rural nonreclassified hospitals are estimated to
increase 1.7 percent and 1.1 percent,
respectively. Other reclassified hospitals
(that is, hospitals reclassified under section
1886(d)(8)(B) of the Act) are expected to
experience an increase of 1.9 percent in
capital payment from FY 2009 to FY 2010.
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44229
TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE
[FY 2009 Payments Compared to FY 2010 Payments]
sroberts on DSKD5P82C1PROD with RULES
Number of
hospitals
By Geographic Location:
All hospitals ..............................................................................................................
Large urban areas (populations over 1 million) .......................................................
Other urban areas (populations of 1 million or fewer) .............................................
Rural areas ...............................................................................................................
Urban hospitals .........................................................................................................
0–99 beds ..........................................................................................................
100–199 beds ....................................................................................................
200–299 beds ....................................................................................................
300–499 beds ....................................................................................................
500 or more beds ..............................................................................................
Rural hospitals ..........................................................................................................
0–49 beds ..........................................................................................................
50–99 beds ........................................................................................................
100–149 beds ....................................................................................................
150–199 beds ....................................................................................................
200 or more beds ..............................................................................................
By Region:
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 ............................................................................................
West North Central ............................................................................................
West South Central ...........................................................................................
Mountain ............................................................................................................
Pacific ................................................................................................................
By Payment Classification:
All hospitals ..............................................................................................................
Large urban areas (populations over 1 million) ................................................
Other urban areas (populations of 1 million of fewer) ......................................
Rural areas ........................................................................................................
Teaching Status:
Non-teaching .....................................................................................................
Fewer than 100 Residents ................................................................................
100 or more Residents ......................................................................................
Urban DSH:
100 or more beds .......................................................................................
Less than 100 beds ...................................................................................
Rural DSH:
Sole Community (SCH/EACH) ...................................................................
Referral Center (RRC/EACH) ....................................................................
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:
Non special status hospitals .............................................................................
RRC/EACH ........................................................................................................
SCH/EACH ........................................................................................................
Medicare-dependent hospitals (MDH) ..............................................................
SCH, RRC and EACH .......................................................................................
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Average
FY 2009
payments/
case
Average
FY 2010
payments/
case
Change
3,517
1,377
1,148
992
2,525
634
808
466
426
191
992
349
370
164
62
42
788
869
780
546
829
654
712
779
858
1,003
546
437
507
552
600
671
803
887
794
554
845
665
724
794
874
1,024
554
444
514
561
610
680
1.9
2.1
1.8
1.5
2.0
1.7
1.8
2.0
1.9
2.1
1.5
1.6
1.5
1.5
1.6
1.3
2,525
120
344
388
397
160
165
346
163
391
51
992
24
70
171
122
176
101
224
72
32
829
857
885
787
807
742
815
772
842
978
370
546
728
558
539
568
496
567
508
547
693
845
879
902
801
820
756
833
787
866
998
377
554
733
572
547
576
505
574
512
559
701
2.0
2.6
1.9
1.8
1.6
1.9
2.2
1.9
2.8
2.1
2.0
1.5
0.7
2.5
1.5
1.4
1.8
1.1
0.8
2.3
1.2
3,517
1,422
1,171
924
788
867
779
545
803
885
793
553
1.9
2.1
1.8
1.4
2,475
804
238
672
793
1,123
684
808
1,147
1.8
1.9
2.1
1,538
346
856
585
873
596
2.0
1.8
397
207
476
602
484
611
1.6
1.5
34
150
540
450
548
457
1.5
1.4
802
178
1,082
531
929
810
715
733
948
823
729
745
2.1
1.6
2.0
1.7
2,467
62
38
10
16
832
725
682
481
792
848
743
693
488
809
1.9
2.5
1.6
1.4
2.2
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TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE—Continued
[FY 2009 Payments Compared to FY 2010 Payments]
Number of
hospitals
Hospitals Reclassified by the Medicare Geographic Classification Review Board:
FY2010 Reclassifications:
All Urban Reclassified .......................................................................................
All Urban Non-Reclassified ...............................................................................
All Rural Reclassified ........................................................................................
All Rural Non-Reclassified ................................................................................
Other Reclassified Hospitals (Section 1886(d)(8)(B)) .......................................
Type of Ownership:
Voluntary ...........................................................................................................
Proprietary .........................................................................................................
Government .......................................................................................................
Medicare Utilization as a Percent of Inpatient Days:
0–25 ...................................................................................................................
25–50 .................................................................................................................
50–65 .................................................................................................................
Over 65 ..............................................................................................................
sroberts on DSKD5P82C1PROD with RULES
IX. Effects of Payment Rate Changes and
Policy Changes Under the LTCH PPS
A. Introduction and General Considerations
In section VIII. of the preamble of this final
rule, we are setting forth the annual update
to the payment rates for the LTCH PPS for
RY 2010. In the preamble, we specify the
statutory authority for the provisions that are
presented, identify those policies where
discretion has been exercised, and present
rationale for our decisions as well as
alternatives that were considered. In this
section of Appendix A to this final rule, we
discuss the impact of the changes to the
payment rates, factors, and other payment
rate policies related to the LTCH PPS that are
presented in the preamble of this final rule
in terms of their estimated fiscal impact on
the Medicare budget and on LTCHs.
Currently, our database of 399 LTCHs
includes the data for 81 nonprofit (voluntary
ownership control) LTCHs and 267
proprietary LTCHs. Of the remaining 51
LTCHs, 12 LTCHs are government-owned
and operated and the ownership type of the
other 39 LTCHs is unknown. In the impact
analysis, we are using the rates, factors, and
policies presented in this final rule,
including updated wage index values and the
labor-related share, and the best available
claims and CCR data to estimate the change
in payments for the 2010 LTCH PPS rate
year. The standard Federal rate for RY 2009
is $39,114.36. As discussed in section V.A.2.
of the Addendum to this final rule, consistent
with our historical practice, we are updating
the standard Federal rate for RY 2009 by 2.0
percent in order to establish the RY 2010
standard Federal rate at $39,896.65. Based on
the best available data for the 399 LTCHs in
our database, we estimate that the update to
the standard Federal rate for RY 2010
(discussed in section VIII. of the preamble of
this final rule) and the changes to the area
wage adjustment (discussed in section V.A.
of the Addendum to this final rule) for the
2010 LTCH PPS rate year, in addition to an
estimated increase in HCO payments and an
estimated increase in SSO payments, will
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Average
FY 2010
payments/
case
Change
456
2,045
351
579
54
825
831
591
479
559
841
847
601
485
569
2.0
2.0
1.7
1.1
1.9
2,014
860
583
804
722
784
819
736
800
1.9
1.9
2.0
317
1,433
1,331
308
1,005
869
686
598
1,032
886
697
608
2.6
2.0
1.6
1.7
result in an increase in estimated payments
from the 2009 LTCH PPS rate year of
approximately $153 million (or about 3.3
percent). Based on the 399 LTCHs in our
database, we estimate RY 2009 LTCH PPS
payments to be approximately $4.609 billion
and RY 2010 LTCH PPS payments to be
approximately $4.762 billion. Because the
combined distributional effects and
estimated changes to the Medicare program
payments would be greater than $100
million, this final rule is considered a major
economic rule, as defined in this section. We
note the approximately $153 million for the
projected increase in estimated aggregate
LTCH PPS payments from RY 2009 to RY
2010 does not reflect changes in LTCH
admissions or case-mix intensity in estimated
LTCH PPS payments, which also would
affect overall payment changes.
The projected 3.3 percent increase in
estimated payments per discharge from the
2009 LTCH PPS rate year to the 2010 LTCH
PPS rate year is attributable to several factors,
including the 2.0 percent increase to the
standard Federal rate and projected increases
in estimated HCO and SSO payments. As
Table IV shows, the change attributable
solely to the standard Federal rate is
projected to result in an increase of 1.8
percent in estimated payments per discharge
from RY 2009 to RY 2010, on average, for all
LTCHs, while the changes to the area wage
adjustment are projected to result in a slight
decrease in estimated payments, on average,
for all LTCHs (Columns 6 and 7 of Table IV,
respectively). We note that because payments
for cost-based SSO cases and a portion of
payments for SSO cases that are paid based
on the ‘‘blend’’ option (that is, SSO cases
paid under § 412.529(c)(2)(iv)) are not
affected by the update to the standard
Federal rate, we estimate that the effect of the
2.0 percent update to the standard Federal
rate will result in a 1.8 percent increase (as
shown in Column 6 of Table IV) on estimated
aggregate LTCH PPS payments for all LTCH
PPS cases, including SSO cases.
While the effects of the estimated increase
in SSO and HCO payments and the change
PO 00000
Average
FY 2009
payments/
case
to the standard Federal rate are projected to
increase estimated payments from RY 2009 to
RY 2010, the changes to the area wage
adjustment from RY 2009 to RY 2010 are
expected to result in a slight decrease in
estimated aggregate LTCH PPS payments
from the 2009 LTCH PPS rate year to the
2010 LTCH PPS rate year (Column 7 of Table
IV). As discussed in section V.B. of the
Addendum to this final rule, we are updating
the wage index values for FY 2010 based on
the most recent available data. In addition,
we are increasing the labor-related share
slightly from 75.662 percent to 75.779
percent under the LTCH PPS for RY 2010
based on the most recent available data on
the relative importance of the labor-related
share of operating and capital costs of the
RPL market basket (also discussed in section
VIII.C.2. of this final rule).
We note that the overall percent change in
estimated LTCH payments from RY 2009 to
RY 2010 for all changes (shown in Column
8) cannot be determined by adding the
incremental effect of the standard Federal
rate (Column 6) and the area wage
adjustment changes (Column 7) on estimated
aggregate LTCH PPS payments because each
of those two columns are intended to show
the isolated impact of the respective change
(that is, the change to the standard Federal
rate or the change to the area wage
adjustment) on estimated payments for RY
2010 as compared to RY 2009, but the
interactive effects resulting from both the
change to the standard Federal rate and the
change to the area wage adjustment, as well
as estimated changes to HCO and SSO
payments, are not reflected in each of these
columns. However, the interactive effects of
all changes, including the change in
estimated HCO and SSO payments, are
reflected in the estimated change in
payments for all changes for RY 2010 as
compared to RY 2009 (shown in Column 8
of Table IV).
Notwithstanding this limitation, the
projected increase in payments per discharge
from RY 2009 to RY 2010 is 3.3 percent
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(shown in Column 8). This projected increase
in payments is attributable to the impacts of
the change to the standard Federal rate (1.8
percent in Column 6) and the change due to
the area wage adjustment (¥0.1 percent in
Column 7), and is also due to the effect of
the estimated increase in payments for HCO
cases and SSO cases in RY 2010 as compared
to RY 2009. That is, estimated total HCO
payments are projected to increase from RY
2009 to RY 2010 in order to ensure that
estimated HCO payments will be 8 percent of
total estimated LTCH PPS payments in RY
2010. As discussed in detail in section V. of
the Addendum to this final rule, an analysis
of the most recent available LTCH PPS claims
data (that is, FY 2008 claims from the March
2009 update of the MedPAR files) indicates
that the RY 2009 HCO threshold of $22,960
may result in HCO payments in RY 2009 that
fall below the estimated 8 percent.
Specifically, we currently estimate that HCO
payments will be approximately 6.8 percent
of estimated total LTCH PPS payments in RY
2009. Consequently, it is necessary to
decrease the HCO threshold for RY 2010 in
order to ensure that estimated HCO payments
will be 8 percent of total estimated LTCH
PPS payments in RY 2010. We estimate that
the impact of the increase in HCO payments
would result in approximately a 1.2 percent
increase in estimated payments from RY
2009 to RY 2010 on average for all LTCHs.
Furthermore, in calculating the estimated
increase in payments from RY 2009 to RY
2010 for HCO and SSO cases, we increased
estimated costs by the applicable market
basket percentage increase as projected by
our actuaries. We note that estimated
payments for all SSO cases comprise
approximately 15 percent of estimated total
LTCH PPS payments, and estimated
payments for HCO cases comprise
approximately 8 percent of estimated total
LTCH PPS payments. Payments for HCO
cases are based on 80 percent of the
estimated cost above the HCO threshold,
while the majority of the payments for SSO
cases (over 67 percent) are based on the
estimated cost of the SSO case. A thorough
discussion of the regulatory impact analysis
for the changes presented in this final rule
can be found below in section V. of the
Addendum to this final rule.
As we discuss in detail throughout this
final rule, based on the most recent available
data, we believe that the provisions of this
final rule relating to the LTCH PPS will result
in an increase in estimated aggregate LTCH
PPS payments and that the resulting LTCH
PPS payment amounts result in appropriate
Medicare payments.
B. Impact on Rural Hospitals
For purposes of section 1102(b) of the Act,
we define a small rural hospital as a hospital
that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds.
As shown in Table IV, we are projecting a 4.2
percent increase in estimated payments per
discharge for the 2010 LTCH PPS rate year
as compared to the 2009 LTCH PPS rate year
for rural LTCHs that will result from the
changes presented in this final rule (that is,
the update to the standard Federal rate
discussed in section V.A. of the Addendum
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to this final rule and the changes to the area
wage adjustment as discussed in section V.B.
of the Addendum to this final rule) as well
as the effect of estimated changes to HCO and
SSO payments. This estimated impact is
based on the data for the 26 rural LTCHs in
our database of 399 LTCHs, for which
complete data were available.
The estimated increase in LTCH PPS
payments from the 2009 LTCH PPS rate year
to the 2010 LTCH PPS rate year for rural
LTCHs is primarily due to the higher than
average impacts from the change to the
standard Federal rate (1.9 percent) and
changes to the area wage adjustment (0.4
percent). We believe that the changes to the
area wage adjustment presented in this final
rule (that is, the use of updated wage data
and the change in the labor-related share)
would result in accurate and appropriate
LTCH PPS payments in RY 2010 because
they are based on the most recent available
data. Such updated data appropriately reflect
national differences in area wage levels and
appropriately identifies the portion of the
standard Federal rate that should be adjusted
to account for such differences in area wages,
thereby resulting in accurate and appropriate
LTCH PPS payments. Furthermore, rural
LTCHs are projected to experience a higher
than average increase in estimated HCO
payments in RY 2010, which also contributes
to the estimated higher than average percent
change in payments per discharge from RY
2009 to RY 2010. That is, our current
estimate shows that, for rural LTCHs, the
increase in HCO payments in RY 2010 will
be higher than the average increase when
compared to all hospitals.
C. Anticipated Effects of LTCH PPS Payment
Rate Change and Policy Changes
We discuss the impact of the changes to
the payment rates, factors, and other payment
rate policies under the LTCH PPS for RY
2010 (in terms of their estimated fiscal
impact on the Medicare budget and on
LTCHs) in section VIII. of the preamble of
this final rule.
1. Budgetary Impact
Section 123(a)(1) of the BBRA requires that
the PPS developed for LTCHs ‘‘maintain
budget neutrality.’’ We believe that the
statute’s mandate for budget neutrality
applies only to the first year of the
implementation of the LTCH PPS (that is, FY
2003). Therefore, in calculating the FY 2003
standard Federal rate under § 412.523(d)(2),
we set total estimated payments for FY 2003
under the LTCH PPS so that estimated
aggregate payments under the LTCH PPS
were estimated to equal the amount that
would have been paid if the LTCH PPS had
not been implemented.
As discussed in section IX.A. of this
Appendix A, we project an increase in
aggregate LTCH PPS payments in RY 2010 of
approximately $153 million (or 3.3 percent)
based on the 399 LTCHs in our database.
2. Impact on Providers
The basic methodology for determining a
per discharge LTCH PPS payment is set forth
in § 412.515 through § 412.536. In addition to
the basic MS–LTC–DRG payment (standard
Federal rate multiplied by the MS–LTC–DRG
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44231
relative weight), we make adjustments for
differences in area wage levels, COLA for
Alaska and Hawaii, and SSOs. Furthermore,
LTCHs may also receive HCO payments for
those cases that qualify based on the
threshold established each rate year.
To understand the impact of the changes
to the LTCH PPS payments presented in this
final rule on different categories of LTCHs for
the 2010 LTCH PPS rate year, it is necessary
to estimate payments per discharge for the
2009 LTCH PPS rate year using the rates,
factors and policies established in the RY
2009 LTCH PPS final rule (73 FR 26788
through 26874) and the FY 2009 GROUPER
(Version 26.0) and relative weights
established in the FY 2009 IPPS final rule (73
FR 23537 through 23617). It is also necessary
to estimate the payments per discharge that
would be made under the LTCH PPS rates,
factors, policies, and GROUPER for the 2010
LTCH PPS rate year (as discussed in VIII. of
the preamble and section V. of the
Addendum to this final rule). These
estimates of RY 2009 and RY 2010 LTCH PPS
payments are based on the best available
LTCH claims data and other factors, such as
the application of inflation factors to estimate
costs for SSO and HCO cases in each year.
We also evaluated the change in estimated
2009 LTCH PPS rate year payments to
estimated 2010 LTCH PPS rate year payments
(on a per discharge basis) for each category
of LTCHs.
Hospital groups were based on
characteristics provided in the OSCAR data,
FY 2004 through FY 2006 cost report data in
HCRIS, and PSF data. Hospitals with
incomplete characteristics were grouped into
the ‘‘unknown’’ category. Hospital groups
include the following:
• Location: large urban/other urban/rural.
• Participation date.
• Ownership control.
• Census region.
• Bed size.
To estimate the impacts of the payment
rates and policy changes among the various
categories of existing providers, we used
LTCH cases from the FY 2008 MedPAR file
to estimate payments for RY 2009 and to
estimate payments for RY 2010 for 399
LTCHs. While currently there are just under
400 LTCHs, the most recent growth is
predominantly in for-profit LTCHs that
primarily provide respiratory and ventilatordependent patient care. We believe that the
discharges based on the FY 2008 MedPAR
data for the 399 LTCHs in our database,
which includes 267 proprietary LTCHs,
provide sufficient representation in the MS–
LTC–DRGs containing discharges for patients
who received LTCH care for the most
commonly treated LTCH patients’ diagnoses.
3. Calculation of Prospective Payments
For purposes of this impact analysis, to
estimate per discharge payments under the
LTCH PPS, we simulated payments on a
case-by-case basis using LTCH claims from
the FY 2008 MedPAR files. For modeling
estimated LTCH PPS payments for RY 2009,
we applied the RY 2009 standard Federal rate
(that is, $39,114.36, which is effective for
LTCH discharges occurring on or after July 1,
2008, and through September 30, 2009). For
modeling estimated LTCH PPS payments for
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As discussed above, our impact analysis
reflects an estimated change in payments for
SSO cases as well as an estimated increase
in payments for HCO cases (as described in
section V.C. of the Addendum to this final
rule). In modeling payments for SSO and
HCO cases in RY 2009, we applied an
inflation factor of 1.025 percent (determined
by OACT) to the estimated costs of each case
determined from the charges reported on the
claims in the FY 2008 MedPAR files and the
best available CCRs from the March 2009
update of the PSF. In modeling payments for
SSO and HCO cases in RY 2010, we applied
an inflation factor of 1.051 (determined by
OACT) to the estimated costs of each case
determined from the charges reported on the
claims in the FY 2008 MedPAR files and the
best available CCRs from the March 2009
update of the PSF.
These impacts reflect the estimated
‘‘losses’’ or ‘‘gains’’ among the various
classifications of LTCHs from the 2009 LTCH
PPS rate year to the 2010 LTCH PPS rate year
based on the payment rates and policy
changes presented in this final rule. Table IV
illustrates the estimated aggregate impact of
the LTCH PPS among various classifications
of LTCHs.
• The first column, LTCH Classification,
identifies the type of LTCH.
RY 2010, we applied the RY 2010 standard
Federal rate of $39,896.65, which will be
effective for LTCH discharges occurring on or
after October 1, 2009, and through September
30, 2010).
Furthermore, in modeling estimated LTCH
PPS payments for both RY 2009 and RY 2010
in this impact analysis, we applied the RY
2009 and RY 2010 adjustments for area wage
differences and the COLA for Alaska and
Hawaii. Specifically, we adjusted for area
wage differences for estimated 2009 LTCH
PPS rate year payments using the current
LTCH PPS labor-related share of 75.662
percent (73 FR 26815), the wage index values
established in the Tables 1 and 2 of the
Addendum to the RY 2009 final rule (73 FR
26840 through 26863) and the COLA factors
established in Table III of the preamble of the
RY 2009 final rule (73 FR 26819). Similarly,
we adjusted for area wage differences for
estimated 2010 LTCH PPS rate year payments
using the LTCH PPS RY 2010 labor-related
share of 75.779 percent (section VIII.C.2. of
the preamble of this final rule), the RY 2010
wage index values presented in Tables 12A
and 12B of the Addendum to this final rule,
and the RY 2010 COLA factors shown in the
table in section V. of the Addendum to this
final rule.
• The second column lists the number of
LTCHs of each classification type.
• The third column identifies the number
of LTCH cases.
• The fourth column shows the estimated
payment per discharge for the 2009 LTCH
PPS rate year (as described above).
• The fifth column shows the estimated
payment per discharge for the 2010 LTCH
PPS rate year (as described above).
• The sixth column shows the percentage
change in estimated payments per discharge
from the 2009 LTCH PPS rate year to the
2010 LTCH PPS rate year for changes to the
standard Federal rate (as discussed in section
V. of the Addendum to this final rule).
• The seventh column shows the
percentage change in estimated payments per
discharge from the 2009 LTCH PPS rate year
to the 2010 LTCH PPS rate year for changes
to the area wage adjustment at § 412.525(c)
(as discussed in section V.B.4. of the
Addendum to this final rule).
• The eighth column shows the percentage
change in estimated payments per discharge
from the 2009 LTCH PPS rate year (Column
4) to the 2010 LTCH PPS rate year (Column
5) for all changes (and includes the effect of
estimated changes to HCO and SSO
payments).
TABLE IV—IMPACT OF PAYMENT RATE AND PAYMENT RATE POLICY CHANGES TO LTCH PPS PAYMENTS FOR RY 2010
[Estimated 2009 LTCH PPS Rate Year Payments Compared to Estimated 2010 LTCH PPS Rate Year Payments*]
(6)
Percent
change in estimated payments per
discharge
from RY
2009 to RY
2010 for
changes to
the area
wage adjustment 4
Percent
change in
payments per
discharge
from RY
2009 to RY
2010 for all
changes 5
(7)
Average RY
2010 LTCH
PPS rate
year payment
per case 2
Percent
change in estimated payments per
discharge
from RY
2009 to RY
2010 for
changes to
the federal
rate 3
(8)
Number of
LTCHs
Number of
LTCH PPS
cases
(1)
sroberts on DSKD5P82C1PROD with RULES
LTCH classification
Average RY
2009 LTCH
PPS rate
year payment
per case 1
(2)
(3)
(4)
(5)
399
131,214
$35,127
$36,293
1.8
¥0.1
3.3
26
373
191
182
5,844
125,370
75,370
50,000
30,336
35,350
36,748
33,244
31,597
36,512
37,979
34,301
1.9
1.7
1.7
1.8
0.4
¥0.1
0
¥0.2
4.2
3.3
3.4
3.2
17
44
191
140
6,666
18,426
66,503
38,506
31,248
35,496
34,699
36,290
32,535
36,829
35,791
37,474
1.7
1.7
1.8
1.8
0.6
0.2
¥0.1
¥0.2
4.1
3.8
3.1
3.3
7
1,113
37,590
39,155
1.7
0.4
4.2
81
267
12
21,655
99,479
1,904
35,546
34,738
41,093
36,810
35,839
42,674
1.7
1.8
1.6
¥0.2
0
¥0.3
3.6
3.2
3.9
39
8,176
37,364
38,969
1.8
0.2
4.3
15
29
49
67
31
21
138
25
7,916
8,180
13,555
19,630
8,345
5,199
50,413
5,988
30,685
36,267
39,848
38,943
35,513
36,847
30,454
37,769
32,030
37,172
41,175
39,870
36,739
38,094
31,420
39,415
1.7
1.7
1.7
1.7
1.8
1.7
1.8
1.7
0.8
¥0.4
¥0.3
¥0.8
¥0.2
0.2
¥0.3
0.8
4.4
2.5
3.3
2.4
3.5
3.4
3.2
4.4
ALL PROVIDERS ......................
BY LOCATION:
RURAL ................................
URBAN ...............................
LARGE .........................
OTHER ........................
BY PARTICIPATION DATE:
BEFORE OCT. 1983 ..........
OCT. 1983—SEPT. 1993 ...
OCT. 1993—SEPT. 2002 ...
AFTER OCTOBER 2002 ....
UNKNOWN PARTICIPATION DATE .....................
BY OWNERSHIP TYPE:
VOLUNTARY ......................
PROPRIETARY ..................
GOVERNMENT ..................
UNKNOWN OWNERSHIP
TYPE ...............................
BY REGION:
NEW ENGLAND .................
MIDDLE ATLANTIC ............
SOUTH ATLANTIC .............
EAST NORTH CENTRAL ...
EAST SOUTH CENTRAL ...
WEST NORTH CENTRAL ..
WEST SOUTH CENTRAL ..
MOUNTAIN .........................
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TABLE IV—IMPACT OF PAYMENT RATE AND PAYMENT RATE POLICY CHANGES TO LTCH PPS PAYMENTS FOR RY 2010—
Continued
[Estimated 2009 LTCH PPS Rate Year Payments Compared to Estimated 2010 LTCH PPS Rate Year Payments*]
LTCH classification
Number of
LTCHs
Number of
LTCH PPS
cases
Average RY
2009 LTCH
PPS rate
year payment
per case 1
(1)
(2)
(3)
(4)
PACIFIC ..............................
BY BED SIZE:
BEDS: 0–24 ........................
BEDS: 25–49 ......................
BEDS: 50–74 ......................
BEDS: 75–124 ....................
BEDS: 125–199 ..................
BEDS: 200 + .......................
(5)
(6)
Percent
change in estimated payments per
discharge
from RY
2009 to RY
2010 for
changes to
the area
wage adjustment 4
Percent
change in
payments per
discharge
from RY
2009 to RY
2010 for all
changes 5
(7)
Average RY
2010 LTCH
PPS rate
year payment
per case 2
Percent
change in estimated payments per
discharge
from RY
2009 to RY
2010 for
changes to
the federal
rate 3
(8)
24
11,988
43,014
44,977
1.7
1.3
4.6
41
191
82
49
23
13
5,455
44,459
27,914
24,540
16,598
12,248
31,273
35,502
34,978
37,266
33,752
33,400
32,442
36,581
36,160
38,562
34,892
34,622
1.8
1.8
1.8
1.7
1.7
1.7
¥0.1
¥0.2
0
0.1
¥0.1
0.4
3.7
3
3.4
3.5
3.4
3.7
sroberts on DSKD5P82C1PROD with RULES
1 Estimated 2009 LTCH PPS rate year payments based on the rates, factors and policies established in the RY 2009 LTCH PPS final rule (73
FR 26788) and the FY 2009 GROUPER (Version 26.0) and relative weights established in the FY 2009 IPPS final rule (73 FR 23537 through
23617).
2 Estimated 2010 LTCH PPS rate year payments based on the payment rates and policy changes presented in the preamble and the Addendum of this final rule.
3 Percent change in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year for the changes
to the standard Federal rate, as discussed in section V.A. of the Addendum to this final rule.
4 Percent change in estimated payments per discharge from the 2009 LTCH PPS rate year to the 2010 LTCH PPS rate year for changes to
the area wage adjustment at § 412.525(c) (as discussed in section V.B.4. of the Addendum to this final rule).
5 Percent change in estimated payments per discharge from the 2009 LTCH PPS rate year (shown in Column 4) to the 2010 LTCH PPS rate
year (shown in Column 5), including all of the changes presented in the preamble of this final rule. Note, this column, which shows the percent
change in estimated payments per discharge for all changes, does not equal the sum of the percent changes in estimated payments per discharge for changes to the standard Federal rate (column 6) and the changes to the area wage adjustment (Column 7) due to the effect of estimated changes in both payments to SSO cases that are paid based on estimated costs and aggregate HCO payments (as discussed in this impact analysis), as well as other interactive effects that cannot be isolated.
4. Results
Based on the most recent available data (as
described previously for 399 LTCHs), we
have prepared the following summary of the
impact (as shown in Table IV) of the LTCH
PPS payment rate and policy changes
presented in this final rule. The impact
analysis in Table IV shows that estimated
payments per discharge are expected to
increase approximately 3.3 percent, on
average, for all LTCHs from the 2009 LTCH
PPS rate year to the 2010 LTCH PPS rate year
as a result of the payment rate and policy
changes presented in this final rule as well
as estimated increases in HCO and SSO
payments. We note that we are adopting a 2.0
percent increase to the standard Federal rate
for RY 2010, based on the latest market
basket estimate (2.5 percent) and the
adjustment for documentation and coding in
2007 (¥0.5 percent). We noted earlier in this
section that for most categories of LTCHs, as
shown in Table IV (Column 6), the impact of
the increase of 2.0 percent to the standard
Federal rate is projected to result in
approximately a 1.8 percent increase in
estimated payments per discharge for all
LTCHs from the 2009 LTCH PPS rate year to
the 2010 LTCH PPS rate year. In addition to
the 2.0 percent increase to the standard
Federal rate for RY 2010, the projected
percent increase in estimated payments per
discharge from the 2009 LTCH PPS rate year
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to the 2010 LTCH PPS rate year of 3.3 percent
shown in Table IV (Column 8) reflects the
effect of estimated increases in HCO and SSO
payments, as discussed previously.
Furthermore, as discussed previously in this
regulatory impact analysis, the average
increase in estimated payments per discharge
from the 2009 LTCH PPS rate year to the
2010 LTCH PPS rate year for all LTCHs of
approximately 3.3 percent (as shown in Table
IV) was determined by comparing estimated
RY 2010 LTCH PPS payments (using the rates
and policies discussed in this final rule) to
estimated RY 2009 LTCH PPS payments (as
described above in section IX.C. of this
regulatory impact analysis).
a. Location
Based on the most recent available data,
the vast majority of LTCHs are located in
urban areas. Only approximately 7 percent of
the LTCHs are identified as being located in
a rural area, and approximately 4 percent of
all LTCH cases are treated in these rural
hospitals. The impact analysis presented in
Table IV shows that the average percent
increase in estimated payments per discharge
from the 2009 LTCH PPS rate year to the
2010 LTCH PPS rate year for all hospitals is
3.3 percent for all changes. For rural LTCHs,
the percent change for all changes is
estimated to be 4.16 percent, while for urban
LTCHs, we estimate the increase to be 3.3
percent. Large urban LTCHs are projected to
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experience an average increase, 3.4 percent,
in estimated payments per discharge from the
2009 LTCH PPS rate year to the 2010 LTCH
PPS rate year, while other urban LTCHs are
projected to experience a nearly average
increase (3.2 percent) in estimated payments
per discharge from the 2009 LTCH PPS rate
year to the 2010 LTCH PPS rate year, as
shown in Table IV.
b. Participation Date
LTCHs are grouped by participation date
into four categories: (1) Before October 1983;
(2) between October 1983 and September
1993; (3) between October 1993 and
September 2002; and (4) after October 2002.
Based on the most recent available data, the
majority (approximately 51 percent) of the
LTCH cases are in hospitals that began
participating between October 1993 and
September 2002, and are projected to
experience nearly the average increase (3.1
percent) in estimated payments per discharge
from the 2009 LTCH PPS rate year to the
2010 LTCH PPS rate year, as shown in Table
IV.
In the participation category where LTCHs
began participating in Medicare before
October 1983, LTCHs are projected to
experience a higher than average percent
increase (4.1) in estimated payments per
discharge from the 2009 LTCH PPS rate year
to the 2010 LTCH PPS rate year, as shown
in Table IV, due to changes in the wage index
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and an estimated increase in HCO payments.
Approximately 4 percent of LTCHs began
participating in Medicare before October
1983. The LTCHs in this category are
projected to experience a higher than average
increase in estimated payments because 65
percent of these LTCHs are located in areas
where the RY 2010 wage index value is
greater than the RY 2009 wage index value,
and also because the majority of these LTCHs
have a wage index value of greater than 1.0.
Approximately 11 percent of LTCHs began
participating in Medicare between October
1983 and September 1993. These LTCHs are
projected to experience a slightly higher than
average increase (3.8 percent) in estimated
payments. The majority of LTCHs, that is,
those that began participating in Medicare
since October 1993, are projected to
experience near average increases in
estimated payments per discharge from the
2009 LTCH PPS rate year to the 2010 LTCH
PPS rate year, as shown in Table IV.
c. Ownership Control
Other than LTCHs whose ownership
control type is unknown, LTCHs are grouped
into three categories based on ownership
control type: voluntary, proprietary, and
government. Based on the most recent
available data, approximately 20 percent of
LTCHs are identified as voluntary (Table IV).
We expect that, for these LTCHs in the
voluntary category, estimated 2010 LTCH
PPS rate year payments per discharge will
increase slightly higher than the average (3.6
percent) in comparison to estimated
payments in the 2009 LTCH PPS rate year,
as shown in Table IV, primarily because the
change in estimated HCO payments is
projected to be higher than the average for
these LTCHs. The majority (67 percent) of
LTCHs are identified as proprietary and these
LTCHs are projected to experience a near
average increase (3.2 percent) in estimated
payments per discharge from the 2009 LTCH
PPS rate year to the 2010 LTCH PPS rate
year. Finally, government-owned and
operated LTCHs (3 percent) are expected to
experience a slightly higher than the average
increase (3.9 percent) in estimated payments
primarily due to larger than the average
increase in estimated HCO payments.
d. Census Region
Estimated payments per discharge for the
2010 LTCH PPS rate year are projected to
increase for LTCHs located in all regions in
comparison to the 2009 LTCH PPS rate year.
Of the 9 census regions, we project that the
increase in estimated payments per discharge
will have the largest positive impact on
LTCHs in the New England, Mountain, and
Pacific regions (4.4 percent, 4.4 percent, and
4.6 percent, respectively, as shown in Table
IV). As explained in greater detail above in
section XV.B.4. of this Appendix, the
estimated percent increase in payments per
discharge from the 2009 LTCH PPS rate year
to the 2010 LTCH PPS rate year for these
regions is largely attributable to the projected
increase in estimated HCO and SSO
payments, in addition to the increase in the
standard Federal rate and the changes to the
area wage adjustment. Specifically, for the
New England region, all the LTCHs located
in this region have a wage index value of
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greater than 1.0; and the majority (87 percent)
of these LTCHs are located in areas where the
RY 2010 wage index value is greater than the
RY 2009 wage index value. The projected
increase in estimated payments per discharge
from the 2009 LTCH PPS rate year to the
2010 LTCH PPS rate year for LTCHs in the
Mountain and Pacific regions is 4.4 percent
and 4.6 percent respectively. These projected
increases in payments are due to both the
estimated increase in HCO payments and the
significantly higher than average estimated
impact from the changes to the area wage
adjustment. That is, the majority (60 percent)
of the LTCHs located in the Mountain region
have a wage index value of greater than 1.0,
and in addition, most of these LTCHs (76
percent) are located in areas where the RY
2010 wage index value is greater than the RY
2009 wage index value. Furthermore, all the
LTCHs located in the Pacific region have a
wage index value of greater than 1.0 and they
are all located in areas where the RY 2010
wage index value is greater than the RY 2009
wage index value.
In contrast, LTCHs located in the Middle
Atlantic and East North Central regions are
projected to experience a lower than average
increase in estimated payments per discharge
from the 2009 LTCH PPS rate year to the
2010 LTCH PPS rate year. The projected
increase in payments of 2.5 percent for
LTCHs in the Middle Atlantic region is
primarily due to the 55 percent of LTCHs
located in areas where the RY 2010 wage
index value would be less than the RY 2009
wage index value. In addition, 62 percent of
the LTCHs in this category are projected to
have a RY 2010 wage index value of greater
than 1.0. Similarly, the lower than average
increase in payments per discharge for
LTCHs in the East North Central region is
largely due to the majority of LTCHs in this
region that are expected to experience a
decrease in estimated payments per
discharge due to the changes in the area wage
adjustment. However, we note that the
projected increase in estimated HCO
payments for LTCHs in this region in
addition to the increase in the standard
Federal rate results in an overall estimated
increase, albeit less than the average increase,
in estimated payments per discharge from the
2009 LTCH PPS rate year to the 2010 LTCH
PPS rate year. The remaining regions, South
Atlantic, East South Central, West North
Central, and West South Central, are
expected to experience near the average
increases in estimated payments per
discharge from the 2009 LTCH PPS rate year
to the 2010 LTCH PPS rate year.
e. Bed Size
LTCHs were grouped into six categories
based on bed size: 0–24 beds; 25–49 beds;
50–74 beds; 75–124 beds; 125–199 beds; and
greater than 200 beds.
We are projecting an average or near
average increase in estimated 2010 LTCH
PPS rate year payments per discharge in
comparison to the 2009 LTCH PPS rate year
for all bed size categories.
D. Effect on the Medicare Program
As noted previously, we project that the
provisions of this final rule will result in an
increase in estimated aggregate LTCH PPS
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Sfmt 4700
payments in RY 2010 of approximately $153
million (or about 3.3 percent) for the 399
LTCHs in our database.
E. Effect on Medicare Beneficiaries
Under the LTCH PPS, hospitals receive
payment based on the average resources
consumed by patients for each diagnosis. We
do not expect any changes in the quality of
care or access to services for Medicare
beneficiaries under the LTCH PPS, but we
expect that paying prospectively for LTCH
services would enhance the efficiency of the
Medicare program.
X. Alternatives Considered
This final rule contains a range of policies.
The preamble of this final rule provides
descriptions of the statutory provisions that
are addressed, identifies implementing
policies where discretion has been exercised,
and presents rationales for our decisions and,
where relevant, alternatives that were
considered.
XI. Overall Conclusion
A. Acute Care Hospitals
Table I of section VI. of this Appendix
demonstrates the estimated distributional
impact of the IPPS budget neutrality
requirements for the MS–DRG and wage
index changes, and for the wage index
reclassifications under the MGCRB. Table I
also shows an overall increase of 1.6 percent
in operating payments. We estimate that
operating payments will increase by
approximately $1.73 billion in FY 2010. This
accounts for the projected savings associated
with the HACs policy, which has an
estimated savings of $21 million, and the
additional spending of $17.4 million due to
new technology add-on payments. In
addition, this estimate includes the reporting
of hospital quality data program costs of $2.4
million, and all operating payment policies
as described in section VII. of this Appendix.
We estimate that capital payments will
increase by 2.1 percent per case, as shown in
Table III of section VIII. of this Appendix.
Therefore, we project that the increase in
capital payments in FY 2010 compared to FY
2009 will be approximately $171 million.
The cumulative operating and capital
payments should result in a net increase of
$1.899 billion to IPPS providers. The
discussions presented in the previous pages,
in combination with the rest of this final rule,
constitute a regulatory impact analysis.
B. LTCHs
Overall, LTCHs are projected to experience
an increase in estimated payments per
discharge in RY 2010. In the impact analysis,
we are using the rates, factors, and policies
presented in this final rule, including
updated wage index values, and the best
available claims and CCR data to estimate the
change in payments for the 2010 LTCH PPS
rate year. Accordingly, based on the best
available data for the 399 LTCHs in our
database, we estimate that RY 2010 LTCH
PPS payments will increase approximately
$153 million (or about 3.3 percent).
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XII. Accounting Statements
A. Acute Care Hospitals
As required by OMB Circular A–4
(available at https://www.whitehousegov/omb/
circulars/a004/a-4.pdf), in Table V below, we
have prepared an accounting statement
showing the classification of the
expenditures associated with the provisions
of this final rule as they relate to acute care
hospitals. This table provides our best
estimate of the change in Medicare payments
to providers as a result of the changes to the
IPPS presented in this final rule. All
expenditures are classified as transfers to
Medicare providers.
TABLE V—ACCOUNTING STATEMENT:
CLASSIFICATION OF ESTIMATED EXPENDITURES
UNDER THE IPPS
FROM FY 2009 TO FY 2010
Category
Transfers
Annualized
Monetized
Transfers.
From Whom to
Whom.
$1.899 billion.
Total ........
$1.899 billion.
Federal Government to IPPS
Medicare Providers.
B. LTCHs
As discussed in section IX. of this
Appendix, the impact analysis for the
changes under the LTCH PPS for this final
rule projects an increase in estimated
aggregate payments of approximately $153
million (or about 3.3 percent) for the 399
LTCHs in our database that are subject to
payment under the LTCH PPS. Therefore, as
required by OMB Circular A–4 (available at
https://www.whitehouse.gov/omb/circulars/
a004/a-4.pdf), in Table VI below, we have
prepared an accounting statement showing
the classification of the expenditures
associated with the provisions of this final
rule as they relate to changes to the LTCH
PPS. Table VI provides our best estimate of
the increase in Medicare payments under the
LTCH PPS as a result of the provisions
presented in this final rule based on the data
for the 399 LTCHs in our database. All
expenditures are classified as transfers to
Medicare providers (that is, LTCHs).
TABLE VI—ACCOUNTING STATEMENT:
CLASSIFICATION OF ESTIMATED EXPENDITURES FROM THE 2009 LTCH
PPS RATE YEAR TO THE 2010
LTCH PPS RATE YEAR
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Category
Transfers
Annualized
Monetized
Transfers.
From Whom to
Whom.
Positive transfer—Estimated
increase in expenditures:
$153 million.
Federal Government to
LTCH PPS Medicare Providers.
Total ........
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$153 million.
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XIII. Executive Order 12866
In accordance with the provisions of
Executive Order 12866, the Executive Office
of Management and Budget reviewed this
final rule.
Appendix B: Recommendation of
Update Factors for Operating Cost
Rates of Payment for Inpatient Hospital
Services
I. Background
Section 1886(e)(4)(A) of the Act requires
that the Secretary, taking into consideration
the recommendations of the MedPAC,
recommend update factors for inpatient
hospital services for each fiscal year that take
into account the amounts necessary for the
efficient and effective delivery of medically
appropriate and necessary care of high
quality. Under section 1886(e)(5) of the Act,
we are required to publish update factors
recommended by the Secretary in the
proposed and final IPPS rules, respectively.
Accordingly, this Appendix provides the
recommendations for the update factors for
the IPPS national standardized amount, the
Puerto Rico-specific standardized amount,
the hospital-specific rates for SCHs and
MDHs, and the rate-of-increase limits for
certain hospitals excluded from the IPPS, as
well as LTCHs, IPFs, and IRFs. We also
discuss our response to MedPAC’s
recommended update factors for inpatient
hospital services.
II. Inpatient Hospital Update for FY 2010
Section 1886(b)(3)(B)(i)(XX) of the Act, as
amended by section 5001(a) of Public Law
109–171, sets the FY 2010 percentage
increase in the operating cost standardized
amount equal to the rate-of-increase in the
hospital market basket for IPPS hospitals in
all areas, subject to the hospital submitting
quality information under rules established
by the Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act. For hospitals
that do not provide these data, the update is
equal to the market basket percentage
increase less 2.0 percentage points.
In compliance with section 404 of the
MMA, as we proposed in the FY 2010 IPPS/
LTCH PPS proposed rule (74 FR 24685), in
section IV. of the preamble of this final rule,
we are replacing the FY 2002-based IPPS
operating and capital market baskets with the
revised and rebased FY 2006-based IPPS
operating and capital market baskets for FY
2010. In addition to updating the base year
to reflect more recent data, we also are
making several changes to the structure of the
market basket, including three new expense
categories and revising several price proxies.
As we proposed, we also are rebasing the
labor-related share to reflect the more recent
base year. The current labor-related share,
which is based on the FY 2002-based IPPS
market basket, is 69.7. We are adopting a
labor-related share of 68.8, which is based on
the rebased and revised FY 2006-based IPPS
market basket. For a complete discussion on
the rebasing of the market basket and labor
share, we refer readers to section IV. of the
preamble to this final rule.
Consistent with current law, based on IHS
Global Insight, Inc.’s first quarter 2009
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44235
forecast of the FY 2010 market basket
increase, we stated in the proposed rule that
we are estimating that the FY 2010 update to
the standardized amount will be 2.1 percent
(that is, the then current estimate of the
market basket rate-of-increase) for hospitals
in all areas, provided the hospital submits
quality data in accordance with our rules. For
hospitals that do not submit quality data, we
stated in the proposed rule that we are
estimating that the update to the
standardized amount will be 0.1 percent (that
is, the then current estimate of the market
basket rate-of-increase minus 2.0 percentage
points). Therefore, we are adopting in this
final rule, based on IHS Global Insight, Inc.’s
second quarter 2009 forecast of the FY 2010
market basket increase, a FY 2010 update to
the standardized amount of 2.1 percent (that
is, the current estimate of the market basket
rate-of-increase) for hospitals in all areas,
provided the hospital submits quality data in
accordance with our rules. For hospitals that
do not submit quality data, the update to the
standardized amount will be 0.1 percent (that
is, the current estimate of the market basket
rate-of-increase minus 2.0 percentage points).
Section 1886(d)(9)(C)(1) of the Act is the
basis for determining the percentage increase
to the Puerto Rico-specific standardized
amount. In the proposed rule, we proposed
to apply the full rate-of-increase in the
hospital market basket for IPPS hospitals to
the Puerto Rico-specific standardized
amount. Because we did not receive any
public comments on this proposal, for FY
2010, we are applying the full rate-ofincrease in the hospital market basket for
IPPS hospitals to the Puerto Rico-specific
standardized amount. Therefore, the update
to the Puerto Rico-specific standardized
amount is 2.1 percent.
Section 1886(b)(3)(B)(iv) of the Act sets the
FY 2010 percentage increase in the hospitalspecific rates applicable to SCHs and MDHs
equal to the rate set forth in section
1886(b)(3)(B)(i) of the Act (that is, the same
update factor as for all other hospitals subject
to the IPPS, or the rate-of-increase in the
market basket). Therefore, the update to the
hospital-specific rates applicable to SCHs
and MDHs is 2.1 or 0.1 percent, depending
upon whether the hospital submits quality
data.
Section 1886(b)(3)(B)(ii) of the Act is used
for purposes of determining the percentage
increase in the rate-of-increase limits for
children’s and cancer hospitals. Section
1886(b)(3)(B)(ii) of the Act sets the
percentage increase in the rate-of-increase
limits equal to the market basket percentage
increase. In accordance with § 403.752(a) of
the regulations, RNHCIs are paid under
§ 413.40, which also uses section
1886(b)(3)(B)(ii) of the Act to update the
percentage increase in the rate-of-increase
limits. Section 1886(j)(3)(C) of the Act
addresses the increase factor for the Federal
prospective payment rate of IRFs. Section
123 of Public Law 106–113, as amended by
section 307(b) of Public Law 106–554,
provides the statutory authority for updating
payment rates under the LTCH PPS. In
addition, section 124 of Public Law 106–113
provides the statutory authority for updating
all aspects of the payment rates for IPFs.
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Currently, children’s hospitals, cancer
hospitals, and RNHCIs are the remaining
three types of hospitals still reimbursed
under the reasonable cost methodology. We
are providing our current estimate of the FY
2010 IPPS operating market basket
percentage increase (2.1 percent) to update
the target limits for children’s hospitals,
cancer hospitals, and RNHCIs.
For RY 2010, as discussed in section VIII.
of the preamble to this final rule, we are
establishing an update of 2.0 percent to the
LTCH PPS Federal rate, which is based on a
market basket increase of 2.5 percent (based
on IHS Global Insight, Inc.’s second quarter
2009 forecast of the FY 2002-based RPL
market basket increase for RY 2010) and an
adjustment of ¥0.5 percent to account for the
increase in case-mix in a prior year that
resulted from changes in coding practices
rather than an increase in patient severity.
Effective for cost reporting periods
beginning on or after January 1, 2005, IPFs
are paid under the IPF PPS. IPF PPS
payments are based on a Federal per diem
rate that is derived from the sum of the
average routine operating, ancillary, and
capital costs for each patient day of
psychiatric care in an IPF, adjusted for
budget neutrality.
IRFs are paid under the IRF PPS for cost
reporting periods beginning on or after
January 1, 2002. For cost reporting periods
beginning on or after October 1, 2002 (FY
2003), and thereafter, the Federal prospective
payments to IRFs are based on 100 percent
of the adjusted Federal IRF prospective
payment amount, updated annually (69 FR
45721).
We refer readers to section IV. of the
preamble to this final rule for a summary of
the public comments we received on the
rebasing and revising of the market basket
and labor-related share.
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III. Secretary’s Final Recommendations
MedPAC is recommending an inpatient
hospital update equal to the market basket
rate of increase for FY 2010. MedPAC’s
rationale for this update recommendation is
described in more detail below. Based on IHS
Global Insight, Inc.’s 2009 second quarter
forecast, with historical data through the
2009 first quarter, of the rebased and revised
FY 2006-based IPPS market basket, we are
recommending an update to the standardized
amount of 2.1 percent. We are recommending
that this same update factor apply to SCHs
and MDHs.
Section 1886(d)(9)(C)(i) of the Act is the
basis for determining the percentage increase
to the Puerto Rico-specific standardized
amount. For FY 2010, we are applying the
full rate-of-increase in the hospital market
basket for IPPS hospitals to the Puerto Rico-
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19:22 Aug 26, 2009
Jkt 217001
specific standardized amount. Therefore, the
update to the Puerto Rico-specific
standardized amount is 2.1 percent.
In addition to making a recommendation
for IPPS hospitals, in accordance with
section 1886(e)(4)(A) of the Act, we also are
recommending update factors for all other
types of hospitals. Using IHS Global Insight,
Inc.’s 2009 second quarter forecast, with
historical data through the 2009 first quarter,
of the rebased and revised FY 2006-based
IPPS market basket, we are recommending an
update based on the IPPS market basket
increase for children’s hospitals, cancer
hospitals, and RNHCIs of 2.1 percent.
In the IPF PPS RY 2010 notice (74 FR
20365), we implemented an update to the IPF
PPS Federal rate for RY 2010 of 2.1 percent
for the Federal per diem payment amount.
Similar to the update we implemented in the
IPF PPS RY 2010 notice, we are
recommending an update to the IPF PPS
Federal rate for RY 2010 of 2.1 percent for
the Federal per diem payment amount.
For RY 2010, similar to our approach in
section VIII. of the preamble of this final rule,
we are recommending an update of 2.0
percent to the LTCH PPS Federal rate, which
is based on a market basket increase of 2.5
percent (based on IHS Global Insight, Inc.’s
second quarter 2009 forecast of the FY 2002based RPL market basket increase for RY
2010) and an adjustment of ¥0.5 percent to
account for the increase in case-mix in a
prior year that resulted from changes in
coding practices rather than an increase in
patient severity.
Finally, in the FY 2010 IRF PPS final rule
scheduled to publish in the August 7, 2009,
issue of the Federal Register, we are
recommending the update factor that will be
applied to the FY 2010 IRF PPS Federal rate.
IV. MedPAC Recommendation for Assessing
Payment Adequacy and Updating Payments
in Traditional Medicare
In its March 2009 Report to Congress,
MedPAC assessed the adequacy of current
payments and costs, and the relationship
between payments and an appropriate cost
base, utilizing an established methodology
used by MedPAC in the past several years.
MedPAC recommended an update to the
hospital inpatient rates equal to the increase
in the hospital market basket in FY 2010,
concurrent with implementation of a quality
incentive program. Similar to last year,
MedPAC also recommended that CMS put
pressure on hospitals to control their costs
rather than accommodate the current rate of
cost growth, which is, in part, caused by a
lack of pressure from private payers.
MedPAC noted that indicators of payment
adequacy are almost uniformly positive.
MedPAC expects Medicare margins to remain
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Sfmt 4700
low in 2010. At the same time though,
MedPAC’s analysis finds that hospitals with
low non-Medicare profit margins have below
average standardized costs and most of these
facilities have positive overall Medicare
margins.
Response: Similar to our response last year,
we agree with MedPAC that hospitals should
control costs rather than accommodate the
current rate of growth. An update equal to
less than the market basket will motivate
hospitals to control their costs, consistent
with MedPAC’s recommendation. As
MedPAC noted, the lack of financial pressure
at certain hospitals can lead to higher costs
and in turn bring down the overall Medicare
margin for the industry.
As discussed in section II. of the preamble
of this final rule, CMS implemented the MS–
DRGs in FY 2008 to better account for
severity of illness under the IPPS and is
basing the DRG weights on costs rather than
charges. We continue to believe that these
refinements will better match Medicare
payment of the cost of care and provide
incentives for hospitals to be more efficient
in controlling costs.
We note that, because the operating and
capital prospective payment systems remain
separate, we are continuing to use separate
updates for operating and capital payments.
The update to the capital rate is discussed in
section III. of the Addendum to this final
rule.
Comment: One commenter reiterated that
MedPAC reported that Medicare margins are
growing increasingly negative and that
MedPAC recommended that hospitals be
given a positive update of 2.7 percent in FY
2010 concurrent with implementation of a
quality incentive program. The commenter
supported MedPAC’s recommendation of a
full update to the market basket concurrent
with implementation of a quality incentive
program.
Response: We thank the commenter for
their comments. As discussed above, section
1886(b)(3)(B)(i)(XX) of the Act, as amended
by section 5001(a) of Public Law 109–171,
sets the FY 2010 percentage increase in the
operating cost standardized amount equal to
the rate-of-increase in the hospital market
basket for IPPS hospitals in all areas. Under
section 1886(b)(3)(B)(viii) of the Act, for
hospitals that do not provide quality data, the
update is equal to the market basket
percentage increase less 2.0 percentage
points. In this final rule, based on IHS Global
Insight, Inc.’s second quarter 2009 forecast of
the FY 2010 market basket increase, we are
adopting a FY 2010 update to the
standardized amount of 2.1 percent.
[FR Doc. E9–18663 Filed 7–31–09; 4:15 pm]
BILLING CODE 4120–01–P
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Agencies
[Federal Register Volume 74, Number 165 (Thursday, August 27, 2009)]
[Rules and Regulations]
[Pages 43754-44236]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-18663]
[[Page 43753]]
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Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 412, 413, 415, et al.
Medicare Program; Changes to the Hospital Inpatient Prospective Payment
Systems for Acute Care Hospitals and Fiscal Year 2010 Rates; and
Changes to the Long Term Care Hospital Prospective Payment System and
Rate Years 2010 and 2009 Rates; Final Rule
Federal Register / Vol. 74, No. 165 / Thursday, August 27, 2009 /
Rules and Regulations
[[Page 43754]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 412, 413, 415, 485, and 489
[CMS-1406-F and IFC; CMS-1493-F; CMS-1337-F]
RIN 0938-AP33; RIN 0938-AP39; RIN 0938-AP76
Medicare Program; Changes to the Hospital Inpatient Prospective
Payment Systems for Acute Care Hospitals and Fiscal Year 2010 Rates;
and Changes to the Long-Term Care Hospital Prospective Payment System
and Rate Years 2010 and 2009 Rates
AGENCY: Centers for Medicare and Medicaid Services (CMS), HHS.
ACTION: Final rules and interim final rule with comment period.
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SUMMARY: We are revising the Medicare hospital inpatient prospective
payment systems (IPPS) for operating and capital-related costs of acute
care hospitals to implement changes arising from our continuing
experience with these systems, and to implement certain provisions made
by the TMA, Abstinence Education, and QI Program Extension Act of 2007,
the Medicare Improvements for Patients and Providers Act of 2008, and
the American Recovery and Reinvestment Act of 2009. In addition, in the
Addendum to this final rule, we describe the changes to the amounts and
factors used to determine the rates for Medicare acute care hospital
inpatient services for operating costs and capital-related costs. These
changes are applicable to discharges occurring on or after October 1,
2009. We also are setting forth the update to the rate-of-increase
limits for certain hospitals excluded from the IPPS that are paid on a
reasonable cost basis subject to these limits. The updated rate-of-
increase limits are effective for cost reporting periods beginning on
or after October 1, 2009.
Second, we are updating the payment policy and the annual payment
rates for the Medicare prospective payment system (PPS) for inpatient
hospital services provided by long-term care hospitals (LTCHs) for rate
year (RY) 2010, including responding to public comments received on a
June 3, 2009 supplemental proposed rule relating to the proposed RY
2010 Medicare Severity Long-Term Care Diagnosis-Related Groups (MS-LTC-
DRG) relative weights and the proposed RY 2010 high-cost outlier (HCO)
fixed-loss amount. In the Addendum to this final rule, we also set
forth the changes to the payment rates, factors, and other payment rate
policies under the LTCH PPS for RY 2010. These changes are applicable
to discharges occurring on or after October 1, 2009. In addition, we
are responding to public comments received on and finalizing a June 3,
2009 interim final rule with comment period that revised the MS-LTC-DRG
relative weights for payments under the LTCH PPS for the remainder of
FY 2009 (that is, from June 3, 2009, through September 30, 2009).
Third, in this final rule, we are responding to public comments we
received on, and finalizing, two May 2008 interim final rules with
comment period that implemented certain provisions of section 114 of
the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA, Pub. L.
110-173) relating to payments to LTCHs and LTCH satellite facilities,
the establishment of LTCHs and LTCH satellite facilities, and increases
in beds in existing LTCHs and LTCH satellite facilities under the LTCH
PPS.
Fourth, through an interim final rule with comment period as part
of this document, we are implementing those provisions of the ARRA that
amended certain provisions of section 114 of the MMSEA relating to
payments to LTCHs and LTCH satellite facilities and increases in beds
in existing LTCHs and LTCH satellite facilities under the LTCH PPS.
DATES: Effective Dates: These final rules are effective on October 1,
2009, with the following exceptions:
The provisions of Sec. Sec. 412.534(c) through (e) and (h) and
412.536(a)(2) are effective for cost reporting periods beginning on or
after July 1, 2007, or October 1, 2007, as applicable. In accordance
with sections 1871(e)(1)(A)(i) and (ii) of the Social Security Act, the
Secretary has determined that retroactive application of the provisions
of Sec. Sec. 412.534(c) through (e) and (h) and 412.5536(a)(2) is
necessary to comply with the statute and that failure to apply the
changes retroactively would be contrary to public interest.
Comment Period: To be assured consideration, comments on the
interim final rule with comment period (CMS-1406-IFC) that appears as
section XI. of the preamble of this document must be received at one of
the addresses provided below, no later than 5 p.m. E.S.T. on October
26, 2009.
ADDRESSES: When commenting on issues presented in the interim final
rule with comment period, please refer to file code CMS-1406-IFC.
Because of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation at https://www.regulations.gov. Follow the instructions for
``Comment or Submission'' and enter the file code CMS-1406-IFC to
submit comments on this interim final rule.
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-1406-IFC, 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-1406-IFC, 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 either of the following addresses: a.
Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.) b. 7500
Security Boulevard, Baltimore, MD 21244-1850.
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.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
[[Page 43755]]
FOR FURTHER INFORMATION, CONTACT: Tzvi Hefter, (410) 786-4487, and Ing-
Jye Cheng, (410) 786-4548, Operating Prospective Payment, MS-DRGs, Wage
Index, New Medical Service and Technology Add-On Payments, Hospital
Geographic Reclassifications, Capital Prospective Payment, Excluded
Hospitals, Direct and Indirect Graduate Medical Education Payments,
Disproportionate Share Hospital (DSH), Critical Access Hospital (CAH),
EMTALA Hospital Emergency Services, and Hospital-within-Hospital
Issues.
Michele Hudson, (410) 786-4487, and Judith Richter, (410) 786-2590,
Long-Term Care Hospital Prospective Payment System and MS-LTC-DRG
Relative Weights for FYs 2009 and 2010 Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Program Issues.
James Poyer, (410) 786-2261, Quality Data for Annual Payment Update
Issues.
Lisa Grabert, (410) 786-6827, Hospital-Acquired Conditions.
SUPPLEMENTARY INFORMATION:
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.regulations.gov. Follow the search instructions at that Web site to
view public comments.
Comments received timely will also be available for public
inspection, 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.
Electronic Access
This Federal Register document is also available from the Federal
Register online database through GPO Access, a service of the U.S.
Government Printing Office. Free public access is available on a Wide
Area Information Server (WAIS) through the Internet and via
asynchronous dial-in. Internet users can access the database by using
the World Wide Web, (the Superintendent of Documents' home Web page
address is https://www.gpoaccess.gov/), by using local WAIS client
software, or by telnet to swais.access.gpo.gov, then login as guest (no
password required). Dial-in users should use communications software
and modem to call (202) 512-1661; type swais, then login as guest (no
password required).
Acronyms
3M 3M Health Information System
AAHKS American Association of Hip and Knee Surgeons
AAMC Association of American Medical Colleges
ACGME Accreditation Council for Graduate Medical Education
AHA American Hospital Association
AHIC American Health Information Community
AHIMA American Health Information Management Association
AHRQ Agency for Healthcare Research and Quality
ALOS Average length of stay
ALTHA Acute Long Term Hospital Association
AMA American Medical Association
AMGA American Medical Group Association
AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis Related Group System
ARRA American Recovery and Reinvestment Act of 2009, Public Law 111-
5
ASC Ambulatory surgical center
ASCA Administrative Simplification Compliance Act of 2002, Public
Law 107-105
ASITN American Society of Interventional and Therapeutic
Neuroradiology
BBA Balanced Budget Act of 1997, Public Law 105-33
BBRA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Balanced Budget Refinement Act of 1999, Public
Law 106-113
BIPA Medicare, Medicaid, and SCHIP [State Children's Health
Insurance Program] Benefits Improvement and Protection Act of 2000,
Public Law 106-554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment Record & Evaluation
[Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction Center
CDAD Clostridium difficile-associated disease
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid Services
CMSA Consolidated Metropolitan Statistical Area
COBRA Consolidated Omnibus Reconciliation Act of 1985, Public Law
99-272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CY Calendar year
DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public Law 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, Public Law
99-272
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FHA Federal Health Architecture
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
HACs Hospital-acquired conditions
HCAHPS Hospital Consumer Assessment of Healthcare Providers and
Systems
HCFA Health Care Financing Administration
HCO High-cost outlier
HCRIS Hospital Cost Report Information System
HHA Home health agency
HHS Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996,
Public Law 104-191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring Program
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
HwH Hospital-within-a-hospital
ICD-9-CM International Classification of Diseases, Ninth Revision,
Clinical Modification
ICD-10-CM International Classification of Diseases, Tenth Revision,
Clinical Modification
ICD-10-PCS International Classification of Diseases, Tenth Revision,
Procedure Coding System
ICR Information collection requirement
IHS Indian Health Service
IME Indirect medical education
I-O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient prospective payment system
IRF Inpatient rehabilitation facility
LAMCs Large area metropolitan counties
LOS Length of stay
LTC-DRG Long-term care diagnosis-related group
LTCH Long-term care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor
[[Page 43756]]
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, Public Law 109-432
MIPPA Medicare Improvements for Patients and Providers Act of 2008,
Public Law 110-275
MMA Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, Public Law 108-173
MMSEA Medicare, Medicaid, and SCHIP Extension Act of 2007, Public
Law 110-173
MPN Medicare provider number
MRHFP Medicare Rural Hospital Flexibility Program
MRSA Methicillin-resistant Staphylococcus aureus
MSA Metropolitan Statistical Area
MS-DRG Medicare severity diagnosis-related group
MS-LTC-DRG Medicare severity long-term care diagnosis-related group
NAICS North American Industrial Classification System
NALTH National Association of Long Term Hospitals
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
NTTAA National Technology Transfer and Advancement Act of 1991 (Pub.
L. 104-113)
NVHRI National Voluntary Hospital Reporting Initiative
OACT [CMS'] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation Act of 1996, Public Law 99-509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and Reporting [System]
PIP Periodic interim payment
PLI Professional liability insurance
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PSF Provider-Specific File
PS&R Provider Statistical and Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data for annual payment update
RNHCI Religious nonmedical health care institution
RPL Rehabilitation psychiatric long-term care (hospital)
RRC Rural referral center
RTI Research Triangle Institute, International
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
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal Responsibility Act of 1982, Public Law
97-248
TEP Technical expert panel
TMA TMA [Transitional Medical Assistance], Abstinence Education, and
QI [Qualifying Individuals] Programs Extension Act of 2007, Public
Law 110-90
TJA Total joint arthroplasty
UHDDS Uniform hospital discharge data set
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
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
4. Critical Access Hospitals (CAHs)
5. Payments for Graduate Medical Education (GME)
B. Provisions of the Medicare Improvements for Patients and
Providers Act of 2008 (MIPPA)
C. Provisions of the American Recovery and Reinvestment Act of
2009 (ARRA)
D. Issuance of a Notice of Proposed Rulemaking
1. Proposed Changes to MS-DRG Classifications and Recalibrations
of Relative Weights
2. Proposed Changes to the Hospital Wage Index for Acute Care
Hospitals
3. Proposed Rebasing and Revision of the Hospital Market Baskets
for Acute Care Hospitals
4. Other Decisions and Proposed Changes to the IPPS for
Operating Costs and GME Costs
5. FY 2010 Policy Governing the IPPS for Capital-Related Costs
6. Proposed Changes to the Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
7. Proposed Changes to the LTCH PPS
8. Determining Proposed Prospective Payment Operating and
Capital Rates and Rate-of-Increase Limits for Acute Care Hospitals
9. Determining Proposed Prospective Payments Rates for LTCHs
10. Impact Analysis
11. Recommendation of Update Factors for Operating Cost Rates of
Payment for Hospital Inpatient Services
12. Discussion of Medicare Payment Advisory Commission
Recommendations
E. Finalization of an Interim Final Rule With Comment Period
That Revised the MS-LTC-DRG Relative Weights for FY 2009 (for June
3, 2009 Through September 30, 2009)
F. Finalization of Two LTCH PPS Interim Final Rules With Comment
Period Issued in May 2008
G. Interim Final Rule With Comment Period That Implements
Certain Provisions of the ARRA Relating to Payments to LTCHs and
LTCH Satellite Facilities
II. Changes to Medicare Severity Diagnosis-Related Group (MS-DRG)
Classifications and Relative Weights
A. Background
B. MS-DRG Reclassifications
1. General
2. Yearly Review for Making MS-DRG Changes
C. Adoption of the MS-DRGs in FY 2008
D. FY 2010 MS-DRG Documentation and Coding Adjustment, Including
the Applicability to the Hospital-Specific Rates and the Puerto
Rico-Specific Standardized Amount
1. Background on the Prospective MS-DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009 Authorized by Public Law 110-90
2. Prospective Adjustment to the Average Standardized Amounts
Required by Section 7(b)(1)(A) of Public Law 110-90
3. Recoupment or Repayment Adjustments in FYs 2010 Through 2012
Required by Public Law 110-90
4. Retrospective Evaluation of FY 2008 Claims Data
5. Adjustments for FY 2010 and Subsequent Years Authorized by
Section 7(b)(1)(A) of Public Law 110-90 and Section 1886(d)(3)(vi)
of the Act
6. Additional Adjustment for FY 2010 Authorized by Section
7(b)(1)(B) of Public Law 110-90
7. Background on the Application of the Documentation and Coding
Adjustment to the Hospital-Specific Rates
8. Documentation and Coding Adjustment to the Hospital-Specific
Rates for FY 2010 and Subsequent Years
9. Background on the Application of the Documentation and Coding
Adjustment to the Puerto Rico-Specific Standardized Amount
10. Documentation and Coding Adjustment to the Puerto Rico-
Specific Standardized Amount
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
a. Summary of the RTI Study of Charge Compression and CCR
Refinement
b. Summary of the Rand Corporation Study of Alternative Relative
Weight Methodologies
[[Page 43757]]
2. Summary of FY 2009 Changes and Discussion for FY 2010
3. Timeline for Revising the Medicare Cost Report
F. Preventable Hospital-Acquired Conditions (HACs), Including
Infections
1. Statutory Authority
2. HAC Selection Process
3. Collaborative Process
4. Selected HAC Categories
5. Public Input Regarding Selected and Potential Candidate HACs
6. POA Indicator Reporting
7. Additional Considerations Addressing the HAC and POA Payment
Provision
G. Changes to Specific MS-DRG Classifications
1. MDC 5 (Diseases and Disorders of the Circulatory System):
Intraoperative Fluorescence Vascular Angiography (IFVA)
2. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue): Infected Hip and Knee Replacements
3. Medicare Code Editor (MCE) Changes
a. Diagnoses Allowed for Males Only Edit
b. Manifestation Codes as Principal Diagnosis Edit
c. Invalid Diagnosis or Procedure Code
d. Unacceptable Principal Diagnosis
e. Creation of New Edit Titled ``Wrong Procedure Performed''
f. Procedures Allowed for Females Only Edit
4. Surgical Hierarchies
5. Complication or Comorbidity (CC) Exclusions List
a. Background
b. CC Exclusions List for FY 2010
6. Review of Procedure Codes in MS-DRGs 981 Through 983, 984
Through 986, and 987 Through 989
a. Moving Procedure Codes From MS-DRGs 981 Through 983 or MS-
DRGs 987 Through 989 to MDCs
b. Reassignment of Procedures Among MS-DRGs 981 Through 983, 984
Through 986, and 987 Through 989
c. Adding Diagnosis or Procedure Codes to MDCs
7. Changes to the ICD-9-CM Coding System
8. Other Issues Not Addressed in the Proposed Rule
a. Administration of Tissue Plasminogen Activator (tPA) (rtPA)
b. Coronary Artery Bypass Graft (CABG) With Intraoperative
Angiography
c. Insertion of Gastrointestinal Stent
H. Recalibration of MS-DRG Weights
I. Add-On Payments for New Services and Technologies
1. Background
2. Public Input Before Publication of a Notice of Proposed
Rulemaking on Add-On Payments
3. FY 2010 Status of Technologies Approved for FY 2009 Add-On
Payments
4. FY 2010 Applications for New Technology Add-On Payments
a. The AutoLITT TM System
b. CLOLAR[supreg] (clofarabine) Injection
c. LipiScanTM Coronary Imaging System
d. Spiration[supreg] IBV[supreg] Valve System
e. TherOx Downstream[supreg] System
5. Technical Correction
III. Changes to the Hospital Wage Index for Acute Care Hospitals
A. Background
B. Requirements of Section 106 of the MIEA-TRHCA
1. Wage Index Study Required Under the MIEA-TRHCA
a. Legislative Requirement
b. Interim and Final Reports on Results of Acumen's Study
2. FY 2009 Policy Changes in Response to Requirements Under
Section 106(b) of the MIEA-TRHCA
a. Reclassification Average Hourly Wage Comparison Criteria
b. Within-State Budget Neutrality Adjustment for the Rural and
Imputed Floors
C. Core-Based Statistical Areas for the Hospital Wage Index
D. Occupational Mix Adjustment to the FY 2010 Wage Index
1. Development of Data for the FY 2010 Occupational Mix
Adjustment Based on the 2007-2008 Occupational Mix Survey
2. Calculation of the Occupational Mix Adjustment for FY 2010
E. Worksheet S-3 Wage Data for the FY 2010 Wage Index
1. Included Categories of Costs
2. Excluded Categories of Costs
3. Use of Wage Index Data by Providers Other Than Acute Care
Hospitals Under the IPPS
F. Verification of Worksheet S-3 Wage Data
G. Method for Computing the FY 2010 Unadjusted Wage Index
H. Analysis and Implementation of the Occupational Mix
Adjustment and the FY 2010 Occupational Mix Adjusted Wage Index
I. Revisions to the Wage Index Based on Hospital Redesignations
1. General
2. Effects of Reclassification/Redesignation
3. FY 2010 MGCRB Reclassifications
4. Redesignations of Hospitals Under Section 1886(d)(8)(B) of
the Act
5. Reclassifications Under Section 1886(d)(8)(B) of the Act
6. Reclassifications Under Section 508 of Public Law 108-173
J. FY 2010 Wage Index Adjustment Based on Commuting Patterns of
Hospital Employees
K. Process for Requests for Wage Index Data Corrections
IV. Rebasing and Revision of the Hospital Market Baskets for Acute
Care Hospitals
A. Background
B. Rebasing and Revising the IPPS Market Basket
1. Development of Cost Categories and Weights
a. Medicare Cost Reports
b. Other Data Sources
2. Final Cost Category Computation
3. Selection of Price Proxies
a. Wages and Salaries
b. Employment Benefits
c. Fuel, Oil, and Gasoline
d. Electricity
e. Water and Sewage
f. Professional Liability Insurance
g. Pharmaceuticals
h. Food: Direct Purchase
i. Food: Contract Services
j. Chemicals
k. Blood and Blood Products
l. Medical Instruments
m. Photographic Supplies
n. Rubber and Plastics
o. Paper and Printing Products
p. Apparel
q. Machinery and Equipment
r. Miscellaneous Products
s. Professional Fees: Labor-Related
t. Administrative and Business Support Services
u. All Other: Labor-Related Services
v. Professional Fees: Nonlabor-Related
w. Financial Services
x. Telephone Services
y. Postage
z. All Other: Nonlabor-Related Services
4. Labor-Related Share
C. Separate Market Basket for Certain Hospitals Presently
Excluded From the IPPS
D. Rebasing and Revising the Capital Input Price Index (CIPI)
V. Other Decisions and Changes to the IPPS for Operating Costs and
GME Costs
A. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
1. Background
a. Overview
b. Hospital Quality Data Reporting Under Section 501(b) of
Public Law 108-173
c. Hospital Quality Data Reporting Under Section 5001(a) of
Public Law 109-171
2. Retirement of RHQDAPU Program Measures
3. Quality Measures for the FY 2011 Payment Determination and
Subsequent Years
a. Considerations in Expanding and Updating Quality Measures
Under the RHQDAPU Program
b. RHQDAPU Program Quality Measures for the FY 2011 Payment
Determination
4. Possible New Quality Measures for the FY 2012 Payment
Determination and Subsequent Years
5. Form, Manner, and Timing of Quality Data Submission
a. RHQDAPU Program Procedures for the FY 2011 Payment
Determination
b. RHQDAPU Program Disaster Extensions and Waivers
c. HACHPS Requirements for the FY 2011 Payment Determination
6. Chart Validation Requirements
a. Chart Validation Requirements and Methods for the FY 2011
Payment Determination
b. Chart Validation Requirements and Methods for the FY 2012
Payment Determination and Subsequent Years
c. Possible Supplements to the Chart Validation Process for the
FY 2013 Payment Determination and Subsequent Years
7. Data Accuracy and Completeness Acknowledgement Requirements
for the FY 2011 Payment Determination and Subsequent Years
8. Public Display Requirements for the FY 2011 Payment
Determination and Subsequent Years
[[Page 43758]]
9. Reconsideration and Appeal Procedures for the FY 2010 Payment
Determination
10. RHQDAPU Program Withdrawal Deadlines
11. Electronic Health Records
a. Background
b. EHR Testing of Quality Measures Submission
c. HITECH Act EHR Provisions
B. Medicare-Dependent, Small Rural Hospitals (MDHs): Budget
Neutrality Adjustment Factors for FY 2002-Based Hospital-Specific
Rate
1. Background
2. FY 2002-Based Hospital-Specific Rate
C. Rural Referral Centers (RRCs)
1. Case-Mix Index
2. Discharges
D. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2010
3. IME-Related Changes in Other Sections of this Final Rule
E. Payment Adjustment for Medicare Disproportionate Share
Hospitals (DSHs)
1. Background
2. Policy Change Relating to the Inclusion of Labor and Delivery
Patient Days in the Medicare DSH Calculation
a. Background
b. Proposed and Final Policy Change
3. Policy Change Relating to Calculation of Inpatient Days in
the Medicaid Fraction in the Medicare DSH Calculation
a. Background
b. Proposed and Final Policy Change
4. Policy Change Relating to the Exclusion of Observation Beds
and Patient Days from the Medicare DSH Calculation
a. Background
b. Proposed and Final Policy Change
5. Public Comments Received Out of the Scope of the Proposed
Rule
F. Technical Correction to Regulations on Payments for
Anesthesia Services Furnished by Hospital or CAH Employed
Nonphysician Anesthetists or Obtained Under Arrangements
G. Payments for Direct Graduate Medical Education (GME) Costs
1. Background
2. Clarification of Definition of New Medical Residency Training
Program
3. Participation of New Teaching Hospitals in Medicare GME
Affiliated Groups
4. Technical Corrections to Regulations
H. Hospital Emergency Services Under EMTALA
1. Background
2. Changes Relating to Applicability of Sanctions Under EMTALA
I. Rural Community Hospital Demonstration Program
J. Technical Correction to Regulations Relating to Calculation
of the Federal Rate Under the IPPS
VI. Changes to the IPPS for Capital-Related Costs
A. Overview
B. Exception Payments
C. New Hospitals
D. Hospitals Located in Puerto Rico
E. Proposed and Final Changes
1. FY 2010 MS-DRG Documentation and Coding Adjustment
a. Background on the Prospective MS-DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009
b. Prospective MS-DRG Documentation and Coding Adjustment to the
National Capital Federal Rate for FY 2010 and Subsequent Years
c. Documentation and Coding Adjustment to the Puerto Rico-
Specific Capital Rate
2. Revision to the FY 2009 IME Adjustment Factor
3. Other Changes for FY 2010
VII. Changes for Hospitals Excluded From the IPPS
A. Excluded Hospitals
B. Criteria for Satellite Facilities of Hospitals
C. Critical Access Hospitals (CAHs)
1. Background
2. Payment for Clinical Diagnostic Laboratory Tests Furnished by
CAHs
3. CAH Optional Method of Payment for Outpatient Services
4. Continued Participation by CAHs in Counties Redesignated as
Urban
D. Provider-Based Status of Facilities and Organizations: Policy
Changes
1. Background
2. Changes to the Scope of the Provider-Based Status Regulations
for CAHs
a. CAH-Based Clinical Diagnostic Laboratory Facilities
b. CAH-Based Ambulance Services
3. Technical Correction to Regulations
E. Report of Adjustment (Exceptions) Payments
VIII. Changes to the Long-Term Care Hospital Prospective Payment
System (LTCH PPS) for RY 2010
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
b. Hospitals Excluded From the LTCH PPS
3. Limitation on Charges to Beneficiaries
4. Administrative Simplification Compliance Act (ASCA) and
Health Insurance Portability and Accountability Act (HIPAA)
Compliance
B. Medicare Severity Long-Term Care Diagnosis-Related Group (MS-
LTC-DRG) Classifications and Relative Weights
1. Background
2. Patient Classifications Into MS-LTC-DRGs
a. Background
b. Changes to the MS-LTC-DRGs for RY 2010
3. Development of the RY 2010 MS-LTC-DRG Relative Weights
a. General Overview of the Development of the MS-LTC-DRG
Relative Weights
b. Data
c. Hospital-Specific Relative Value (HSRV) Methodology
d. Treatment of Severity Levels in Developing the MS-LTC-DRG
Relative Weights
e. Low-Volume MS-LTC-DRGs
f. Steps for Determining the RY 2010 MS-LTC-DRG Relative Weights
C. Changes to the LTCH Payment Rates and Other Changes to the RY
2010 LTCH PPS
1. Overview of Development of the LTCH Payment Rates
2. Market Basket for LTCHs Reimbursed Under the LTCH PPS
a. Overview
b. Market Basket Under the LTCH PPS for RY 2010
c. Market Basket Update for LTCHs for RY 2010
d. Labor-Related Share Under the LTCH PPS for RY 2010
3. Adjustment for Changes in LTCHs' Case-Mix Due to Changes in
Documentation and Coding Practices That Occurred in a Prior Period
a. Background
b. Evaluation of FY 2007 Claims Data
c. Evaluation of FY 2008 Claims Data
d. RY 2010 Documentation and Coding Adjustment
D. Technical Corrections of LTCH PPS Regulations
IX. Revisions to the FY 2009 Medicare Severity Long-Term Care
Diagnosis-Related Group (MS-LTC-DRG) Relative Weights: Finalization
of an Interim Final Rule With Comment Period
A. Overview
B. Changes to the FY 2009 MS-LTC-DRG Relative Weights
C. Summary of Public Comments Received on the June 3, 2009
Interim Final Rule With Comment Period and Our Responses
D. Finalization of the June 3, 2009 Interim Final Rule With
Comment Period
E. Regulatory Impact Analysis for the June 3, 2009 Interim Final
Rule With Comment Period
X. Finalization of Two Interim Final Rules With Comment Period That
Implemented Certain Provisions of Section 114 of the Medicare,
Medicaid, and SCHIP Extension Act of 2007 (Pub. L. 110-173) Relating
to Payments to LTCHs and LTCH Satellite Facilities
A. Background
B. May 6, 2008 Interim Final Rule With Comment Period Provisions
Implementing Section 114(c)(3) of the MMSEA Regarding Certain Short-
Stay Outlier Cases
1. Background
2. Public Comments Received on the May 6, 2008 Interim Final
Rule With Comment Period Provisions Implementing Section 114(c)(3)
of the MMSEA
C. May 6, 2008 Interim Final Rule With Comment Period Provisions
Implementing Sections 114(e)(1) and (e)(2) of the MMSEA Regarding
the Standard Federal Rate for the 2008 LTCH PPS Rate Year
1. Background
2. Public Comments Received on the May 6, 2008 Interim Final
Rule With Comment Period Provisions Implementing Sections 114(e)(1)
and (e)(2) of the MMSEA
D. May 22, 2008 Interim Final Rule With Comment Period Provision
Implementing Sections 114(c)(1) and (c)(2) of the MMSEA Regarding
Payment Adjustment to LTCHs and LTCH Satellite Facilities
1. Background
[[Page 43759]]
2. Payment Adjustment to LTCHs and LTCH Satellite Facilities
Specified by Section 114(c) of the MMSEA
3. Public Comments Received on the May 22, 2008 Interim Final
Rule With Comment Period Implementing Section 114(c)(1) and (c)(2)
of the MMSEA Regarding Payment Adjustment to LTCHs and LTCH
Satellite Facilities
E. May 22, 2008 Interim Final Rule With Comment Period
Provisions Implementing Section 114(b) of the MMSEA Regarding
Moratorium on the Establishment of LTCHs, LTCH Satellite Facilities
and on the Increase in Number of Beds in Existing LTCHs or LTCH
Satellite Facilities
1. Background
2. Provisions of the May 22, 2008 Interim Final Rule With
Comment Period Implementing Section 114(d) of the MMSEA That
Established Moratoria on New LTCHs and LTCH Satellite Facilities and
on Bed Increases in Existing LTCHs and LTCH Satellite Facilities
3. Public Comments Received on the on the May 22, 2008 Interim
Final Rule With Comment Period Provisions Implementing the Exception
to the Moratorium on the Increase in Number of LTCHs Beds in
Existing LTCHs and LTCH Satellite Facilities
XI. Interim Final Rule with Comment Period Implementing Section 4302
of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-
5) Relating to Payments to LTCHs and LTCH Satellite Facilities
A. Background
B. Amendments Relating to Payment Adjustment to LTCHs and LTCH
Satellite Facilities Made by Section 4302 of the ARRA
C. Amendments to the Moratorium on the Increase in Number of
Beds in Existing LTCHs or LTCH Satellite Facilities Made by Section
4302 of the ARRA
D. Response to Comments
E. Waiver of Proposed Rulemaking
F. Collection of Information Requirements
G. Regulatory Impact Analysis
XII. MedPAC Recommendations
XIII. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
C. Additional Information Collection Requirements
1. Present on Admission (POA) Indicator Reporting
2. Add-On Payments for New Services and Technologies
3. Reporting of Hospital Quality Data for Annual Hospital
Payment Update
4. Occupational Mix Adjustment to the FY 2010 Index (Hospital
Wage Index Occupational Mix Survey)
5. Hospital Applications for Geographic Reclassifications by the
MGCRB
Regulation Text
Addendum--Schedule of Standardized Amounts, Update Factors, and Rate-
of-Increase Percentages Effective With Cost Reporting Periods Beginning
on or after October 1, 2009
I. Summary and Background
II. Changes to the Prospective Payment Rates for Hospital Inpatient
Operating Costs for Acute Care Hospitals for FY 2010
A. Calculation of the Adjusted Standardized Amount
B. Adjustments for Area Wage Levels and Cost-of-Living
C. MS-DRG Relative Weights
D. Calculation of the Prospective Payment Rates
III. Changes to Payment Rates for Acute Care Hospital Inpatient
Capital-Related Costs for FY 2010
A. Determination of Federal Hospital Inpatient Capital-Related
Prospective Payment Rate Update
B. Calculation of the Inpatient Capital-Related Prospective
Payments for FY 2010
C. Capital Input Price Index
IV. Changes to Payment Rates for Certain Excluded Hospitals: Rate-
of-Increase Percentages
V. Changes to the Payment Rates for the LTCH PPS for RY 2010
A. LTCH PPS Standard Federal Rate for RY 2010
B. Adjustment for Area Wage Levels Under the LTCH PPS for RY
2010
C. Adjustment for LTCH PPS High-Cost Outlier (HCO) Cases
D. Computing the Adjusted LTCH PPS Federal Prospective Payments
for RY 2010
VI. Tables
Table 1A.--National Adjusted Operating Standardized Amounts,
Labor/Nonlabor (68.8 Percent Labor Share/31.2 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 1E.--LTCH Standard Federal Prospective Payment Rate
Table 2.--Acute Care Hospitals Case-Mix Indexes for Discharges
Occurring in Federal Fiscal Year 2008; Hospital Wage Indexes for
Federal Fiscal Year 2010; Hospital Average Hourly Wages for Federal
Fiscal Years 2008 (2004 Wage Data), 2009 (2005 Wage Data), and 2010
(2006 Wage Data); and 3-Year Average of Hospital Average Hourly
Wages
Table 3A.--FY 2010 and 3-Year Average Hourly Wage for Acute Care
Hospitals in Urban Areas by CBSA
Table 3B.--FY 2010 and 3-Year Average Hourly Wage for Acute Care
Hospitals in Rural Areas by CBSA
Table 4A.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals in Urban Areas by CBSA and by State--
FY 2010
Table 4B.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals in Rural Areas by CBSA and by State--
FY 2010
Table 4C.--Wage Index and Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals That Are Reclassified by CBSA and by
State--FY 2010
Table 4D-1.--Rural Floor Budget Neutrality Factors for Acute
Care Hospitals--FY 2010
Table 4D-2.--Urban Areas With Acute Care Hospitals Receiving the
Statewide Rural Floor or Imputed Floor Wage Index--FY 2010
Table 4E.--Urban CBSAs and Constituent Counties for Acute Care
Hospitals--FY 2010
Table 4F.--Puerto Rico Wage Index and Capital Geographic
Adjustment Factor (GAF) for Acute Care Hospitals by CBSA--FY 2010
Table 4J.--Out-Migration Adjustment for Acute Care Hospitals--FY
2010
Table 5.--List of Medicare Severity Diagnosis-Related Groups
(MS-DRGs), Relative Weighting Factors, and Geometric and Arithmetic
Mean Length of Stay--FY 2010
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 Exclusions List (Available
Through the Internet on the CMS Web site at: https://www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6H.--Deletions from the CC Exclusions List (Available
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: http:/www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6J.--Major Complication and Comorbidity (MCC) List
(Available through the Internet on the CMS Web site at: https://www.cms.hhs.gov/AcuteInpatientPPS/)
Table 6K.--Complication and Comorbidity (CC) List (Available
through the Internet on the CMS Web site at: https://www.cms.hhs.gov/AcuteInpatientPPS/)
Table 7A.--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2008 MedPAR Update--March 2009
GROUPER V26.0 MS-DRGs
Table 7B.--Medicare Prospective Payment System Selected
Percentile Lengths of Stay: FY 2008 MedPAR Update--March 2009
GROUPER V27.0 MS-DRGs
Table 8A.--Statewide Average Operating Cost-to-Charge Ratios
(CCRs) for Acute Care Hospitals--July 2009
Table 8B.--Statewide Average Capital Cost-to-Charge Ratios
(CCRs) for Acute Care Hospitals--July 2009
[[Page 43760]]
Table 8C.--Statewide Average Total Cost-to-Charge Ratios (CCRs)
for LTCHs--July 2009
Table 9A.--Hospital Reclassifications and Redesignations--FY
2010
Table 9C.--Hospitals Redesignated as Rural Under Section
1886(d)(8)(E) of the Act--FY 2010
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 Medicare Severity Diagnosis-Related
Groups (MS-DRGs)--July 2009
Table 11.--MS-LTC-DRGs, Relative Weights, Geometric Average
Length of Stay, and Short-Stay Outlier Threshold for Discharges
Occurring From October 1, 2009 Through September 30, 2010 under the
LTCH PPS
Table 12A.--LTCH PPS Wage Index for Urban Areas for Discharges
Occurring From October 1, 2009 Through September 30, 2010
Table 12B.--LTCH PPS Wage Index for Rural Ares for Discharges
Occurring From October 1, 2009 Through September 30, 2010
Appendix A--Regulatory Impact Analysis
I. Overall Impact
II. Objectives of the IPPS
III. Limitations of Our Analysis
IV. Hospitals Included in and Excluded From the IPPS
V. Effects on Hospitals Excluded From the IPPS
VI. Quantitative Effects of the Policy Changes Under the IPPS for
Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Effects of the Changes to the MS-DRG Reclassifications and
Relative Cost-Based Weights (Column 1)
D. Effects of the Application of Recalibration Budget Neutrality
(Column 2)
E. Effects of Wage Index Changes (Column 3)
F. Application of the Wage Budget Neutrality Factor (Column 4)
G. Combined Effects of MS-DRG and Wage Index Changes (Column 5)
H. Effects of MGCRB Reclassifications (Column 6)
I. Effects of the Rural Floor and Imputed Floor, Including the
Transition to Apply Budget Neutrality at the State Level (Column 7)
J. Effects of the Wage Index Adjustment for Out-Migration
(Column 8)
K. Effects of All Changes (Column 9)
L. Effects of Policy on Payment Adjustments for Low-Volume
Hospitals
M. Impact Analysis of Table II
VII. Effects of Other Policy Changes
A. Effects of Policy on HACs, Including Infections
B. Effects of Policy Changes Relating to New Medical Service and
Technology Add-On Payments
C. Effects of Requirements for Hospital Reporting of Quality
Data for Annual Hospital Payment Update
D. Effects of Correcting the FY 2002-Based Hospital-Specific
Rates for MDHs
E. Effects of Policy Changes Relating to the Payment Adjustment
to Disproportionate Share Hospitals
F. Effects of Policy Revisions Related to Payments to Hospitals
for Direct GME
G. Effects of Policy Changes Relating to Hospital Emergency
Services under EMTALA
H. Effects of Implementation of Rural Community Hospital
Demonstration Program
I. Effects of Policy Changes Relating to Payments to Satellite
Facilities
J. Effects of Policy Changes Relating to Payments to CAHs
K. Effects of Policy Changes Relating to Provider-Based Status
of Facilities and Organizations
VIII. Effects of Changes in the Capital IPPS
A. General Considerations
B. Results
IX. Effects of Payment Rate Changes and Policy Changes Under the
LTCH PPS
A. Introduction and General Considerations
B. Impact on Rural Hospitals
C. Anticipated Effects of LTCH PPS Payment Rate Change and
Policy Changes
D. Effect on the Medicare Program
E. Effect on Medicare Beneficiaries
X. Alternatives Considered
XI. Overall Conclusion
A. Acute Care Hospitals
B. LTCHs
XII. Accounting Statements
A. Acute Care Hospitals
B. LTCHs
XIII. 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 2010
III. Secretary's Final 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 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
labor-related share is adjusted by the wage index applicable to the
area where the hospital is located. 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 eligible outlier payment 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 in whole or in part based on their hospital-specific rate based on
their costs in a base year. For example, sole community hospitals
(SCHs) receive the higher of a hospital-specific rate based on their
costs in a base year (the highest of FY 1982, FY 1987, FY 1996, or FY
2006) or the IPPS Federal rate based on the
[[Page 43761]]
standardized amount. Through and including FY 2006, a Medicare-
dependent, small rural hospital (MDH) received the higher of the
Federal rate or the Federal rate plus 50 percent of the amount by which
the Federal rate is exceeded by the higher of its FY 1982 or FY 1987
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 higher of the Federal rate or the Federal rate plus 75
percent of the amount by which the Federal rate is exceeded by the
highest of its FY 1982, FY 1987, or FY 2002 hospital-specific rate.
SCHs are the sole source of care in their areas, and MDHs are a major
source of care for Medicare beneficiaries in their areas. Specifically,
section 1886(d)(5)(D)(iii) of the Act defines an SCH as a hospital that
is located more than 35 road miles from another hospital or that, by
reason of factors such as isolated location, weather conditions, travel
conditions, or absence of other like hospitals (as determined by the
Secretary), is the sole source of hospital inpatient services
reasonably available to Medicare beneficiaries. In addition, certain
rural hospitals previously designated by the Secretary as essential
access community hospitals are considered SCHs. Section
1886(d)(5)(G)(iv) of the Act defines an MDH as a hospital that is
located in a rural area, has not more than 100 beds, is not an SCH, and
has a high percentage of Medicare discharges (not less than 60 percent
of its inpatient days or discharges in its cost reporting year
beginning in FY 1987 or in two of its three most recently settled
Medicare cost reporting years). Both of these categories of hospitals
are afforded this special payment protection in order to maintain
access to services for beneficiaries.
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
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 (BBA, Pub. L. 105-33), the Medicare,
Medicaid and SCHIP [State Children's Health Insurance Program] Balanced
Budget Refinement Act of 1999 (BBRA, Pub. L. 106-113), and the
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act
of 2000 (BIPA, Pub. L. 106-554) provide for 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)). (We
note that the annual updates to the LTCH PPS are now included as part
of the IPPS annual update document (for RY 2010, in this final rule).
Updates to the IRF PPS and IPF PPS are issued as separate documents.)
Children's hospitals, cancer hospitals, and RNHCIs continue to be paid
solely under a reasonable cost-based system subject to a rate-of-
increase ceiling on inpatient operating costs per discharge.
The existing regulations governing payments to excluded hospitals
and hospital units are located in 42 CFR parts 412 and 413.
3. Long-Term Care Hospital Prospective Payment System (LTCH PPS)
The Medicare prospective payment system (PPS) for LTCHs applies to
hospitals described in section 1886(d)(1)(B)(iv) effective for cost
reporting periods beginning on or after October 1, 2002. The LTCH PPS
was established under the authority of sections 123(a) and (c) of
Public Law 106-113 and section 307(b)(1) of Public Law 106-554. During
the 5-year (optional) transition period, a LTCH's payment under the PPS
was based on an increasing proportion of the LTCH Federal rate with a
corresponding decreasing proportion based on reasonable cost
principles. Effective 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. Beginning with RY 2010, we are
issuing the annual updates to the LTCH PPS in the same documents that
update the IPPS (73 FR 26797 through 26798).
4. Critical Access Hospitals (CAHs)
Under sections 1814(l), 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 are generally 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.
5. 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 Medicare Improvements for Patients and Providers
Act of 2008 (MIPPA)
Section 148 of the MIPPA (Pub. L. 110-275) changes the payment
rules regarding outpatient clinical diagnostic laboratory tests
furnished by a CAH. The statutory change applies to services furnished
on or after July 1, 2009. In section VII.C.2. of the preamble of the
proposed rule, we discussed our proposal to codify policies in the
Medicare regulations to implement this provision. In section VII.C.2.
of this final rule, we finalize our policies in the Medicare
regulations to implement this provision.
C. Provisions of the American Recovery and Reinvestment Act of 2009
(ARRA)
Section 4301(b) of the American Recovery and Reinvestment Act of
2009 (AARA), Pub. Law 111-5, enacted on February 17, 2009, requires
that the phase-out of the capital IPPS teaching adjustment at Sec.
412.322(c) (that is, the 50-percent reduction for FY 2009) shall be
applied, as if such paragraph had not been in effect. That is,
discharges occurring on or after October 1, 2008,
[[Page 43762]]
through September 30, 2009, receive the full capital IPPS teaching
adjustment as determined under Sec. 412.322(b) of the regulations. We
note that, in this final rule, in response to public comments on our
proposed implementation of section 4301(b) of the ARRA, we are deleting
Sec. 412.322(d) of the existing regulations which currently eliminates
the teaching adjustment beginning in FY 2010. We discuss the
implementation of these provisions in sections VI.A. and E.2. of the
preamble of this final rule.
Section 4302 of the ARRA included several amendments to provisions
of section 114 of the MMSEA relating to: (1) The 3-year delay in the
application of certain provisions of the payment adjustments for short-
stay outliers and revision to the RY 2008 standard Federal rate for
LTCHs; and (2) the 3-year moratorium on the establishment of new LTCHs
and LTCH satellite facilities and on increases in beds in existing
LTCHs and LTCH satellite facilities. We discuss the final
implementation of these provisions in sections I.E., VIII., and XI. of
the preamble of this final rule.
D. Issuance of a Notice of Proposed Rulemaking
On May 22, 2009, we published in the Federal Register (74 FR 24080)
a proposed rule that set forth proposed changes to the Medicare IPPS
for operating costs and for capital-related costs of acute care
hospitals in FY 2010. We also set 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. In addition, we set forth proposed changes to the payment rates,
factors, and other payment rate policies under the LTCH PPS for RY
2010. On June 3, 2009, we published in the Federal Register (74 FR
26600) a supplemental proposed rule (hereafter referred to as the ``RY
2010 LTCH PPS supplemental proposed rule'') that presented both
proposed RY 2010 MS-LTC-DRG relative weights and a proposed RY 2010
high-cost outlier (HCO) fixed-loss amount based on the revised FY 2009
MS-LTC-DRG relative weights presented in an interim final rule with
comment period published also on June 3, 2009 in the Federal Register
(74 FR 26546).
Below is a summary of the major changes that we proposed to make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of
Relative Weights
In section II. of the preamble of this final rule, we included--
Proposed changes to MS-DRG classifications based on our
yearly review.
Proposed application of the documentation and coding
adjustment to hospital-specific rates for FY 2010 resulting from
implementation of the MS-DRG system.
A discussion of the Research Triangle International, Inc.
(RTI) and RAND Corporation reports and recommendations relating to
charge compression, including a solicitation of public comments on the
``over'' standardization of hospital charges.
Proposed recalibrations of the MS-DRG relative weights.
We also presented a listing and discussion of hospital-acquired
conditions (HACs), including infections, that are subject to the
statutorily required quality adjustment in MS-DRG payments for FY 2010.
We presented our evaluation and analysis of the FY 2010 applicants
for add-on payments for high-cost new medical services and technologies
(including public input, as directed by Pub. L. 108-173, obtained in a
town hall meeting).
2. Proposed Changes to the Hospital Wage Index for Acute Care Hospitals
In section III. of the preamble to the proposed rule, we proposed
revisions to the wage index for acute care hospitals and the annual
update of the wage data. Specific issues addressed include the
following:
Second year of the 3-year transition from national to
within-State budget neutrality for the rural floor and imputed floor.
Final year of the 2-year transition for changes in the
average hourly wage criterion for geographic reclassifications.
Changes to the CBSA designations.
The proposed FY 2010 wage index update using wage data
from cost reporting periods that began during FY 2007.
Analysis and implementation of the proposed FY 2010
occupational mix adjustment to the wage index for acute care hospitals,
including the use of data from the 2007-2008 occupational mix survey.
Proposed revisions to the wage index for acute care
hospitals based on hospital redesignations and reclassifications.
The proposed adjustment to the wage index for acute care
hospitals for FY 2010 based on commuting patterns of hospital employees
who reside in a county and work in a different area with a higher wage
index.
The timetable for reviewing and verifying the wage data
used to compute the proposed FY 2010 wage index for acute care
hospitals.
3. Proposed Rebasing and Revision of the Hospital Market Baskets for
Acute Care Hospitals
In section IV. of the preamble of the proposed rule, we proposed to
rebase and revise the acute care hospital operating and capital market
baskets to be used in developing the FY 2010 update factor for the
operating and capital prospective payment rates and the FY 2010 update
factor for the excluded hospital rate-of-increase limits. We also set
forth the data sources used to determine the proposed revised market
basket relative weights.
4. Other Decisions and Proposed Changes to the IPPS for Operating Costs
and GME Costs
In section V. of the preamble of the proposed rule, we discussed a
number of the provisions of the regulations in 42 CFR parts 412, 413,
and 489, including the following:
The reporting of hospital quality data as a condition for
receiving the full annual payment update increase.
Discussion of applying the correct budget neutrality
adjustment for the FY 2002-based hospital-specific rates for MDHs.
The proposed updated national and regional case-mix values
and discharges for purposes of determining RRC status.
The statutorily-required IME adjustment factor for FY
2010.
Proposed changes to the policies governing payments to
Medicare disproportionate share hospitals, including proposed policies
relating to the inclusion of labor and delivery patient days in the
calculation of the DSH payment adjustment, calculation of inpatient
days in the Medicaid fractio